February 21, 2020
Sterling Griffin
President
Harbor Custom Development, Inc.
11505 Burnham Dr., Suite 301
Gig Harbor, Washington 98332
Re: Harbor Custom Development, Inc.
Draft Registration Statement on Form S-1
Submitted January 27, 2020
CIK No. 0001784567
Dear Mr. Griffin:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Draft Registration Statement on Form S-1 Filed January 27, 2020
Summary Financial Data
Other Financial Data, page 6
1. We note your discussion of EBITDA margin and adjusted EBITDA margin,
which appear
to be non-GAAP presentations. Please explain to us what these measures
represent, how
they are calculated and how your disclosure provides all of the
information required by
Item 10(e) of Regulation S-K. Additionally, please revise to reflect the
measures
consistently throughout the document.
Capitalization, page 42
2. Please revise your disclosure to clarify that the amounts shown in the
capitalization table
Sterling Griffin
FirstName LastNameSterling Griffin
Harbor Custom Development, Inc.
Comapany NameHarbor Custom Development, Inc.
February 21, 2020
February 21, 2020 Page 2
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FirstName LastName
are presented in thousands of dollars.
Dilution, page 43
3. Please tell us how you calculated net tangible book value of negative
$4,160,900 as of
September 30, 2019.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, page
48
4. Please expand your discussion of your results of operations to address
the reasons for the
increases in your revenues and cost of sales for each period
presented.
5. Please expand your discussion of your material indebtedness to
describe the material
terms of such indebtedness including material financial covenants. We
note the risk factor
on page 30.
Gross Margin, page 50
6. We note from your disclosure on page 51 that your gross margin
percentage was 3.35%
and 6.01% for the nine months ended September 30, 2019 and for the
nine months ended
September 30, 2018, respectively, excluding interest on cost of sales.
These gross margin
percentages do not agree with the percentages as presented in the
adjusted homebuilding
gross margin table. Please revise or explain this discrepancy.
7. Please expand discussion to include adjusted homebuilding gross margin
for all the
financial statement periods presented in the filing.
Revenues for Real Estate and Construction Materials, page 62
8. Please expand your presentation to include revenues from contracts
with customers by
product category for all financial statement periods presented in the
filing.
Our Business, page 67
9. Please describe clearly your infrastructure development activities for
subdivisions
including the use of your $4,000,000 in heavy equipment.
10. We note the references in this section to owning and controlling five
Western Washington
residential communities. We also note the communities referenced in
the cover artwork.
Please describe each of your material properties clearly including the
nature of your
ownership.
11. It appears you sell finished lots and finished homes. Please clarify
the proportion of your
business that involves home construction versus sales of finished and
unfinished lots,
including the number of homes and the number of lots you have
historically sold per year.
Clarify how the houses are built and by whom. To the extent you use
subcontractors in
Sterling Griffin
FirstName LastNameSterling Griffin
Harbor Custom Development, Inc.
Comapany NameHarbor Custom Development, Inc.
February 21, 2020
February 21, 2020 Page 3
Page 3
FirstName LastName
construction please describe your relationships with such
subcontractors.
Materials, page 76
12. Please describe your material supply arrangements, including your
relationships with your
principal suppliers.
Executive Compensation, page 84
13. Please disclose all compensation earned by executives in each fiscal
year, including the
portions of the salaries not taken by them. Also, clarify whether the
amounts not taken
remain outstanding, are loans to the company or otherwise constitute
ongoing obligations
of the company. We also note your statement that the Summary
Compensation Table
reflects compensation "to be paid to our named executive officers for
fiscal year 2019."
Given that the fiscal year 2019 is complete, please revise to clarify
that the Summary
Compensation Table reflects the compensation paid for the fiscal year
2019.
Certain Relationships and Related Party Transactions, page 89
14. We note in Footnote 14 to the Financial Statements for the Years Ended
December 31,
2018 and 2017, that the company transferred land and a mining bond to
an investment
company owned by the majority shareholder of the company in 2019. We
also note that
the company entered into a construction loan with Olympic Views, LLC
of which the
majority shareholder owns a 50% interest and 50% owned by another
shareholder on
April 19, 2019. Please revise to include the disclosure required by
Item 404 of Regulation
S-K regarding these transactions including the identity of the
majority shareholder or
advise us why the disclosure is not required.
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies, page
F-6
15. Please revise and expand your principles of consolidation disclosure
to clarify the
consolidation policy that is being followed as required by ASC
810-10-50-1.
14. Subsequent Events, page F-21
16. We note that you disclose real estate revenues through the year ending
December 31, 2019
as a subsequent event and is repeated in your notes to your interim
financial statements on
page F-42. Please remove this disclosure or explain to us why this
disclosure is
appropriate and cite the applicable guidance in your response.
11. Leases, page F-38
17. We note from your table on page F-39 that net lease costs for
operating leases is allocated
to amortization of asset and interest on lease liabilities. Please
tell us how this allocation is
consistent with the guidance in ASC 842-20-25-6(a), which states that
a lessee recognizes
a single lease cost for an operating lease on a straight-line basis.
Sterling Griffin
Harbor Custom Development, Inc.
February 21, 2020
Page 4
12. Income Tax, page F-41
18. We note that you have not recorded a valuation allowance against your
deferred tax
asset despite recording net losses for the year ended December 31, 2018
and through nine
months ended September 30, 2019. Please explain to us the basis for your
conclusion that
a valuation allowance is not necessary. Your response should include
discussion of both
the positive and negative evidence you considered that support your
conclusion.
Reference is made to ASC 740-10-30-23.
19. Please revise your disclosure to disclose the amounts and expiration
dates of your net
operating loss carryforwards for tax purposes. Reference is made to ASC
740-10-50-3a.
Part II
Recent Sales of Unregistered Securities, page 113
20. Please revise to indicate the aggregate amount of consideration received
by the company
for each of the noted transactions. See Item 701 of Regulation S-K.
Undertakings, page 114
21. Please provide the undertakings as required by Item 512(a)(5)(ii) and
Item 512(a)(6) of
Regulation S-K. Item 512(a)(5)(ii) is required for any prospectus filed
in reliance on Rule
430C and Item 512(a)(6) is required for any offering that involves an
initial distribution of
securities pursuant to Rule 159A. For guidance, refer to Securities Act
Rules Compliance
and Disclosure Interpretation, Question 229.01.
You may contact Isaac Esquivel at 202-551-3395 or Wilson Lee at
202-551-3468 if you
have questions regarding comments on the financial statements and related
matters. Please
contact Ruairi Regan at 202-551-3269 or David Link at 202-551-3356 with any
other questions.
Sincerely,
FirstName LastNameSterling Griffin
Division of
Corporation Finance
Comapany NameHarbor Custom Development, Inc.
Office of Real
Estate & Construction
February 21, 2020 Page 4
cc: Lynne Bolduc, Esq.
FirstName LastName