
			43Page
Condensed Consolidated Balance Sheets (Unaudited)			2
~~ITEM 1.~~Condensed Consolidated Statements of Operations (Unaudited)			~~LEGAL PROCEEDINGS~~3	42
~~ITEM 1A.~~Condensed Consolidated Statements of Cash Flows (Unaudited)			~~RISK FACTORS~~4	42
~~ITEM 2.~~Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) (Unaudited)			~~UNREGISTERED SALES OF EQUITY SECURITIES~~6	42
~~ITEM 3.~~Notes to Condensed Consolidated Financial Statements (Unaudited)			~~DEFAULTS UPON SENIOR SECURITIES~~7	42
~~ITEM 4.~~	~~MINE SAFETY DISCLOSURES~~	42
~~ITEM 5.~~	~~OTHER INFORMATION~~	42
~~ITEM 6.~~	~~EXHIBITS~~	42

~~SIGNATURES~~		43

~~PART I~~–~~FINANCIAL INFORMATION~~

~~ITEM 1. INTERIM FINANCIAL STATEMENTS~~

HARBOR CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES

D/B/A HARBOR CUSTOM HOMES

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2021 December 31, 2020
(unaudited)
ASSETS

Real Estate $ 105,463,700 $ 20,370,300
Property, Plant and Equipment, net 9,132,900 8,176,000
Right of Use Assets 788,400 873,800
Cash 4,787,700 2,396,500
Restricted Cash 597,600 -
Prepaid Expense 2,248,100 1,658,000
Accounts Receivable, net 104,800 78,200
Contract Assets, net 4,762,400 -
Deferred Offering Costs 133,400 65,100
TOTAL ASSETS $ 128,019,000 $ 33,617,900

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES

Construction Loans, net of Debt Discount of $878,600 and $502,400 respectively $ 38,682,100 $ 9,590,100
Construction Loans - Related Parties, net of Debt Discount of $1,416,300 and $670,200 respectively 11,376,000 5,819,700
Equipment Loans 5,731,800 5,595,500
Accounts Payable and Accrued Expenses 5,875,800 2,700,000
Operating Lease Liabilities 766,900 841,700
Finance Leases 611,300 999,400
Deferred Revenue 21,700 896,300
Note Payable PPP - 19,300
Dividends Payable 210,600 -
Contract Liability 390,900
Note Payable D&O Insurance 1,284,000 741,200
TOTAL LIABILITIES 64,951,100 27,203,200

COMMITMENTS AND CONTINGENCIES - SEE NOTE 12 -

STOCKHOLDERS’ EQUITY
Preferred Stock, NaN Par 10,000,000 shares authorized and 1,260,555 issued and outstanding at September 30, 2021 and 0 outstanding and issued at December 31, 2020 $ 28,661,000 $ -
Common Stock, NaN Par 50,000,000 shares authorized and 14,922,094 outstanding at September 30, 2021 and 5,636,548 issued and outstanding at December 31, 2020 37,057,900 11,956,900
Additional Paid In Capital 668,900 234,800
Accumulated Deficit (2,028,300 ) (4,487,100 )
Total Stockholders’ Equity - Harbor Custom Development, Inc. 64,359,500 7,704,600
Non-Controlling Interest (1,291,600 ) (1,289,900 )
TOTAL STOCKHOLDERS’ EQUITY 63,067,900 6,414,700
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 128,019,000 $ 33,617,900


	September 30, 2022		December 31, 2021
	(Unaudited)
ASSETS
Cash	$	13,707,900	$	25,629,200
Restricted Cash	597,600		597,600
Accounts Receivable, net	5,503,900		1,113,500
Contract Assets, net	—		2,167,200
Notes Receivable, net	9,754,200		2,000,000
Prepaid Expense and Other Assets	2,911,900		2,778,100
Real Estate	179,932,800		122,136,100
Property, Plant and Equipment, net	10,069,200		9,199,700
Right of Use Assets	2,323,400		3,429,700
Deferred Tax Asset	2,586,800		649,000
TOTAL ASSETS	$	227,387,700	$	169,700,100

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES
Accounts Payable and Accrued Expenses	$	13,340,300	$	10,662,800
Dividends Payable	634,700		670,900
Contract Liabilities	896,700		—
Deferred Revenue	63,900		44,800
Note Payable - D&O Insurance	537,500		903,800
Revolving Line of Credit Loan, net of Unamortized Debt Discount of $0.8 million and $0, respectively	24,011,400		—
Equipment Loans	4,296,100		5,268,500
Finance Leases	188,000		543,400
Construction Loans, net of Unamortized Debt Discount of $2.4 million and $4.4 million, respectively	83,263,500		34,957,100
Construction Loans - Related Party, net of Unamortized Debt Discount of $0.01 million and $1.1 million, respectively	8,926,100		13,426,600
Right of Use Liabilities	3,168,000		3,484,400
TOTAL LIABILITIES	139,326,200		69,962,300

COMMITMENTS AND CONTINGENCIES - SEE NOTE 12

STOCKHOLDERS’ EQUITY
Preferred Stock, no par value per share, 10,000,000 shares authorized and 3,799,799 issued and outstanding at September 30, 2022 and 4,016,955 issued and outstanding at December 31, 2021	62,912,100		66,507,500
Common Stock, no par value per share, 50,000,000 shares authorized and 14,352,365 issued and outstanding at September 30, 2022 and 13,155,342 issued and outstanding at December 31, 2021	35,704,700		32,122,700
Additional Paid In Capital	1,224,600		752,700
Retained Earnings (Accumulated Deficit)	(11,779,900)		1,646,500
Stockholders’ Equity	88,061,500		101,029,400
Non-Controlling Interest	—		(1,291,600)
TOTAL STOCKHOLDERS’ EQUITY	88,061,500		99,737,800

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	227,387,700	$	169,700,100

See accompanying notes to the condensed consolidated financial statements.

(Amounts rounded to the nearest $100)

HARBOR CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES

D/B/A HARBOR CUSTOM HOMES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

For the Three Months Ended
September 30, For the Nine Months Ended
September 30,
2021 2020 2021 2020

Sales $ 18,010,600 $ 7,806,500 $ 46,017,200 $ 26,077,300

Cost of Sales 10,866,200 7,183,900 34,938,300 24,448,100

Gross Profit 7,144,400 622,600 11,078,900 1,629,200

Operating Expenses 3,322,100 1,458,200 7,639,700 3,769,900

Operating Income (Loss) 3,822,300 (835,600 ) 3,439,200 (2,140,700 )

Other Income (Expense)
Loss on Sale of Equipment - (12,400 ) (35,900 ) (27,900 )
Forgiveness of Debt - - 10,000 -
Other Income 1,200 - 113,800 13,000
Interest Expense (115,100 ) (163,900 ) (298,500 ) (254,200 )
Total Other Income (Expense) (113,900 ) (176,300 ) (210,600 ) (269,100 )

Income (Loss) Before Income Tax 3,708,400 (1,011,900 ) 3,228,600 (2,409,800 )

Income Tax Benefit - 571,600 - 561,500

Net Income (Loss) Attributable to Stockholders $ 3,708,400 $ (440,300 ) $ 3,228,600 $ (1,848,300 )

Net (Loss) Attributable to Non-controlling interests (3,200 ) (1,700 ) (228,100 )
Preferred Dividends (631,400 ) - (771,500 ) -

Net Income (Loss) Attributable to Common Stockholders $ 3,077,000 $ (437,100 ) $ 2,458,800 $ (1,620,200 )

Net Income (Loss) Per Share - Basic $ 0.21 $ (0.10 ) $ 0.17 $ (0.43 )
Net Income (Loss) Per Share - Diluted $ 0.17 $ (0.10 ) $ 0.17 $ (0.43 )

Weighted Average Common Shares Outstanding - Basic 14,898,594 4,180,054 14,350,143 3,737,318
Weighted Average Common Shares Outstanding - Diluted 22,063,584 4,180,054 14,522,663 3,737,318


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Sales	$	11,748,500	$	18,010,600	$	50,616,000	$	46,017,200

Cost of Sales	11,310,800		10,866,200		46,055,400		34,938,300

Gross Profit	437,700		7,144,400		4,560,600		11,078,900

Operating Expenses	4,523,800		3,322,100		12,017,200		7,639,700

Operating Income (Loss)	(4,086,100)		3,822,300		(7,456,600)		3,439,200

Other Income (Expense)
Interest Expense	(565,800)		(115,100)		(1,046,800)		(298,500)
Interest Income	163,900		—		378,900		—
Loss on Sale of Equipment	(12,600)		—		(118,100)		(35,900)
Other Income	18,000		1,200		26,200		123,800
Total Other (Expense)	(396,500)		(113,900)		(759,800)		(210,600)

Income (Loss) Before Income Tax	(4,482,600)		3,708,400		(8,216,400)		3,228,600

Income Tax (Benefit)	(1,067,800)		—		(1,937,800)		—

Net Income (Loss)	(3,414,800)		3,708,400		(6,278,600)		3,228,600

Net Loss Attributable to Non-controlling interests	—		—		(600)		(1,700)
Preferred Dividends	(1,903,700)		(631,400)		(5,856,200)		(771,500)

Net Income (Loss) Attributable to Common Stockholders	$	(5,318,500)	$	3,077,000	$	(12,134,200)	$	2,458,800

Earnings (Loss) Per Share - Basic	$	(0.37)	$	0.21	$	(0.88)	$	0.17
Earnings (Loss) Per Share - Diluted	$	(0.37)	$	0.17	$	(0.88)	$	0.17

Weighted Average Common Shares Outstanding - Basic	14,350,899		14,898,594		13,862,865		14,350,143
Weighted Average Common Shares Outstanding - Diluted	14,350,899		22,063,584		13,862,865		14,522,663

See accompanying notes to the condensed consolidated financial statements.

(Amounts rounded to the nearest $100)

HARBOR CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES

D/B/A HARBOR CUSTOM HOMES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)	$	(6,278,600)	$	3,228,600
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation	1,022,200		783,500
Amortization of right of use assets	440,300		252,200
Loss on sale of equipment	119,800		35,900
Provision for loss on contract	421,400		—
Impairment loss on notes and related interest receivable	898,400		—
Stock compensation	473,800		416,100
Forgiveness on PPP loan	—		(10,000)
Amortization of revolver issuance costs	320,100		—
Net change in assets and liabilities:
Accounts receivable	(4,390,400)		(26,600)
Contract assets	2,167,200		(4,762,400)
Notes receivable	(8,524,600)		—
Prepaid expenses and other assets	(261,700)		820,300
Real estate	(56,179,400)		(82,755,400)
Deferred tax asset	(1,937,800)		—
Accounts payable and accrued expenses	2,677,600		3,175,800
Contract liabilities	475,300		390,900
Deferred revenue	19,100		(874,600)
Payments on right of use liability, net of incentives	349,600		(241,600)
NET CASH USED IN OPERATING ACTIVITIES	(68,187,700)		(79,567,300)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	(1,808,000)		(378,100)
Proceeds on the sale of equipment	194,400		69,500
NET CASH USED IN INVESTING ACTIVITIES	(1,613,600)		(308,600)

CASH FLOWS FROM FINANCING ACTIVITIES
Construction loans	65,240,900		39,560,800
Payments on construction loans	(16,080,500)		(10,092,500)
Financing fees construction loans	(2,304,000)		(1,476,900)
Related party construction loans	8,576,500		15,500,000
Payments on related party construction loans	(13,220,500)		(9,197,200)
Financing fees related party construction loans	(23,600)		(1,983,900)
Revolving line of credit loan, net of payments	24,788,900		—
Financing fees revolving line of credit loan	(1,097,700)		—
Note payable D&O insurance	590,100		—
Payments on note payable D&O insurance	(956,400)		(867,600)
Payments on equipment loans	(1,655,300)		(1,430,500)
Payments on financing leases	(70,700)		(289,000)
Payments on PPP loan	—		(9,300)
Net proceeds from issuance of common stock	—		25,101,000
Net proceeds from issuance of preferred stock	—		28,661,000
Preferred dividends	(5,892,400)		(560,900)
Repurchase of common stock	(437,700)		—
Proceeds from exercise of stock options	8,600		18,000
Proceeds from exercise of warrants	413,800		—
Deferred offering cost	—		(68,300)

~~Nine Months Ended September 30, 2021 and 2020 (Unaudited)~~

September 30, 2021 September 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 3,228,600 $ (1,848,300 )
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation 783,500 419,200
Amortization of right of use assets 252,200 194,700
Forgiveness on PPP loan (10,000 ) -
Loss on sale of equipment 35,900 27,900
Stock compensation 416,100 11,000
Net change in assets and liabilities:
Accounts receivable (26,600 ) (42,500 )
Contract assets (4,762,400 ) -
Prepaid expenses 820,300 (255,900 )
Real estate (82,755,400 ) (8,286,200 )
Deferred revenue (874,600 ) 1,297,400
Deferred income tax - (561,500 )
Payments on right of use liability (241,600 ) (209,000 )
Contract Liability 390,900 -
Accounts payable and accrued expenses 3,175,800 (605,500 )
NET CASH (USED IN) OPERATING ACTIVITIES (79,567,300 ) (9,858,700 )

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (378,100 ) (401,100 )
Proceeds on the sale of equipment 69,500 330,400
NET CASH (USED IN) INVESTING ACTIVITIES (308,600 ) (70,700 )

CASH FLOWS FROM FINANCING ACTIVITIES
Construction loans, net 29,468,300 8,829,900
Financing fees construction loans (1,476,900 ) (573,100 )
Construction loans related parties, net 6,302,800 (6,515,700 )
Financing fees related party construction loans (1,983,900 ) (396,900 )
Payments on financing leases (289,000 ) (380,000 )
Proceeds from PPP loan - 582,800
Payments on PPP loan (9,300 ) -
Due to related party - (8,100 )
Repayments on note payable D&O insurance (867,600 ) -
Net proceeds from issuance of common stock 25,101,000 10,789,100
Net proceeds from issuance of preferred stock 28,661,000 -
Repayment on equipment loans (1,430,500 ) (476,700 )
Proceeds from exercise of stock options 18,000 -
Dividends (560,900 ) -
Deferred offering cost (68,300 ) -
NET CASH PROVIDED BY FINANCING ACTIVITIES 82,864,700 11,851,300

NET INCREASE IN CASH AND RESTRICTED CASH 2,988,800 1,921,900

CASH AND RESTRICTED CASH AT BEGINNING OF YEAR 2,396,500 430,000

CASH AND RESTRICTED CASH AT END OF PERIOD $ 5,385,300 $ 2,351,900

SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 2,165,300 $ 1,266,300

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Financing of assets additions $ 1,566,800 $ 2,002,900
Dividends declared but not paid $ 210,600 $ -
New right of use obligations $ 166,800 $ -
Cancellation of finance leases $ 99,100 $ -
Amortization of debt discount capitalized $ 2,338,000 $ 1,323,300
Stock issued for conversion of related party interest and principle $ - $ 497,000


NET CASH PROVIDED BY FINANCING ACTIVITIES	57,880,000		82,864,700

NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH	(11,921,300)		2,988,800

CASH AND RESTRICTED CASH AT BEGINNING OF YEAR	26,226,800		2,396,500

CASH AND RESTRICTED CASH AT END OF PERIOD	$	14,305,500	$	5,385,300

SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid	$	5,350,400	$	2,165,300

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Termination of leases	$	52,100	$	—
Amortization of debt discount capitalized	$	1,617,300	$	2,338,000
Financing of fixed assets additions	$	110,000	$	1,566,800
Conversion of finance lease to equipment loan	$	394,800	$	—
Cancellation of finance leases	$	—	$	99,100
New right of use obligations	$	—	$	166,800
Conversion of preferred to common stock	$	3,595,400	$	—
Dividends declared but not paid	$	634,600	$	210,600

See accompanying notes to the condensed consolidated financial statements.

(Amounts rounded to the nearest $100)

HARBOR CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES

D/B/A HARBOR CUSTOM HOMES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

~~For the Periods January 1, 2020 through September 30, 2020 and January 1, 2021 through September 30, 2021~~

(Unaudited)

Common Stock Preferred Stock
Additional Stockholders’ Non- Total

Shares
Issued

No
Par

Shares
Issued

No
Par
Paid in Capital
Accumulated
(Deficit )
Equity
(Deficit)
Controlling
Interest
Equity (Deficit)

Balance, January 1, 2020 3,513,517 $ 670,900 - $ - $ 119,100 $ (954,300 ) $ (164,300 ) $ (1,060,600 ) $ (1,224,900 )

Net proceeds from issuance of common stock
Net proceeds from issuance of common stock, shares
Conversion of related party debt to common stock
Conversion of related party debt to common stock, shares
Exercise of stock options
Exercise of stock options, shares
Net proceeds issuance of preferred stock
Net proceeds issuance of preferred stock, shares
Dividends
Stock Compensation Expense
Stock Compensation Expense, shares
Net Loss - - - (752,000 ) (752,000 ) (221,900 ) (973,900 )

Balance, March 31, 2020 3,513,517 $ 670,900 - $ - $ 119,100 $ (1,706,300 ) $ (916,300 ) $ (1,282,500 ) $ (2,198,800 )

Stock Compensation Expense 1,100 1,100 1,100
Net Loss - - - (431,100 ) (431,100 ) (3,000 ) (434,100 )

Balance, June 30, 2020 3,513,517 $ 670,900 - - $ 120,200 $ (2,137,400 ) $ (1,346,300 ) $ (1,285,500 ) $ (2,631,800 )

Net proceeds from issuance of common stock 2,031,705 10,789,100 10,789,100 10,789,100
Conversion of related party debt to common stock 82,826 497,000 497,000 497,000
Stock Compensation Expense 9,900 9,900 9,900
Net (Loss) - (437,100 ) (437,100 ) (3,200 ) (440,300 )

Balance, September 30, 2020 5,628,048 $ 11,957,000 - $ - $ 130,100 $ (2,574,500 ) $ 9,512,600 $ (1,288,700 ) $ 8,223,900

Balance, January 1, 2021 5,636,548 $ 11,956,900 - $ - $ 234,800 $ (4,487,100 ) $ 7,704,600 $ (1,289,900 ) $ 6,414,700

Net proceeds issuance of common stock 9,200,000 25,101,000 25,101,000 25,101,000
Exercise of stock options 45,046 18,000 18,000 18,000
Stock Compensation Expense 8,500 115,100 115,100 115,100
Net (Loss) Income - (1,549,800 ) (1,549,800 ) 600 (1,549,200 )

Balance, March 31, 2021 14,890,094 $ 37,057,900 - $ - $ 367,900 $ (6,036,900 ) $ 31,388,900 $ (1,289,300 ) $ 30,099,600

Net proceeds issuance of preferred stock 1,260,555 28,661,000 28,661,000 28,661,000
Dividends (140,100 ) (140,100 ) (140,100 )
Stock Compensation Expense 8,500 115,800 115,800 - 115,800
Net Income (Loss) 1,071,700 1,071,700 (2,300 ) 1,069,400
Balance, June 30, 2021 14,898,594 $ 37,057,900 1,260,555 $ 28,661,000 $ 483,700 $ (5,105,300 ) $ 61,097,300 $ (1,291,600 ) $ 59,805,700

Stock Compensation Expense 23,500 185,200 185,200 185,200
Dividends (631,400 ) (631,400 ) (631,400 )
Net Income (Loss) - 3,708,400 3,708,400 - 3,708,400

Balance, September 30, 2021 14,922,094 $ 37,057,900 1,260,555 $ 28,661,000 $ 668,900 $ (2,028,300 ) $ 64,359,500 $ (1,291,600 ) $ 63,067,900


	Common Stock			Preferred Stock			Additional Paid in Capital		Retained Earnings (Accumulated Deficit)		Stockholders' Equity (Deficit)		Non-Controlling Interest		Total Equity (Deficit)
	Shares Issued	No Par		Shares Issued	No Par

Balance, January 1, 2021	5,636,548	$	11,956,900	—	$	—	$	234,800	$	(4,487,100)	$	7,704,600	$	(1,289,900)	$	6,414,700

Net Proceeds from Issuance of Common Stock	9,200,000	25,101,000									25,101,000				25,101,000
Exercise of Stock Options	45,046						18,000				18,000				18,000
Stock Compensation Expense	8,500						115,100				115,100				115,100
Net Income (Loss)									(1,549,800)		(1,549,800)		600		(1,549,200)

Balance, March 31, 2021	14,890,094	$	37,057,900	—	$	—	$	367,900	$	(6,036,900)	$	31,388,900	$	(1,289,300)	$	30,099,600

Net Proceeds from Issuance of Preferred Stock				1,260,555	28,661,000						28,661,000				28,661,000
Preferred Dividends									(140,100)		(140,100)				(140,100)
Stock Compensation Expense	8,500						115,800				115,800				115,800
Net Income (Loss)									1,071,700		1,071,700		(2,300)		1,069,400

Balance, June 30, 2021	14,898,594	$	37,057,900	1,260,555	$	28,661,000	$	483,700	$	(5,105,300)	$	61,097,300	$	(1,291,600)	$	59,805,700

Preferred Dividends									(631,400)		(631,400)				(631,400)
Stock Compensation Expense	23,500						185,200				185,200				185,200
Net Income (Loss)									3,708,400		3,708,400				3,708,400

Balance, September 30, 2021	14,922,094	$	37,057,900	1,260,555	$	28,661,000	$	668,900	$	(2,028,300)	$	64,359,500	$	(1,291,600)	$	63,067,900

Balance, January 1, 2022	13,155,342	$	32,122,700	4,016,955	$	66,507,500	$	752,700	$	1,646,500	$	101,029,400	$	(1,291,600)	$	99,737,800

Preferred Dividends									(2,012,500)		(2,012,500)				(2,012,500)
Exercise of Stock Options	21,623	10,500					(1,900)				8,600				8,600
Stock Compensation Expense	60,214						242,400				242,400				242,400
Dissolution of Non-Controlling Interest									(1,292,100)		(1,292,100)		1,292,100		—
Net Income (Loss)									1,645,800		1,645,800		(500)		1,645,300

Balance, March 31, 2022	13,237,179	$	32,133,200	4,016,955	$	66,507,500	$	993,200	$	(12,300)	$	99,621,600	$	—	$	99,621,600

Preferred Dividends									(1,940,000)		(1,940,000)				(1,940,000)
Stock Compensation Expense	17,500						112,300				112,300				112,300
Conversion of Preferred stock	1,206,515	3,595,400		(217,156)	(3,595,400)						—				—
Exercise of Warrants	139,295	413,800									413,800				413,800
Share Repurchase	(251,934)	(437,700)									(437,700)				(437,700)
Net Loss									(4,509,100)		(4,509,100)				(4,509,100)

Balance, June 30, 2022	14,348,555	$	35,704,700	3,799,799	$	62,912,100	$	1,105,500	$	(6,461,400)	$	93,260,900	$	—	$	93,260,900

Preferred Dividends									(1,903,700)		(1,903,700)				(1,903,700)
Stock Compensation Expense	3,810						119,100				119,100				119,100
Net Loss									(3,414,800)		(3,414,800)				(3,414,800)

Balance, September 30, 2022	14,352,365	$	35,704,700	3,799,799	$	62,912,100	$	1,224,600	$	(11,779,900)	$	88,061,500	$	—	$	88,061,500

See accompanying notes to the condensed consolidated financial statements.

(Amounts rounded to the nearest $100)

HARBOR CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES

D/B/A HARBOR CUSTOM HOMES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ~~RESTATEMENT~~

The Company restated the earnings per share for the periods presented in the consolidated statement of operations and earnings per share reconciliation table in Note 2. The following table provides the summary of restated numbers.

~~SCHEDULE OF ERROR CORRECTIONS AND PRIOR PERIOD ADJUSTMENTS~~

As Previously Reported Restated Net Effect As Previously Reported Restated Net Effect
For the Three Months Ended For the Nine Months Ended
September 30, 2021 September 30, 2021
As Previously Reported Restated Net Effect As Previously Reported Restated Net Effect
CONSOLIDATED STATEMENT OF OPERATIONS
Net Income (Loss) Per Share - Diluted $ 0.20 $ 0.17 $ (0.03 )
Weighted Average Common Shares Outstanding - Diluted 15,058,918 22,063,584 7,004,666 14,515,710 14,522,663 6,953

NOTE 2 Earnings (Loss) Per Share
Numerator:
Effect of dilutive securities: - 631,400 631,400
Diluted net income (loss) 3,077,000 3,708,400 631,400

Denominator:

Options 140,957 141,987 1,030 145,884 152,565 6,681
Warrants 19,367 19,359 (8 ) 19,683 19,667 (16 )
Restricted Stock Awards - - - - 288 288
Convertible Preferred Stock - 7,003,644 7,003,644 - - -

Weighted average common shares outstanding and assumed conversion - diluted 15,058,918 22,063,584 7,004,666 14,515,710 14,522,663 6,953

Diluted net income (loss) per common share $ 0.20 $ 0.17 $ (0.03 )

(a) – Outstanding shares of anti-dilutive securities excluded:
Common stock securities 9,379,890 5,025,168 (4,354,722 ) 9,379,890 5,025,168 (4,354,722 )
Convertible preferred stock Securities* * - 12,000 12,000 - 1,272,555 1,272,555

~~Preferred stock is convertible into common shares on a~~ ~~5.556 to 1 ratio~~.

2. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Company’s principal business activity involves acquiring raw land and developed lots for the purpose of building and selling single family and multi-family dwellings in Washington, California, Texas, and Florida. It utilizes its heavy equipment resources to develop an inventory of ~~finished~~developed lots and provide development infrastructure construction, on a contract basis, for other home builders. ~~Single family construction and infrastructure construction contracts vary but are typically less than one year.~~

On August 1, 2019, the Company changed its name from Harbor Custom Homes, Inc. to Harbor Custom Development, Inc.

The Company became an effective filer with the ~~Securities and Exchange Commission (“SEC”)~~SEC and started trading on The Nasdaq Stock Market LLC (“("Nasdaq”) on August 28, 2020.

Principles of Consolidation

The condensed consolidated financial statements include the following subsidiaries of Harbor Custom Development, Inc. as of the reporting period ending dates as ~~follows (all entities are formed~~follow:


Names	Dates of Formation	Attributable Interest
		September 30, 2022		December 31, 2021
Saylor View Estates, LLC*	March 30, 2014	N/A		51	%
Harbor Materials, LLC**	July 5, 2018	N/A		N/A
Belfair Apartments, LLC	December 3, 2019	100	%	100	%
Pacific Ridge CMS, LLC	May 24, 2021	100	%	100	%
Tanglewilde, LLC	June 25, 2021	100	%	100	%
HCDI FL CONDO LLC	July 30, 2021	100	%	100	%
HCDI Mira, LLC	August 31, 2021	100	%	100	%
HCDI Bridgeview, LLC	October 28, 2021	100	%	100	%
HCDI Wyndstone, LLC	September 15, 2021	100	%	100	%
HCDI Semiahmoo, LLC	December 17, 2021	100	%	100	%
Mills Crossing, LLC	July 21, 2022	100	%	N/A
Broadmoor Ventures, LLC	August 24, 2022	100	%	N/A

*Saylor View Estates, LLC was voluntarily dissolved with the State of Washington as of January 20, 2022.

**Harbor Materials, LLC was voluntarily dissolved with the State of Washington ~~LLCs):~~

~~SCHEDULE OF STATEMENT OF SUBSIDIARIES~~

Names Dates of Formation Attributable Interest
September 30, December 31,
2021 2020
Saylor View Estates, LLC March 30, 2014 51 % 51 %
Belfair Apartments, LLC December 3, 2019 100 % 100 %
Pacific Ridge CMS, LLC May 24, 2021 100 % N/A
Tanglewilde, LLC June 25, 2021 100 % 100 %
HCDI FL CONDO LLC August 3, 2021 100 % N/A
HCDI Mira, LLC August 30, 2021 100 % N/A
HCDI Wyndstone, LLC September 15, 2021 100 % N/A

as of January 29, 2021.

~~All intercompany transactions and balances have been eliminated in consolidation.~~

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the aggregate non-controlling interest was $(~~1,291,600~~)$0 and $($(1.3) million, respectively.

~~1,289,900~~
~~), respectively.~~

Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information ~~furnished herein reflects~~and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all ~~adjustments, consisting solely of normal recurring items, which in the opinion of management are necessary to fairly state the financial position~~ of the ~~Company~~information and ~~the results of its operations~~footnotes required by GAAP for ~~the periods presented. This report~~complete financial statements. These financial statements should be read in conjunction with the ~~Company’s~~ consolidated financial statements ~~and notes thereto~~ included in the Company’s Annual Report on Form ~~10-K~~10-K/A for the fiscal year ended December 31, ~~2020 filed with the SEC on March 31,~~ 2021. The ~~Company assumes~~accompanying unaudited condensed consolidated financial statements include all adjustments that are of a normal recurring nature and necessary for the ~~users~~fair presentation of the interim financial information herein have read or have access to the audited financial statements for the preceding fiscal year and the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The condensed consolidated balance sheet at December 31, 2020 was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results ~~of operations~~ for the interim periods ~~presented~~presented. Results for interim periods are not necessarily indicative of results to be expected for the ~~year ending December 31, 2021.~~full year.

~~The Company’s Board of Directors and stockholders approved a~~ 1-for-2.22 reverse split of the Company’s common stock, which was effected on April 15, 2020. The reverse split combined each 2.22 shares of the Company’s outstanding common stock into one share of common stock. No fractional shares were issued in connection with the reverse split, and any fractional shares resulting from the reverse split were rounded up to the nearest whole share. All references to common stock, options to purchase common stock, restricted stock, share data, per share data, and related information, as applicable have been adjusted in the financial statements to reflect the split of the common stock ~~as if it had occurred at the beginning of the earliest period presented.~~

All numbers in ~~these~~the financial statements are rounded to the nearest ~~$100.~~

$100, except for Earnings (Loss) per Share (“EPS”) data, and numbers in the notes to the financial statements are rounded to the nearest million.

Reclassification

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

Use of Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with ~~generally accepted accounting principles.~~GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used.

Stock-Based Compensation

Effective ~~as of~~ November 19, 2018, the Company’s Board of Directors and stockholders approved and adopted the 2018 Incentive and Non-Statutory Stock Option Plan (the “2018 Plan”). The 2018 Plan allows the Administrator (as defined in the 2018 Plan), currently the Board of Directors, to determine the issuance of incentive stock options and non-qualified stock options to eligible employees and outside directors and consultants of the Company. The Company reserved 675,676 shares of common stock for issuance under the 2018 Plan.

~~Effective~~ On June 1, 2022, the stockholders of the Company voted to approve an amendment to the 2018 Plan to increase, by 2,000,000, the authorized number of shares of common stock reserved for issuance as ofoptions under the 2018 Plan.

Effective December 3, 2020, the Company’s Board of Directors and stockholders approved and adopted the 2020 Restricted Stock Plan (the “2020 Plan”). The 2020 Plan allows the Administrator, ~~(currently~~currently the Compensation ~~Committee)~~Committee to determine the issuance of restricted stock to eligible officers, directors, and key employees. The Company reserved 700,000 shares of common stock for issuance under the 2020 Plan. On June 1, 2022, the stockholders of the Company voted to approve an amendment to the 2020 Plan to increase, by 2,000,000, the authorized number of shares of common stock available for awards under the 2020 Plan.

The Company accounts for stock-based compensation in accordance with ~~ASC~~Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 718, “~~Compensation~~“Compensation – Stock Compensation”(“ASC 718”) which establishes financial accounting and reporting standards for stock-based employee and non-employee compensation. It defines a fair value-based method of accounting for an employee stock option or similar equity instrument.

The Company recognizes all forms of share-based payments, including stock option grants, warrants and restricted stock grants, at their fair value on the grant ~~date, which is based on the estimated number of awards that are ultimately expected to vest.~~date.

Options and warrants are valued using a Black-Scholes option pricing model. Grants of share-based payment awards issued to non-employees for services rendered have been recorded at the fair value of the share-based payment. The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. ~~If an award is granted, but vesting does not~~The Company accounts for forfeitures of stock options as they occur. When forfeitures occur, ~~any~~the unvested portion of the previously recognized compensation ~~expense~~cost is reversed in the period ~~related to~~of the ~~termination of service.~~forfeiture.

Stock-based compensation expenses are included in ~~selling, general and administrative~~operating expenses in the condensed consolidated statement of operations.

For the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 when computing fair value of share-based payments, the Company has considered the following ~~variables:~~range of assumptions:


	September 30, 2022	September 30, 2021
Risk-free interest rate	1.73% - 3.54%	0.23% - 1.11%
Exercise price	$1.12 - $3.00	$2.76 - $5.00
Expected life of grants in years	3.93 - 6.51	2.50 - 6.50
Expected volatility of underlying stock	42.34% - 48.13%	42.63% - 56.13%
Dividends	—	—

~~SCHEDULE OF FAIR VALUE ASSUMPTIONS OF SHARE-BASED PAYMENTS~~

September 30, 2021 September 30, 2020
Risk-free interest rate 0.23%-1.11 % 0.47%-1.46 %
Exercise price $ 2.76-$5.00 $ 2.22-$7.50
Expected life of grants 2.50-6.50 years 2.99-6.00 years
Expected volatility of underlying stock 42.63%-56.13 % 32.39%-43.41 %
Dividends 0 0

The expected term is computed using the “simplified” method as permitted under the provisions of FASB ASC Topic 718-10-S99. The Company uses the simplified method to calculate the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The ~~share price as of the grant date was determined by an independent third party 409(a) valuation until the Company’s stock became publicly traded. Now the~~ share price is the public trading price at the time of grant. Expected volatility is based on the historical stock price volatility of comparable companies’ common stock as the stock does not have sufficient historical trading activity. Risk free interest rates were obtained from U.S. Treasury rates for the applicable periods.

Repurchase of Equity Securities

Share repurchases are recorded to common stock at the value of the cash consideration paid, as the Company's common stock has no par value. These shares are being repurchased for the purpose of constructive retirement. See Note 15. Stockholder's Equity for additional information on the share repurchase program.

Earnings (Loss) Per Share

~~Earnings (Loss) per share (“EPS”)~~

EPS is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to ~~Section~~topic 260-10-45 of the ~~Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).~~FASB ASC. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the numerator may have to adjust for any dividends and income or loss associated with potentially dilutive securities that are assumed to have resulted in the issuance of shares of common stock and the denominator ~~is increased~~may have to adjust to include the number of additional shares of common ~~shares~~stock that would have been outstanding if the dilutive potential shares of common ~~shares~~stock had been issued during the period to reflect the potential dilution that could occur from shares of common ~~shares~~stock issuable through a contingent shares issuance arrangement, stock options, warrants, RSUs, or ~~warrants.~~convertible preferred stock. For purposes of determining diluted earnings per common share, the treasury stock method is used for stock options, warrants, and RSUs, and the if-converted method is used for convertible preferred stock as prescribed in FASB ASC Topic 260.

The following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net income (loss) attributable to common stockholders per share of common ~~share.~~

stock for the three and nine months ended September 30, 2022 and 2021.

~~SCHEDULE OF NET INCOME (LOSS) PER SHARE~~

2021 2020 2021 2020
For the Three Months
Ended For the Nine Months
Ended
September 30, September 30,
2021 2020 2021 2020
Numerator:
Net income (loss) attributable to common stockholders $ 3,077,000 $ (437,100 ) $ 2,458,800 $ (1,620,200 )
Effect of dilutive securities: 631,400 - - -

Diluted net income (loss) $ 3,708,400 $ (437,100 ) $ 2,458,800 $ (1,620,200 )

Denominator:
Weighted average common shares outstanding - basic 14,898,594 4,180,054 14,350,143 3,737,318
Dilutive securities (a):
Options 141,987 - 152,565 -
Warrants 19,359 - 19,667 -
Restricted Stock Awards - - 288 -
Convertible Preferred Stock 7,003,644 - - -

Weighted average common shares outstanding and assumed conversion - diluted 22,063,584 4,180,054 14,522,663 3,737,318
��
Basic net income (loss) per common share $ 0.21 $ (0.10 ) $ 0.17 $ (0.43 )

Diluted net income (loss) per common share $ 0.17 $ (0.10 ) $ 0.17 $ (0.43 )

(a) – Outstanding shares of anti-dilutive securities excluded:
Common stock securities 5,025,168 164,308 5,025,168 164,308
Convertible preferred stock securities* 12,000 - 1,272,555 -
Convertible preferred stock securities 12,000 1,272,555

~~Preferred stock is convertible into common shares on a~~ ~~5.556 to 1 ratio~~.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator:
Net income (loss) attributable to common stockholders	$	(5,318,500)	$	3,077,000	$	(12,134,200)	$	2,458,800
Effect of dilutive securities:	—		631,400		—		—

Diluted net income (loss)	$	(5,318,500)	$	3,708,400	$	(12,134,200)	$	2,458,800

Denominator:
Weighted average common shares outstanding - basic	14,350,899		14,898,594		13,862,865		14,350,143
Dilutive securities (a):
Restricted Stock Awards	—		—		—		288
Options	—		141,987		—		152,565
Warrants	—		19,359		—		19,667
Convertible Preferred Stock	—		7,003,644		—		—

Weighted average common shares outstanding and assumed conversion – diluted	14,350,899		22,063,584		13,862,865		14,522,663

Basic net earnings (loss) per common share	$	(0.37)	$	0.21	$	(0.88)	$	0.17

Diluted net earnings (loss) per common share	$	(0.37)	$	0.17	$	(0.88)	$	0.17

(a) - Outstanding anti-dilutive securities excluded:
Unvested restricted stock awards	274,583		62,500		274,583		62,500
Stock options	800,925		298,333		800,925		298,333
Warrants to purchase common stock	18,447,564		4,664,335		18,447,564		4,664,335
Convertible preferred stock*	3,799,799		—		3,799,799		1,260,555
Warrants to purchase convertible preferred stock*	12,000		12,000		12,000		12,000

*Preferred stock and warrants to purchase convertible preferred stock are convertible into common stock on a 5.556 to 1 ratio.

Fair Value of Financial Instruments

For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amount of the Company’s short-term financial instruments approximates fair value due to the relatively short period to maturity for these instruments.

Cash and Cash Equivalents

~~For purposes of the statement of cash flows, the~~

The Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents. There were 0no cash equivalents as of September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

Restricted Cash

On August 10, 2021, the Company entered into a Letter of Credit (“LOC”) agreement with WaFd ~~bank~~Bank in the amount of $~~597,600~~.$0.6 million. The Company signed a lease on October 5, 2021 for a new office space. The landlord of the property, University Street Properties I, LLC, is the beneficiary of the LOC. The amount of funds that cover this LOC were moved by ~~the~~ WaFd ~~bank~~Bank to a controlled account on August 13, 2021. ~~See~~(See Note ~~8. Line~~10. Letter of Credit.)

Accounts Receivable

Accounts receivables are reported at the amount the Company expects to collect from outstanding balances. The Company provides for an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information, and existing economic conditions. The Company determines if receivables are past due based on days outstanding, and amounts are written off when determined to be uncollectible by management. The allowance for doubtful accounts was $~~11,000~~ ~~and $~~0$0 as of September 30, ~~2021~~2022 and December 31, ~~2020, respectively.~~

2021.

Notes Receivable

Notes receivables are recorded at amounts due to the Company according to the contractual terms of the loan agreement. The Company's notes receivables are for the sale of real estate properties or financing the development of the properties prior to acquisition and are each secured by the underlying improved real estate properties.

The Company reviews notes receivable for impairment whenever events or circumstances indicate that the note may not be fully recoverable. Impairment is present when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. If management determines an amount to be uncollectible, impairment is measured based on the estimated uncollectible amount less the fair value of the underlying collateral. Impairment is recognized with a valuation allowance against the note receivable with a corresponding charge to bad debt expense under operating expenses. The valuation allowance was $0.8 million for notes receivable and $0.1 million for related interest receivables as of September 30, 2022. No impairment loss was recognized as of December 31, 2021. (See Note 3. Notes Receivable.)

Property and Equipment and Depreciation

Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and ~~repairs~~repair charges are ~~charged to operations~~expensed as incurred. Depreciation is computed by the straight-line method (after considering their respective estimated residual values) over the estimated useful lives:

~~SCHEDULE OF PROPERTY AND EQUIPMENT ESTIMATED USEFUL LIVES~~


Construction Equipment			5-105-10 years
Leasehold Improvements			The lesser of 10 years or the remaining life of the lease
Furniture and Fixtures			5 years
Computers			3 years
Vehicles			10 years

Real Estate Assets

Real estate assets are recorded at cost, except when real estate assets are acquired that meet the definition of a business combination in accordance with FASB ASC Topic 805, “Business Combinations,” where acquired assets are recorded at fair value. Interest, property taxes, insurance, and other incremental costs (including salaries) directly related to a project are capitalized during the construction period of major facilities and land improvements. The capitalization period begins when activities to develop the parcel commence and ends when the asset constructed is completed. The capitalized costs are recorded as part of the asset to which they relate and are expensed when the underlying asset is sold.

The Company capitalized interest from related party borrowings of $~~152,800~~$0.3 million and $~~203,600~~$0.2 million for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company capitalized interest from related party borrowings of $~~557,200~~$0.9 million and $~~840,000~~$0.6 million for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company capitalized interest from third-party borrowings of $~~298,200~~$1.5 million and $~~783,100~~$0.3 million for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company capitalized interest from third-party borrowings of $~~774,000~~$3.4 million and $~~1,834,000~~$0.8 million for the nine months ended September 30, 2022 and 2021, ~~and 2020,~~ respectively.

A property is classified as “held for sale” when all of the following criteria for a plan of sale have been met:

(1) Management, having the authority to approve the action, commits to a plan to sell the property;

(2) The property is available for immediate sale in its present condition, subject only to terms that are usual and customary;

(3) An active program to locate a buyer and other actions required to complete the plan to sell have been initiated;

(4) The sale of the property is probable and is expected to be completed within one year of the contract date;

(5) The property is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and

(6) Actions necessary to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

~~When all these criteria have been met, the property is classified as “held for sale.”~~

In addition to the annual assessment of potential triggering events in accordance with FASB ASC Topic 360, the Company applies a fair value-based impairment test to the net book value of assets on an annual basis and on an interim basis if certain events or circumstances indicate that an impairment loss may have occurred.

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company did not ~~have~~identify any ~~projects~~triggering events that ~~qualified for an impairment charge.~~would require further investigation under ASC 360.

Revenue and Cost Recognition

FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s ~~contract~~contracts to provide goods or services to customers.

In accordance with ASC 606, revenue is recognized when a customer obtains control of the promised good or service. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services. The provision of ASC 606 includes a five-step process by which the Company determines revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment to which the Company expects to be entitled in exchange for those goods or services.

ASC 606 requires the Company to apply the following steps: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, performance obligations are satisfied.

A detailed breakdown of the five-step process for ~~the~~ revenue ~~recognition of Entitled Land Revenue~~recognitions is as follows:

Homes, Developed Lots, and Entitled Land

1. Identify the contract with a customer.

The Company signs an agreement with a buyer to purchase the parcel of entitled ~~land.~~land, developed lots that have completed infrastructure, or completed homes.

2. Identify the performance obligations in the contract.

Performance obligations of the Company include delivering entitled land, developed lots, and completed homes to the customer, which are required to meet certain specifications outlined in the contract.

3. Determine the transaction price.

The transaction price is fixed and specified in the contract. Any subsequent change orders or price changes are required to be approved by both parties.

4. Allocation of the transaction price to performance obligations in the contract.

The parcel, ~~is a~~lots, and homes are separate performance ~~obligation~~obligations for which the specific price is in the contract.

5. Recognize revenue when (or as) the entity satisfies a performance obligation.

The Company recognizes revenue when title is transferred. The Company does not have any further material performance obligations once title is transferred.

Fee Build

~~A detailed breakdown of the five-step process for the revenue recognition of Developed Lots Revenue is as follows:~~

1. Identify the contract with a customer.

The Company signs an agreement with a customer to construct the ~~buyer to purchase lots~~required infrastructure so that ~~have completed infrastructure.~~houses can be developed on the lots.

2. Identify the performance obligations in the contract.

Performance obligations of the Company include delivering developed lots ~~to the customer,~~ which are required to meet certain specifications that are outlined in the contract.

3. Determine the transaction price.

The transaction price is fixed and specified in the contract. Any subsequent change orders or price changes are required to be approved by both parties.

4. Allocation of the transaction price to performance obligations in the contract.

~~All lots are a single performance obligation for the specific price in the contract.~~

~~5. Recognize revenue when (or as) the entity satisfies a performance obligation.~~

~~The Company recognizes revenue when title is transferred. The Company does not have any further performance obligations once title is transferred.~~

~~A detailed breakdown of the five-step process for the revenue recognition of Fee Build Revenue is as follows:~~

~~1. Identify the contract with a customer.~~

~~The Company signs an agreement with a customer to construct the required infrastructure so that houses can be developed on the lots.~~

~~2. Identify the performance obligations in the contract.~~

~~Performance obligations of the Company include delivering developed lots which are required to meet certain specifications that are outlined in the contract.~~

~~3. Determine the transaction price.~~

~~The transaction price is fixed and specified in the contract. Any subsequent change orders or price changes are required to be approved by both parties.~~

~~4. Allocation of the transaction price to performance obligations in the contract.~~

The nature of the industry involves a number of uncertainties that can affect the current state of the contract. Variable considerations are the estimates made due to a contract modification in the contractual service. Change orders, claims, extras, or back charges are common in contractual services activity as a form of variable consideration. If there is going to be a contract modification, judgment by management will need to be made to determine if the variable consideration is enforceable. The following factors are considered in determining if the variable consideration is enforceable:

	1.	~~The customer’s written approval of the scope of the change order;~~
	2.	~~Current contract language that indicates clear and enforceable entitlement relating to the change order;~~
	3.	~~Separate documentation for the change order costs that are identifiable and reasonable; and~~
	4.	~~The Company’s experience in negotiating change orders, especially as it relates to the specific type of contract and change order being evaluated.~~

The customer’s written approval of the scope of the change order;

2.Current contract language that indicates clear and enforceable entitlement relating to the change order;

3.Separate documentation for the change order costs that are identifiable and reasonable; and

4.The Company’s experience in negotiating change orders, especially as it relates to the specific type of contract and change order being evaluated.

Once the Company receives a contract, it generates a budget of projected costs for the contract based on the contract price. If the scope of the contract during the contractual period needs to be modified, the Company files a change order. The Company does not continue to perform services until the change modification is agreed upon with documentation by both the Company and the customer. There are few times that claims, extras, or back charges are included in the contract.

If there are multiple performance obligations to the contract, the costs must be allocated appropriately and consistently to each performance obligation. In the Company’s experience, usually only one performance obligation is stated per contract. If there are multiple services provided for one customer, the Company has a policy of splitting out the services over multiple contracts.

5. Recognize revenue when (or as) the entity satisfies a performance obligation.

The Company uses the total costs incurred on the project relative to the total expected costs to satisfy the performance obligation. The input method involves measuring the resources consumed, labor hours expended, costs incurred, time lapsed, or machine hours used relative to the total expected inputs to the satisfaction of the performance obligation. Costs incurred prior to actual contract (i.e., design, engineering, procurement of material, etc.) should not be recognized as the Company does not have control of the good/service provided. When the estimate on a contract indicates a loss or claims against costs incurred reduce the likelihood of recoverability of such costs, the Company records the entire estimated loss in the period the loss becomes known. Project contracts typically provide for a schedule of billings or invoices to the customer based on the Company’s job to date percentage of completion of specific tasks inherent in the fulfillment of its performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in the statement of operations can and usually does differ from amounts that can be billed or invoiced to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date exceed cumulative billings and unbilled receivables to the customer under the contract are reflected as a current contract asset in the Company’s balance ~~sheet under the caption “Contract Asset” which is further disclosed in Note 16. Uncompleted Contracts.~~sheet. Amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized on the contract ~~are~~would be reflected as a current contract liability in the Company’s balance ~~sheet under the caption “Billings in excess of costs and estimated earnings.”~~

~~A detailed breakdown of the five-step process for the revenue recognition of Home Revenue is as follows:~~

~~1. Identify the contract with a customer.~~

~~The Company signs an agreement with a home buyer to purchase a lot with a completed house.~~

~~2. Identify the performance obligations in the contract.~~

~~Performance obligations of the Company include delivering a developed lot with a completed house to the customer, which is required to meet certain specifications that are outlined in the contract.~~

~~3. Determine the transaction price.~~

~~The transaction price is fixed and specified in the contract. Any subsequent change orders or price changes are required to be approved by both parties.~~

sheet. (See Note 17. Uncompleted Contracts.)

~~4. Allocation of the transaction price to performance obligations in the contract.~~

~~Each lot with a completed house is a separate performance obligation, for which the specific price in the contract is allocated.~~

~~5. Recognize revenue when (or as) the entity satisfies a performance obligation.~~

~~The Company recognizes revenue when title is transferred. The Company does not have any further performance obligations once title is transferred.~~

~~A detailed breakdown of the five-step process for the revenue recognition of Construction Materials sold to or received from contractors is as follows:~~

~~1. Identify the contract with a customer.~~

~~There are no signed contracts. Each transaction is verbally agreed to with the customer.~~

~~2. Identify the performance obligations in the contract.~~

~~The Company delivers or receives materials from customers based on the verbal agreement reached.~~

~~3. Determine the transaction price.~~

~~The Company has a set price list for receiving approved fill materials to recycle or provides customers with a combination of said materials.~~

~~4. Allocation of the transaction price to performance obligations in the contract.~~

~~There is only one performance obligation, which is to pick up or deliver the materials. The entire transaction price is therefore allocated to the performance obligation.~~

~~5. Recognize revenue when (or as) the entity satisfies a performance obligation.~~

~~The performance obligation is fulfilled, and revenue is recognized when the materials have been received or delivered by the Company.~~

Revenues from contracts with customers are summarized by category as follows for the three and nine months ended September ~~30:~~30, 2022 and 2021:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Homes	$	4,693,900	$	3,762,000	$	25,758,100	$	13,947,900
Developed Lots	—		770,000		9,080,000		7,770,000
Entitled Land	3,400,000		10,440,000		7,880,000		19,750,000
Fee Build	3,623,500		2,871,300		7,825,300		4,219,500
Multifamily	27,200		—		27,200		—
Construction Materials	3,900		167,300		45,400		329,800
Total Revenue	$	11,748,500	$	18,010,600	$	50,616,000	$	46,017,200

~~SCHEDULE OF REVENUES FROM CONTRACTS WITH CUSTOMERS~~

2021 2020 2021 2020
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Entitled Land $ 10,440,000 $ - $ 19,750,000 $ -
Developed Lots 770,000 - 7,770,000 -
Fee Build 2,871,300 - 4,219,500 -
Homes 3,762,000 7,704,300 13,947,900 25,625,300
Construction Materials 167,300 102,200 329,800 452,000
Total Revenue $ 18,010,600 $ 7,806,500 $ 46,017,200 $ 26,077,300

Disaggregation of Revenue from Contracts with ~~Customers~~Customers:

The following table disaggregates the Company’s revenue based on the type of sale or service and the timing of satisfaction of performance obligations for the three and nine months ended September 30, ~~2021~~2022 and ~~2020:~~

~~DISAGGREGATION OF REVENUE FROM CONTRACTS WITH CUSTOMERS~~

2021 2020 2021 2020
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Performance obligations satisfied at a point in time $ 15,139,300 $ 7,806,500 $ 41,797,700 $ 26,077,300
Performance obligations satisfied over time 2,871,300 - 4,219,500 -
Total Revenue $ 18,010,600 $ 7,806,500 $ 46,017,200 $ 26,077,300

2021:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Performance obligations satisfied at a point in time	$	8,125,000	$	15,139,300	$	42,790,700	$	41,797,700
Performance obligations satisfied over time	3,623,500		2,871,300		7,825,300		4,219,500
Total Revenue	$	11,748,500	$	18,010,600	$	50,616,000	$	46,017,200

Cost of Sales

Land acquisition costs are allocated to each lot based on the size of the lot in relation to the size of the total project. Development ~~cost~~costs and capitalized interest are allocated to lots sold based on the same criteria.

Fee build costs are charged to cost of sales as incurred. See the revenue recognition criteria above.

Costs relating to the handling of recycled construction materials and converting items into usable construction materials for resale are charged to cost of sales as incurred.

~~Advertising~~

~~Costs for designing, producing and communicating advertising are expensed as incurred. Advertising expense for the three months ended September 30, 2021 and 2020 was $15,600~~ ~~and $~~0~~, respectively.~~

~~Advertising expense for the nine months ended September 30, 2021 and 2020 was $27,600~~ ~~and $8,500, respectively.~~

~~Leases~~

~~On January 1, 2019, the Company adopted ASU 2016-02 “~~~~Leases”~~ (Topic 842) which amended guidance for lease arrangements to increase transparency and comparability by providing additional information to users of financial statements regarding an entity’s leasing activities.

~~As part of the adoption the Company elected the practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to:~~

	1.	~~Not separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease;~~

	2.	~~Not to apply the recognition requirements in ASC 842 to short-term leases; and~~

	3.	~~Not record a right of use asset or right of use liability for leases with an asset or liability balance that would be considered immaterial.~~

Income Taxes

Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss, credit carryforwards, and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. Management applies the criteria established ~~in the~~ under FASB ~~released Accounting Standards Update No. 2019-12,~~ASC Topic 740, Income ~~taxes (Topic 740) (the Update)~~ Taxes, to determine ifwhether any valuation allowances are needed each year.

The Company recognizes a tax benefit for an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position. There are no uncertain tax positions as of September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

~~Recent Accounting Pronouncements~~

On ~~December 18, 2019,~~August 16, 2022, the ~~FASB released Accounting Standards Update No. 2019-12, Income taxes (Topic 740) (the Update).~~Inflation Reduction Act of 2022 (“IRA”) was signed into law. The ~~Board issued this update as part of its initiative to reduce complexity in accounting standards. The Standard is effective~~IRA includes a 15% Corporate Alternative Minimum Tax (“Corporate AMT”) for ~~fiscal~~tax years beginning after December ~~15, 2020.~~31, 2022. The ~~adoption did~~Company does not expect the Corporate AMT to have a material impact on its consolidated financial statements. Additionally, the ~~Company.~~IRA imposes a 1% excise tax on net repurchases of stock by certain publicly traded corporations. The excise tax is imposed on the value of the net stock repurchased or treated as repurchased. The new law will apply to stock repurchases occurring after December 31, 2022.

Recent Accounting Pronouncements

On June 16, 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and

~~In August~~

other financial instruments held by financial institutions and other organizations. The underlying premise of the update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. Pursuant to ASU No. 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2022 for small reporting companies, non-SEC filers, and all other companies. The Company has not yet adopted ASU 2016-13 and will continue to evaluate any impact from this accounting standard on its notes receivables.

On March 12, 2020, the FASB issued ~~Accounting Standards Update 2020-06, Debt — Debt with Conversion~~ASU No. 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASC 848 contains optional expedients and ~~Other Options (Subtopic 470-20)~~exceptions for applying GAAP to contracts, hedging relationships, and ~~Derivatives~~other transactions affected by reference rate reform. The amendments in this update are elective and ~~Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”)~~apply to ~~simplify accounting~~all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has applied certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instrumentsoptional expedients that are ~~indexed to and settled in an entity’s own equity. ASU 2020-06 amends~~retained through the ~~diluted earnings per share guidance, including~~end of the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021.hedging relationship. The Company ~~adopted ASU 2020-06 on January 1, 2021. The adoption~~continues to evaluate the impact of ~~ASU 2020-06 did not have an impact on~~ the ~~Company.~~guidance and may apply elections as applicable.

On May 3, 2021, the FASB released ~~Accounting Standards Update~~ASU No. 2021-04, Compensation – Earning Per Share (Topic 260), Debt - Modifications and Extinguishments (subtopic 470-50), Compensation - Stock ~~compensation~~Compensation (Topic 718), Contracts in Entity’s Own Equity (Subtopic 815-40), Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The FASB issued this update to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example warrants) that remain equity classified after modification or exchange. The ~~Standard~~standard is effective for fiscal years beginning after December 15, 2021. The Company ~~does not believe~~adopted ASU 2021-04 on January 1, 2022, however the adoption ~~will~~did not have ~~a material~~an impact on the ~~Company.~~

Company’s Financial Statements.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or circumstances indicate that the carrying value of such assets may not be fully recoverable. Impairment is present when the sum of estimated undiscounted future cash flow expected to result from use of the assets is less than carrying value. If impairment is present, the carrying value of the impaired asset is reduced to its fair value. Fair value is determined based on discounted cash flow or appraised values, depending on the nature of the assets. As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were 0no impairment losses recognized for long-lived assets.

2. CONCENTRATIONS

~~Offering Costs Associated with a Public Offering~~

~~The Company complies with the requirements of FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A — “~~~~Expenses of Offering.”~~

~~On January 15 and 20, 2021, the Company closed on a follow-on public offering and over-allotment option, respectively, of common stock. During 2020, the Company incurred approximately $65,100~~of capitalizable costs associated with the follow-on public offering, which were netted against the proceeds received in 2021. These costs were capitalized as of December 31, 2020 and are shown on the Balance Sheet as Deferred Offering Costs.

~~As of September 30, 2021, the Company incurred approximately $133,400~~ ~~of capitalizable costs associated with a preferred stock offering which will be netted against proceeds of the offering and is discussed in Note 17. Subsequent Events.~~

3. ~~CONCENTRATION, RISKS, AND UNCERTAINTIES~~

Cash Concentrations

The Company maintains cash balances at various financial institutions. These balances are secured by the Federal Deposit Insurance Corporation. These balances generally exceed the federal insurance limits. Uninsured cash balances were $~~4,264,400~~$12.7 million and $~~2,146,000~~$24.5 million as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Revenue Concentrations

Homes

~~Homes~~

For the three months ended September 30, 2022, three customers each represented 32%, 33%, and 34% of the home revenue, respectively. For the three months ended September 30, 2021, five customers each represented 19%19% of ~~homes~~the home revenue. ~~For the nine months ended September 30, 2021, there~~

There were no concentrations in relation to the homes revenue ~~segment. For~~segment for the ~~three and~~ nine months ended September 30, ~~2020, there~~2022 and 2021.

Developed Lots

There were no concentrations in relation to the ~~homes revenue segment.~~

~~Completed Lots~~

developed lots segment for the three months ended September 30, 2022. For the three months ended September 30, 2021, three customers each represented 38%38%, 38%38%, and 24%24% of ~~completed~~the developed lots revenue, respectively.

For the nine months ended September 30, 2022, two customers represented 62% and 26%, respectively, of the developed lots revenue segment. Lennar Northwest, Inc. represented 90% of the developed lots revenue for the nine months ended September 30, 2021.

Entitled Land

For the three months ended September 30, ~~2020, there were no~~ ~~concentrations in relation to the completed lots revenue segment. For the nine months ended September 30, 2021 and 2020, Lennar Northwest,~~2022, 1031 Services, Inc. ~~(“Lennar”)~~ represented 90~~% and~~ 0%100% of the ~~completed lots revenue, respectively.~~

~~Entitled Land~~

entitled land revenue.

For the three months ended September 30, 2021, Lennar Northwest, Inc. represented 100% of the entitled land revenue.

Two customers represented 57% and ~~2020, Lennar represented~~ ~~100% and~~ 0%43% of the entitled land revenue ~~respectively. For~~for the nine months ended September 30, ~~2021 and 2020,~~2022. Lennar Northwest, Inc., represented 100% for the nine months ended September 30, 2021.

~~100~~
~~% and~~ 0~~% of entitled land revenue, respectively.~~

Fee Build

Lennar Northwest, Inc. represented 100% of fee build revenue for the three and nine months ended September 30, 2022 and 2021.

3. NOTES RECEIVABLE

As of September 30, 2022, the total principal balance of notes receivable amounted to $9.8 million. These notes arose as financing by the Company for the sale of real estate properties or financing the development of the properties prior to acquisition. These notes are secured by the underlying improved real estate properties and accrue interest at annual rates ranging from 5% to 9%. All payments of principal and interest are due in full between March 30, 2023 and December 20, 2024. The outstanding balance of the notes amounted to $9.8 million

~~For~~and $2.0 million at September 30, 2022 and December 31, 2021, respectively. Interest income was $0.2 million and $0 for the three months ended September 30, 2022 and 2021, respectively. Interest income was $0.4 million and ~~2020, Lennar represented~~ ~~100% and~~ 0~~% of fee build revenue, respectively. For~~$0 for the nine months ended September 30, 2022 and 2021, ~~and 2020, Lennar represented~~ ~~100% and~~ 0~~% of fee build revenue,~~ respectively.

~~COVID-19~~

In March ~~2020,~~2022, the ~~World Health Organization declared~~ Company entered into a promissory note with Rocklin Winding Lane 22, LLC for $4.8 million ("the ~~outbreak~~note") for the sale of developed lots. In the third quarter of 2022, Rocklin Winding Lane 22, LLC defaulted on the note due to a ~~novel coronavirus (“~~~~COVID-19~~~~”) as~~missed interest payment on June 30, 2022. As a ~~pandemic which continues to spread throughout~~result, the ~~United States~~Company issued a letter of default in August 2022 and began foreclosure proceedings on the ~~world. The Company is monitoring the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior intended to reduce its spread,~~underlying real estate asset in ~~addition~~October 2022. Pursuant to the ~~impact on its employees. Due~~subordination agreement, the underlying real estate asset has a $1.0 million senior loan to a third party that is prioritized over the ~~rapid development and fluidity of this situation, the magnitude and duration of the pandemic and its impact on the Company’s operations and liquidity are uncertain as of the date of this report.~~

~~The COVID-19 Pandemic has had the following effect on the Company’s business:~~

1.	Construction not related to safety, spoliation, or critical infrastructure was halted by Washington State Governor Inslee (the “Governor”) on March 23, 2020. Some operations could continue based on the aforementioned exceptions to the shutdown order, but the Company did experience a significant operational slowdown.
2.	Soundview Estates (a large Harbor Custom Development, Inc. site) continued selective activities that yielded rock byproduct, considered an essential material, needed for critical infrastructure projects for an Amazon distribution center and a local hospital.
3.	On April 24, 2020, the Governor approved the restart of most residential housing projects, deeming them essential, as long as they adhered to certain safety measures. Under this order, most existing permitted residential homes or projects were considered essential. The order allowed the Company to resume near full construction activities on all permitted lots.
4.	On May 1, 2020, the Governor established a four-phase plan for Washington businesses to follow. All Harbor Custom Development, Inc. development sites were in Phase 3 of the plan where construction was able to continue, and new construction was allowed, as long as the Company created a safety plan adhering to certain safety practices, which the Company had done.
5.	As of June 30, 2021, Washington State reopened the state under the Washington Ready plan. All industry sectors previously covered by the Roadmap to Recovery or the Safe Start Plan (which included all Harbor Custom Development, Inc. operational activities) returned to usual capacity and operations.

note. The Company has performed an impairment analysis by reviewing the difference between the carrying amount of the note and the estimated fair value of the collateralized properties and determined that the note is not ~~at this time, experienced any cancelled sales contracts. The Company has experienced some supply-chain issues with both cabinetry and appliances related to COVID-19.~~fully collectible. As of the date of this report, the Company’s projects are on-schedule and operations are not being materially impacted by the COVID-19 pandemic. While there could ultimately be a material impact on operations and liquidity ofSeptember 30, 2022, the Company atrecorded a valuation allowance against the ~~time~~note and related bad debt expense within operating expenses of ~~issuance~~$0.8 million.

The details of ~~this report, the ultimate impact could not be determined.~~notes receivables, net of a valuation allowance are as follows:


	September 30, 2022		December 31, 2021
Broadmoor Commons LLC	$	942,100	$	500,000
Modern Homestead LLC	1,500,000		1,500,000
Rocklin Winding Lane 22, LLC	4,032,100		—
Noffke Horizon View, LLC	3,280,000		—
Total Notes Receivable	$	9,754,200	$	2,000,000

4
.

4. PROPERTY AND EQUIPMENT

Property and equipment stated at cost, less accumulated depreciation and amortization, consisted of the following:


	September 30, 2022		December 31, 2021
Machinery and Equipment	$	10,613,100	$	10,577,600
Vehicles	104,000		71,800
Furniture and Fixtures	695,600		420,300
Leasehold Improvements	1,471,300		81,200
Total Fixed Assets	12,884,000		11,150,900
Less Accumulated Depreciation	(2,814,800)		(1,951,200)
Fixed Assets, Net	$	10,069,200	$	9,199,700

~~SCHEDULE OF PROPERTY AND EQUIPMENT~~

September 30, 2021 December 31, 2020

Machinery and Equipment $ 10,557,100 $ 8,908,000
Vehicles 71,800 73,500
Furniture and Fixtures 147,500 136,300
Leasehold Improvements 7,000 7,000

Total Fixed Assets 10,783,400 9,124,800

Less Accumulated Depreciation (1,650,500 ) (948,800 )

Fixed Assets, Net $ 9,132,900 $ 8,176,000

Depreciation expense was $~~300,400~~$0.4 million and $~~133,400~~$0.3 million for the three months ended September 30, 2022 and 2021, ~~and 2020,~~ respectively.

Depreciation expense was $~~783,500~~$1.0 million and $~~419,200~~$0.8 million for the nine months ended September 30, 2022 and 2021, ~~and 2020,~~ respectively.

5. REAL ESTATE

Real Estate consisted of the following components:


	September 30, 2022		December 31, 2021
Land Held for Development	$	47,311,900	$	73,524,400
Construction in Progress	101,894,900		43,362,700
Held for Sale	30,726,000		5,249,000
Total Real Estate	$	179,932,800	$	122,136,100

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

~~SCHEDULE OF REAL ESTATE~~

September 30, 2021 December 31, 2020

Land Held for Development $ 77,841,100 $ 9,532,800
Construction in Progress 23,620,300 9,042,700
Held for Sale 4,002,300 1,794,800
Real estate $ 105,463,700 $ 20,370,300

6. ~~EQUIPMENT LOANS~~

~~Consists~~

Accounts payable and accrued liabilities consisted of the following:


	September 30, 2022		December 31, 2021
Trade Accounts Payable	$	10,853,600	$	5,558,400
Income Tax Payable	—		2,415,900
Accrued Compensation, Bonuses, and Benefits	671,900		1,071,700
Accrued Quarry Reclamation Costs	154,600		500,000
Retainage Payable	1,029,200		445,800
Other Accruals	631,000		671,000
Total Accounts Payable and Accrued Expenses	$	13,340,300	$	10,662,800

~~SCHEDULE~~

7. REVOLVING LINE OF CREDIT

On March 7, 2022, the Company entered into a senior secured revolving credit facility (“the credit facility”) with BankUnited, N.A. (the "Lender") for $25.0 million. The credit facility has a two year term, with a maturity date of March 7, 2024. The unpaid principal bears interest at a fluctuating rate of interest per annum equal to the daily simple secured overnight financing rate (SOFR) plus the applicable margin of 4.75%. The credit facility is used to fund the Company’s general working capital needs and interest is expensed as incurred. For the three and nine months ended September 30, 2022, the Company capitalized debt issuance costs of $0 and $1.1 million, respectively. These costs are recorded as debt discount and amortized ratably over the life of the loan. The credit facility is collateralized by all of the Company's assets wherein the Lender is granted a junior priority interest in all collateralized Company assets that Lender has previously identified as a permitted lien or other encumbrance that the Company regularly incurs through its ordinary

course of business; in all other Company assets, Lender maintains a first priority security interest. The credit facility also contains specific financial covenants. As of September 30, 2022, the Company was in compliance with these covenants except for its minimum interest coverage ratio requirement. The Company is actively engaged with the Lender to come to terms on a restructured financing arrangement, potentially including revised financial covenants for future periods. The discussions are on-going and there has been no formal revised agreement as of the date hereof. Interest expense was $0.5 million and $0 for the three months ended September 30, 2022 and 2021, respectively. Interest expense was $0.9 million and $0 for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, the revolving line of credit loan balance was $24.8 million and the unamortized debt discount balance was $0.8 million.

8. EQUIPMENT LOANS

Equipment loans consists of the following:

September 30, 2021 December 31, 2020

Various notes payable to banks and financial institutions with interest rates varying from 0.00% to 13.89%, collateralized by equipment with monthly payments ranging from $400 to $11,600 through 2026: $ 5,731,800 $ 5,595,500
Book value of collateralized equipment: $ 7,840,900 $ 6,475,600


	September 30, 2022		December 31, 2021
Various notes payable to banks and financial institutions with interest rates varying from 0% to 13.89%, collateralized by equipment with monthly payments ranging from $400 to $11,600 through 2025:	$	4,296,100	$	5,268,500
Book value of collateralized equipment:	6,944,800		7,229,000

Future equipment loan maturities at September 30, 2022 are as follows:

Year Ending December 31,


2022 (three months)	$	502,600
2023	1,896,800
2024	1,673,200
2025	223,500
Total	$	4,296,100

~~For~~

Interest expense was $0.04 million and $0.05 million for the ~~twelve~~three months ended September ~~30:~~

~~SCHEDULE OF FUTURE EQUIPMENT LOAN MATURITIES~~

2022 $ 1,876,900
2023 1,787,700
2024 1,652,200
2025 410,200
2026 4,800

Equipment Loans $ 5,731,800

30, 2022 and 2021, respectively.

Interest expense was $0.1 million and $0.1 million for the nine months ended September 30, 2022 and 2021, respectively.

9. CONSTRUCTION LOANS

The Company has various construction loans with private individuals and finance companies. The loans are collateralized by specific construction projects. ~~All~~Most loans ~~have a~~ are generally on one~~-year term~~ to two year terms but will be refinanced if the project is not completed within one ~~year~~ to two years and will be due upon the completion of the project. Interest accrues on the loans and is included with the payoff of the loan. Interest ranges from 5%5% to 39%10%. Interest expense and amortization of debt discount are capitalized when incurred and expensed as cost of goods sold when the corresponding property is sold. The loan balances related to third party lenders as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021 were $~~39,560,700~~$85.6 million and $~~10,092,500~~,$39.4 million, respectively. The unamortized debt discounts related to these construction loans as of September 30, 2022 and December 31, 2021 were $2.4 million and $4.4 million, respectively. The book value of collateralized real estate as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021 was $~~105,463,700~~$165.9 million and $~~20,370,300~~,$122.1 million, respectively.

8. ~~LINE~~

10. LETTER OF CREDIT

The Company entered into a ~~Line~~letter of credit ~~(“LOC”)~~ agreement with WaFd ~~bank~~Bank of $~~597,600~~$0.6 million on August 10, 2021. ~~There was~~ 0 ~~borrowing against the LOC as~~The letter of ~~September 30, 2021. The LOC~~credit expires February 1, ~~2032~~.2032. The interest rate of the ~~LOC~~letter of credit is Prime plus 1%. The ~~LOC~~letter of credit has been established for the purpose of collateralizing the Company’s new Tacoma office lease obligations with ~~their new~~the landlord ~~the landlord~~which is the beneficiary of the ~~LOC. As~~letter of ~~September 30, 2021, there was $~~credit. (See Note 1. Restricted Cash.)

0
~~outstanding on the LOC.~~

11. NOTE PAYABLE ~~D&O~~DIRECTORS & OFFICERS INSURANCE

The Company purchased ~~D&O~~Directors & Officers (D&O) insurance on August 28, ~~2020~~2022 for $~~1,531,900~~.$0.6 million. A down payment of $~~306,400~~$0.1 million was made and the remaining balance ~~of $1,225,500~~was financed over ~~ten months~~.11 months. The interest rate on the loan is ~~4.74~~%4.75%. The loan balance as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021 was $0$0.5 million and $$0.9 million, respectively.

~~741,200~~
~~, respectively.~~

~~The Company purchased D&O insurance on September 1, 2021 for $1,541,400. A down payment of $131,100~~ ~~was made and the remaining balance of $1,410,300~~ ~~was financed over~~ ~~ten months. The interest rate on the loan is~~ ~~4.42%. The loan balance as of September 30, 2021 and December 31, 2020 was $1,284,000~~ ~~and $~~0~~, respectively.~~

~~10.~~ ~~NOTE PAYABLE PPP~~

~~On April 11, 2020, the Company entered into a term note with Timberland Bank, with a principal amount of $582,800~~ pursuant to the Paycheck Protection Program (“PPP Loan”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan is evidenced by a promissory note (“PPP Term Note”). The PPP Term Note bears interest at a fixed annual rate of ~~1.00~~%, with the first six months of interest deferred. Beginning in November 2020, 18 equal monthly payments of principal and interest were due with the final payment due in April 2022. The PPP Term Note may be accelerated upon the occurrence of an event of default.

The PPP Term Note is unsecured and guaranteed by the United States Small Business Administration. The Company may apply for forgiveness of the PPP Term Note, with the amount which may be forgiven equal to the sum of payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company during the applicable period beginning upon receipt of PPP Term Note funds, calculated in accordance with the terms of the CARES Act.

~~On November 9, 2020 and February 1, 2021, the SBA forgave $562,300~~ ~~and $10,000, respectively, on the PPP Loan.~~

~~As of September 30, 2021 and December 31, 2020, the balance of the PPP Loan was $~~0 ~~and $19,300, respectively.~~

11. ~~DEFINED CONTRIBUTION PLAN~~

Effective January 1, 2016, the Company established a 401(k) plan for qualifying employees; employee contributions are voluntary. Company contributions to the plan for the three months ended September 30, 2021 and 2020 were $~~24,900~~ ~~and $~~0~~, respectively. Company contributions to the plan for the nine months ended September 30, 2021 and 2020 were $74,500~~ ~~and $~~0~~, respectively.~~

12. COMMITMENTS AND CONTINGENCIES

~~COMMITMENTS~~

From time to time, the Company is subject to compliance audits by federal, state, and local authorities relating to a variety of regulations including wage and hour laws, taxes, and workers’ compensation. There are no significant or pending litigation or regulatory proceedings known at this time.

~~On September 17, 2020, the Company entered into a purchase and sale agreement for the acquisition of~~ ~~9.6~~ ~~acres of land in Port Orchard, Washington for $1,440,000. Closing is contingent on permit approval and is expected to take place on or before November 28, 2021.~~

On June 15, 2020, the Company entered into a purchase and sale agreement to acquire property for the construction of 3033 townhomes located in East Bremerton, Washington for $~~2,040,000~~.$2.0 million. Closing is expected to take place ~~on or before June 30,~~in Q4 2022.

On ~~August 8,~~December 2, 2021, ~~the Company entered into a purchase and sale agreement to acquire property for the construction of 75 condominiums units located in Yelm, Washington for $3,250,000. Closing took place on October 4, 2021. See Note 17. Subsequent Events.~~

~~On August 30, 2020,~~ the Company entered into a purchase and sale agreement for the acquisition of ~~67 lots~~438 acres in ~~Auburn, California.~~Blaine, Washington for $13.5 million. Closing is expected to take place ~~on or before August 30,~~in Q4 2023.

On April 21, 2022, the Company entered into a purchase and sale agreement for the purchase of 4.81 acres in Port Orchard, Washington for $2.6 million. Closing is expected to take place in Q4 2022.

13. RELATED PARTY TRANSACTIONS

Notes Payable

The Company entered into construction loans with Sound Equity, LLC of which Robb Kenyon, a former director and minority shareholder, is a partner. These loans were originated between April 2019 and ~~January~~June 2021; ~~all of~~ the loans generally have a ~~one-year~~12 to 18 month maturity, ~~with~~including those that have been extended. The interest rates ~~ranging~~range between ~~8.49~~%7.99% and ~~12.00~~%9.99%. As of September 30, 2022, and December 31, 2021, the outstanding loan balances were $8.9 million and $14.5 million, respectively. For the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the Company ~~incurred~~capitalized loan ~~origination~~ fees of $0$0.01 million and $~~178,500~~,$0, respectively. For the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the Company ~~incurred~~capitalized loan ~~origination~~ fees of $~~552,800~~$0.02 million and $~~283,300~~,$0.6 million, respectively. These fees are recorded as debt discount and amortized over the life of the loan. The amortization is capitalized to real estate. As of September 30, ~~2021,~~2022 and December 31, ~~2020,~~2021, there were $~~292,600~~$0.01 million and $~~202,500~~$0.2 million of remaining debt discounts, respectively. The interest is capitalized to real estate as incurred. During the three months ended September 30, ~~2021~~2022 and ~~2020~~2021, the Company incurred ~~prepaid~~ interest of $0$0.3 million and $~~296,100~~,$0.2 million, respectively. During the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021, the Company incurred ~~prepaid~~ interest of $~~1,431,100~~$0.9 million and $$0.6 million, respectively.

~~840,000~~
, respectively. This interest is recorded as debt prepaid interest and amortized over the life of the loan. The interest is capitalized to real estate. As of September 30, 2021, and December 31, 2020 there were $~~1,123,700~~ ~~and $466,600~~ ~~of remaining prepaid interest reserves, respectively. As of September 30, 2021, and December 31, 2020 the outstanding loan balances were $12,792,300~~ ~~and $6,489,900, respectively.~~

~~The Company entered into a construction loan with Curb Funding, LLC of which Robb Kenyon a former director and minority shareholder, is~~ ~~100% owner. The loan originated on August 13, 2020. The loan has a one-year maturity with an interest rate of~~ 12~~%. As of September 30, 2021 and December 31, 2020, the Company incurred loan fees of $~~0 ~~and $3,500~~, respectively. These fees are recorded as debt discount and amortized over the life of the loan. The amortization is capitalized to real estate. As of September 30, 2021, and December 31, 2020, there were $0 ~~and $1,100~~ ~~of remaining debt discounts, respectively. As of September 30, 2021, and December 31, 2020, the outstanding loan balances were $~~0~~, and $51,800, respectively. The Company incurred interest expense of $2,800~~ ~~and $~~0 ~~for the nine months ended September 30, 2021 and 2020, respectively.~~

Robb Kenyon resigned as a director of the Company on July 8, 2021.

On April 19, 2019, the Company entered into a construction loan with Olympic Views, LLC of which the Company’s Chief Executive Officer and President previously owned a 50% interest. The loan amount was $~~442,000~~ ~~with an interest rate of~~ ~~12%~~ ~~and a maturity date of April 19, 2020. The loan was collateralized by a deed of trust on the land. The amounts outstanding were $~~0 ~~and $~~0 ~~as of September 30, 2021 and December 31, 2020, respectively. The interest expense was $~~0 ~~and $8,900~~ ~~for the three months ended September 30, 2021 and 2020 and was capitalized as part of Real Estate The interest expense was $~~0 ~~and $41,900~~ for the nine months ended September 30, 2021 and 2020 and was capitalized as part of Real Estate. In May 2020, the Company entered into an agreement with Olympic Views, LLC to convert this debt and accrued interest of $~~55,000~~ ~~to common stock at the Initial Public Offering price of $6.00. This conversion was effected on August 28, 2020 simultaneous with the Initial Public Offering. This transaction resulted in~~ ~~82,826~~ ~~shares of common stock being issued to Olympic Views, LLC.~~

Due to Related Party

The Company utilizes a quarry to process waste materials from the completion of raw land into sellable/buildable lots. The ~~quarry is located on land owned by SGRE, LLC which is~~ ~~100% owned by the Company’s Chief Executive Officer and President. The~~ materials produced by the quarry and sold by the Company to others are subject to a 25%25% commission payable to SGRE, ~~LLC.~~LLC, which is 100% owned by the Company’s Chief Executive Officer and President. The commission expense is recorded in operating expenses. On September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the commission payable was $~~8,200~~$0 and $0,$0.01 million, respectively. The commission expense for the three months ended September 30, 2022 and 2021, was $0.01 million and ~~2020, was $17,100~~ ~~and $209,100~~,$0.02 million, respectively. The commission expense for the nine months ended September 30, 2022 and 2021, was $0.04 million and ~~2020, was $~~$0.1 million, respectively.

~~72,800~~
~~and $~~

14. INCOME TAX

~~209,100~~
~~, respectively.~~

~~Richard Schmidtke, a Company director, provided accounting services in 2021 and 2020 to the Company. On September 30, 2021 and December 31, 2020, the fees payable to Mr. Schmidtke were $~~0 ~~and $500, respectively.~~ The ~~accounting expense incurred by the Company for Mr. Schmidtke’s services for the three months ended September 30, 2021 and 2020 was $500~~ ~~and $6,000, respectively. The accounting expense incurred by the Company for Mr. Schmidtke’s services~~Company’s effective tax rate for the nine months ended September 30, 2022 was a benefit of 23.6%, compared to 0% for the nine months ended September 30, 2021. The Company calculated the effective tax rate for the nine months ended September 30, 2022 based on the actual effective tax rate for the year-to-date period compared to the estimate of the annual effective tax rate for the nine months ended September 30, 2021. The increase in the effective tax rate for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 is driven by the release of the valuation allowance at December 31, 2021 and ~~2020 was $1,000~~ ~~and $40,300, respectively.~~

~~Land Purchase from a Related Party~~

~~On September 2, 2020, the Company purchased 99 unfinished lots for $3,430,000~~ ~~from Olympic Views, LLC. The Company’s Chief Executive Officer and President owned a~~ 50~~% interest in this LLC at the date of purchase. He currently has no ownership interest in this LLC.~~

~~14.~~ nondeductible incentive stock options.

15. STOCKHOLDERS’ EQUITY

Common Stock

The Company is authorized to issue 50,000,000 shares of common stock, at 0no par value per share. At September 30, ~~2021,~~2022, the Company has ~~14,922,094~~14,352,365 shares of common stock issued and outstanding.

Each share of common stock has one vote per share for all purposes. Common stock does not provide any preemptive, subscription, or conversion rights and there are no redemption or sinking fund provisions or rights. Common stockholders are not entitled to cumulative voting for purposes of electing members to the Board of Directors.

Preferred Stock

At September 30, ~~2021,~~2022, the Company is authorized to issue 10,000,000 shares of preferred stock, at 0no par value per share. As of September 30, ~~2021,~~2022, the Company has ~~1,260,555~~3,799,799 shares of Series A Cumulative Convertible Preferred Stock (“Series A Preferred Shares”) issued and outstanding. The holders of the Series A Preferred Shares are entitled to receive dividends at ~~a rate of~~ 8%$2.00 per share per annum ~~payable~~which are paid monthly in arrears starting June 30, ~~2021 and are entitled to a liquidation preference equal to $25.00~~ ~~per share plus all accrued and unpaid dividends.~~2021. Beginning on June 9, 2024, the Company may, at its option, redeem the Series A Preferred Shares, in whole or in part, by paying $~~25.00~~$25.00 per share, plus any accrued and unpaid dividends to but not including the date of redemption. To the extent declared by the ~~board~~Board of Directors, dividends will be payable not later than 20 days after the end of each calendar month. Dividends on the Series A Preferred Shares will accumulate whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends, and whether or not such dividends are declared by the Board of Directors.

Conversion at Option of Holder. Each Series A Preferred Share, together with accrued but unpaid dividends, is convertible into ~~common stock at a conversion price of $4.50~~ ~~per share~~5.556 shares of common stock ~~which initially equals~~ ~~5.556~~ ~~shares of common stock~~(subject to adjustment) at any time at the option of the holder.

Dividends

~~Dividends~~

Preferred Stock. The holders of the Series A Preferred Shares are entitled to receive dividends ~~at a rate~~in the amount of 8%$2.00 per share per annum, ~~payable monthly in arrears.~~which is equivalent to 8% of the $25.00 liquidation preference per share. The Company has accrued dividends of $~~210,600~~$0.6 million as of September 30, ~~2021~~2022 which were paid ~~to the shareholders~~ on October ~~20, 2021.~~17, 2022.

Common Stock. The declaration of any future cash dividends is at the discretion of the board of directors and depends upon the Company’s earnings, if any, capital requirements and financial position, general economic conditions, and other pertinent conditions. It is the Company’s present intention not to pay any cash dividends on the Company’s common stock in the foreseeable future, but rather to reinvest earnings, if any, in business operations.

~~Public Offering and Conversion~~

Repurchase of ~~Debt~~Equity Securities

On May 10, 2022, the Board of Directors approved a stock repurchase program authorizing the repurchase of up to $5.0 million worth of shares of common stock. The ~~registration statement for~~amount of the repurchase program represented approximately 15% of the outstanding shares of the Company’s ~~initial public offering (the “Initial Public Offering”) became effective~~common stock valued at the closing price on ~~August 28, 2020. On~~May 10, 2022. During the nine months ended September ~~1, 2020,~~30, 2022, the Company ~~closed on the Initial Public Offering of~~ ~~2,031,705~~ ~~shares of its common stock at the public offering price of $6.00~~ ~~per share, which included~~ ~~265,005~~repurchased 251,934 shares of common stock ~~sold upon full exercise~~under this repurchase program at an average price of ~~the underwriters’ option to purchase additional shares of common stock for gross proceeds of $12,190,200. The net proceeds from the Initial Public Offering after deducting the underwriting discount and the underwriters’ fees and expenses were $10,789,000~~.

~~In addition, upon closing of the Initial Public Offering, the Company issued to the underwriters warrants to purchase an aggregate of~~ ~~88,335~~ ~~shares of common stock exercisable at a~~$1.76 per share ~~price of $7.50~~ for a ~~term~~total of ~~four yearsbeginning on August 28, 2021. The fair value of these warrants is $167,400~~.

~~Also, upon closing of the Initial Public Offering, the Company issued to Olympic Views, LLC (“Olympic”),~~ ~~82,826~~ ~~shares of its common stock as a result of the conversion of debt owed to Olympic in the amount of $442,000~~ ~~and accrued interest of $55,000~~ ~~at the public offering price per share of $6.00~~.

~~2021 Common Stock Offering~~

~~On January 15 and 20, 2021, the Company closed on an offering (the “Follow-On Offering”) of~~ ~~9,200,000~~ ~~shares of common stock at the public offering price of $3.00~~ ~~per share, which includes~~ ~~1,200,000~~ ~~shares of common stock sold upon full exercise of the underwriters’ option to purchase additional shares of common stock for gross proceeds of $27,600,000. The net proceeds after deducting stock issuance costs were $25,101,000~~.

~~In addition, upon closing of the Follow-On Offering the Company issued to the underwriters, warrants to purchase an aggregate of~~ ~~400,000~~ ~~shares of common stock exercisable at a per share price of $3.75~~ ~~for a term of~~ ~~five years~~ ~~beginning on January 12, 2021 which vest on July 12, 2021. The fair value of these warrants is $453,800~~.

~~Preferred Stock Offering~~

~~On June 11, 2021, the Company closed an offering (the “Preferred Stock Offering”) for~~ ~~1,200,000~~ ~~Series A Preferred Shares and warrants to purchase~~ ~~4,140,000~~ ~~shares of common stock at an exercise price of $5.00~~ ~~per share, which included~~ ~~540,000~~ ~~warrants pursuant to the underwriter’s partial exercise of their over-allotment option, for gross proceeds of $30,005,400. On June 30, 2021, the underwriters made another partial exercise of their over-allotment option and purchased an additional~~ ~~60,555~~ ~~Series A Preferred Shares for additional gross proceeds of $1,406,200. The net proceeds from the Preferred Stock Offering after deducting stock issuance costs was $28,661,000~~.

~~In addition, upon closing of the Preferred Stock Offering, the Company issued to the underwriters two warrants, including (i) warrants to purchase~~ ~~12,000~~ ~~Series A Preferred Shares; and (ii) warrants to purchase~~ ~~36,000~~ ~~shares of common stock at an exercise price of $5.00~~.

~~The warrants issued to investors in this offering have an exercise price of $5.00~~ ~~with a life of~~ ~~five years~~ ~~from the date of issue. The fair value of the warrants was $3,701,600, which was valued using the Black Scholes Model.~~

$0.4 million.

(A) Options

The following is a summary of the Company’s option activity:

~~SCHEDULE OF STOCK OPTIONS ACTIVITY~~

Options
Weighted
Average
Exercise Price

Outstanding – December 31, 2020 442,172 $ 2.53
Exercisable – December 31, 2020 219,085 $ 1.31
Granted 150,000 $ 3.23
Exercised (45,046 ) $ 0.40
Forfeited/Cancelled (33,114 ) $ 3.18
Outstanding – September 30, 2021 514,012 $ 2.88
Exercisable – September 30, 2021 363,361 $ 2.84

~~SCHEDULE OF STOCK OPTIONS OUTSTANDING AND EXERCISABLE~~

Options Outstanding
Options Exercisable
Exercise Price
Number
Outstanding

Weighted
Average
Remaining
Contractual
Life
(in years)

Weighted
Average
Exercise
Price

Number
Exercisable

Weighted
Average
Exercise Price

$ 0.40 - $6.50 514,012 6.73 $ 2.88 363,361 $ 2.84


	Options	Weighted Average Exercise Price
Outstanding – January 1, 2022	463,251	$	2.82
Exercisable – January 1, 2022	343,724	$	2.77
Granted	392,000	$	1.19
Exercised	(21,623)	$	0.40
Forfeited/Cancelled	(32,703)	$	1.90
Outstanding – September 30, 2022	800,925	$	2.05
Exercisable – September 30, 2022	383,049	$	2.76


	Options Outstanding				Options Exercisable
Exercise Price	Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$0.40 - $6.50	800,925	8.28	$	2.05	383,049	$	2.76

During the nine months ended September 30, ~~2021,~~2022, the Company issued ~~150,000~~ 392,000 options to employees. The options have an exercise price between $~~2.76~~ $1.12 and $~~3.41~~ $2.09 per share, a term of 10ten years, and vest over ~~two~~one or three ~~years~~.years. The options have an aggregated fair value of approximately $~~192,900~~$0.2 million that was calculated using the Black-Scholes option-pricing model based on the assumptions discussed above in Note 21 under Stock-Based Compensation.

During the nine months ended September 30, ~~2021,~~2022, the Company had ~~45,046~~21,623 options exercised by a former ~~employee.~~employees. These ~~shares~~options were exercised at $~~0.40~~$0.40 per share for a total of $$0.01 million.

~~18,000~~
.

The Company recognized share-based compensation net of forfeitures related to options of $~~90,700~~$0.02 million and $~~9,900~~$0.1 million for the three months ended September 30, 2022 and 2021, ~~and 2020,~~ respectively.

The Company recognized share-based compensation net of forfeitures related to options of $~~246,200~~$0.1 million and $~~11,000~~$0.2 million for the nine months ended September 30, 2022 and 2021, ~~and 2020,~~ respectively.

~~As of~~

On September 30, ~~2021,~~2022, unrecognized share-based compensation was $$0.3 million.

~~170,300~~
.

The intrinsic value for outstanding and exercisable options as of September 30, ~~2021~~2022 was $~~333,400~~$0.1 million and $~~306,500~~.

$0.1 million.

(B) Warrants

The following is a summary of the Company’s ~~Common Stock Warrant~~common stock warrant activity:


	Warrants	Weighted Average Exercise Price
Outstanding – January 1, 2022	18,486,859	$	3.46
Exercisable – January 1, 2022	18,486,859	$	3.46
Granted	100,000	$	3.00
Exercised	(139,295)	$	2.97
Forfeited/Cancelled	—	$	—
Outstanding – September 30, 2022	18,447,564	$	3.47
Exercisable – September 30, 2022	18,372,564	$	3.47

~~SCHEDULE OF WARRANTS ACTIVITY~~


	Warrants Outstanding				Warrants Exercisable
Exercise Price	Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$0.40 - $7.50	18,447,564	3.93	$	3.47	18,372,564	$	3.47

Warrants
Weighted
Average
Exercise Price

Outstanding – December 31, 2020 110,859 $ 6.06
Exercisable – December 31, 2020 22,524 $ 0.40
Granted 4,036,000 $ 4.88
Exercised - $ -
Forfeited/Cancelled - $ -
Outstanding – September 30, 2021 4,146,859 $ 4.91
Exercisable – September 30, 2021 3,710,859 $ 5.03

During the nine months ended September 30, 2022, the Company issued 100,000 warrants in connection with investor relation services being performed. The warrants have an exercise price of $3.00 per share, a term of five years, and vest over three years. The fair value of these warrants is $0.1 million as of September 30, 2022.

~~SCHEDULE OF WARRANTS OUTSTANDING AND EXERCISABLE~~

Warrants Outstanding Warrants Exercisable
Exercise Price
Number
Outstanding

Weighted
Average
Remaining
Contractual
Life
(in years)

Weighted
Average
Exercise
Price

Number
Exercisable

Weighted
Average
Exercise Price

$ 0.40 - $7.50 4,146,859 4.66 $ 4.91 3,710,859 $ 5.03

The intrinsic value for outstanding and exercisable warrants as of September 30, ~~2021~~2022 was $~~43,900~~$0.01 million and $~~43,900~~,$0.01 million, respectively.

The following is a summary of the Company’s ~~Preferred Stock Warrant~~preferred stock warrant activity:


	Warrants	Weighted Average Exercise Price
Outstanding – January 1, 2022	12,000	$	24.97
Exercisable – January 1, 2022	12,000	$	24.97
Granted	—	$	—
Exercised	—	$	—
Forfeited/Cancelled	—	$	—
Outstanding – September 30, 2022	12,000	$	24.97
Exercisable – September 30, 2022	12,000	$	24.97


		Warrants Outstanding				Warrants Exercisable
Exercise Price		Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$	24.97	12,000	3.69	$	24.97	12,000	$	24.97

~~SCHEDULE OF WARRANTS ACTIVITY~~

Warrants
Weighted
Average
Exercise Price

Outstanding – December 31, 2020 - $ -
Exercisable – December 31, 2020 - $ -
Granted 12,000 $ 24.97
Exercised - $ -
Forfeited/Cancelled - $ -
Outstanding – September 30, 2021 12,000 $ 24.97
Exercisable – September 30, 2021 - $ -

~~SCHEDULE OF WARRANTS OUTSTANDING AND EXERCISABLE~~

Warrants Outstanding Warrants Exercisable
Exercise
Price Number Outstanding Weighted
Average Remaining Contractual
Life
(in years) Weighted
Average
Exercise Price Number Exercisable Weighted
Average
Exercise Price

$ 24.97 12,000 4.69 $ 24.97 12,000 $ 24.97

The intrinsic value for outstanding and exercisable preferred warrants as of September 30, ~~2021~~2022 was $0 ~~and $~~0~~, respectively.~~

$0.

(C) Restricted Stock Plan

The following is a summary of the Company’s restricted stock activity:


	Restricted Stock	Weighted Average Fair Value
Non Vested Balance - January 1, 2022	145,000	$	2.45
Granted	231,100	$	1.96
Vested	101,517	$	2.66
Forfeited/Cancelled	—	$	—
Non Vested Balance - September 30, 2022	274,583	$	1.96

~~SCHEDULE OF RESTRICTED STOCK UNIT ACTIVITY~~

Restricted Stock
Weighted
Average
Exercise Price

Outstanding – December 31, 2020 34,000 $ 4.53
Exercisable – December 31, 2020 8,500 $ 4.53
Granted 70,000 $ 3.12
Exercised - $ -
Forfeited/Cancelled - $ -
Outstanding – September 30, 20201 104,000 $ 3.58
Exercisable – September 30, 2021 51,500 $ 4.05

The Company periodically grants restricted stock awards to the ~~board~~Board of ~~directors~~Directors and certain employees pursuant to the 2020 Plan. These typically are awarded by the ~~board of directors~~Compensation Committee at one time and from time to time, to vest ~~in four equal installments on~~over one to three years, unless otherwise determined by the ~~last day of a fiscal quarter.~~ Compensation Committee.

The Company recognized $~~93,100~~$0.05 million and $0$0.1 million of share-based compensation ~~expense~~ during the three months ended September 30, 2022 and 2021, ~~and 2020,~~ respectively.

The Company recognized $~~170,100~~$0.4 million and $0$0.2 million of share-based compensation during the nine months ended September 30, 2022 and 2021, ~~and 2020,~~ respectively.

On September 30, ~~2021,~~2022, there was $~~163,800~~$0.4 million of unrecognized compensation related to non-vested restricted stock.

16. SEGMENTS

~~15.~~

In accordance with FASB ASC Topic 280, Segment Reporting, an operating segment is defined as a component of an enterprise for which discrete financial information is available and reviewed regularly by the chief operating decision maker (“CODM”), or decision making group, to evaluate performance and make operating decisions.

The Company identified its CODM group as its three executive officers, the Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer. In determining the reportable segments, the CODM group considers similar economics and characteristics including product types, construction processes, customer type, regulatory environments, and underlying demand and supply.

~~SEGMENTS~~

The Company’s business is organized into 4five material reportable segments which aggregate ~~99%~~99.9% of ~~revenue:~~revenue for the nine months ended September 30, 2022:

1) Homes

~~2) Completed~~Developed lots

3) Entitled land

4) Multi-family

4)5) Fee ~~build~~Build

The reporting segments follow the same accounting policies used in the preparation of the Company’s condensed consolidated financial statements. The following represents ~~selected~~revenue, cost of goods sold, and gross profit (loss) information for the Company’s reportable segments for the three ~~months ended September 30, 2021~~ and ~~2020 and the~~ nine months ended September 30, ~~2021~~2022 and ~~2020. Immaterial construction materials revenues~~2021:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue by segment
Homes	$	4,693,900	$	3,929,300	$	25,758,100	$	14,277,700
Developed lots	—		770,000		9,080,000		7,770,000
Entitled land	3,400,000		10,440,000		7,880,000		19,750,000
Multi-family	27,200		—		27,200		—
Fee Build	3,623,500		2,871,300		7,825,300		4,219,500
Other	3,900		—		45,400		—
	$	11,748,500	$	18,010,600	$	50,616,000	$	46,017,200

Cost of goods sold by segment
Homes	$	3,805,000	$	3,498,000	$	21,461,100	$	12,378,200
Developed lots	87,300		495,400		8,144,300		7,541,700
Entitled land	3,347,900		4,492,600		4,060,800		11,449,400
Multi-family	25,100		—		27,300		—
Fee Build	3,791,200		2,380,200		11,010,600		3,569,000
Other	254,300		—		1,351,300		—
	$	11,310,800	$	10,866,200	$	46,055,400	$	34,938,300

Gross profit (loss) by segment
Homes	$	888,900	$	431,300	$	4,297,000	$	1,899,500
Developed lots	(87,300)		274,600		935,700		228,300
Entitled land	52,100		5,947,400		3,819,200		8,300,600
Multi-family	2,100		—		(100)		—
Fee Build	(167,700)		491,100		(3,185,300)		650,500
Other	(250,400)		—		(1,305,900)		—
	$	437,700	$	7,144,400	$	4,560,600	$	11,078,900

The following represents total assets for the Company’s reportable segments at September 30, 2022 and ~~costs are included in the homes segment.~~

~~SCHEDULE OF COMPANY’S REPORTABLE SEGMENT~~

2021 2020 2021 2020
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Revenue by segment
Homes $ 3,929,300 $ 7,806,500 $ 14,277,700 $ 26,077,300
Completed lots 770,000 - 7,770,000 -
Entitled land 10,440,000 - 19,750,000 -
Fee Build 2,871,300 - 4,219,500 -
Revenue $ 18,010,600 $ 7,806,500 $ 46,017,200 $ 26,077,300

Cost of goods sold by segment
Homes $ 3,498,000 $ 7,183,900 $ 12,378,200 $ 24,448,100
Completed lots 495,400 - 7,541,700 -
Entitled land 4,492,600 - 11,449,400 -
Fee Build 2,380,200 - 3,569,000 -
Cost of Revenue $ 10,866,200 $ 7,183,900 $ 34,938,300 $ 24,448,100

Gross profit (loss) by segment
Homes $ 431,300 $ 622,600 $ 1,899,500 $ 1,629,200
Completed lots 274,600 - 228,300 -
Entitled land 5,947,400 - 8,300,600 -
Fee Build 491,100 - 650,500 -
Gross Profit $ 7,144,400 $ 622,600 $ 11,078,900 $ 1,629,200

December 31, 2021:


	September 30, 2022		December 31, 2021
Homes	$	27,009,200	$	36,615,600
Developed lots	42,983,800		8,219,500
Entitled land	9,911,500		28,157,800
Multi-family	111,291,300		47,679,400
Fee Build	5,768,500		3,325,300
Unallocated (Shared)	30,423,400		45,702,500
Total Assets	$	227,387,700	$	169,700,100

~~16.~~

17. UNCOMPLETED CONTRACTS

Costs, estimated earnings, and billings on uncompleted contracts are summarized as follows at September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


	September 30, 2022		December 31, 2021
Costs incurred on uncompleted contracts	$	16,580,500	$	5,991,300
Estimated earnings (loss)	(1,944,600)		811,600
Costs and estimated earnings on uncompleted contracts	14,635,900		6,802,900
Billings to date	15,111,200		4,635,700
Costs and estimated earnings in excess of billings on uncompleted contracts	—		2,167,200
Billings in excess of costs and estimated earnings on uncompleted contracts	(475,300)		—
Provision for loss on contract	(421,400)		—
Contract Assets (Liabilities), net	$	(896,700)	$	2,167,200

~~SUMMARY OF COST, ESTIMATED EARNINGS AND BILLINGS ON UNCOMPLETED CONTRACTS~~

September 30, 2021

December 31, 2020

Costs incurred on uncompleted contracts $ 3,717,000 $ -
Estimated earnings 723,700 -
Costs and estimated earnings on uncompleted contracts 4,440,700 -
Billings to date 4,207,600 -
Costs and estimated earnings in excess of billings on uncompleted contracts 624,000 -
Costs and earnings in excess of billings on completed contracts (390,900) -
Total $ 233,100 $ -

Costs in excess of billings $ 624,000 $ -
Billings in excess of cost (390,900) -
Total $ 233,100 $ -

At September 30, 2022, the contract liability of $0.9 million consists of a net loss of $1.9 million and provision for loss on contract of $0.4 million, partially offset by costs in excess of billings of $1.4 million. The uncollected billings as of September 30, 2022 were $5.5 million. At December 31, 2021, the contract asset of $~~4,762,400~~ ~~consists~~$2.2 million consisted of ~~uncollected billings~~estimated earnings of $~~4,138,400~~$0.8 million and costs in excess of billings of $$1.4 million. The uncollected billings as of December 31, 2021 were $1.0 million.

~~624,000~~
.

~~17.~~

18. SUBSEQUENT EVENTS

On ~~August 8, 2021,~~October 10, 2022, the board of directors of the Company declared a monthly cash dividend on the Company’s Series A Preferred Shares of $0.167 per share. The cash dividend is payable on November 20, 2022 to stockholders of record on October 31, 2022.

On October 20, 2022, the Company entered into a purchase and sale agreement ~~to acquire property~~ for the ~~construction~~sale of ~~75 condominiums units located~~56.63 acres in ~~Yelm, Washington~~Punta Gorda, Florida for $$7.3 million. Closing is expected to take place in Q4 2022.

~~3,250,000~~
~~which closed on October 4, 2021.~~

On ~~October 7, 2021,~~November 10, 2022, the board of directors of the Company ~~closed an offering (the “Preferred Stock Offering”) for~~ ~~2,400,000~~declared a monthly cash dividend on the Company’s Series A Preferred Shares ~~and warrants~~of $0.167 per share. The cash dividend is payable on December 20, 2022 to ~~purchase~~ ~~13,800,000~~ ~~shares~~stockholders of ~~common stock at an exercise price of $2.97~~ ~~per share, which included~~ ~~1,380,000~~ ~~warrants pursuant to the underwriter’s exercise of their over-allotment option, for gross proceeds of $33,076,700~~.

~~On October 14, 2021, the Company entered into a purchase and sale agreement to sell 20 lots in Semiahmoo, Washington for $3,800,000, closing~~record on ~~or before December 8, 2021.~~

~~On October 27, 2021, the Company entered into a purchase and sale agreement to sell 24 lots in Semiahmoo, Washington for $4,800,000, closing on or before December 21, 2021.~~

~~On October 29, 2021, the Company’s Board of Directors (the “Board”) appointed Lance Brown as the Company’s Chief Financial Officer and Principal Financial Officer, effective as of~~ November ~~1, 2021. Mr. O’Sullivan ceased to be the Company’s interim Chief Financial Officer effective as of the same date. Pursuant to Mr. Brown’s employment agreement, Mr. Brown receives a salary of $280,000~~ ~~per annum. In addition, Mr. Brown will receive a one-time sign on bonus of $75,000~~ ~~and is eligible to participate in the Company’s annual bonus plan. The Company also granted Mr. Brown~~ ~~100,000~~ ~~shares of common stock pursuant to the 2020 Plan,~~ ~~33,333~~ ~~shares of which will vest on~~ ~~November 8, 2022, and thereafter, the remaining~~ ~~66,666~~ ~~shares will vest on a quarterly basis in eight equal installments, whereby all shares shall be vested by November 8, 2024.~~

~~On November 1, 2021, the Company entered into a purchase and sale agreement to sell~~ 30, ~~lots in Horseshoe Bay, Texas for $6,045,500, closing on or before December 21, 2021.~~

~~On November 3, 2021, the Company entered into a purchase and sale agreement to sell 27 lots in Semiahmoo, Washington for $4,860,000, closing on or before December 15, 2021.~~

~~On November 5, 2021, the Company closed on the Underwriter’s exercise of its over-allotment option to purchase~~ ~~360,000~~ ~~Series A Preferred Shares from the Preferred Stock Offering and received net proceeds of $5,005,300~~.

~~On November 8, 2021, the Company entered into a purchase and sale agreement to sell one house in Bremerton, Washington for $739,000, closing on or before December 15, 2021.~~

2022.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

~~FORWARD LOOKING STATEMENTS~~

~~Statements made in this~~

This Quarterly Report on Form ~~10-Q/A that are not historical or current facts are “forward-looking statements” made pursuant to~~10-Q (“Report”) contains forward-looking statements within the ~~safe harbor provisions~~meaning of Section 27A of the Securities Act of 1933 ~~(the “Act”)~~ and Section 21E of the Securities Exchange Act of ~~1934 (the “Exchange Act”).~~1934. All statements other than statements of historical fact included in this Report are forward-looking statements. These forward-looking statements ~~often can be identified~~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 ~~the use of terms including, but not limited to “may,~~words such as “estimate,” “project,” “predict,” “believe,” “expect,” ~~“believe,~~“intend,” “anticipate,” ~~“estimate,~~“potential,” ~~“approximate” or “continue,~~“plan,” “goal,” “foresee,” “likely,” “target,” “may,” “should,” “could,” or other words that convey the ~~negative thereof. We intend that such~~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 ~~safe harbors~~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 ended December 31, 2021 (the “Annual Report on Form 10-K/A”) as such ~~statements. Readers~~factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”) which are accessible on the SEC’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 ~~any such~~ forward-looking statements ~~which speak~~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.

The forward-looking statements made in this Report relate only to events as of the date ~~made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking~~on which such statements are ~~subject~~made. We undertake no obligation to risks, uncertainties, and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to reviseupdate any forward-looking statements ~~to reflect events or circumstances~~ after the date of ~~such statement~~this Report or to ~~reflect the occurrence of anticipated~~conform such statements to actual results or ~~unanticipated events.~~revised expectations, except as required by law.

Overview

~~Overview and Outlook~~

~~We are~~

Harbor Custom Development, Inc. is a real estate development company involved in all aspects of the land development cycle including land acquisition, entitlements, development, construction of project infrastructure, ~~home building,~~single and multi-family vertical construction, marketing, sales, and ~~sales~~management of various ~~single-family and condominium~~residential projects in Washington, California, Texas, and Florida. ~~We have constructed single-family communities~~

As a land developer and ~~homes in Gig Harbor, Bremerton, Silverdale, Bainbridge Island, Belfair, Allyn, and Port Orchard in the state~~builder of ~~Washington, and have~~ single-family homes, ~~in various early stages of plan development~~luxury homes, townhomes, and construction in California, Texas, and Florida. Our business strategy is focused on the acquisition of land to develop property for the construction and sale of residential lots, home communities, or condominium properties within a 30 to 60-minute commute to major metropolitan employment corridors.

With $9,132,900 in heavy equipment, our infrastructure development division efficiently constructs a diverse range of residential communities and improved lots in a cost-effective manner. We utilize heavy equipment to develop raw land and create residential subdivisions and multi-family communities. The development process includes land clearing, site development, public and private road improvements, and installation of wet utilities such as sewer, water, and storm sewer lines, in addition to construction of dry utilities lines for power, gas, telephone, and cable service providers.

~~As of September 30, 2021, we own or control 25 communities in Washington, Texas, California, and Florida, containing an aggregate of 1,246 lots and 485.12 acres in various stages of development.~~

~~The core of~~apartments, our business ~~plan~~strategy is to acquire and develop land strategically based on ~~our~~an understanding of population growth patterns, ~~geo-economic forces,~~ entitlement restrictions and land use evaluation, infrastructure ~~development.~~development, and geo-economic forces. We ~~focus on locations~~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 target markets with convenient access to metropolitan areas that are generally characterized by diverse economic and employment bases and increasing populations. We believe that these conditions create strong demand for new housing and these locations represent what we believe to be attractive opportunities for long-term and sustainable growth.properties.

Our ~~business strategy is focused on the acquisition~~portfolio of land, ~~for development purposes~~lots, home plans, and ~~the design, construction, and sale~~finishing options, coupled with a historic low inventory of residential ~~lots,~~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 ~~homes,~~residential projects, we plan to build and sell townhomes, and ~~condominiums~~apartments. In an effort to strategically control the expanding needs of our corporate team, we signed a lease on October 5, 2021 for a new office space in Tacoma, Washington and moved our headquarters in April 2022. This office space is designed with a hybrid workforce in mind and takes into account employment trends that arose after the ~~Puget Sound region of Western Washington, with further expansion underway into similar markets~~COVID-19 global pandemic, specifically the increase in ~~California, Texas, and Florida.~~hybrid or remote employees.

Our strategy is driven by the following: (i) to provide superior quality and homeowner experience and service; (ii) expansion into new and complementary markets; (iii) adherence to our core operating principles to drive consistent long-term performance; and (iv) focus on efficient operations.

It is customary for us to sign purchase and sale agreements that contain a due diligence period which allows us time, ~~often~~usually between 30 and 60 days, to evaluate the acquisition. At times, through our due diligence efforts, we find that ~~the~~a property is not suitable for purchase due to economic forces, zoning issues, or other matters. If we determine that ~~the~~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. ~~On February 21, 2021, we terminated~~

Our infrastructure development division constructs a ~~purchase~~diverse range of residential communities and ~~sale agreement for 44 acres of undeveloped land near Austin, Texas,~~improved lots. We own and lease heavy equipment which we ~~had announced on January 22, 2021. After our termination~~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 ~~the agreement, our earnest money was returned. A $1,000 option contract fee included~~wet utilities such as sewer, water, and storm sewer lines, in ~~the purchase~~addition to construction of dry utility lines for power, gas, telephone, and ~~sale agreement was nonrefundable.~~

cable service providers.

We are a general contractor and construct single-family homes, townhomes, and apartments utilizing a base of employees in conjunction with third-party subcontractors.

As of November 9, 2022, we own or control 21 communities in Washington, Texas, California, and Florida, containing approximately 2,500 lots or units in various stages of development.

Results of Operations ~~for the~~

Three Months Ended September 30, ~~2021~~2022 as Compared to the Three Months Ended September 30, ~~2020~~2021

The following table sets forth the summary statements of operations for the three months ended September 30, ~~2021~~2022 and ~~2020.~~2021.

For the Three Months Ended
September 30,
2021 2020

Sales $ 18,010,600 $ 7,806,500
Cost of sales 10,866,200 7,183,900
Gross profit 7,144,400 622,600
Operating expenses 3,322,100 1,458,200
Other income (expense) (113,900 ) (176,300 )
Income tax benefit - 571,600
Net income (loss) $ 3,708,400 $ (440,300 )


	2022		2021

Sales	$	11,748,500	$	18,010,600
Cost of sales	(11,310,800)		(10,866,200)
Gross profit	437,700		7,144,400
Operating expenses	(4,523,800)		(3,322,100)
Other income (expense)	(396,500)		(113,900)
Income tax benefit	1,067,800		—
Net income (loss)	$	(3,414,800)	$	3,708,400

Sales

Our sales ~~increased~~decreased by ~~130.7%~~34.8% to ~~$18,010,600~~$11.7 million for the three months ended September 30, ~~2021~~2022 as compared to ~~$7,806,500~~$18.0 million for the three months ended September 30, ~~2020.~~2021. Sales ~~increased~~decreased in ~~2021~~2022 primarily due to a decrease in the sale of entitled land of ~~$10,440,000 to Lennar~~$7.0 million and decrease in the sale of developed lots of $0.8 million, partially offset by increases in home sales of $0.8 million and fee build revenue of ~~$2,871,300, which~~$0.8 million. There was ~~partially offset by~~ a ~~decrease~~large sale of entitled land to Lennar Northwest, Inc. ("Lennar") in ~~home sales~~the third quarter of ~~($3,877,200).~~2021 compared to a less significant entitled land sale in the third quarter of 2022.

Gross Profit

Our overall gross profit for the quarter decreased by 93.9% to $0.4 million for the three months ended September 30, 2022 as compared to $7.1 million for the three months ended September 30, 2021. Gross margin was 3.7% for the three months ended September 30, 2022 compared to 39.7% for the three months ended September 30, 2021. The $6.7 million decrease in gross profit and 35.9% decrease in gross margin were primarily due to the non-recurrence of higher margin entitled land sales in 2022 and a decrease in fee build gross profit and gross margin due to significant cost overruns. The entitled land sales in the third quarter 2021 ~~compared~~provided $5.9 million gross profit dollars at a gross margin of 57.0% that did not recur in the third quarter 2022.

Operating Expenses

Our operating expenses increased by 36.2% to ~~8.0%~~$4.5 million for the three months ended September 30, ~~2020. For the three months ended September 30, 2021 and 2020, the average gross margin for homes closed was 11.0% and 8.0%, respectively. Gross margin on finished entitled land~~2022, as compared to ~~Lennar~~$3.3 million for the three months ended September 30, 2021 and 2020, respectively, was 57.0% and 0%. For the three months ended September 30, 2021 and 2020, the gross margin for fee build was 17.1% and 0%, respectively. For the three months ended September 30, 2021 and 2020, the gross margin for sale of lots was 35.7% and 0%, respectively.

~~Operating Expenses~~

~~Our operating expenses increased by 127.8% to $3,322,100 for the three months ended September 30, 2021, as compared to $1,458,200 for the three months ended September 30, 2020.~~2021. The increase in total operating expenses is primarily attributable to a bad debt expense of $0.9 million relating to notes and interest receivables from the ~~following:~~

	1)	~~Payroll and related benefits increased by $996,000 due to an increase in staff for increased corporate compliance;~~
	2)	~~Professional fees increased by $263,200, primarily driven by corporate compliance;~~
	3)	~~Additional depreciation expense of $167,000 related to equipment additions;~~
	4)	~~Investor relations costs increased by $124,600, primarily driven by establishing and maintaining public company infrastructure and oversight; and~~
	5)	~~Stock compensation costs increased by $120,700, primarily driven by options and restricted stock issued to directors.~~

sale of Winding Lanes developed lots in March 2022 and $0.5 million in pre-acquisition due diligence costs associated with the cancelation of the Westry Village project, partially offset by a reduction in 2022 incentive bonus compensation of $0.6 million. Individually less significant increases in payroll expenses, marketing and advertising, right of use expense for a new corporate office, and depreciation expense, partially offset by a decrease in stock compensation also contributed to the change over the prior year period.

Other Income (Expense)

Other ~~expense decreased by 35.4% to $113,900~~income (expense) was $(0.4) million for the three months ended September 30, ~~2021~~2022 as compared to ~~$176,300~~$(0.1) million for the three months ended September 30, ~~2020,~~2021. This change is primarily ~~the decrease was driven by a reduction in~~due to $(0.6) million of interest ~~cost.~~

~~Net Income (Loss)~~

~~For~~expense incurred for the three months ended September 30, ~~2021 and 2020,~~2022, offset by $0.2 million of interest income incurred. The interest expense increased due to borrowings on the revolving line of credit loan we ~~incurred~~entered into on March 7, 2022.

Net Income (Loss)

Our net income (loss) ~~of $3,708,400 and ($440,300), respectively.~~decreased by 192.1% to $(3.4) million for the three months ended September 30, 2022 as compared to $3.7 million for the three months ended September 30, 2021. The ~~increase~~decrease in net income was primarily attributable to ~~an increase~~a decrease in revenue and ~~improved profit~~gross margins, and increases in ~~2021~~cost of sales and operating expenses in the third quarter of 2022 as explained above.

~~Results of Operations for the~~

Nine Months Ended September 30, ~~2021~~2022 as Compared to the Nine Months Ended September 30, ~~2020~~2021

The following table sets forth the summary statements of operations for the nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.

For the Nine Months Ended
September 30,
2021 2020

Sales $ 46,017,200 $ 26,077,300
Cost of sales 34,938,300 24,448,100
Gross profit 11,078,900 1,629,200
Operating expenses 7,639,700 3,769,900
Other (expense) (210,600 ) (269,100 )
Income Tax Benefit - 561,500
Net Income (loss) $ 3,228,600 $ (1,848,300 )


	2022		2021

Sales	$	50,616,000	$	46,017,200
Cost of sales	(46,055,400)		(34,938,300)
Gross profit	4,560,600		11,078,900
Operating expenses	(12,017,200)		(7,639,700)
Other income (expense)	$	(759,800)	$	(210,600)
Income tax benefit	1,937,800		—
Net income (loss)	$	(6,278,600)	$	3,228,600

Sales

Our sales increased by ~~76.5%~~10.0% to ~~$46,017,200~~$50.6 million for the nine months ended September 30, ~~2021~~2022 as compared to ~~$26,077,300~~$46.0 million for the nine months ended September 30, ~~2020.~~2021. Sales increased in ~~2021~~2022 due to ~~a land development sale~~the increases in home sales of ~~$7,000,000 to Lennar, sale of entitled land of $19,750,000 to Lennar, and~~$11.5 million, fee build ~~income~~revenue of ~~$4,219,500 which were~~$3.6 million, and developed lot sales of $1.3 million, partially offset by a decrease in entitled land sales of $11.9 million. The home sales largely increased due to continued expansion into a new geographic location with $15.1 million of ~~$(11,799,600).~~homes sold in Texas. The decrease in entitled land sales was due to two large entitled land sales to Lennar, which occurred in 2021 and did not reoccur in 2022.

Gross Profit

Our overall gross profit decreased by 58.8% to $4.6 million for the nine months ended September 30, 2022 as compared to $11.1 million for the nine months ended September 30, 2021. Gross margin was 9.0% for the nine months ended September 30, 2022 compared to 24.1% for the nine months ended September 30, 2021. The $(6.5) million decrease in gross profit was primarily due to decreases in entitled land gross profit of $(4.5) million and fee build gross profit of $(3.8) million, which was partially offset by an increase in home sales gross profit of $2.4 million. The 15.1% decrease in gross margin was primarily driven by significant cost overruns with our fee build projects resulting in a 56.1% gross margin decline. The fee build gross margin decline was partially offset by gross margin increases from homes, developed lots, and entitled land sales.

For the nine months ended September 30, 2022 and 2021, ~~compared~~gross margins on land sales were 48.5% and 42.0%, developed lot sales were 10.3% and 2.9%, homes closed were 16.7% and 13.3%, and fee build was (40.7)% and 15.4%, respectively.

Operating Expenses

Our operating expenses increased by 57.3% to ~~6.2%~~$12.0 million for the nine months ended September 30, ~~2020. For the nine months ended September 30, 2021 and 2020, the average gross margin for homes closed was 13.3% and 6.2%, respectively. Gross margin on finished lot sales~~2022 as compared to $7.6 million for the nine months ended September 30, 2021 and 2020, was 2.94% and 0%, respectively. Gross margin on finished entitled land to Lennar for the nine months ended September 30, 2021 and 2020, was 42.0% and 0%, respectively. For the nine months ended September 30, 2021 and 2020, the gross margin for fee build was 15.4% and 0%, respectively

~~Operating Expenses~~

~~Our operating expenses increased by 102.7% to $7,639,700 for the nine months ended September 30, 2021, as compared to $3,769,900 for the nine months ended September 30, 2020.~~2021. The increase in total operating expenses is primarily attributable to the following:

	1)	~~Payroll and related benefits increased by $1,328,300 due to increase in staff for increased compliance issues;~~
	2)	~~Insurance costs increased by $537,100, primarily driven by the purchase of director’s and officer’s insurance;~~
	3)	~~Additional depreciation expense of $364,300 related to equipment additions;~~
	4)	~~Stock compensation costs increased by $350,400, primarily driven by options and restricted stock issued to directors; and~~
	5)	~~Investor relations costs increased by $326,600, primarily driven by establishing and maintaining public company infrastructure and oversight.~~

Payroll expenses increased by $1.2 million due to increase in staff from the investment we made in our public company infrastructure and to support our future growth plan;

2)We incurred a bad debt expense of $0.9 million associated with the Winding Lane notes and interest receivable from the sale of developed lots in March 2022;

3)We incurred $0.5 million in pre-acquisition due diligence costs associated with the Westry Village project that we decided not to purchase;

4)Professional fees increased by $0.5 million primarily driven by establishing and maintaining public company infrastructure and oversight;

5)We incurred additional right of use expense of $0.3 million from leasing an office space in Tacoma, Washington for our new corporate headquarters;

6)We incurred additional depreciation expense of $0.2 million related to furniture, fixtures, and leasehold improvements for the new corporate office and equipment additions; and

7)Advertising and marketing increased by $0.2 million as a result of increased marketing activities to promote our company and real estate projects.

Other Income (Expense)

Other expense ~~decreased by 21.7% to $210,600~~increased for the nine months ended September 30, ~~2021~~2022 to $0.8 million as compared to ~~$269,100~~$0.2 million for the nine months ended September 30, ~~2020. For~~2021. This is primarily due to $1.0 million of interest expense incurred for the nine

months ended September 30, ~~2021, we incurred $298,500~~2022, offset by interest income of $0.4 million. The interest expense ~~related~~increased due to ~~our financing arrangements as compared~~the revolving line of credit loan we entered into on March 7, 2022.

Net Income (Loss)

Our net income (loss) decreased by 294.5% to ~~$254,200~~a net loss of $(6.3) million for the nine months ended September 30, ~~2020. In addition, we recorded $35,900~~2022 as compared to net income of ~~loss on sales of equipment~~$3.2 million for the nine months ended September 30, 2021 as compared to $27,900 for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, other income increased for mainly due to timber sales of $135,800 as compared to $3,000 for the nine months ended September 30, 2020.

~~Net Income (Loss)~~

~~Our net income (loss) increased by 274.7% to $3,228,600 for the nine months ended September 30, 2021 as compared to a loss of ($1,848,300) for the nine months ended September 30, 2020.~~2021. The ~~increase~~decrease in net income was primarily attributable to ~~an increase~~a decrease in ~~revenue and improved~~ gross margins ~~in 2021~~and increased operating expenses as explained above.

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, 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 ~~have~~ increased to ~~$105,463,700~~$179.9 million as of September 30, ~~2021~~2022 from ~~$20,370,300~~$122.1 million as of December 31, ~~2020.~~2021. This increase was due to an increase in ~~the number of~~development and construction activities for houses, townhomes, and ~~condominiums under construction and the purchase of additional developed and undeveloped lots.~~apartments.

Liabilities

~~Liabilities~~

Liabilities increased to ~~$64,951,100~~$139.3 million as of September 30, ~~2021~~2022 from ~~$27,203,200~~$70.0 million as of December 31, ~~2020.~~2021. This increase is primarily attributable to the following:

	1.	~~An increase in construction loans of $29,092,000 due to purchases of real estate;~~
	2.	~~An increase in construction loans related-party of $5,556,300 due to purchases of real estate; and~~
	3.	~~An increase in accounts payable and accrued expenses of $3,175,800 due to the increase of real estate projects in process.~~

~~Cash & Restricted~~An increase in our construction loans, net of related party loans of $43.8 million to fund the development of land and construction of houses, townhomes, and apartments;

2.A new revolving credit facility was entered into with BankUnited from which we have borrowed $24.0 million net of debt discount to fund our general working capital needs; and

3.Accounts payable and accrued expenses increased by $2.7 million, primarily driven by an increase in trade accounts payable due to an increase of real estate projects in process.

Unrestricted Cash Balance

As of September 30, ~~2021,~~2022, our unrestricted cash balance was ~~$5,385,300~~$13.7 million compared to ~~$2,396,500~~$25.6 million as of December 31, ~~2020.~~2021.

Operating Activities

Net cash used in operating activities for the nine months ended September 30, ~~2021 and 2020~~2022 was ~~$79,567,300 and $9,858,700, respectively. The increase is primarily due~~$68.2 million as compared to ~~the acquisition and development of real estate assets of $82,755,400. The net income (loss)~~$79.6 million for the nine months ended September 30, ~~2021~~2021. The decrease in cash used is primarily attributable to a decrease in real estate assets of $26.6 million and ~~2020 was $3,228,600~~a decrease in contract assets of $6.9 million, partially offset by a decrease in net income of $9.5 million, an increase in notes receivable of $8.5 million, and ~~($1,848,300), respectively.~~an increase in accounts receivable of $4.4 million.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, ~~2021 and 2020~~2022 was ~~$308,600 and $70,700, respectively.~~$1.6 million as compared to net cash used of $0.3 million for the nine months ended September 30, 2021. During the nine months ended September 30, ~~2021, $378,100~~2022, $1.8 million was used for the furniture, fixtures, and leasehold improvements of the new corporate office and purchase of equipment compared to $0.4 million used for the acquisition of new ~~property and~~ equipment ~~and there were proceeds from the sale of equipment of $69,500. During~~for the nine months ended September 30, ~~2020, $401,100 was used for~~2021. These purchases were partially offset by the ~~acquisition of new property and equipment and there were~~ proceeds from the sale of ~~equipment of $330,400.~~equipment.

Financing Activities

Net cash provided ~~from investing~~by financing activities for the nine months ended September 30, ~~2021 and 2020~~2022 was ~~$82,864,700 and $11,851,300, respectively. During~~$57.9 million as compared to net cash provided of $82.9 million for the nine months ended September 30, ~~2021, there~~2021. This decrease was net proceeds from common stock issuances of $25,101,000, net proceeds from the Preferred Stock issuances of $28,661,000, net increase in construction loans of $29,468,300 and net increase in construction loans related party of $6,302,800. Also, during the nine months ended September 30, 2020, there wereprimarily caused by net proceeds from a common stock offering of ~~$10,789,100,~~$25.1 million and net proceeds from a preferred stock offering of $28.7 million in 2021 that did not recur in the 2022 comparable period, a decrease in cash received from related party construction loans, net of payments of $10.9 million, and an increase in cash used for 2022 preferred dividends of $5.3 million. This decrease was partially offset by net cash provided by the revolving line of credit loan of $24.8 million in 2022 and an increase in cash provided by construction loans, net of ~~$8,829,900 and a net decrease in construction loans related party~~payments of ~~($6,515,700).~~$19.7 million.

Cash Resources

Although the expected revenue growth and control of expenses leads management to believe that it is probable that our cash resources will be sufficient to meet cash requirements through the fiscal year ending December 31, 2022, we may require additional funding to finance the growth of our current and expected future operations as well as to achieve our strategic objectives. There can be no assurance that financing will be available in amounts or terms acceptable to us, if at all. In that event, we would be required to change our growth strategy and seek funding on that basis, though there is no guarantee we will be able to do so.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

Inflation

~~Inflation~~

Our ~~homebuilding~~ operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material, and construction costs. In addition, inflation can lead to higher mortgage rates which can significantly affect the affordability of mortgage financing to homebuyers. While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we may be unable to offset cost increases with higher selling prices.

Critical Accounting Policies

Our ~~condensed~~ consolidated financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates, assumptions, judgments, and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues, and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk, and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently ~~and conservatively~~ applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

Our significant accounting policies are summarized in Note 21 of our ~~condensed~~ consolidated financial statements.

Implications of Being an Emerging Growth Company

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 (December 31, 2025), (ii) the first fiscal year after our annual gross revenues are $1.235 billion or more, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities or (iv) as of the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We borrow from lenders using financial instruments such as term loans, notes payable, and a ~~“smaller reporting company”~~revolving credit facility. We utilize both fixed and variable interest rates in these financing operations. Interest incurred from our term loans and notes payables is calculated primarily using a fixed rate, whereas interest incurred from our revolving credit facility is calculated using a variable rate. We do not have the obligation to prepay these prior to maturity, and, as ~~defined~~a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed-rate debt.

We are exposed to market risks related to fluctuations in interest rates on our outstanding revolving line of credit and construction loan relating to Meadowscape apartments. The interest rate for our variable rate indebtedness as of September 30, 2022 was equal to the daily simple secured overnight financing rate (SOFR) plus an applicable margin of 4.75% for the line of credit and equal to the SOFR one month rate plus an applicable margin of 7.25% for the construction loan. At September 30, 2022, the daily SOFR was 2.98% and one month SOFR was 2.47%. A hypothetical 100 basis point increase in the interest rate on our variable rate indebtedness would increase our annual interest cost by ~~Item 10~~approximately $0.2 million for the line of ~~Regulation S-K,~~credit and $0.1 million for the construction loan, respectively. Based on this, we ~~are~~do not ~~required~~believe that the future interest rate risks related to ~~provide information required by this Item.~~our existing indebtedness will have a material adverse impact on our financial position, results of operations, or liquidity.

At September 30, 2022, we had outstanding fixed-rate borrowings net of debt discount and financing fees of approximately $88.6 million and outstanding variable-rate borrowings net of debt discount and financing fees of approximately $32.6 million.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision of our Chief Executive Officer and President and Chief Financial Officer performed an evaluation (the “Evaluation”) of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this ~~report.~~Report. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide a reasonable level of assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated

and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

~~As we previously reported in~~

Based on the evaluation, our ~~Current Report on Form 8-K, filed with the SEC on April 21, 2022, we restated our financial statements for the year-ended December 31, 2021~~Chief Executive Officer and ~~quarter-ended September 30, 2021 in connection with diluted earnings per share (“Diluted EPS”) errors detected in applying certain accounting principles.~~

~~A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such~~President and Chief Financial Officer concluded that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In connection with these restatements, management has re-evaluated the effectiveness of our disclosure controls and procedures ~~and~~are operating effectively.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial ~~reporting.~~

~~Our management has concluded that~~reporting identified in ~~light~~connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the ~~errors described above, as of September 30, 2021, we did not maintain effective controls~~Exchange Act that occurred during the period covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over ~~the preparation, review, presentation and disclosure of our~~ financial ~~statements relating to diluted weighted average shares outstanding and Diluted EPS. Specifically, we noted the following material weakness existed:~~

~~Misapplication of the calculation of weighted average shares outstanding for Diluted EPS~~.

Management has already undertaken steps to improve the system of evaluating and implementing the accounting standards that apply to our financial statements, including significantly enhancing our accounting team through the recent hirings of a Chief Financial Officer, Director of Accounting, Senior Manager of SEC Reporting, and Tax Manager. We are also providing additional training to our personnel and have engaged a nationally recognized third-party accounting firm with whom our management and accounting personnel can consult regarding the application of complex accounting transactions, including Diluted EPS.

reporting.

PART II ~~- OTHER INFORMATION~~

ITEM 1. LEGAL PROCEEDINGS

We are not party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, prospects, financial condition, liquidity, or results of operation. However, we may from time to time after the date of this Report become subject to claims and litigation arising in the ordinary course of business. One or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which such claim or litigation is resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention, and may materially adversely affect our reputation, even if favorably resolved.

~~None.~~

ITEM 1A. RISK FACTORS

~~As a “smaller reporting company” as defined by Item 10 of Regulation S-K,~~

There have been no material changes to the risk factors we ~~are not required to provide information required by this Item.~~previously disclosed in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2021.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ~~FROM REGISTERED SECURITIES~~

(a) Sales of Unregistered Securities

None.

(b) Use of Proceeds from Sales of Securities

None.

2020 Restricted Stock Plan

The following table sets forth the shares of our common stock we acquired during the quarter as a result of the surrender of shares by employees to satisfy tax withholding obligations in connection with the vesting of restricted shares of common stock awarded under our 2020 Restricted Stock Plan.

Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Program Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
July 1, 2022 - July 31, 2022 — $ — — $ —
August 1, 2022 - August 31, 2022 1,483 1.40 1,483 —
September 1, 2022 - September 30, 2022 124 1.14 124 —
Total 1,607 — 1,607 —

(1) Represents shares surrendered to us by employees to satisfy tax withholding obligations arising in connection with the vesting of 5,417 shares of common stock awarded under our 2020 Restricted Stock Plan.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

We failed to meet a financial covenant of the Loan Agreement with BankUnited, N.A. (the “Lender”), dated March 7, 2022 (the “Loan”). Under the Loan, we covenanted that we would not allow our Interest Coverage Ratio as of the last day of each fiscal quarter to be less than 2.50. The Interest Coverage Ratio is defined as the ratio of EBITDA for the trailing four quarters to Interest Expense for the trailing four quarters. We had an Interest Coverage Ratio of 1.4 on September 30, 2022. Under the Loan, a failure to maintain the required Interest Coverage Ratio financial covenant is defined as an “Event of Default.” For such Event of Default, the Lender may accelerate all amounts due under the Loan. The Lender has informed us that the Lender is sending the Loan to its restructuring department for potential restructuring, and, to date, has not provided us with a Notice of Default or Lender’s intention to accelerate payment of any amounts due under the Loan.

~~None.~~

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

Exhibit No.

Description

Form

Exhibit

Filing Date

Filed Herewith

31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.1

31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101. INS

XBRL Instance Document

101. SCH

XBRL Taxonomy Extension Schema Document

101. CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101. DEF

XBRL Taxonomy Extension definition Linkbase Document

101. LAB

XBRL Taxonomy Extension Label Linkbase Document

101. PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused

this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

~~Exhibit No.~~
		~~Description~~HARBOR CUSTOM DEVELOPMENT, INC.

~~31.1~~			~~Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~31.2~~	~~Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

32	~~Certification of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~101. INS~~	~~XBRL Instance Document~~

~~101. SCH~~	~~XBRL Taxonomy Extension Schema Document~~

~~101. CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101. DEF~~	~~XBRL Taxonomy Extension definition Linkbase Document~~

~~101. LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document~~

~~101. PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document~~

~~104~~	~~Cover Page Interactive Data File (embedded within the Inline XBRL document)~~

~~SIGNATURES~~

~~In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.~~

	~~HARBOR CUSTOM DEVELOPMENT, INC.~~

Date: ~~April 29,~~November 14, 2022	By			/s/ Sterling Griffin
					Sterling Griffin
		Chief Executive Officer and President
		(Principal Executive Officer)

Date: ~~April 29,~~November 14, 2022			By		/s/ Lance Brown
					Lance Brown Chief Financial Officer (Principal Financial and Accounting Officer)


Washington						46-4827436
(State of organization)						(I.R.S. Employer Identification No.)


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer ☐	☒	Smaller reporting company	☒
		Emerging growth company	☒

						Page
				PART I - FINANCIAL INFORMATION	1
Item 1.			Interim Condensed Consolidated Financial Statements (Unaudited)	1
~~ITEM 1.~~Item 2.			~~INTERIM FINANCIAL STATEMENTS~~Management's Discussion and Analysis of Financial Condition and Results of Operations	125
Item 3.			~~BALANCE SHEETS AS OF SEPTEMBER 30, 2021 (UNAUDITED) AND DECEMBER 31, 2020~~Quantitative and Qualitative Disclosures About Market Risk	131
Item 4.			~~STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (UNAUDITED)~~Controls and Procedures	231
			~~STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (UNAUDITED)~~	3
				~~STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (UNAUDITED)~~	4
	~~NOTES TO FINANCIAL STATEMENTS~~	5
~~ITEM 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~	36
~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~	41
~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~	41

	PART II - OTHER INFORMATION	32

Item 1.			Legal Proceedings	32
Item 1A.			Risk Factors	32
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.			Defaults Upon Senior Securities	33
Item 4.			Mine Safety Disclosures	33
Item 5.			Other Information	33
Item 6.			Exhibits	33

SIGNATURES				34


☒			QUARTERLY REPORT PURSUANT TO ~~QUARTERLY REPORT UNDER~~ SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Title of each class	Trading Symbol(s)	Name of each exchange on which registered.
Common Stock	HCDI	The Nasdaq Stock Market LLC
~~8.0%~~ Series A Cumulative Convertible Preferred Stock	HCDIP	The Nasdaq Stock Market LLC
Warrants	HCDIW	The Nasdaq Stock Market LLC
Warrants	HCDIZ	The Nasdaq Stock Market LLC

	September 30, 2021			December 31, 2020
	(unaudited)
ASSETS

Real Estate	$	105,463,700		$	20,370,300
Property, Plant and Equipment, net		9,132,900			8,176,000
Right of Use Assets		788,400			873,800
Cash		4,787,700			2,396,500
Restricted Cash		597,600			-
Prepaid Expense		2,248,100			1,658,000
Accounts Receivable, net		104,800			78,200
Contract Assets, net		4,762,400			-
Deferred Offering Costs		133,400			65,100
TOTAL ASSETS	$	128,019,000		$	33,617,900

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES

Construction Loans, net of Debt Discount of $878,600 and $502,400 respectively	$	38,682,100		$	9,590,100
Construction Loans - Related Parties, net of Debt Discount of $1,416,300 and $670,200 respectively		11,376,000			5,819,700
Equipment Loans		5,731,800			5,595,500
Accounts Payable and Accrued Expenses		5,875,800			2,700,000
Operating Lease Liabilities		766,900			841,700
Finance Leases		611,300			999,400
Deferred Revenue		21,700			896,300
Note Payable PPP		-			19,300
Dividends Payable		210,600			-
Contract Liability		390,900
Note Payable D&O Insurance		1,284,000			741,200
TOTAL LIABILITIES		64,951,100			27,203,200

COMMITMENTS AND CONTINGENCIES - SEE NOTE 12		-

STOCKHOLDERS’ EQUITY
Preferred Stock, NaN Par 10,000,000 shares authorized and 1,260,555 issued and outstanding at September 30, 2021 and 0 outstanding and issued at December 31, 2020	$	28,661,000		$	-
Common Stock, NaN Par 50,000,000 shares authorized and 14,922,094 outstanding at September 30, 2021 and 5,636,548 issued and outstanding at December 31, 2020		37,057,900			11,956,900
Additional Paid In Capital		668,900			234,800
Accumulated Deficit		(2,028,300	)		(4,487,100	)
Total Stockholders’ Equity - Harbor Custom Development, Inc.		64,359,500			7,704,600
Non-Controlling Interest		(1,291,600	)		(1,289,900	)
TOTAL STOCKHOLDERS’ EQUITY		63,067,900			6,414,700
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	128,019,000		$	33,617,900


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2021			2020			2021			2020

Sales	$	18,010,600		$	7,806,500		$	46,017,200		$	26,077,300

Cost of Sales		10,866,200			7,183,900			34,938,300			24,448,100

Gross Profit		7,144,400			622,600			11,078,900			1,629,200

Operating Expenses		3,322,100			1,458,200			7,639,700			3,769,900

Operating Income (Loss)		3,822,300			(835,600	)		3,439,200			(2,140,700	)

Other Income (Expense)
Loss on Sale of Equipment		-			(12,400	)		(35,900	)		(27,900	)
Forgiveness of Debt		-			-			10,000			-
Other Income		1,200			-			113,800			13,000
Interest Expense		(115,100	)		(163,900	)		(298,500	)		(254,200	)
Total Other Income (Expense)		(113,900	)		(176,300	)		(210,600	)		(269,100	)

Income (Loss) Before Income Tax		3,708,400			(1,011,900	)		3,228,600			(2,409,800	)

Income Tax Benefit		-			571,600			-			561,500

Net Income (Loss) Attributable to Stockholders	$	3,708,400		$	(440,300	)	$	3,228,600		$	(1,848,300	)

Net (Loss) Attributable to Non-controlling interests					(3,200	)		(1,700	)		(228,100	)
Preferred Dividends		(631,400	)		-			(771,500	)		-

Net Income (Loss) Attributable to Common Stockholders	$	3,077,000		$	(437,100	)	$	2,458,800		$	(1,620,200	)

Net Income (Loss) Per Share - Basic	$	0.21		$	(0.10	)	$	0.17		$	(0.43	)
Net Income (Loss) Per Share - Diluted	$	0.17		$	(0.10	)	$	0.17		$	(0.43	)

Weighted Average Common Shares Outstanding - Basic		14,898,594			4,180,054			14,350,143			3,737,318
Weighted Average Common Shares Outstanding - Diluted		22,063,584			4,180,054			14,522,663			3,737,318


	September 30, 2021			September 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)	$	3,228,600		$	(1,848,300	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation		783,500			419,200
Amortization of right of use assets		252,200			194,700
Forgiveness on PPP loan		(10,000	)		-
Loss on sale of equipment		35,900			27,900
Stock compensation		416,100			11,000
Net change in assets and liabilities:
Accounts receivable		(26,600	)		(42,500	)
Contract assets		(4,762,400	)		-
Prepaid expenses		820,300			(255,900	)
Real estate		(82,755,400	)		(8,286,200	)
Deferred revenue		(874,600	)		1,297,400
Deferred income tax		-			(561,500	)
Payments on right of use liability		(241,600	)		(209,000	)
Contract Liability		390,900			-
Accounts payable and accrued expenses		3,175,800			(605,500	)
NET CASH (USED IN) OPERATING ACTIVITIES		(79,567,300	)		(9,858,700	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(378,100	)		(401,100	)
Proceeds on the sale of equipment		69,500			330,400
NET CASH (USED IN) INVESTING ACTIVITIES		(308,600	)		(70,700	)

CASH FLOWS FROM FINANCING ACTIVITIES
Construction loans, net		29,468,300			8,829,900
Financing fees construction loans		(1,476,900	)		(573,100	)
Construction loans related parties, net		6,302,800			(6,515,700	)
Financing fees related party construction loans		(1,983,900	)		(396,900	)
Payments on financing leases		(289,000	)		(380,000	)
Proceeds from PPP loan		-			582,800
Payments on PPP loan		(9,300	)		-
Due to related party		-			(8,100	)
Repayments on note payable D&O insurance		(867,600	)		-
Net proceeds from issuance of common stock		25,101,000			10,789,100
Net proceeds from issuance of preferred stock		28,661,000			-
Repayment on equipment loans		(1,430,500	)		(476,700	)
Proceeds from exercise of stock options		18,000			-
Dividends		(560,900	)		-
Deferred offering cost		(68,300	)		-
NET CASH PROVIDED BY FINANCING ACTIVITIES		82,864,700			11,851,300

NET INCREASE IN CASH AND RESTRICTED CASH		2,988,800			1,921,900

CASH AND RESTRICTED CASH AT BEGINNING OF YEAR		2,396,500			430,000

CASH AND RESTRICTED CASH AT END OF PERIOD	$	5,385,300		$	2,351,900

SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid	$	2,165,300		$	1,266,300

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Financing of assets additions	$	1,566,800		$	2,002,900
Dividends declared but not paid	$	210,600		$	-
New right of use obligations	$	166,800		$	-
Cancellation of finance leases	$	99,100		$	-
Amortization of debt discount capitalized	$	2,338,000		$	1,323,300
Stock issued for conversion of related party interest and principle	$	-		$	497,000


	Common Stock				Preferred Stock
									Additional					Stockholders’			Non-			Total
	Shares Issued		No Par		Shares Issued		No Par		Paid in Capital		Accumulated (Deficit )			Equity (Deficit)			Controlling Interest			Equity (Deficit)

Balance, January 1, 2020		3,513,517	$	670,900		-	$	-	$	119,100	$	(954,300	)	$	(164,300	)	$	(1,060,600	)	$	(1,224,900	)

Net proceeds from issuance of common stock
Net proceeds from issuance of common stock, shares
Conversion of related party debt to common stock
Conversion of related party debt to common stock, shares
Exercise of stock options
Exercise of stock options, shares
Net proceeds issuance of preferred stock
Net proceeds issuance of preferred stock, shares
Dividends
Stock Compensation Expense
Stock Compensation Expense, shares
Net Loss				-				-		-		(752,000	)		(752,000	)		(221,900	)		(973,900	)

Balance, March 31, 2020		3,513,517	$	670,900		-	$	-	$	119,100	$	(1,706,300	)	$	(916,300	)	$	(1,282,500	)	$	(2,198,800	)

Stock Compensation Expense										1,100					1,100						1,100
Net Loss				-				-		-		(431,100	)		(431,100	)		(3,000	)		(434,100	)

Balance, June 30, 2020		3,513,517	$	670,900		-		-	$	120,200	$	(2,137,400	)	$	(1,346,300	)	$	(1,285,500	)	$	(2,631,800	)

Net proceeds from issuance of common stock		2,031,705		10,789,100											10,789,100						10,789,100
Conversion of related party debt to common stock		82,826		497,000											497,000						497,000
Stock Compensation Expense										9,900					9,900						9,900
Net (Loss)								-				(437,100	)		(437,100	)		(3,200	)		(440,300	)

Balance, September 30, 2020		5,628,048	$	11,957,000		-	$	-	$	130,100	$	(2,574,500	)	$	9,512,600		$	(1,288,700	)	$	8,223,900

Balance, January 1, 2021		5,636,548	$	11,956,900		-	$	-	$	234,800	$	(4,487,100	)	$	7,704,600		$	(1,289,900	)	$	6,414,700

Net proceeds issuance of common stock		9,200,000		25,101,000											25,101,000						25,101,000
Exercise of stock options		45,046								18,000					18,000						18,000
Stock Compensation Expense		8,500								115,100					115,100						115,100
Net (Loss) Income								-				(1,549,800	)		(1,549,800	)		600			(1,549,200	)

Balance, March 31, 2021		14,890,094	$	37,057,900		-	$	-	$	367,900	$	(6,036,900	)	$	31,388,900		$	(1,289,300	)	$	30,099,600

Net proceeds issuance of preferred stock						1,260,555		28,661,000							28,661,000						28,661,000
Dividends												(140,100	)		(140,100	)					(140,100	)
Stock Compensation Expense		8,500								115,800					115,800			-			115,800
Net Income (Loss)												1,071,700			1,071,700			(2,300	)		1,069,400
Balance, June 30, 2021		14,898,594	$	37,057,900		1,260,555	$	28,661,000	$	483,700	$	(5,105,300	)	$	61,097,300		$	(1,291,600	)	$	59,805,700


Stock Compensation Expense		23,500								185,200					185,200						185,200
Dividends												(631,400	)		(631,400	)					(631,400	)
Net Income (Loss)								-				3,708,400			3,708,400			-			3,708,400

Balance, September 30, 2021		14,922,094	$	37,057,900		1,260,555	$	28,661,000	$	668,900	$	(2,028,300	)	$	64,359,500		$	(1,291,600	)	$	63,067,900

		As Previously Reported		Restated		Net Effect			As Previously Reported		Restated		Net Effect
		For the Three Months Ended							For the Nine Months Ended
		September 30, 2021							September 30, 2021
		As Previously Reported		Restated		Net Effect			As Previously Reported		Restated		Net Effect
CONSOLIDATED STATEMENT OF OPERATIONS
Net Income (Loss) Per Share - Diluted		$	0.20	$	0.17	$	(0.03	)
Weighted Average Common Shares Outstanding - Diluted			15,058,918		22,063,584		7,004,666			14,515,710		14,522,663		6,953

NOTE 2 Earnings (Loss) Per Share
Numerator:
Effect of dilutive securities:			-		631,400		631,400
Diluted net income (loss)			3,077,000		3,708,400		631,400

Denominator:

Options			140,957		141,987		1,030			145,884		152,565		6,681
Warrants			19,367		19,359		(8	)		19,683		19,667		(16	)
Restricted Stock Awards			-		-		-			-		288		288
Convertible Preferred Stock			-		7,003,644		7,003,644			-		-		-

Weighted average common shares outstanding and assumed conversion - diluted			15,058,918		22,063,584		7,004,666			14,515,710		14,522,663		6,953

Diluted net income (loss) per common share		$	0.20	$	0.17	$	(0.03	)

(a) – Outstanding shares of anti-dilutive securities excluded:
Common stock securities			9,379,890		5,025,168		(4,354,722	)		9,379,890		5,025,168		(4,354,722	)
Convertible preferred stock Securities*	*		-		12,000		12,000			-		1,272,555		1,272,555


2022	$	1,876,900
2023		1,787,700
2024		1,652,200
2025		410,200
2026		4,800

Equipment Loans	$	5,731,800

	Options			Weighted Average Exercise Price
Outstanding – December 31, 2020		442,172		$	2.53
Exercisable – December 31, 2020		219,085		$	1.31
Granted		150,000		$	3.23
Exercised		(45,046	)	$	0.40
Forfeited/Cancelled		(33,114	)	$	3.18
Outstanding – September 30, 2021		514,012		$	2.88
Exercisable – September 30, 2021		363,361		$	2.84

		Warrants Outstanding					Warrants Exercisable
Exercise Price		Number Outstanding	Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price

	$ 0.40 - $7.50	4,146,859		4.66	$	4.91	3,710,859	$	5.03

		Warrants Outstanding					Warrants Exercisable
Exercise Price		Number Outstanding	Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price

$	24.97	12,000		4.69	$	24.97	12,000	$	24.97

	Restricted Stock		Weighted Average Exercise Price
Outstanding – December 31, 2020		34,000	$	4.53
Exercisable – December 31, 2020		8,500	$	4.53
Granted		70,000	$	3.12
Exercised		-	$	-
Forfeited/Cancelled		-	$	-
Outstanding – September 30, 20201		104,000	$	3.58
Exercisable – September 30, 2021		51,500	$	4.05

	September 30, 2021		December 31, 2020
Costs incurred on uncompleted contracts	$	3,717,000	$	-
Estimated earnings		723,700		-
Costs and estimated earnings on uncompleted contracts		4,440,700		-
Billings to date		4,207,600		-
Costs and estimated earnings in excess of billings on uncompleted contracts		624,000		-
Costs and earnings in excess of billings on completed contracts		(390,900)		-
Total	$	233,100	$	-

Costs in excess of billings	$	624,000	$	-
Billings in excess of cost		(390,900)		-
Total	$	233,100	$	-

	For the Three Months Ended
	September 30,
	2021			2020

Sales	$	18,010,600		$	7,806,500
Cost of sales		10,866,200			7,183,900
Gross profit		7,144,400			622,600
Operating expenses		3,322,100			1,458,200
Other income (expense)		(113,900	)		(176,300	)
Income tax benefit		-			571,600
Net income (loss)	$	3,708,400		$	(440,300	)


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Program	Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
July 1, 2022 - July 31, 2022	—	$	—	—	$	—
August 1, 2022 - August 31, 2022	1,483	1.40		1,483	—
September 1, 2022 - September 30, 2022	124	1.14		124	—
Total	1,607	—		1,607	—