false FY 0001784567

 P1Y

 P1Y

 P1Y

 HCDI:SeriesCumulativeConvertiblePreferredStockMember

 us-gaap: WarrantMember

 HCDI:WarrantOneMember

 2023-06-30

 2024-03-28

 us-gaap: NonrelatedPartyMember

 us-gaap: NonrelatedPartyMember

 HCDI:BelfairApartmentsLLCMember

 HCDI:BelfairApartmentsLLCMember

 HCDI:PacificRidgeCMSLLCMember

 HCDI:PacificRidgeCMSLLCMember

 HCDI:TanglewildeLLCMember

 HCDI:TanglewildeLLCMember

 HCDI:HCDIFLCONDOLLCMember

 HCDI:HCDIFLCONDOLLCMember

 HCDI:HCDIMiraLLCMember

 HCDI:HCDIBridgeviewLLCMember

 HCDI:HCDIBridgeviewLLCMember

 HCDI:HCDIWyndstoneLLCMember

 HCDI:HCDIWyndstoneLLCMember

 HCDI:HCDISemiahmooLLCMember

 HCDI:HCDISemiahmooLLCMember

 HCDI:MillsCrossingLLCMember

 HCDI:MillsCrossingLLCMember

 HCDI:BroadmoorVenturesLLCMember

 HCDI:BroadmoorVenturesLLCMember

 HCDI:GPBHoldingsLLCMember

 HCDI:GPBHoldingsLLCMember

 HCDI:WindingLaneEstateLLCMember

 HCDI:WindingLaneEstateLLCMember

 HCDI:BeaconStudioFarmsLLCMember

 HCDI:TwoThousandEighteenPlanMember

 2018-11-19

 HCDI:TwoThousandEighteenPlanMember

 2022-06-01
 2022-06-01

 HCDI:TwoThousandTwentyPlanMember

 2020-12-03

 HCDI:TwoThousandTwentyPlanMember

 2022-06-01
 2022-06-01

 2023-03-06
 2023-03-06

 HCDI:PreFundedOfferingWarrantsMember

 HCDI:CommonStockOfferingWarrantsMember

 us-gaap: OverAllotmentOptionMember
 HCDI:PreFundedOfferingWarrantsMember

 HCDI:PlacementAgentWarrantsMember

 us-gaap: MeasurementInputRiskFreeInterestRateMember

 us-gaap: MeasurementInputExercisePriceMember

 us-gaap: MeasurementInputExercisePriceMember

 us-gaap: MeasurementInputExpectedTermMember

 us-gaap: MeasurementInputPriceVolatilityMember

 HCDI:RocklinWindingLane22LLCMember

 2022-03-31

 HCDI:RocklinWindingLane22LLCMember

 us-gaap: LoansPayableMember
 HCDI:RocklinWindingLane22LLCMember

 HCDI:ThirdPartyMember

 HCDI:ThirdPartyMember

 us-gaap: LandMember

 srt: MultifamilyMember

 srt: MultifamilyMember

 us-gaap: EmployeeStockOptionMember

 us-gaap: EmployeeStockOptionMember

 us-gaap: WarrantMember

 us-gaap: WarrantMember

 us-gaap: ConvertiblePreferredStockMember

 us-gaap: ConvertiblePreferredStockMember

 us-gaap: RestrictedStockUnitsRSUMember

 us-gaap: RestrictedStockUnitsRSUMember

 HCDI:WarrantsToPurchaseConvertiblePreferredStockMember

 HCDI:WarrantsToPurchaseConvertiblePreferredStockMember

 us-gaap: OtherMachineryAndEquipmentMember

 us-gaap: OtherMachineryAndEquipmentMember

 us-gaap: LeaseholdsAndLeaseholdImprovementsMember

 us-gaap: FurnitureAndFixturesMember

 us-gaap: ComputerEquipmentMember

 us-gaap: VehiclesMember

 HCDI:MultiFamilyProductMember

 HCDI:MultiFamilyProductMember

 HCDI:ConstructionMaterialsMember

 HCDI:ConstructionMaterialsMember

 us-gaap: TransferredAtPointInTimeMember

 us-gaap: TransferredAtPointInTimeMember

 us-gaap: TransferredOverTimeMember

 us-gaap: TransferredOverTimeMember

 HCDI:CustomerThreeMember

 HCDI:CustomerFourMember

 HCDI:CustomerFiveMember

 HCDI:CustomerSixMember

 HCDI:NoffkeHorizonViewLLCMember

 2022-03-31

 HCDI:NoffkeHorizonViewLLCMember
 us-gaap: LoansPayableMember

 2022-03-31

 HCDI:BroadmoorCommonsLLCMember

 HCDI:BroadmoorCommonsLLCMember

 HCDI:ModernHomesteadLLCMember

 HCDI:ModernHomesteadLLCMember

 HCDI:NoffkeHorizonViewLLCMember

 HCDI:NoffkeHorizonViewLLCMember

 us-gaap: MachineryAndEquipmentMember

 us-gaap: MachineryAndEquipmentMember

 us-gaap: VehiclesMember

 us-gaap: FurnitureAndFixturesMember

 us-gaap: LeaseholdImprovementsMember

 us-gaap: LeaseholdImprovementsMember

 HCDI:SecuredOvernightFinancingRateSOFRMember

 2023-02-23
 2023-02-23

 2023-02-23

 HCDI:ThirdPartyMember

 HCDI:ThirdPartyMember

 us-gaap: LetterOfCreditMember

 us-gaap: LetterOfCreditMember
 us-gaap: PrimeRateMember

 us-gaap: NotesPayableOtherPayablesMember
 HCDI:DirectorsAndOfficersInsuranceAugust2023Member

 2023-08-28

 us-gaap: NotesPayableOtherPayablesMember
 HCDI:DirectorsAndOfficersInsuranceAugust2023Member

 2023-08-28
 2023-08-28

 us-gaap: NotesPayableOtherPayablesMember
 HCDI:DirectorsAndOfficersInsuranceAugust2023Member

 2022-08-28

 us-gaap: NotesPayableOtherPayablesMember
 HCDI:DirectorsAndOfficersInsuranceAugust2023Member

 2022-08-28
 2022-08-28

 HCDI:DirectorsAndOfficersInsuranceAugust2022Member

 HCDI:DirectorsAndOfficersInsuranceAugust2022Member

 2023-10-01
 2023-10-01

 2023-10-01

 HCDI:OlympicManagementCompanyMember
 HCDI:PropertyManagementAgreementMember

 HCDI:OlympicManagementCompanyMember
 HCDI:PropertyManagementAgreementMember

 us-gaap: SeriesAPreferredStockMember

 us-gaap: SeriesAPreferredStockMember

 HCDI:PreFundedOfferingWarrantsMember

 HCDI:CommonStockOfferingWarrantsMember

 HCDI:CommonStockOfferingWarrantsMember

 us-gaap: WarrantMember

 us-gaap: OverAllotmentOptionMember
 HCDI:PlacementAgentWarrantsMember

 2023-02-17
 2023-02-17

 2023-02-27
 2023-02-27

 2023-02-27
 2023-02-27

 2022-05-10

 us-gaap: EmployeeStockOptionMember

 us-gaap: EmployeeStockOptionMember

 HCDI:EmployeesAndFormerEmployeesMember

 HCDI:FormerEmployeesMember

 us-gaap: AllOtherSegmentsMember

 us-gaap: AllOtherSegmentsMember

 HCDI:UnallocatedMember

 HCDI:UnallocatedMember

 HCDI:DebtorsAndNonDebtorSubsidiariesMember

 HCDI:DebtorsAndNonDebtorSubsidiariesMember

 HCDI:DebtorsAndNonDebtorSubsidiariesMember

 us-gaap: SubsequentEventMember
 HCDI:BuchananMortgageHoldingsLLCMember

 2024-02-02

 HCDI:Integer

 HCDI:Segment

 UNITED
STATES

 SECURITIES
AND EXCHANGE COMMISSION

 Washington,
D.C. 20549

 FORM

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

 For
the fiscal year ended December 31, 2023

 OR

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

 For
the transition period from__to

 Commission
file number 001-39266

Custom Development, Inc.
 (Exact
name of registrant as specified in its charter)

 46-4827436

 (State
 of organization)

 (I.R.S.
 Employer Identification No.)

 1201
Pacific Avenue, Suite 1200

 Tacoma,
 Washington 98402

 (Address
of principal executive offices)

 (253) 649-0636

 Registrant's
telephone number, including area code

 Securities
registered pursuant to Section 12(b) of the Act:

 Title
 of each class

 Trading
 Symbol(s)

 Name
 of each exchange on which registered

 Stock

 HCDIQ *

 OTC

 Series
 A Cumulative Convertible Preferred Stock

 HCDPQ *

 OTC

 HCDWQ *

 OTC

 HCDZQ *

 OTC

 *
 The Nasdaq Stock
Market LLC filed a Form 25-NSE on February 15, 2024 to deregister the Company's securities under Section 12(b) of the Securities
Exchange Act of 1934, as amended.

 Securities
registered pursuant to Section 12(g) of the Act: None

by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2)
has been subject to such filing requirements for the past 90 days. Yes No

by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the

 registrant
was required to submit and post such files). Yes No

by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company"
in Rule 12b-2 of the Exchange Act.

 Large
 accelerated filer

 Accelerated
 filer

 Non-accelerated
 filer

 Smaller
 reporting company

 Emerging
 growth company

 If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.

by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant's executive o?cers during the relevant recovery period pursuant to §240.10D-1(b).

by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

 The
aggregate market value of voting stock held by non-affiliates of the Registrant on June 30, 2023, based on the closing price of $3.02
for shares of the Registrant's common stock as reported by the Nasdaq Stock Market LLC, was approximately $ 5.0 million. Shares
of common stock beneficially owned by each executive officer, director, and holder of more than 10% of our common stock have been excluded
in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination
for other purposes.

 The
registrant had outstanding 2,686,431 shares of common stock as of March 28, 2024.

 DOCUMENTS
INCORPORATED BY REFERENCE

 None.

 Table
of Contents

 Page

 Item
 1.

 Business

 Item
 1A.

 Risk Factors

 Item
 1B.

 Unresolved Staff Comments

 Item 1C.

 Cybersecurity

 Item
 2.

 Properties

 Item
 3.

 Legal Proceedings

 Item
 4.

 Mine Safety Disclosures

 Item
 5.

 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 Item
 6.

 [Reserved]

 Item
 7.

 Management's Discussion and Analysis of Financial Condition and Results of Operations

 Item
 7A.

 Quantitative and Qualitative Disclosures About Market Risk

 Item
 8.

 Financial Statements and Supplementary Data

 Item
 9.

 Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

 Item
 9A.

 Controls and Procedures

 Item
 9B.

 Other Information

 Item
 9C.

 Disclosure Regarding Foreign Jurisdiction That Prevents Inspections

 Item
 10.

 Directors, Executive Officers, and Corporate Governance

 Item
 11.

 Executive Compensation

 Item
 12.

 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 Item
 13.

 Certain Relationships and Related Transactions, and Director Independence

 Item
 14.

 Principal Accounting Fees and Services

 Item
 15.

 Exhibits, Financial Statement Schedules

 Item
 16.

 Form 10-K Summary

 SIGNATURES

 CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 This
Annual Report on Form 10-K ("Annual Report") contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact
included in this Annual Report are forward-looking statements. These forward-looking statements may include projections and estimates
concerning specific projects; our future revenues, income, cost of sales, expenses, and capital spending; and the effects of our filing
of voluntary petitions under chapter 11 of the United States Bankruptcy Code ("Chapter 11"). Our forward-looking statements
are generally accompanied by words such as "estimate," "project," "predict," "believe,"
"expect," "intend," "anticipate," "potential," "plan," "goal,"
"foresee," "likely," "target," "may," "should," "could," or other
words that convey the uncertainty of future events or outcomes.

 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 Annual Report and are subject to risks and uncertainties. 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, including
uncertainties related to our Chapter 11 proceedings. New risks emerge from time to time. It is not possible for our management to predict
all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties,
you should not place undue reliance on forward-looking statements contained herein.

 You
should read this Annual 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 Annual Report relate only to events as of the date on which such statements are made. We undertake
no obligation to update any forward-looking statements after the date of this Annual Report or to conform such statements to actual results
or revised expectations, except as required by law.

 SUMMARY
OF RISK FACTORS

 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:

 our
 Chapter 11 Case makes our historical financial information not indicative of our future performance, if any;

 there
 is a substantial doubt regarding our ability to continue as a going concern;

 not
 being able to obtain confirmation of our proposed Chapter 11 plan;

 not
 having sufficient cash to maintain our operations and proposed Chapter 11 plan during the Chapter 11 Case;

 being
 dependent on only a few highly skilled employees to navigate the Chapter 11 Case;

 not
 being able to realize value from our assets;

 not
 being able to realize full or market value from our assets as a result of our entities being in a Chapter 11 proceeding or other
 factors;

 the
 amount of claims allowed could significantly exceed our estimates;

 delisting
 of our securities from Nasdaq and the risks associated with the over the counter market;

 potential
 suspension of our SEC reporting obligations;

 operating
 in bankruptcy for a long period of time;

 economic
 changes either nationally or in the markets in which we operate, may adversely affect our proposed Chapter 11 plan, including declines
 in employment, continued increases 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, if any, and financial condition;

 our
 business operations;

 changes
 in our business and investment strategy;

 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; and

 additional
 factors discussed under the sections "Risk Factors," "Management's Discussion and Analysis of Financial Condition
 and Results of Operations," and "Our Business."

 PART
I

 Throughout
this Annual Report, references to the "Company," "HCDI," "we," "us," and "our"
refer to Harbor Custom Development, Inc. and its consolidated subsidiaries, unless the context requires otherwise.

 ITEM
1. BUSINESS

 Our
Company

Custom Development, Inc. is a real estate development company which is now in the process of winding-down its operations and liquidating
all of its assets pursuant to a proposed Chapter 11 Plan (the "Proposed Plan"), subject to Bankruptcy Court approval.

 For
the years ended December 31, 2023, and December 31, 2022, our total revenues were $59.3 million and $55.4 million, respectively. As of
December 31, 2023, and December 31, 2022, our backlogs of fully executed contracts for the sale of developed residential lots and single-family
homes were $0.6 million and $8.4 million, respectively. Our fee build backlogs as of December 31, 2023, and December 31, 2022, were $0.02
million and $0.8 million, respectively.

 In
2022, we had two entitled land sales and sold 33 developed lots and 27 homes. The two entitled land sales represented 14% of total revenue
in 2022. The 33 developed lot sales represented 17% of total revenue in 2022. Our 2022 home sales represented 52% of total revenue, and
home selling prices ranged from $0.7 million to $1.7 million.

 In
2023, we had no entitled land sales and sold two multi-family properties, 56 developed lots, and six homes. The multi-family revenues
represented 65% of total revenue in 2023. The developed lot sales represented 19% of total revenue in 2023. Our 2023 home sales represented
15% of total revenue, and home selling prices ranged from $1.0 million to $1.6 million.

 As of March 28, 2024, we own or control 15 communities in Washington,
Texas, California, and Florida, containing approximately 517 units or lots in various stages of development. (See Item 2. Properties)
We have 15 single family homes, three multi-family apartments, 106 developed lots, and 13 land parcels. All single-family homes and developed
lots are being offered for sale. The majority of land projects are offered for sale in existing condition. Several parcels in Semiahmoo
are near the next stage of entitlements which we are working towards achieving. All multi-family apartments are substantially complete
with lease up in progress. We have engaged a real estate brokerage and workout firm and an investment banking firm specializing in special
situations, restructurings, bankruptcies, receiverships and Article 9 sales to sell our multi-family portfolio in Washington, which includes
four of the 15 communities and 385 of the referenced 517 units or lots, as more further described below. We will continue to collect lease
revenue from our multi-family properties until such communities have been sold.

 While
we have continued to generate revenue, these revenue streams have proved insufficient to cover our ongoing cash requirements. In addition,
we faced several issues in our operations including: (1) cost overruns and construction delays on land development; (2) continuing challenges
resulting from the Covid-19 Global Pandemic; (3) a shift in building strategy; (4) a decline in the real estate market leading to delayed
sales at lower-than-expected prices; (5) delayed timelines and contractor issues that affected our ability to realize revenue on their
expected timelines; and (6) debt service payment requirements to a revolving lender that strained our cash position and ability to meet
our obligations to our stakeholders. These factors, among others, placed significant strain on cash flow and cash reserves, ultimately
leading to filing for Chapter 11 protection as our management and board of directors determined that it was in the best interests of
the Company and its stakeholders.

 Chapter
11 Bankruptcy

 On
December 11, 2023 (the "Petition Date"), we and certain of our wholly owned subsidiaries, including Belfair Apartments, LLC;
Pacific Ridge CMS, LLC; HCDI FL Condo LLC; HCDI Bridgeview LLC; HCDI Semiahmoo LLC; and Beacon Studio Farms LLC (collectively, the "Debtors"),
filed a voluntary petition (the "Bankruptcy Petition") for reorganization under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Western District of Washington (such court, the
"Bankruptcy Court" and such case, the "Chapter 11 Case"). We expect to continue to operate our business as "debtor-in-possession"
under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of
the Bankruptcy Court. To ensure our ability to continue operating in the ordinary course of business, we filed motions seeking customary
"first-day" relief with the Bankruptcy Court, including, among other things, authority to use cash collateral, pay employee
wages and benefits, and pay other vendors and suppliers in the ordinary course for all services provided after the Petition Date, limit
certain Bankruptcy Court requirements for notice to equity security holders, sell real property in the ordinary course of business, and
other motions, as appropriate. These motions remain subject to approval by the Bankruptcy Court.

 On
December 15, 2023, the Bankruptcy Court entered an Interim Order Approving Notification and Hearing Procedures for Certain Transfers
of Common and Preferred Stock and Granting Related Relief (the "Order"). The Order is designed to establish certain procedures
(the "Procedures") to protect any potential value of our net operating loss carryforwards and other tax attributes (the "NOLs").
The Order establishes, among other things, the Procedures with respect to direct and indirect trading and transfers of our stock in order
to protect any potential value of our NOLs for use in connection with the reorganization. As approved on an interim basis, the Procedures
restrict transactions involving, and require notices of the holdings of and proposed transactions by, any person or group of persons
that is or, as a result of such a transaction, would become, a Substantial Shareholder. A "Substantial Shareholder" for purposes
of the Procedures, is defined as any entity or individual that has Beneficial Ownership of at least (a) 5% of all issued and outstanding
shares of common stock (being 2,686,431 shares as of March 28, 2024) or (b) 5% of all issued and outstanding shares of preferred stock
(being 3,799,799 shares as of March 28, 2024). Any prohibited transfer of common or preferred stock in violation of the Procedures shall
be null and void ab initio.

 On
February 2, 2024, our wholly owned subsidiary, Tanglewilde, LLC (included as a "Debtor"), also filed a Bankruptcy Petition
for reorganization under Chapter 11 of the Bankruptcy Code. Tanglewilde, LLC has been added into our pending Chapter 11 Case.

 On
February 16, 2024, we issued a press release announcing our intention to file a Chapter 11 plan (the "Chapter 11 Plan") with
the Bankruptcy Court approximately in late February proposing the orderly wind down of our operations and the voluntary liquidation of
all of our remaining assets, rather than a restructuring of our business. The proposed Chapter 11 Plan is subject to the approval of
the Bankruptcy Court.

 Further,
we retained Keen-Summit Capital Partners LLC ("Keen"), a real estate brokerage and workout investment banking firm, to manage
the sale of our multi-family real estate portfolio. The portfolio includes the Belfair View Apartments in Belfair, Washington; the Bridgeview
Trail Apartments in Port Orchard, Washington; the Meadowscape Apartments in Olympia, Washington; and the Pacific Ridge Apartments in
Tacoma, Washington. Any sale by Keen is subject to approval by the Bankruptcy Court.

 On
March 5, 2024, we filed a Joint Chapter 11 Plan which contains multiple proposals to handle the liquidation of our company (the "Proposed
Plan") and a related proposed disclosure statement with the Bankruptcy Court ("Disclosure Statement"). We can provide
no assurance that the Proposed Plan will be accepted by creditors or shareholders, who may object to the Proposed Plan, or confirmed
by the Bankruptcy Court (or, even if confirmed, that the Proposed Plan will become effective). We are authorized to solicit votes from
our creditors and our shareholders for approval of the Proposed Plan. The Proposed Plan (and its consummation) remain subject to Bankruptcy
Court approval and satisfaction of other conditions contained in the Proposed Plan. The Proposed Plan and Disclosure Statement describe,
among other things, the material terms of the Proposed Plan our corporate history, structure, and business overview; the events
leading to the Chapter 11 Case the proposed treatment of Claims and Interests (defined below) under the Proposed Plan; certain
events that have occurred or are anticipated to occur during the Chapter 11 Case, and certain other aspects of the Proposed Plan. All
distributions under the Proposed Plan would come from the Debtors' cash on hand and other assets, which would generally be distributed,
subject to the terms of the Proposed Plan, to classes of claims of creditors ("Claims") and treatment of equity interests
of shareholders ("Interests") in order of their respective priorities under the Bankruptcy Code. The Disclosure Statement
provides disclosures regarding the anticipated recoveries to holders of Claims and Interests pursuant to the Proposed Plan, including
holders of our securities, which remain to be determined. No assurance can be made with respect to any distributions or recoveries with
respect to Claims or Interests under the Proposed Plan.

Debt

 The
filing of the Bankruptcy Petition constitutes an event of default under our outstanding indebtedness for borrowed money as of the petition
date, including (collectively, the "Outstanding Indebtedness"):

 -

 Loan
 Agreements with related lenders known as "Sound Capital," specifically, Sound Capital Loans, LLC; Sound Capital Construction
 Fund, LLC; and Sound Equity High Income Debt Fund, LLC, dated various dates, in the principal amount in the aggregate of $60,108,867
 plus accrued interest thereon, including interest at the lesser of (a) annualized default interest rate of approximately 24% or (b)
 interest rate allowed by law since default thereon;

 -

 Loan
 Agreements with related lenders known as "Marquee," specifically Mandalay Income Fund, I, LP; Oakhurst Income Fund II,
 LP; and Oakhurst Opportunity Lending Fund I, L.P., dated various dates, in the principal amount in the aggregate of $31,289,325 plus
 accrued interest thereon, including an annual default interest rate at 13.55%, 13.625%, 15.75%, or 16.00% depending on the loan agreement
 or the maximum interest rate allowed by law since default thereon;

 -

 the
 Loan Agreement with Fratelli's LLC, dated May 25, 2022, in the principal amount of $8,000,000 plus accrued interest thereon,
 including interest at the default interest rate of 18% since November 30, 2023;

 -

 the
 Loan Agreement with Benaroya Holdings, LLC, dated January 30, 2023 and the Amendment to the Loan Agreement, dated May 5, 2023, in
 the principal amount of $5,300,000 plus accrued interest thereon, including default interest at the rate of 18% per annum since default
 thereon;

 -

 the
 Loan Agreement with 222, Limited Liability Company; Cynthia A. Blair; Michael A. Raquiza; and William Chunyk, dated September 19,
 2022, in the principal amount of $3,500,000 plus accrued interest thereon, including interest at a rate equal to 4% greater than
 the current rate of 10% since default thereon;

 -

 the
 Loan Agreement with North Carolina Empowering Kids & Communities Foundation, Inc., dated November 1, 2022, in the principal amount
 of $2,500,000 plus accrued interest thereon, including interest at a rate equal to 4% greater than the current rate of 10% since
 default thereon;

 -

 the
 Loan Agreement with BankUnited, N.A., dated March 7, 2022 and the Amendment to the Loan Agreement, dated February 22, 2023, in the
 principal amount of $14,178,674 (according to BankUnited, N.A.) plus accrued interest thereon, including interest at the default
 rate from December 4, 2023, which rate floats at the contract rate plus 3%, until the debt is paid in full; and

 -

 the
 Promissory Note with Buchanan Mortgage Holdings, LLC dated August 19, 2022, in the principal amount of $34,048,901 as of February
 2, 2024.

 The
terms of the Outstanding Indebtedness provide that, as a result of the Bankruptcy Petition, the principal and interest under such Outstanding
Indebtedness shall be immediately due and payable. Any efforts to enforce such payment obligations are automatically stayed as a result
of the Bankruptcy Petition and the creditors' rights of enforcement are subject to the Bankruptcy Code.

 Nasdaq
Delisting

 On
December 12, 2023, we received written notice from The Nasdaq Stock Market LLC ("Nasdaq") indicating that, following Nasdaq's
review of our press release related to the Bankruptcy Petition and other publicly available information, and in accordance with Listing
Rules 5101, 5110(b) and IM-5101-1, Nasdaq determined that our securities will be delisted from Nasdaq. Trading of our common stock (HCDI),
preferred stock (HCDIP), and two classes of warrants (HCDIW and HCDIZ) was suspended at the opening of trading on December 21, 2023.

 Nasdaq
based its determination upon concerns related to (i) our announcement that we filed for protection under Chapter 11 of the United States
Bankruptcy Code and associated public interest concerns raised by such filing, (ii) the residual equity interest of the existing listed
securities holders, and (iii) our ability to sustain compliance with all requirements for continued listing on Nasdaq. Nasdaq also noted
that we no longer complied with Nasdaq's audit committee requirements as set forth in Listing Rule 5605, which cure period to regain
compliance was until the earlier of our next annual shareholders' meeting or September 18, 2024. The Nasdaq notice also advised
us of our right to request an appeal of the determination. We did not pursue such appeal.

 On
December 20, 2023, we received a notice from FINRA's Department of Market Operations (the "FINRA Notice") informing
the Company that the trading symbols HCDIQ, HCDPQ, HCDWQ, and HCDZQ were assigned to our common stock, preferred stock, and warrants,
respectively, and that as of December 21, 2023, our aforementioned securities would be quoted and traded in the market for unlisted securities
(i.e., the "over-the-counter market" or "OTC"). As a result, trading of such securities commenced on OTC Pink
Current Information on December 21, 2023 under the trading symbols HCDIQ, HCDPQ, HCDWQ, and HCDZQ.

 On
February 15, 2024, Nasdaq filed a Form 25-NSE with the Commission which will remove all of our securities from listing and registration
on Nasdaq.

 Additional
Information on the Chapter 11 Case

 Court
filings and information related to the bankruptcy can be found at  The documents and other
information available via website or elsewhere are not part of this Annual Report and shall not be deemed incorporated herein.

 Our
Business

Custom Development, Inc. is a real estate development company which is now in the process of winding-down its operations and liquidating
all of its assets pursuant to a proposed Chapter 11 Plan (the "Proposed Plan"), subject to Bankruptcy Court approval. The
description of our business below is presented for historical purposes to cover the time periods discussed in this Report as well as
our current operations under Chapter 11 proceedings.

 Our
business is involved in all aspects of the land development cycle, including land acquisition, entitlements, development, construction
of project infrastructure, single and multi-family vertical construction, marketing, and sales of various residential projects in Washington,
California, Texas, and Florida.

 As
a land developer and builder of apartments, single-family luxury homes, and townhomes, our business strategy is to acquire and develop
land strategically based on an understanding of population growth patterns, entitlement restrictions and land use evaluation, infrastructure
development, and geo-economic forces. We endeavor to acquire land with scenic views or convenient
access to freeways and public transportation to develop and sell residential lots, new home communities, townhomes, and multi-story apartment
properties within a 20- to 60-minute commute of some of the nation's fastest-growing metro employment corridors.

 We
have a portfolio of land, lots, home plans, and entitled multi-family plats. In addition to our single-family residential projects, we
build, rent, and hold for sale townhomes and apartments on several multi-family sites in Washington. (See Item 2. Properties.)

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

 Our

 We
own residential lots, single-family homes, townhomes, and apartments in Washington, California, Florida, and Texas.

 Our
Products

 We
offer a diverse portfolio of finished lots, single-family homes and multi-family communities, including townhomes, and apartments. Being
product-agnostic provided us great flexibility to maintain appropriate consumer product and price level diversification for our specific
markets. We focus on underserved consumer groups for each of our locations while attempting to diversify as to not overly concentrate
our land portfolio in any one area. Building at multiple price points enables us to quickly adjust to changing consumer and market demands.
Buyer profiles are developed for each market, and our communities are designed with the specific needs of those buyers in mind.

 Land
Acquisition and Development Process

 Our
integrated business model is designed to monetize land during three distinct stages of the development cycle.

 Sale
 of Entitled Land – Property sold following the controlling jurisdiction's approval of a permitted residential use
 or other use, as applicable.

 Sale
 of Developed Lots - Property sold after infrastructure is completed, including roads, sidewalks, and utilities.

 Sale
 of Completed Building Product – Property sold following the construction of a single-family home, townhome, or apartment.

 We
also provide services as fee build revenues to construct the required infrastructure so that houses can be developed on the lots.

 Our
acquisition process generally includes the following steps:

 review
 of the status of entitlements and other governmental processing, including title reviews;

 complete
 due diligence on the land parcel prior to committing to the acquisition;

 prepare
 detailed budgets for all cost categories;

 complete
 environmental reviews and third-party market studies; and

 evaluate
 economic feasibility within the context of the above strategies.

 Before
purchasing large land tracts, we engage outside engineers and consultants to help review the proposed acquisition and assist with community
and home design.

 Home
Building, Marketing, and Sales Process

 Our
philosophy is to develop beautiful and practical living spaces for growing communities. Our strategy is to acquire land with scenic views
or convenient access to freeways and public transportation to develop and sell residential lots, new home communities, and multi-story
apartment properties within a 20- to 60-minute commute of the nation's fastest-growing metro employment corridors.

 Since
our founding in 2014, we are dedicated to building quality homes with thoughtful design. Our floorplans support the modern family's
lifestyle by providing flexible spaces, outdoor living, one-story homes, main-floor living with master bedroom suites on the first floor,
and luxury finishes to appeal to universal design needs. Our homes are engineered for energy-efficiency to reduce impact on the environment
and lower energy costs to our homebuyers.

 Our
multi-family construction offers comparable finishes to a new construction home, featuring quartz countertops, stainless steel kitchen
appliances, in-unit washer and dryer, and premium flooring. The floorplans are designed to support the communities we serve, including
but not limited to, studios, one bedroom with one bath, two bedrooms with two baths, and a loft feature. Many communities offer recreational
buildings for tenants to gather with neighbors, and entertain their families.

 We
utilize strategic partnerships with local real estate brokers and property management companies who specialize in their local markets.
We sell our homes, land, and apartments through independent real estate brokers and sales representatives who assisted potential buyers
by providing them with basic floor plans, price information, development and construction timetables, and property tours. We rent our
multi-family properties through property management companies who assist potential renters by providing them with floor plans, pricing
information, tours of the apartments, and screening and processing applications.

 The
home building revenues are recognized when home sales are finished, closed, and title and possession are transferred to the buyer. Our
sales contracts typically require an earnest money deposit. Buyers are generally required to pay an additional deposit when they select
options or upgrades for their homes. The amount of earnest money required varies between markets and communities but typically averaged
approximately 2% of the home's total purchase price. Most of our sales contracts stipulate when homebuyers cancel their contracts
with us, following a specified period of time, we have the right to retain their earnest money and option deposits. Our sales contracts
may also include contingencies that permit homebuyers to cancel and receive a partial or full refund of their deposits if they cannot
obtain mortgage financing at prevailing or specified interest rates within a specified time period or if they cannot sell an existing
home. The length of time between the signing of a sales contract for a home and delivery of the house to the buyer varies depending on
closing schedules.

 Our
multi-family communities are constructed to satisfy market demand for available rental housing, and construction is generally facilitated
when financing is secured. We begin renting the units once we have acquired occupancy permits with the intention to sell the project
during construction or upon complete build-out of the project and rental stabilization.

 Materials

 When
constructing our projects, we use various materials and components. The typical build time for our single-family homes is nine to 12
months, and for our multi-family communities is 18 to 24 months, during which time materials are subject to price fluctuations. Such
price fluctuations are caused by several factors, including seasonal variations in availability, international trade disputes and resulting
tariffs, and increased demand for materials due to the improved market.

 Our
material suppliers are subcontractors that are licensed, bonded, and insured. Each subcontractor provides a bid for the materials and
work required and is awarded a contract based on price, reputation, and ability to meet our time frames.

 Our
material suppliers provide us with credit terms for materials used in the construction of our projects. Credit terms typically range
from a 30 to 60-day payment cycle following the delivery or installation of a product or service.

 Seasonality

 We
experience seasonal variations in our quarterly operating results and capital requirements. We typically experienced the highest new
home sale activity in the spring and summer, although this activity also highly depends on the number of active selling communities,
the timing of new community openings, and other market factors. Since it typically takes nine to 12 months to construct a new home, we
generally deliver more homes in the second half of the year as spring and summer home orders convert to home deliveries. Because of this
seasonality, home starts, construction costs, and related cash outflows have historically been highest in the second and third quarters,
and the majority of cash receipts from home deliveries occur during the second half of the year.

 While
the leasing side of multi-family communities can experience some seasonality during the winter holiday months, the construction side
typically doesn't show seasonality patterns. The building process typically takes 18 to 24 months, depending on the size of the
project, the site development scope, and other project or market factors.

 Governmental
Regulation and Environmental Matters

 We
are subject to numerous local, state, federal, and other statutes, ordinances, rules, and regulations concerning zoning, development,
building design, construction, and similar matters which impose restrictive zoning and density requirements in order to limit the number
of homes that can eventually be built within the boundaries of a particular area. Projects that are not entitled may be subject to periodic
delays, changes in use, less intensive development, or elimination of development in certain specific areas due to government regulations.
We may also be subject to periodic delays or may be precluded entirely from developing in certain communities due to building moratoriums
or "slow-growth" or "no-growth" initiatives. Local and state governments also have broad discretion regarding
the imposition of development fees for projects in their jurisdiction. Projects for which we have received land use and development entitlements
or approvals may still require a variety of other governmental approvals and permits during the development process and can also be impacted
adversely by unforeseen health, safety, and welfare issues, which can further delay these projects or prevent their development.

 We
are also subject to a variety of local, state, federal, and other statutes, ordinances, rules, and regulations concerning the environment.
The particular environmental laws which apply to any given construction site varied according to the site's location, its environmental
conditions, and the uses of the site, as well as adjoining properties. Environmental laws and conditions may result in delays and can
prohibit or severely restrict building activity in environmentally sensitive regions or areas.

 Under
various environmental laws, current or former owners of real estate, as well as certain other categories of parties, may be required
to investigate and remediate hazardous or toxic substances or petroleum product releases and may be held liable to a governmental entity
or to third parties for property damage and for investigation and remediation costs incurred by such parties in connection with the contamination.
In addition, in cases where an endangered species is involved, environmental rules and regulations can result in the elimination of development
in identified environmentally sensitive areas.

 Competition
and Market Factors

 We
face competition in the homebuilding industry, which is characterized by relatively low barriers to entry. Homebuilders compete for,
among other things, homebuying customers, desirable land parcels, financing, raw materials, and skilled labor. Increased competition
may prevent us from acquiring attractive land parcels on which to build homes, apartments, townhomes, or deliver finished lots, make
such acquisitions more expensive, hinder our market share expansion, or lead to pricing pressures that may adversely impact our margins
and revenues. Competitors may independently develop land and construct housing units that are superior or substantially similar to our
products and because they are or may be significantly larger, have a longer operating history, and have greater resources or lower cost
of capital than us, may be able to compete more effectively in one or more of the markets in which we operate or plan to operate. We
also compete with other homebuilders with longer-standing relationships with subcontractors and suppliers in the markets in which we
operate or plan to operate. If our Proposed Plan is approved, we will face competition for the sale of our assets.

 Human
Capital

 We
experienced a significant decrease in the number of our employees. As of March 28, 2023, we had 41 full time employees and as of March
28, 2024, we had eight full-time employees; none of which are covered by a collective bargaining agreement.

 Our
human capital resources objectives include, as applicable, retaining, incentivizing and integrating our existing employees, advisors,
and consultants. We do not plan to give additional equity in the future. The principal purposes of our equity incentive plans in the
last two fiscal years were to attract, retain, and reward personnel through the granting of equity-based compensation awards.

 Available
Information

 Our
website address is www.harborcustomdev.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, and other publicly filed documents, including all exhibits filed therewith, are available and may be accessed free of charge through
the Investor Relations section of our website under the SEC Filings subsection, as soon as reasonably practicable after those documents
are filed with, or furnished to, the SEC at www.sec.gov. Also available through the Investor Relations section of our website are reports
filed by our directors and executive officers on Forms 3, 4, and 5, and amendments to those reports. Our website and included or linked
information on our website are not incorporated into this Annual Report. Resources for the Company's creditors and equity interest
holders can be found by visiting the website at  including court filings and other documents related
to the Chapter 11 process. Aditi Paranjpye at Cairncross & Hempelmann, P.S. is serving as lead bankruptcy legal counsel to the Company.

 ITEM
1A. RISK FACTORS

 Our
business, results of operations, and financial condition are subject to numerous risks and uncertainties. In connection with any investment
decision with respect to our securities, you should carefully consider the following risk factors, as well as the other information contained
in this report and our other filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently
deem immaterial may also impair our business operations. Should any of these risks materialize, our business, results of operations,
financial condition and future prospects could be negatively impacted, which in turn could affect the trading value of our securities.
You should read these Risk Factors in conjunction with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in Item 7 and our consolidated financial statements and related notes in Item 8. Additionally, some statements herein
constitute forward-looking statements. Please refer to the section entitled "Cautionary Note Concerning Forward-Looking Statements."

 Bankruptcy
Related Risks:

 As
a result of the Chapter 11 Case, our historical financial information may not be indicative of our future performance.

 We
previously had contracts for sale on several properties. However, some of these contracts were cancelled as the offerors were not able
to obtain financing on acceptable terms. Any additional offers that we received for our properties were substantially lower than our
listing price whereby we would not generate a profitable exit at such prices. Due to these factors, along with cost overruns and construction
delays, a decline in the real estate market, delayed timelines, and debt service payments, we determined it was in the best interests
of our shareholders and creditors to take aggressive actions to cut costs and preserve cash, file the Chapter 11 Case, cease our real
estate acquisition, development, and construction operations and cease any new projects.

 Therefore,
the nature of our current business activities is materially different than prior to filing the Chapter 11 Case on December 11, 2023.
Furthermore, during the Chapter 11 Case, we expect our financial results to continue to be volatile as restructuring activities and expenses,
contract terminations and rejections, new claims that may be significant, and claims assessments significantly impact our consolidated
financial statements.

 The
Bankruptcy Court established February 16, 2024 as the deadline by which parties were required to file proofs of claim in the Chapter
11 Case and June 10, 2024 for all governmental entities to file their proofs of claim. However, we cannot provide any assurances regarding
what our total actual liabilities based on such claims will be. As a result, our historical financial performance, including information
presented as of December 31, 2023, is likely not indicative of our financial performance after the date of the filing of the Chapter
11 Case.

 In
particular, the amount and composition of our assets and liabilities will be significantly different as a result of the Chapter 11 Case,
and the description of our operations, assets, liabilities, contingencies, liquidity and capital resources included in our periodic reports
or in any filing we make with the Bankruptcy Court may not accurately reflect our such matters during the pendency of or following the
Chapter 11 Case or the value of our remaining assets in light of the uncertainty of the estimates and assumptions used in the applicable
reporting principles, and such values may be higher or lower as a result. A number of additional claims may be filed in the Chapter 11
Case which may be substantial and may result in a greater number of allowed Claims than estimated in the Disclosure Statement. In addition,
we face uncertainty with respect to liabilities for potential future litigation and claims, as well as potential regulatory actions and
government investigations and inquiries, for which we may incur significant legal costs and may be subject to significant uninsured losses
that cannot yet be determined and may be significantly higher than any related accruals.

 Further,
if confirmation by the Bankruptcy Court of the Proposed Plan does not occur, or if the Bankruptcy Court otherwise finds that it would
be in the best interest of holders of Claims and Interests or upon the showing of cause, the Bankruptcy Court may convert the Chapter
11 Case to cases under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate
our assets for distribution in accordance with the priorities established by the Bankruptcy Code. The consolidated financial statements
do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification
of liabilities that might result from the outcome of this uncertainty.

 There
is substantial doubt regarding our ability to continue as a going concern and our liquidity requirements during and following the pendency
of the Chapter 11 Case and the adequacy of our capital resources are difficult to predict at this time.

 We
have concluded that there is substantial doubt regarding our ability to continue as a going concern. We face uncertainty regarding the
adequacy of our liquidity and capital resources to be used during the Chapter 11 Case as well as to maintain our limited expected operations
if and when we emerge from bankruptcy. Through the Chapter 11 Case, we plan to continue to sell our homes, lands, and lots in California
and Texas, sell our multifamily properties through a sale and auction process, and then, following the effectiveness of the Proposed
Plan, a Plan Administrator will continue to hold, market, and sell any remaining real property. We have ceased the majority of our land
development and construction operations, but we plan to continue to lease our multi-family properties through the pendency of the auction
and sale of such properties. We have not identified sources of material revenue, earnings, operations, or near term actionable opportunities
following the Chapter 11 Case. We can give no assurances as to the outcome of any efforts to realize any value from our assets.

 We
have incurred significant professional fees and other costs in connection with preparation for the Chapter 11 Case and expect to continue
to incur significant professional fees and costs throughout our Chapter 11 Case. In addition, we face uncertainty with respect to ongoing
and potential future litigation and claims, as well as regulatory actions and government investigations and inquiries, for which we will
continue to incur significant legal costs. Due to cessation of our construction and development operations, we may lack any material
sources of revenue, our ability to obtain additional financing is highly unlikely, and our ongoing operations following the completion
of the Chapter 11 Case are expected to be limited. There can be no assurances that cash on hand and our current capital resources will
be sufficient to allow us to satisfy our obligations related to the Chapter 11 Case or the pending litigation, claims and investigations,
and may negatively impact our ability to make any distribution and, if so, the amount of such distribution, to our creditors and shareholders.

 Trading
our securities is highly speculative and poses substantial risks.

 Our
post-bankruptcy capital structure has yet to be determined, and it is uncertain whether our Proposed Plan will be approved by the Bankruptcy
Court. The Proposed Plan proposes that our common stock will be cancelled, released, extinguished, and discharged and will be of no further
force or effect and that each holder of common stock will receive no recovery or distribution on account of their interests in the common
stock. The Proposed Plan further contemplates that each holder of our Class A Preferred Stock shall be entitled to receive such holder's
pro rata share of 49% of the "Post-Effective Date New Interests," which is defined as the common stock (or other equity interests)
of the Company to be issued on or after the effectiveness of the Proposed Plan. Once the Proposed Plan is effective, all of the shares
of our Class A Preferred Stock shall be cancelled, released, extinguished, and discharged and will be of no further force or effect,
including any right a holder of a Class A Preferred Stock may assert for declared or undeclared dividends prior to the Petition Date.

 Although
we cannot predict how the Claims and Interests of holders in the Chapter 11 Case, including holders of our securities, will ultimately
be resolved, any trading in our securities during the pendency of the Chapter 11 Case is highly speculative and poses substantial risks
to purchasers of our securities. Trading prices for our securities may bear little or no relationship to the actual recovery, if any,
by holders of our securities in the Bankruptcy Chapter 11 Case.

 In
addition, on December 15, 2023, the Bankruptcy Court entered an Interim Order Approving Notification and Hearing Procedures for Certain
Transfers of Common and Preferred Stock and Granting Related Relief (the "Trading Restriction Order"), which was designed
to enable us to protect any potential value of our NOLs. The Trading Restriction Order restrict transactions involving any person or
group of persons that is or, as a result of such a transaction, would become, a Substantial Shareholder of our common stock or Class
A Preferred Stock (i.e., would beneficially own, directly or indirectly, (a) 5% of all issued and outstanding shares of common stock
(being 2,686,431 shares as of March 28, 2024) or (b) 5% of all issued and outstanding shares of preferred stock (being 3,799,799 shares
as of March 28, 2024).

the Chapter 11 Case, the value that may be available to our various stakeholders, including our creditors and shareholders, is uncertain
and our ability to generate value for shareholders, if any, will be subject to the risks and uncertainties associated with bankruptcy
proceedings, including, among others, those described elsewhere in this and subsequent filings that we make with the SEC. Accordingly,
we urge extreme caution with respect to existing and future investments in our securities.

 We
are subject to the risks and uncertainties associated with the Chapter 11 Case.

 Since
filing the Chapter 11 Case, we have operated our business as debtors-in-possession under the jurisdiction of the Bankruptcy Court and
in accordance with the applicable provisions of Chapter 11 of the Bankruptcy Code. As a consequence of filing the Chapter 11 Case, we
have been and will continue to be subject to the risks and uncertainties associated with bankruptcy. These risks include, but are not
limited to, the following:

 -

 our
 ability to successfully develop, prosecute, confirm, and consummate the Proposed Plan with respect to the Chapter 11 Case, which
 we may seek to amend, waive, modify, or withdraw at any time before confirmation;

 -

 our
 ability to satisfy any conditions to the Proposed Plan's effectiveness;

 -

 our
 ability to obtain the Bankruptcy Court's approval with respect to motions or other requests made to the Bankruptcy Court in
 the Chapter 11 Case;

 -

 the
 possibility that actions and decisions of our creditors and other third parties with interests in the Chapter 11 Case may be inconsistent
 with our plans;

 -

 the
 high costs of bankruptcy proceedings and related fees, particularly if delays in the Chapter 11 Case increase fees and costs

 -

 our
 long-term liquidity requirements and whether our capital resources will be sufficient to allow us to emerge from the Chapter 11 Case
 and execute our limited activities upon emergence

 -

 our
 ability to motivate and retain key employees, and the costs associated therewith, throughout the Chapter 11 Case

 -

 we
 may no longer have any ongoing sources of revenue;

 -

 our
 ability to realize any value with respect to our remaining assets;

 -

 the
 ability of third parties to assert claims against us, which may be substantial or terminate our rights with respect to contracts,
 leases, agreements, or other assets;

 -

 our
 ability to maintain our relationships with our vendors, customers, and other third parties, including those providing services that
 are integral to maintaining operations of our business

 -

 our
 ability to maintain adequate financial, information technology and management processes, controls and procedures, particularly in
 light of the reduction in personnel and risk of further attrition; and

 -

 the
 ability of third parties to seek and obtain court approval to terminate or shorten the exclusivity period for us to propose and confirm
 a Plan, to appoint a Chapter 11 trustee, or to convert the Chapter 11 Case to Chapter 7 cases.

 Because
of the risks and uncertainties associated with a voluntary filing for relief under Chapter 11 of the Bankruptcy Code and the related
proceedings, we cannot accurately predict or quantify the ultimate impact that events that occur during the Chapter 11 Case may have
on ultimate recovery for our creditors and shareholders.

 We
may not be able to obtain confirmation of the Proposed Plan, or any amended or subsequent plan.

 We
may not receive the acceptances from holders of Claims and Interests entitled to vote on the Proposed Plan required to confirm the Proposed
Plan. In the event that votes with respect to Claims in the classes entitled to vote are received in number and amount sufficient to
enable the Bankruptcy Court to confirm the Proposed Plan, we intend to seek confirmation of the Proposed Plan by the Bankruptcy Court.
However, if the requisite acceptances are not received, we may not be able to obtain confirmation of the Proposed Plan. Even if the requisite
acceptances of the Proposed Plan are received, the Bankruptcy Court might not confirm the Proposed Plan if the Bankruptcy Court finds
that any of the statutory requirements for confirmation under section 1129 of the Bankruptcy Code have not been met.

 Moreover,
certain holders of Claims or Interests may object to confirmation of the Proposed Plan, including on the basis that our proposed classification
and treatment of Claims and Interests under the Proposed Plan does not comply with the Bankruptcy Code. There can be no assurance that
such objections (if any) will be resolved or that the Bankruptcy Court will overrule such objections and confirm the Proposed Plan.

 Even
if the Proposed Plan or another plan of reorganization is confirmed by the Bankruptcy Court, it may not become effective because it is
subject to the satisfaction of certain conditions (some of which are beyond our control) and is otherwise subject to the risks and uncertainties
set forth in the Disclosure Statement, which shareholders are encouraged to read in its entirety. There can be no assurance that such
conditions will be satisfied and, therefore, that a plan of reorganization will become effective and that we will emerge from the Chapter
11 Case as contemplated by a plan of reorganization. Further, the Proposed Plan was developed based on various assumptions regarding
our potential sale of our assets, amounts of our liabilities, and the involvement of numerous parties, which assumptions may prove to
be incorrect and could render the Proposed Plan unsuccessful and any payments thereunder may differ from estimates. If the transactions
contemplated by the Proposed Plan are not completed, it may become necessary to amend the Proposed Plan. The terms of any such amendment
are uncertain and could result in material additional expense and result in material delays to the Chapter 11 Case. As a result, there
can be no assurance as to what the state of our business would be following the Chapter 11 Case.

 Any
Chapter 11 plan that we may implement will likely be based in large part upon assumptions and analyses developed by us. If these assumptions
and analyses prove to be incorrect, or adverse market conditions persist or worsen, our plan may be unsuccessful in its execution.

 The
Proposed Plan or any other Chapter 11 plan that we may implement will affect both our capital structure and the ownership, structure
and operation of our remaining business and will likely reflect assumptions and analyses based on our experience and perception of historical
trends, current conditions, and expected future developments, as well as other factors that we consider appropriate under the circumstances.
Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors,
including but not limited to the ability to substantially change our capital structure; the ability to sell our assets; and the overall
strength and stability of general economic conditions.

 In
addition, the Proposed Plan may rely upon financial projections, including with respect to revenues, operating expenses, capital expenditures,
debt service and cash flow. Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and
estimates that are the basis of these financial forecasts will not be accurate. In our case, the forecasts will be even more speculative
than normal, because they may involve fundamental changes in the nature of our capital structure. Accordingly, we expect that our actual
financial condition and results of operations will differ, perhaps materially, from what we have anticipated. Consequently, there can
be no assurance that the results or developments contemplated by any plan we may implement will occur or, even if they do occur, that
they will have the anticipated effects on us or our business.

 The
Proposed Plan may not be approved by the creditors or confirmed by the Bankruptcy Court and we may have to amend the Proposed Plan.

 The
Proposed Plan is subject to vote by various classes of creditors and to confirmation by the Bankruptcy Court. There is no assurance that
the Proposed Plan will be accepted by the requisite number of creditors or confirmed by the Court. Further, the effectiveness of the
Proposed Plan is subject to the sale of certain of our multi-family properties. There is a risk that such properties will not be sold
and the Proposed Plan does not become effective. In the event that any of the aforementioned occur, we may have to amend the Proposed
Plan the terms of which may be less favorable to the holders of Claims and Interests under our current Proposed Plan.

 In
the event we are not able to obtain confirmation of the Proposed Plan, it may be necessary to pursue bankruptcy protection under Chapter
7 of the Bankruptcy Code for all or a part of our business.

 If
confirmation by the Bankruptcy Court of the Proposed Plan under Chapter 11 does not occur, or if the Bankruptcy Court otherwise finds
that it would be in the best interest of holders of Claims and Interests or upon the showing of cause, the Bankruptcy Court may convert
our Chapter 11 Case to cases under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected
to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code. Although the value, if
any, that would be available to any of our various stakeholders (including creditors and stockholders) would be uncertain in any bankruptcy
proceeding, we believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to our stakeholders
than those we might obtain under Chapter 11 primarily because of the likelihood that the remaining assets would have to be sold or otherwise
disposed of in a distressed fashion over a short period of time rather than in a controlled manner. The consolidated
financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might result from the outcome of this uncertainty except for liabilities subject to compromise
and not subject to compromise.

 We
depend on a few highly skilled key employees to navigate the Chapter 11 Case and contribute to our ability to realize future value of
our remaining assets, and if we are unable to retain, manage, and appropriately compensate them, the outcome of the Chapter 11 Case and
ability to realize value from our remaining assets could be adversely affected.

 Our
ability to successfully consummate the Proposed Plan and realize the value of our remaining assets is based on continued service of our
senior management team and other key employees, and on our ability to continue to motivate and appropriately compensate key employees.
Some of our employees may be subject to claims and risks of litigation for which indemnification may be uncertain. We may not be able
to retain the services of our key employees, who work for us on an at-will basis, in the future.

 We
have experienced significant voluntary resignations among our employees prior to and following the Chapter 11 Case. As a result of
our ongoing reductions in force, we are operating with a severe shortage of personnel and may not be able to conduct even limited
operations to implement the Proposed Plan. We have experienced a reduction in our workforce from 41 employees in March 2023 to eight
employees in March 2024. We only have two outstanding employment agreements, one with Ms. Crocker, our Chief Restructuring Officer
and one with Mr. Habersetzer, our Interim Chief Executive Officer and Interim President. All other employees are at-will
employees.

 We
have already scaled back our information technology systems, and have terminated our IT Director. We have hired a third-party IT service
provider to assist with the responsibilities previously conducted by the former IT Director. Though we do not anticipate collecting or
storing any significant confidential information related to customers, employees, or vendors, we may be at increased risk of disruptions,
cyberattacks or security breaches.

 The
attrition we have already experienced, and expect to continue to experience, causes us to rely on fewer employees, and in some cases
these employees are less experienced which puts at greater risk our ability to execute our plans. Attrition has caused, and may continue
to cause, us to engage third parties to perform the work. Such third parties are likely to be more costly and less efficient than if
we were to be able to use our own employees. If our key employees fail to work effectively and to execute our plans, the Chapter 11 Case,
including our efforts to realize value from our remaining assets could be prolonged or adversely affected.

 We
expect to further reduce and streamline our operations in connection with the Chapter 11 Case.

 In
connection with the Chapter 11 Case, we expect to take measures to further streamline our operations and reduce our general and administrative
expenses during the course of the Chapter 11 Case.

 We
also anticipate further reducing our workforce and restructuring, reducing, eliminating, or outsourcing certain management services,
as necessary to manage our limited operations. It is difficult to predict what, if any, errors or delays might occur as the result of
changes in controls or a reduced workforce. While we expect our operations to remain limited, implementing these measures may adversely
impact our operations and increase liability exposure and our susceptibility to other risks inherent to operating our business with significantly
limited resources and personnel.

 The
Chapter 11 Case limits the flexibility of our management team in running our business.

 While
we operate our business as debtors-in-possession under supervision by the Bankruptcy Court, we are required to obtain the approval of
the Bankruptcy Court prior to engaging in activities or transactions outside the ordinary course of business. Bankruptcy Court approval
of non-ordinary course activities entails preparation and filing of appropriate motions with the Bankruptcy Court, possible negotiations
with other parties-in-interest, and one or more hearings. The other parties-in interest may be heard at any Bankruptcy Court hearing
and may raise objections with respect to these motions. This process may delay major transactions and limit our ability to respond quickly
to opportunities and events in the marketplace. Furthermore, in the event the Bankruptcy Court does not approve a proposed activity or
transaction, we would be prevented from engaging in activities and transactions that we believe are beneficial to us.

 We
face risks and uncertainties related to potential future litigation and claims, as well as regulatory actions and government investigations
and inquiries, for which we may incur significant legal costs and may be subject to losses.

 We
may in the future be subject to, or become a party to, litigation, claims, regulatory actions, and government investigations and inquiries,
as we may be subject to claims by customers, suppliers, vendors, contractors, government agencies, stockholders, or other parties regarding
our properties, developments, advertising, securities, warranties, contract, and corporate matter disputes, and employee claims against
us. We have potential indemnification obligations with respect to the current and former directors named in the above-referenced actions,
which obligations may or may not be covered by our applicable directors' and officers' insurance.

 In
the event we become subject to such litigation, it may divert our financial and management resources that would otherwise be used to
benefit our operations, increase our insurance costs, and cause reputational harm. We would expect to incur significant legal expenses
in defending any such claims.

 While
we currently carry commercial general liability, excess liability, builder's risk, pollution, employment, fiduciary crime and legal,
cyber security and directors' and officers' insurance policies, coverage amounts are limited. In the future, we may not maintain
any insurance coverage at all or may reduce coverage due to lack of funding or insurers being unwilling to provide coverage at all, or
at a substantially higher cost. In some cases, our insurance policies may expire and if we are not able to obtain replacement coverage,
could have a material adverse effect on our operations if there were to be a material loss. Additionally, the policies that we do have
may include significant deductibles and exclusions, and we cannot be certain that our insurance coverage will be applicable to or sufficient
to cover all current and future claims against us. We may also seek to reduce or eliminate our insurance coverage or certain policies
in the future.

 We
may not be able to realize value from our assets.

 Under
the Proposed Plan, we intend to continue to sell some of our properties in the ordinary course, and submit our multi-family properties
to a sale and auction process. The remaining properties are intended to be sold by our Plan Administrator following the effectiveness
of the Proposed Plan. In the event that all of our properties are sold, as a result, the assets that we would continue to hold that are
of the type that were previously used in our operations are minimal. We cannot provide assurances as to the value of our other assets.
Given general economic and market conditions, we can provide no assurance that we will be able to successfully complete any dispositions
of our remaining assets, the timing or proceeds and other terms of any such transactions, and any ability to realize value from the NOLs.

 The
failure to realize value from our assets or to generate sufficient proceeds therefrom to sustain our Chapter 11 Case and post-emergence
activities may have a material impact on the ultimate recovery for stakeholders, including creditors. As mentioned above, it is uncertain
whether holders of our equity securities will recover any portion of their investments.

 The
amount of claims allowed could significantly exceed our estimates.

 The
Bankruptcy Court established February 16, 2024 as the general bar date for all creditors (except governmental entities) to file their
proof of claim or interest, and June 10, 2024 as the bar date for all governmental entities. There can be no assurance regarding the
amount of claims allowed for distributions under the Proposed Plan or that such claims will not be significantly greater than may be
anticipated which, could in turn result in the value of distributions to stakeholders being delayed, reduced, or eliminated entirely.
Inevitably, some assumptions will not materialize, and unanticipated events and circumstances may affect the ultimate results and total
amount of claims against us. Moreover, a number of additional claims may be filed in the Chapter 11 Case. Such Clams may be substantial
and may result in a greater amount of allowed Claims than estimated in the Disclosure Statement.

 In
addition, the SEC may determine that certain of our obligations are not dischargeable under the Bankruptcy Code; if the SEC brings and
prevails in such non-dischargeability action, such obligations would remain even after the Effective Date of the Proposed Plan, which
could impact recoveries to holders of Claims and Interests pursuant to the Proposed Plan.

 If
our SEC reporting obligations continue, our ability to meet these obligations timely or at all may be limited.

 Our
securities currently trade on the OTC Pink Current Information. We may be required to maintain our SEC reporting obligations to facilitate
trading of our securities during the Chapter 11 Case. If we are unable to meet these obligations timely or at all, the amount of publicly
available information concerning us and our securities may decrease substantially, which may limit the ability of our stockholders to
sell their shares of our stock, and the liquidity and trading prices of our securities could be negatively impacted.

 The
amount of publicly-available information concerning us may decrease substantially if we are able to terminate our SEC reporting obligations
in the near future, which may occur during the Chapter 11 Case.

 We
currently have fewer than 300 holders of record of our stock. Therefore, we may be eligible to suspend our reporting obligations to file
periodic reports with the SEC under the Exchange Act, and may do so in the near future. To the extent these actions limit the amount
of publicly available information concerning us and our securities, our ability to raise additional funds, the ability of our shareholders
to sell their securities, and the liquidity and trading prices of our common shares could all be negatively impacted.

 Operating
in bankruptcy for a long period of time may extinguish our available assets, and would otherwise harm or eliminate recoveries to creditors
and stockholders.

 A
long period of operations in the Chapter 11 Case under Bankruptcy Court protection would likely have a material adverse effect on our
financial condition, liquidity, and ability to successfully complete the Chapter 11 Case and Proposed Plan. A prolonged period of operating
under Bankruptcy Court protection may make it more difficult to retain management and other key personnel necessary to the success of
our bankruptcy process and ability to realize further value from our remaining assets. We have a limited source of ongoing revenue. Attrition
has required and may continue to require us to engage third parties to perform the work. Such third parties are likely to be more costly
and less efficient than if we were to be able to use our own employees.

 So
long as the Chapter 11 Case continues, we will be required to incur substantial costs for professional fees and other expenses associated
with the administration of the Chapter 11 Case, including potentially the costs of litigation. In general, litigation can be expensive
and time consuming to bring or defend against. Such litigation could result in settlements or damages that could significantly and adversely
affect our financial results. It is also possible that certain parties will commence litigation with respect to the treatment of their
claims under the Proposed Plan. It is not possible to predict the potential litigation that we may become party to, nor the final resolution
of such litigation. The impact of any such litigation on our current plans to complete the bankruptcy process, however, could be material.

 Any
delays in our Chapter 11 Case would increase the costs and risks associated with the bankruptcy process, and diminish the value, if any,
that is available to our various stakeholders (including creditors and stockholders). Also, we need the prior approval of the Bankruptcy
Court for transactions outside the ordinary course of business during the course of bankruptcy proceedings, which may limit our ability
to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with
bankruptcy proceedings, we cannot accurately predict or quantify the ultimate impact of events that could occur during any such proceedings.
There can be no assurances that we will realize value from of our remaining assets in an orderly fashion, that we will otherwise realize
any significant value for our remaining assets, or that our creditors or stockholders will receive any recovery from the Chapter 11 Case
or any other bankruptcy proceedings.

 Our
securities have been delisted from Nasdaq and experience the risks of trading in an over-the-counter market.

 On
December 12, 2023, we received written notification from Nasdaq that they would suspend trading of our common stock, preferred stock,
and warrants (formerly Nasdaq: HCDI, HCDIP, HCDIW, and HCDIZ) on December 21, 2023. Following, Nasdaq filed Form 25-NSE with the SEC
on February 15, 2024 to delist such securities from Nasdaq.

 As
a result of the suspension and delisting, our common stock began trading on the OTC Pink Current Information under the symbols "HCDIQ,"
"HCDPQ," "HCDWQ," and "HCDZQ" on December 21, 2023 and such market is currently the only trading
market for our securities. We can provide no assurance that our securities will continue to trade on this market, whether broker-dealers
will continue to provide public quotes of our securities on this market, whether the trading volume of our securities will be sufficient
to provide for an efficient trading market or whether quotes for our securities will continue on this market in the future, which could
result in significantly lower trading volumes and reduced liquidity for investors seeking to buy or sell our securities. Furthermore,
because of the limited market and generally low volume of trading in our securities, the price of our securities is likely to be volatile
and more likely to be affected by broad market fluctuations, general market conditions, changes in the markets' perception of our
securities, and announcements made by us or third parties with Interests in the Chapter 11 Case.

 We
currently remain subject to SEC reporting obligations. However, with the severely limited personnel and resources, remaining in compliance
with such reporting obligations may be difficult and costly. No assurances can be made that we will remain in compliance with our reporting
obligations, including as it relates to the required timelines for financial statements or other disclosures.

 The
Chapter 11 Case has caused our securities to decrease in value materially and may render our securities worthless.

 We
have a substantial amount of indebtedness that is senior to our existing securities. Recoveries in the Chapter 11 Case for holders of
our securities, if any, will depend upon the realized value of our assets, and the outcome of the Proposed Plan, among other factors.
If the Proposed Plan is approved by the Bankruptcy Court, then our common stock will be cancelled and its holders will not receive any
recoveries and our Series A Preferred Stock will also be cancelled, along with any accrued dividends and its holders will receive new
securities of the Company. Although we cannot predict whether the Proposed Plan will be approved by the Bankruptcy Court or how our securities
will be treated under any Chapter 11 plan at this time, our stockholders may not receive a material, or any, recovery. Consequently,
there is a significant risk that our securities will decrease in value materially or become worthless. Trading prices for our securities
may bear little or no relationship to the actual recovery, if any, by holders of our securities in the Chapter 11 Case.

 We
consider the value of our stock to be highly speculative and strongly caution our equity holders that our stock likely has no value.
Accordingly, we urge that appropriate caution be exercised with respect to existing and future investments in our securities.

 If
we are successful in selling our assets, we will have no material operating activities remaining and no material source of income. The
risk factors which follow are principally based on the risks inherent in operating and financing our business in a manner which included
our current operations. It is presented for historical purposes to only cover the time periods discussed in this Report. The presentation
of these risk factors is not meant to suggest that we expect to own and operate any of our current, or any other, operating business
in the future.

 Business
and Industry Risks:

 We
are subject to demand fluctuations in the housing market and the homebuilding industry. The recent decline in demand in the housing market
may continue or decline further. Any continuation in the recent decline in demand or any further decline in demand for our homes or in
the homebuilding industry generally may materially and adversely affect our business, results of operations, and financial condition.

 Demand
for our homes is subject to fluctuations, often due to factors outside of our control. We cannot predict whether and to what extent the
housing markets in the geographic areas in which we operate will grow, particularly if interest rates for mortgage loans, land costs,
and construction costs continue to rise. Currently, we believe we are in a housing market downturn, since demand for our homes has decreased;
our revenues and results of operations have been adversely affected; we have had significant inventory impairments and other write-offs;
our gross margins have declined significantly from historical levels; and we incurred substantial losses from operations. Other factors
that have impacted and may continue to impact the homebuilding industry include uncertainty in domestic and international financial,
credit and consumer lending markets amid slow economic growth or recessionary conditions in various regions or industries around the
world, tight lending standards and practices for mortgage loans that limit consumers' ability to qualify for mortgage financing
to purchase a home, including increased minimum credit score requirements, credit risk/mortgage loan insurance premiums and/or other
fees and required down payment amounts, higher home prices, more conservative appraisals, changing consumer preferences, decreased consumer
confidence, higher loan-to-value ratios and extensive buyer income and asset documentation requirements, changes to mortgage regulations,
slower rates of population growth or population decline in our markets, Federal Reserve policy changes, and other factors, including
those described elsewhere in this Report. At any particular time, we cannot accurately predict whether housing market conditions existing
at that time will continue.

 If
there is limited economic growth, declines in employment and consumer income, changes in consumer behavior, and/or tightening of mortgage
lending standards, practices and regulation in the geographic areas in which we operate, or if interest rates for mortgage loans continue
to rise, there could likely be a corresponding adverse effect on our business, prospects, liquidity, financial condition and results
of operations, including, but not limited to, the number of homes we sell, our average sales price per home closed, cancellations of
home purchase contracts and the amount of revenues or profits we generate, and such effect may be material.

 Regional
factors affecting the real estate industry in our current markets could materially and adversely affect us.

 Our
business and properties are located in Washington, California, Texas, and Florida. A prolonged economic downturn in one or more of these
areas, or a particular industry that is fundamental to one or more of these areas could have a material adverse effect on our business,
prospects, liquidity, financial condition, and results of operations. If adverse conditions in these markets develop in the future, it
could have a material adverse effect on our business, prospects, liquidity, financial condition, and results of operations. Furthermore,
if buyer demand for new homes in these markets decreases, home prices could decline, which would have a material adverse effect on our
business.

 Our
industry is cyclical and adverse changes in general and local economic conditions could reduce the demand for homes and, as a result,
could have a material adverse effect on us.

 Our
business can be substantially affected by adverse changes in general economic or business conditions that are outside of our control,
including changes in short-term and long-term interest rates; employment levels and job and personal income growth; housing demand from
population growth, household formation and other demographic changes, among other factors; availability and pricing of mortgage financing
for homebuyers; consumer confidence generally and the confidence of potential homebuyers in particular; consumer spending; financial
system and credit market stability; private party and government mortgage loan programs (including changes in FHA, USDA, VA, Fannie Mae
and Freddie Mac conforming mortgage loan limits, credit risk/mortgage loan insurance premiums and/or other fees, down payment requirements
and underwriting standards), and federal and state regulation, oversight and legal action regarding lending, appraisal, foreclosure and
short sale practices; federal and state personal income tax rates and provisions, including provisions for the deduction of mortgage
loan interest payments, real estate taxes and other expenses; supply of and prices for available new or resale homes (including lender-owned
homes); interest of financial institutions or other businesses in purchases; and real estate taxes. Adverse changes in these conditions
may affect our business nationally or may be more prevalent or concentrated in particular submarkets in which we operate. Inclement weather,
natural disasters (such as earthquakes, hurricanes, tornadoes, floods, prolonged periods of precipitation, droughts, and fires), other
calamities and other environmental conditions can delay the delivery of our homes and/or increase our costs. Civil unrest or acts of
terrorism can also have a negative effect on our business. If the homebuilding industry experiences a significant or sustained downturn,
it would materially adversely affect our business and results of operations in future years. The potential difficulties described above
can cause demand and prices for our homes to fall or cause us to take longer and incur more costs to develop the land and build our homes.
We may not be able to recover these increased costs by raising prices because of market conditions. The potential difficulties described
above could also lead some homebuyers to cancel or refuse to honor their home purchase contracts altogether.

 Tightening
of mortgage lending standards and mortgage financing requirements, untimely or incomplete mortgage loan originations for our homebuyers
and rising mortgage interest rates could adversely affect the availability of mortgage loans for potential purchasers of our homes and
thereby materially and adversely affect our business, prospects, liquidity, financial condition, and results of operations.

 Almost
all of our customers finance their home purchases through lenders that provide mortgage financing. Mortgage interest rates have generally
trended downward for the last several decades and reached historic lows in the prior year which has made the homes we sell more affordable.
However, the interest rates have significantly jumped in the recent year. When mortgage interest rates increase, the ability of prospective
homebuyers to finance home purchases may be adversely affected, and, as a result, our operating results may be significantly negatively
impacted. Our homebuilding activities are dependent upon the availability of mortgage financing to homebuyers, which is expected to be
impacted by continued regulatory changes and fluctuations in the risk appetites of lenders. The financial documentation, down payment
amounts and income to debt ratio requirements are subject to change and could become more restrictive. The federal government has a significant
role in supporting mortgage lending through its conservatorship of Federal National Mortgage Association ("Fannie Mae") and
Federal Home Loan Mortgage Corporation ("Freddie Mac"), both of which purchase or insure mortgage loans and mortgage loan-backed
securities, and its insurance of mortgage loans through or in connection with the Federal Housing Administration ("FHA"),
the Veterans Administration ("VA") and the U.S. Department of Agriculture ("USDA"). FHA and USDA backing of mortgage
loans has been particularly important to the mortgage finance industry and to our business. If either the FHA or USDA raised their down
payment requirements or lowered maximum loan amounts, our business could be materially affected. Increased lending volume and losses
insured by the FHA have resulted in a reduction of the FHA insurance fund. The USDA rural development program provides for zero down
payment and 100% financing for homebuyers in qualifying areas. If the USDA program was discontinued or if funding was decreased, then
our business could be adversely affected. In addition, if the USDA changed its determination of areas that are eligible to qualify for
the program, it could have an adverse effect on our business. In addition, changes in governmental regulation with respect to mortgage
lenders could adversely affect demand for housing. The availability and affordability of mortgage loans, including mortgage interest
rates for such loans, could also be adversely affected by a scaling back or termination of the federal government's mortgage loan-related
programs or policies. Because Fannie Mae-, Freddie Mac-, FHA-, USDA- and VA-backed mortgage loans have been an important factor in marketing
and selling many of our homes, any limitations, or restrictions in the availability of, or higher consumer costs for, such government-backed
financing could adversely affect our business, prospects, liquidity, financial condition, and results of operations. The elimination
or curtailment of state bonds to assist homebuyers could materially and adversely affect our business, prospects, liquidity, financial
condition, and results of operations. In addition, certain current regulations impose, and future regulations may strengthen or impose
new, standards and requirements relating to the origination, securitization, and servicing of residential consumer mortgage loans, which
could further restrict the availability and affordability of mortgage loans and the demand for such loans by financial intermediaries
and, as a result, adversely affect our home sales, financial condition, and results of operations. Further, if, due to credit or consumer
lending market conditions, reduced liquidity, increased risk retention or minimum capital level obligations and/or regulatory restrictions
related to certain regulations, laws or other factors or business decisions, these lenders refuse or are unable to provide mortgage loans
to our homebuyers, or increase the costs to borrowers to obtain such loans, the number of homes we close and our business, prospects,
liquidity, financial condition and results of operations may be materially adversely affected. First-time homebuyers are generally more
affected by the availability of mortgage financing than other potential homebuyers. These homebuyers are a key source of demand for our
new homes. A limited availability of suitable mortgage financing may adversely affect the volume and sales price of our home sales.

 Fluctuations
in real estate values may require us to write-down the book value of our real estate assets.

 The
homebuilding and land development industries are subject to significant variability and fluctuations in real estate values. As a result,
we may be required to write-down the book value of our real estate assets in accordance with GAAP, and some of those write-downs could
be material. Any material write-downs of assets could have a material adverse effect on our business, prospects, liquidity, financial
condition, and results of operations.

 We
may be required to take write-downs or write-offs, restructuring, and impairment or other charges that could have a significant negative
effect on our financial condition, results of operations, and our stock price, which could cause you to lose some or all of your investment.

 Factors
outside of our business and outside of our control may arise. As a result of these factors, we may be forced to write down or write off
assets, restructure operations, or incur impairment or other charges that could result in losses. Further, unexpected risks may arise,
and previously known risks may materialize in a manner not consistent with our risk analysis. Even though these charges may be non-cash
items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative
market perceptions about us or our securities. Accordingly, our securities could suffer a reduction in value.

 Because
real estate is illiquid, we may not be able to sell properties when in our best interest.

 Sometimes,
real estate may not be sold quickly. The capitalization rates at which properties may be sold could be higher than historic rates, thereby
reducing our potential proceeds from sale. Consequently, we may not be able to alter our inventory promptly in response to changes in
economic or other conditions. All of these factors reduce our ability to respond to changes in the performance of our inventory and could
adversely affect our business, financial condition, and results of operations.

 Inflation
could adversely affect our business and financial results.

 Inflation
could adversely affect our business and financial results by increasing the costs of land, raw materials and labor needed to operate
our business. If our markets have an oversupply of homes, relative to demand, we may be unable to offset any such increases in costs
with corresponding higher sales prices for our homes. During 2022, we experienced the fastest interest rate increase cycle since the
1980s. The Federal Reserve has already made an interest rate increase in 2023. Though they have forecasted they would cut rates, it is
uncertain. They may also again raise interest rates to combat the effects of inflation. These interest rate increases have adversely
impacted and could continue to adversely impact potential customers' ability to obtain financing on favorable terms, thereby further
decreasing demand. If we are unable to raise the prices of our homes to offset the increasing costs of our operations, our margins could
decrease. Furthermore, if we need to lower the price of our homes to meet demand, the value of our land inventory may decrease. Inflation
may also raise our costs of capital and decrease our purchasing power, making it more difficult to maintain sufficient funds to operate
our business.

 Reduced
numbers of home sales extend the time it takes us to recover land purchase and property development costs, negatively impacting profitability
and our results of operations.

 We
incur many costs even before we begin to build homes in a community. Depending on the stage of development a land parcel is in when we
acquire it, these may include costs of preparing land, financing, finishing and entitling lots, installing roads, sewers, water systems
and other utilities, taxes and other costs related to ownership of the land on which we plan to build homes. If the rate at which we
sell and deliver homes slows, or if we delay the opening of new home communities, we may incur additional pre-construction costs and
it may take longer for us to recover our costs, which could adversely affect our profitability and results of operations.

 Development,
redevelopment, and construction risks could affect our profitability.

 We
intend to continue to develop multi-family home communities. These activities can include long planning and entitlement timelines and
can involve complex and costly activities, including significant environmental remediation or construction work in high-density urban
areas. These activities may expose us to the following risks, among others:

 we
 may abandon opportunities that we have already begun to explore for a number of reasons, including changes in local market conditions
 or increases in construction or financing costs, and, as a result, we may fail to recover expenses already incurred in exploring
 those opportunities;

 occupancy
 rates and rents at a community may fail to meet our original expectations for a number of reasons, including changes in market and
 economic conditions beyond our control and the development by competitors of competing communities;

 we
 may be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy or other required governmental or third party
 permits and authorizations, which could result in increased costs, or the delay or abandonment of opportunities;

 we
 may incur costs that exceed our original estimates due to increased material, labor or other costs;

 we
 may be unable to complete construction of a community on schedule or for the originally projected cost resulting in increased construction
 and financing costs;

 we
 may incur liabilities to third parties during the development process; and

 we
 may incur liability if our communities are not constructed in compliance with the accessibility provisions of the Americans with
 Disabilities Acts, the Fair Housing Act or other federal, state or local requirements. Noncompliance could result in imposition of
 fines, an award of damages to private litigants and a requirement that we undertake structural modifications to remedy the noncompliance.

 Difficulties
with appraisal valuations in relation to the proposed sales price of our homes could force us to reduce the price of our homes for sale.

 Each
of our home sales may require an appraisal of the home value before closing. These appraisals are professional judgments of the market
value of the property and are based on a variety of market factors. If our internal valuations of the market and pricing do not line
up with the appraisal valuations and appraisals are not at or near the agreed upon sales price, we may be forced to reduce the sales
price of the home to complete the sale. These appraisal issues could have a material adverse effect on our business and results of operations.

 Unfavorable
changes in market and economic conditions could adversely affect occupancy, rental rates, operating expenses, and the overall market
value of our real estate assets.

 Local
conditions in our markets significantly affect occupancy, rental rates and the operating performance of our properties, and may be adversely
affected by the following risks:

 corporate
 restructurings and/or layoffs, and industry slowdowns;

 an
 oversupply of, or a reduced demand for, apartment homes;

 a
 decline in household formation or employment or lack of employment growth;

 the
 inability or unwillingness of residents to pay rent increases; and

 economic
 conditions that could cause an increase in our operating expenses, such as increases in property taxes, utilities, compensation of
 on-site associates and routine maintenance.

 Changes
to population growth rates in certain of the markets in which we operate or plan to operate could affect the demand for homes in these
regions.

 Slower
rates of population growth or population declines in our markets in Washington, California, Texas, Florida, or other key markets in the
United States that we may decide to enter in the future, especially as compared to the high population growth rates in prior years, could
affect the demand for housing, cause home prices in these markets to fall and adversely affect our plans for growth, business, financial
condition, and operating results.

 A
major health and safety incident relating to our business could be costly in terms of potential liabilities and reputational damage.

 Building
sites are inherently dangerous and operating in the homebuilding and land development industry poses certain inherent health and safety
risks. Due to health and safety regulatory requirements and the number of projects we work on, health and safety performance is critical
to the success of all areas of our business. Any failure in health and safety performance may result in penalties for non-compliance
with relevant regulatory requirements or litigation, and a failure that results in a major or significant health and safety incident
is likely to be costly in terms of potential liabilities incurred as a result. Such a failure could generate significant negative publicity
and have a corresponding impact on our reputation and our relationships with relevant regulatory agencies, governmental authorities,
and local communities, which in turn could have a material adverse effect on our business, prospects, liquidity, financial condition,
and results of operations.

 Development
of properties entails a lengthy, uncertain, and costly entitlement process.

 Approval
to develop real property sometimes requires political support and generally entails an extensive entitlement process involving multiple
and overlapping regulatory jurisdictions and often requires discretionary action by local governments. Real estate projects must generally
comply with local land development regulations and may need to comply with state and federal regulations. We incur substantial costs
to comply with legal and regulatory requirements. An increase in legal and regulatory requirements may cause us to incur substantial
additional costs, or in some cases cause us to determine that the property is not feasible for development. In addition, our competitors
and residents may challenge our efforts to obtain entitlements and permits for the development of properties. The process to comply with
these regulations is usually lengthy and costly, may not result in the approvals we seek and can be expected to materially affect our
development activities.

 We
cannot make any assurances that our growth or expansion strategies will be successful or not expose us to additional risks.

 We
have expanded our business through selected investments in new geographic markets and by diversifying our products in certain markets.
Investments in land, finished lots and home inventories can expose us to risks of economic loss and inventory impairments if housing
conditions weaken or we are unsuccessful in implementing our growth strategies. We may develop communities in which we build homes, sell
acreage home sites as a part of the development, and sell homes. We can give no assurance that we will be able to successfully identify,
acquire, or implement these new strategies in the future. Accordingly, any such expansion could expose us to significant risks, beyond
those associated with operating our existing business, including understanding and complying with the laws and regulations of new jurisdictions,
diversion of our management's attention from ongoing business concerns, and incurrence of unanticipated liabilities and expenses
and may materially adversely affect our business, prospects, liquidity, financial condition, and results of operations.

 The
homebuilding industry is highly competitive and, if our competitors are more successful or offer better value to customers, it may materially
and adversely affect our business and financial condition.

 We
operate in a very competitive environment that is characterized by competition from a number of other homebuilders and land developers
in each geographical market in which we operate. There are relatively low barriers to entry into the homebuilding business. We compete
with numerous large national and regional homebuilding companies and with smaller local homebuilders and land developers for, among other
things, homebuyers, desirable land parcels, financing, raw materials and skilled management and labor resources. If we are unable to
compete effectively in our markets, our business could decline disproportionately to the businesses of our competitors and our financial
condition could be materially and adversely affected. Increased competition could hurt our business by preventing us from acquiring attractive
land parcels on which to build homes or making acquisitions more expensive, hindering our market share expansion and causing us to increase
selling incentives and reduce prices. Additionally, an oversupply of homes available for sale or a discounting of home prices could materially
and adversely affect pricing for homes in the markets in which we operate. We also compete with the resale, or "previously owned,"
home market, the size of which may change significantly as a result of changes in the rate of home foreclosures, which is affected by
changes in economic conditions both nationally and locally. We may be at a competitive disadvantage with regard to certain large national
and regional homebuilding competitors whose operations are more geographically diversified, as these competitors may be better able to
withstand any future regional downturn in the housing market. We compete directly with a number of large national and regional homebuilders
that may have longer operating histories and greater financial and operational resources than we do, including a lower cost of capital.
Many of these competitors also have longstanding relationships with subcontractors, local governments, and suppliers in the markets in
which we operate or in which we may operate in the future. This may give our competitors an advantage in securing materials and labor
at lower prices, marketing their products and allowing their homes to be delivered to customers more quickly and at more favorable prices.
This competition could reduce our market share and limit our ability to expand our business.

 Our
geographic concentration could materially and adversely affect us if the homebuilding industry in our current markets should experience
a decline.

 Our
current business involves the design, construction, and sale of properties in growing markets in Washington, California, Florida, and
Texas. Because our operations are concentrated in these areas, a prolonged economic downturn affecting one or more of these areas, or
affecting any sector of employment on which the residents of such area are dependent, could have a material adverse effect on our business,
prospects, liquidity, financial condition, and results of operations. Accordingly, our sales, results of operations, financial condition
and business would be negatively impacted by a decline in the economy, the job sector, or the homebuilding industry in the regions in
which our operations are concentrated. In addition, our ability to acquire land parcels for new homes may be adversely affected by changes
in the general availability of land parcels, the willingness of land sellers to sell land parcels at reasonable prices, competition for
available land parcels, availability of financing to acquire land parcels, zoning, and other market conditions. If the supply of land
parcels appropriate for development of homes is limited in our markets, or for any other reason, our ability to grow could be significantly
limited, and the number of homes that we build, and sell could decline.

 Any
joint venture investments that we make could be adversely affected by our lack of sole decision-making authority, our reliance on the
financial condition of our joint venture partners and disputes between us and our joint venture partners.

 We
may co-invest in the future with third parties through partnership, joint ventures, or other entities, acquiring non-controlling interests
in or sharing responsibility for managing the affairs of a land acquisition and/or a development. In this event, we would not be in a
position to exercise sole decision-making authority regarding the acquisition and/or development, and our investment may be illiquid
due to our lack of control. Investments in partnerships, joint ventures, or other entities may, under certain circumstances, involve
risks not present were a third-party not involved, including the possibility that our joint venture partners might become bankrupt, fail
to fund their share of required capital contributions, make poor business decisions, or block or delay necessary decisions. Our joint
venture partners may have economic or other business interests or goals which are inconsistent with our business interests or goals and
may be in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk of impasses
on decisions, such as a sale, because neither we nor our joint venture partners would have full control over the land acquisition or
development. Disputes between us and our joint venture partners may result in litigation or arbitration that would increase our expenses
and prevent our officers and/or directors from focusing their time and effort on our business. In addition, we may in certain circumstances
be liable for the actions of our joint venture partners.

 Natural
disasters, severe weather and adverse geological conditions may increase costs, cause project delays, and reduce consumer demand for
housing, all of which could materially and adversely affect us.

 Our
homebuilding and development operations are located in many areas that are subject to natural disasters, severe weather or adverse geological
conditions. These include, but are not limited to, hurricanes, tornadoes, droughts, floods, brushfires, wildfires, prolonged periods
of precipitation, landslides, soil subsidence, earthquakes, and other natural disasters. The occurrence of any of these events could
damage our land parcels and projects, cause delays in completion of our projects, reduce consumer demand for housing, and cause shortages
and price increases in labor or raw materials, any of which could affect our sales and profitability. In addition to directly damaging
our land or projects, many of these natural events could damage roads and highways providing access to our assets or affect the desirability
of our land or projects, thereby adversely affecting our ability to market homes or sell land in those areas and possibly increasing
the costs of homebuilding completion. Furthermore, the occurrence of natural disasters, severe weather and other adverse geological conditions
has increased in recent years due to climate change and may continue to increase in the future. Climate change may have the effect of
making the risks described above occur more frequently and more severely, which could amplify the adverse impact on our business, prospects,
liquidity, financial condition, and results of operations. There are some risks of loss for which we may be unable to purchase insurance
coverage. For example, losses associated with hurricanes, landslides, prolonged periods of precipitation, earthquakes and other weather-related
and geologic events may not be insurable and other losses, such as those arising from terrorism, may not be economically insurable. A
sizeable uninsured loss could materially and adversely affect our business, prospects, liquidity, financial condition, and results of
operations.

 If
we are unable to develop or construct our properties successfully or within expected time-frames, our results of operations could be
adversely affected.

 It
can take some time to generate revenue after we acquire land for developed lots, homes, and multi-family properties. Delays in the development
and construction, including delays associated with subcontractors performing the development activities or entitlements, expose us to
the risk of changes in market conditions for real estate. A decline in our ability to develop and market our real estate successfully
and to generate positive cash flow from these operations in a timely manner could have a material adverse effect on our business and
results of operations and on our ability to service our debt and to meet our working capital requirements.

 New
and existing laws and regulations or other governmental actions may increase our expenses, limit our operations where we can purchase
and build or delay completion of our projects.

 We
are subject to numerous local, state, federal and other statutes, ordinances, rules, and regulations concerning zoning, development,
building design, construction, accessibility, anti-discrimination, and other matters, which, among other things, impose restrictive zoning
and density requirements, the result of which is to limit our operations within the boundaries of a particular area. We may encounter
issues with entitlement, not identify all entitlement requirements during the pre-development review of a project site, or encounter
zoning changes that impact our operations. Projects for which we have not received land use and development entitlements, or approvals
may be subjected to periodic delays, changes in use, less intensive development, or elimination of development in certain specific areas
due to government regulations. We may also be subject to periodic delays or may be precluded entirely from developing in certain communities
due to building moratoriums or zoning changes. Such moratoriums generally relate to insufficient water supplies, sewage facilities, delays
in utility hook-ups, or inadequate road capacity within specific market areas or subdivisions. Local governments also have broad discretion
regarding the imposition of development fees for projects in their jurisdiction. Projects for which we have received land use and development
entitlements, or approvals may still require a variety of other governmental approvals and permits during the development process and
can also be impacted adversely by unforeseen health, safety, and welfare issues, which can further delay these projects or prevent their
development. As a result of any of these statutes, ordinances, rules or regulations, the timing of our home sales could be delayed, the
number of our home sales could decline and/or our costs could increase, which could have a material adverse effect on our business, prospects,
liquidity, financial condition, and results of operations.

 We
are subject to environmental, health and safety laws and regulations, which may increase our costs, result in liabilities, limit the
areas in which we can operate and delay completion of our projects.

 We
are subject to a variety of local, state, federal and other laws, statutes, ordinances, rules, and regulations concerning the environment,
hazardous materials, the discharge of pollutants and human health and safety. The particular environmental requirements that apply to
any given site vary according to multiple factors, including the site's location, its environmental conditions, the present and
former uses of the site, the presence or absence of endangered plants or animals or sensitive habitats, and environmental conditions
at adjoining or nearby properties. We may not identify all of these concerns during any pre-acquisition or pre-development review of
project sites. Environmental requirements and conditions may result in delays, may cause us to incur substantial compliance and other
costs, and can prohibit or severely restrict development and homebuilding activity in environmentally sensitive regions or in areas contaminated
by others before we commence development. In some instances, regulators from different governmental agencies do not concur on development,
remedial standards or property use restrictions for a project, and the resulting delays or additional costs can be material for a given
project. From time to time, the EPA and similar federal, state, or local agencies review land developers' and homebuilders'
compliance with environmental laws and may levy fines and penalties, among other sanctions, for failure to strictly comply with applicable
environmental laws, including those applicable to control storm water discharges during construction, or impose additional requirements
for future compliance as a result of past failures. Any such actions taken with respect to us may increase our costs and result in project
delays. Further, we expect that increasingly stringent requirements will be imposed on land developers and homebuilders in the future.
We cannot assure you that environmental, health and safety laws will not change or become more stringent in the future in a manner that
could have a material adverse effect on our business.

 Environmental
laws and regulations relating to climate change and energy can have an adverse impact on our activities, operations, and profitability
and on the availability and price of certain raw materials, such as lumber, steel, and concrete.

 There
is a growing concern from advocacy groups and the general public that the emissions of greenhouse gases and other human activities have
caused, and will continue to cause, significant changes in weather patterns and temperatures and the frequency and severity of natural
disasters. Government mandates, standards and regulations enacted in response to these projected climate change impacts and concerns
could result in restrictions on land development in certain areas or increased energy, transportation, and raw material costs. As climate
change concerns continue to grow, legislation, regulations, mandates, standards, and other requirements of this nature are expected to
continue to be enacted and become costlier for us to comply with. Similarly, energy-related initiatives affect a wide variety of companies
throughout the United States and because our operations are heavily dependent on significant amounts of raw materials, such as lumber,
steel, and concrete, these initiatives could have an adverse impact on our operations and profitability to the extent the manufacturers
and suppliers of our materials are burdened with expensive cap and trade or similar energy-related regulations.

 Increases
in cancellations of agreements of sale could have an adverse effect on our business.

 Our
backlog reflects agreements of sale with our buyers for properties that have not yet been delivered. We typically receive a deposit from
our buyers for each property, which is reflected in our backlog, and we generally have the right to retain the deposit if the buyer does
not complete the purchase. In some situations, however, a buyer may cancel the agreement of sale and receive a complete or partial refund
of the deposit for reasons such as state and local law, an inability to obtain mortgage financing at prevailing interest rates (including
financing arranged or provided by us), an inability to sell the current property, or our inability to complete and deliver the property
within the specified time. If mortgage financing becomes less accessible, or if economic conditions deteriorate, buyers may cancel their
agreements of sale with us, which could have an adverse effect on our business and results of operations.

 Third-party
lenders may not complete mortgage loan originations for our homebuyers in a timely manner or at all, which can lead to cancellations
and a reduction in the backlog of orders, or significant delays in our closing homes sales and recognizing revenues from those homes.

 Our
buyers may obtain mortgage financing for their home purchases from any lender or other provider of their choice, including an unaffiliated
lender. If, due to credit or consumer lending market conditions, regulatory requirements, or other factors or business decisions, these
lenders refuse or are unable to provide mortgage loans to our buyers, the number of homes that we deliver, and our consolidated financial
statements may be materially and adversely affected. We can provide no assurance as to a lenders' ability or willingness to complete,
in a timely fashion or at all, the mortgage loan originations they start for our homebuyers. Such inability or unwillingness may result
in mortgage loan funding issues that slow deliveries of our homes or cause cancellations, which in each case may have a material adverse
effect on our consolidated financial statements. In addition, recent changes to mortgage loan disclosure requirements to consumers may
potentially delay lenders' completion of the mortgage loan funding process for borrowers. Specifically, the Consumer Financial
Protection Bureau has adopted a rule governing the content and timing of mortgage loan disclosures to borrowers, commonly known as TILA-RESPA
Integrated Disclosures ("TRID"). Lender compliance with TRID could result in delays in loan closings and the delivery of
homes that materially and adversely affect our financial results and operations.

 Our
business and results of operations are dependent on the availability, skill, and performance of subcontractors.

 We
engage subcontractors to perform the construction of our single and multifamily homes and, in many cases, to select and obtain the raw
materials used in constructing our homes. Accordingly, the timing and quality of our construction depend on the availability and skill
of our subcontractors. In addition, as we expand into new markets, we typically must develop new relationships with subcontractors in
such markets, and there can be no assurance that we will be able to do so in a cost-effective and timely manner, or at all. The inability
to contract with skilled subcontractors at reasonable rates on a timely basis could have a material adverse effect on our business, prospects,
liquidity, financial condition, and results of operations. Despite our quality control and jobsite safety efforts, we may discover from
time to time that our subcontractors have engaged in improper construction or safety practices or have installed defective materials
in our homes. When we discovered these issues, we utilized our subcontractors to repair the homes in accordance with our new home warranty
and as required by law. We may also suffer reputational damage from the actions of subcontractors, which are beyond our control.

 We
rely on third-party suppliers and long supply chains, and if we fail to identify and develop relationships with a sufficient number of
qualified suppliers, or if there is a significant interruption in our supply chains, our ability to timely and efficiently access raw
materials that meet our standards for quality could be adversely affected.

 Our
ability to identify and develop relationships with qualified suppliers who can satisfy our standards for quality and our need to access
products and supplies in a timely and efficient manner is a significant challenge. We may be required to replace a supplier if their
products do not meet our quality or safety standards. In addition, our suppliers could discontinue selling products at any time for reasons
that may or may not be in our control or the suppliers' control. Our operating results and inventory levels could suffer if we
are unable to promptly replace a supplier who is unwilling or unable to satisfy our requirements with a supplier providing similar products.
Our suppliers' ability to deliver products may also be affected by financing constraints caused by credit market conditions, which
could negatively impact our revenue and cost of products sold, at least until alternate sources of supply are arranged.

 Labor
and raw material shortages and price fluctuations could delay or increase the cost of home construction, which could materially and adversely
affect us.

 The
residential construction industry experiences labor and raw material shortages from time to time, including shortages in qualified subcontractors
and tradespeople and supplies of insulation, drywall, cement, steel, and lumber. These labor and raw material shortages can be more severe
during periods of strong demand for housing, during periods following natural disasters that have a significant impact on existing residential
structures or as a result of broader economic or geopolitical disruptions. It is uncertain whether these shortages will continue as is,
improve or worsen. In addition, our activities in recently entered markets or those we may choose to enter in the future depends substantially
on our ability to source labor and local materials on terms that are favorable to us. Our markets may exhibit a reduced level of skilled
labor relative to increased homebuilding demand in these markets. In the event of shortages in labor or raw materials in such markets,
local subcontractors, tradespeople, and suppliers may choose to allocate their resources to homebuilders with an established presence
in the market and with whom they have longer-standing relationships. Furthermore, the cost of labor and raw materials may also increase
during periods of shortage or high inflation. During the economic downturn in 2007 through 2012, a large number of qualified trade partners
went out of business or otherwise exited the market into new fields. Price increases could cause delays in and increase our costs of
home construction, which we may not be able to recover by raising home prices due to market demand and because the price for each home
is typically set prior to its delivery pursuant to the agreement of sale with the homebuyer. In addition, the federal government has,
at various times, imposed tariffs on a variety of imports from foreign countries and may impose additional tariffs in the future. Significant
tariffs or other restrictions placed on raw materials that we use in our homebuilding operation, such as lumber or steel, could cause
the cost of home construction to increase, which we may not be able to recover by raising home prices or which could slow our absorption
due to being constrained by market demand. Labor and raw material shortages and price increases for labor and raw materials could cause
delays in and increase our costs of home construction, which in turn could have a material adverse effect on our business, prospects,
liquidity, financial condition, and results of operations. We have experienced delays or increased costs for certain materials, such
as cabinets, electrical components, and appliances, which has had a material adverse effect on our financial condition and results of
operations. If the current state of the global supply chain continues, such delays or costs may continue to increase, which may further
affect our business.

 New
trade policies could make sourcing raw materials from foreign countries more difficult and more costly.

 The
federal government from time to time imposes new or increased tariffs or duties on an array of imported materials and goods that are
used in connection with the construction and delivery of homes, including steel, aluminum, lumber, solar panels and washing machines,
and has threatened to impose further tariffs, duties, or trade restrictions on imports. Foreign governments, including China, Russia,
and the European Union, have responded by imposing or increasing tariffs, duties, or trade restrictions on U.S. goods, and are reportedly
considering other measures. These trading conflicts and related escalating governmental actions that result in additional tariffs, duties
or trade restrictions could cause disruptions or shortages in our supply chains, increase our construction costs or home-building costs
generally or negatively impact the U.S., regional or local economies, and individually or in the aggregate, materially and adversely
affect our financial results.

 We
may change our operational policies, investment guidelines, and our business and growth strategies without stockholder consent, which
may subject us to different and more significant risks in the future.

 Our
board of directors will determine our operational policies, investment guidelines, and our business and growth strategies. Our board
of directors may make changes to, or approve transactions that deviate from, those policies, guidelines, and strategies without a vote
of, or notice to, our stockholders. This could result in us conducting operational matters, making investments, or pursuing different
business or growth strategies than those contemplated in this Annual Report. Under any of these circumstances, we may expose ourselves
to different and more significant risks in the future, which could have a material adverse effect on our business, prospects, liquidity,
financial condition, and results of operations.

 We
could be adversely affected by efforts to impose joint employer liability on us for labor law violations committed by our subcontractors.

 Our
homes are constructed by employees of subcontractors and other third parties. We do not have the ability to control what these parties
pay their employees or the rules they impose on their employees. However, various governmental agencies have taken actions to hold parties
like us responsible for violations of wage and hour laws and other labor laws by subcontractors. Governmental rulings that hold us responsible
for labor practices by our subcontractors could create substantial exposures for us under our subcontractor relationships, which could
have a material adverse impact on our business, prospects, liquidity, financial condition, and results of operations.

 Our
quarterly operating results fluctuate due to the seasonal nature of our business.

 Our
quarterly operating results generally fluctuate by season. We typically experience the highest new home order activity in the spring
and summer, although this activity is also highly dependent on the number of active selling communities, timing of new community openings,
and other market factors. Since it typically takes nine to 12 months to construct a new home, we usually deliver more homes in the second
half of the year as spring and summer home orders convert to home deliveries. Because of this seasonality, home starts, construction
costs, and related cash outflows have historically been highest in the second and third quarters and the majority of cash receipts from
home deliveries occurs during the second half of the year. We expect this seasonal pattern to continue over the long-term, although it
may be affected by volatility in the homebuilding industry.

 Risks
associated with our land and lot inventories could adversely affect our business or financial results.

 Risks
inherent in controlling, purchasing, holding, and developing land for new home construction are substantial. The risks inherent in purchasing
and developing land parcels increase as consumer demand for housing decreases and the holding period increases. As a result, we may buy
and develop land parcels on which homes cannot be profitably built and sold. In certain circumstances, a grant of entitlements or development
agreement with respect to a particular parcel of land may include restrictions on the transfer of such entitlements to a buyer of such
land, which could negatively impact the price of such entitled land by restricting our ability to sell it for its full entitled value.
In addition, inventory carrying costs can be significant and can result in reduced margins or losses in a poorly performing community
or market. Developing land and constructing homes takes a significant amount of time and requires a substantial cash investment. Land
development is a key part of our operations, and we develop land in most of our markets. The time and investment required for development
may adversely impact our business. We have substantial real estate inventories that regularly remain on our balance sheet for significant
periods of time prior to their sale, during which time we are exposed to the risk of adverse market developments. Our business model
is based on building homes before a sales contract is executed and a customer deposit is received. Interest and other expenses are capitalized
until sold. In the event there is a downturn in home sales in our markets, our inventory of completed homes could increase, leading to
additional financing costs and lower margins, which could have a material adverse effect on our financial results and operations. In
the event of significant changes in economic or market conditions, we may have to sell homes at significantly lower margins or at a loss,
if we are able to sell them at all. Additionally, deteriorating market conditions could cause us to record significant inventory impairment
charges. The recording of a significant inventory impairment could negatively affect our reported earnings per share and negatively impact
the market perception of our business.

 The
long-term sustainability and growth in our home closings depends in part upon our ability to acquire land parcels suitable for residential
projects at reasonable prices.

 The
long-term sustainability of our operations as well as future growth depends in large part on the price at which we are able to obtain
suitable land parcels for development or homebuilding operation. Our ability to acquire land parcels for various residential projects
may be adversely affected by changes in the general availability of land parcels, the willingness of land sellers to sell land parcels
at reasonable prices, competition for available land parcels, availability of financing to acquire land parcels, zoning, regulations
that limit housing density, the ability to obtain building permits, environmental requirements and other market conditions and regulatory
requirements. If suitable lots or land at reasonable prices become less available, the number of homes we may be able to build and sell
could be reduced, and the cost of land could be increased substantially, which could adversely impact us. As competition for suitable
land increases, the cost of undeveloped lots and the cost of developing owned land could also rise and the availability of suitable land
at acceptable prices may decline, which could adversely impact us. The availability of suitable land assets could also affect the success
of our land acquisition strategy, which may impact our ability to maintain or increase the number of our active communities, as well
as to sustain and grow our revenues and margins, and achieve or maintain profitability. Additionally, developing undeveloped land is
capital intensive and time consuming and we may develop land based upon forecasts and assumptions that prove to be inaccurate, resulting
in projects that are not economically viable.

 We
are subject to warranty and liability claims arising in the ordinary course of business that can be significant.

 As
a homebuilder and developer, we are subject to construction defect, product liability and home and other warranty claims, including moisture
intrusion and related claims, arising in the ordinary course of business. These claims are common to the homebuilding industry and can
be costly. There can be no assurance that any developments we undertake will be free from defects once completed and any defects attributable
to us may lead to significant contractual or other liabilities. We rely on subcontractors to perform the construction of our homes and,
in some cases, to select and obtain building materials. Although we provide subcontractors with detailed specifications and perform quality
control procedures, subcontractors may, in some cases, use improper construction processes or defective materials. Defective products
used in the construction of our homes can result in the need to perform extensive repairs. The cost of performing such repairs, or litigation
arising out of such issues, may be significant if we are unable to recover the costs from subcontractors, suppliers and/or insurers.
Warranty and construction defect matters can also result in negative publicity, including on social media outlets, which could damage
our reputation and negatively affect our ability to sell homes. We maintain, and require our subcontractors to maintain, general liability
insurance (including construction defect and bodily injury coverage) and workers' compensation insurance and generally seek to
require our subcontractors to indemnify us for liabilities arising from their work. While these insurance policies, subject to deductibles
and other coverage limits, and indemnities protect us against a portion of our risk of loss from claims related to our land development
and homebuilding activities, we cannot provide assurance that these insurance policies and indemnities will be adequate to address all
our home and other warranty, product liability and construction defect claims in the future, or that any potential inadequacies will
not have an adverse effect on our business, financial condition or results of operations. Further, the coverage offered by, and the availability
of, general liability insurance for completed operations and construction defects are currently limited and costly. We cannot provide
assurance that coverage will not be further restricted, increasing our risks and financial exposure to claims, and/or become costlier.

 We
may be unable to obtain suitable bonding for the development of our communities.

 We
provide performance bonds and letters of credit in the ordinary course of business to governmental authorities and others to ensure the
completion of our projects or in support of obligations to build community improvements such as roads, sewers, water systems and other
utilities. We may also be required to provide performance bonds or letters of credit to secure our performance under various escrow agreements,
financial guarantees, and other arrangements. If we are unable to obtain performance bonds or letters of credit when required or the
cost or operational restrictions or conditions imposed by issuers to obtain them increases significantly, we may be significantly delayed
in developing our communities or may incur significant additional expenses and, as a result, our financial condition and results of operations
could be materially and adversely affected.

 Financial
and Liquidity Risks:

 Our
ability to operate and to respond to changing business and economic conditions depends on the availability of adequate capital. Failure
to generate cash flow or obtain financing could have a material adverse effect on our financial condition and results of operation and
could cast uncertainty on our ability to continue as a going concern.

 The
continued operation of our business and our ability to respond to changing business and economic conditions depend on the availability
of adequate capital, which in turn depends on cash flow generated by our business and, if necessary, the availability of equity or debt
capital. We also require sufficient cash flow to meet our obligations under our existing debt agreements. We cannot assure you that our
cash flow from operations or cash available under our financing agreements will be sufficient to meet our needs. If we are unable to
generate sufficient cash flows from operations in the future and if availability under our financing agreements is not sufficient or
unavailable, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing
stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants
that may significantly restrict our operations. Uncertainty regarding our ability to continue as a going concern could also have a material
and adverse impact on the price of our common stock which could negatively impact our ability to obtain stock-based financing. There
can be no assurance that we will be successful in obtaining additional capital when and if needed. If we are unable to generate sufficient
revenues, utilize existing financing facilities, or obtain new financing, we may have to delay, scale back, or terminate some of our
proposed projects; liquidate assets at unfavorable prices; or not be able to continue operations and possibly seek bankruptcy protection.
(See Note 1. To our Financial Statements, Nature of Operations and Summary of Significant Accounting Policies—Going Concern Uncertainty.)
Notwithstanding the foregoing, all of our business and operations now require approval of the Bankruptcy Court.

 The
filing of the Chapter 11 Case constituted an event of default that accelerated substantially all of our obligations under all of our
pre-petition debt instruments.

 The
filing of the Chapter 11 Case constituted an event of default that accelerated substantially all of our obligations under all of our
pre-petition debt instruments. Some of our loan agreements contain financial covenants that we must meet over the course of the loan.
There can be no guarantee that we will be able to meet these financial covenants at any given time. If any violations of such covenants
are not cured within their applicable cure periods, a lender could declare a default. At the option of the lender, declaration of a default
could require a restructuring of the loan with onerous requirements or the lender could declare all amounts due under the loan immediately
due and payable, in which case we would be required to pay all amounts of outstanding principal and interest immediately ("Acceleration").
If an Acceleration was demanded by a lender, we may not have cash available to pay the entire amount of the Acceleration and would have
to borrow funds at egregious terms, raise dilutive financing, sell assets, or take other adverse actions and there can be no assurance
that we would be successful in accomplishing any such remedial measures to satisfy an Acceleration.

 Difficulty
in obtaining sufficient capital could result in an inability to acquire land or increased costs and delays in the completion of development
projects, increase home construction costs or delay home construction entirely.

 The
homebuilding and land development industry is capital-intensive and requires significant up-front expenditures to acquire land parcels
and begin development. In addition, if housing markets are not favorable or permitting or development takes longer than anticipated,
we may be required to hold our investments in land for extended periods of time. If internally generated funds are not sufficient, we
may seek additional capital in the form of equity or debt financing from a variety of potential sources, including additional bank financings
and/or securities offerings. The availability of borrowed funds, especially for land acquisition and construction financing, may be constrained
regionally or nationally, and the lending community may require increased amounts of equity to be invested in a project by borrowers
in connection with both new loans and the extension of existing loans. Since the global recession in 2008, credit and capital markets
have, from time to time, experienced unusual volatility. If we are required to seek additional financing to fund our operations, continued
volatility in these markets may restrict our flexibility to access such financing. Furthermore, any downgrade of our credit ratings or
other negative rating actions by credit agencies may make it more difficult and costly for us to access capital. If we are not successful
in obtaining sufficient funding for our planned capital and other expenditures or if we do not properly allocate our funding, we may
be unable to acquire additional land for development and/or to construct new housing. Additionally, if we cannot obtain additional financing
to fund the purchase of land under our purchase contracts, we may incur contractual penalties, fees, and increased expenses from the
write-off of due diligence and pre-acquisition costs. Any difficulty in obtaining sufficient capital for planned development expenditures
could also cause project delays and any such delay could result in cost increases. Any one or more of the foregoing events could have
a material adverse effect on our business, prospects, liquidity, financial condition, and results of operations.

 Access
to financing sources may not be available on favorable terms, or at all, especially in light of current market conditions, which could
adversely affect our ability to maximize our returns.

 Our
access to additional third-party sources of financing will depend, in part, on:

 perception
 of our business during or following the Chapter 11 Case;

 general
 market conditions;

 the
 market's perception of our growth potential;

 with
 respect to acquisition and/or development financing, the market's perception of the value of the land parcels to be acquired
 and/or developed;

 our
 current debt levels;

 our
 current and expected future earnings;

 our
 cash flow; and

 the
 market price per share of our common stock.

 The
global credit and equity markets and the overall economy can be extremely volatile, which could have a number of adverse effects on our
operations and capital requirements. For the past decade, the domestic financial markets have experienced a high degree of volatility,
uncertainty and, during certain periods, tightening of liquidity in both the high yield debt and equity capital markets, resulting in
certain periods where new capital has been both more difficult and more expensive to access. If we are unable to access the credit markets,
we could be required to defer or eliminate important business strategies and growth opportunities in the future. In addition, if there
is volatility and weakness in the capital and credit markets, potential lenders may be unwilling or unable to provide us with financing
that is attractive to us or may increase collateral requirements or may charge us prohibitively high fees in order to obtain financing.
Consequently, our ability to access the credit market in order to attract financing on reasonable terms may be adversely affected. Investment
returns on our assets and our ability to make acquisitions could be adversely affected by our inability to secure additional financing
on reasonable terms, if at all. Depending on market conditions at the relevant time, we may have to rely more heavily on additional equity
financings or on less efficient forms of debt financing that require a larger portion of our cash flow from operations, thereby reducing
funds available for our operations, future business opportunities and other purposes. We may not have access to such equity or debt capital
on favorable terms at the desired times, or at all.

 Our
sources of liquidity are limited and may not be sufficient to meet our needs.

 We
are largely dependent on our current cash balance and future cash flows from operations (which may not be positive) to enable us to service
our indebtedness, to cover our operating expenses and/or to fund our other liquidity needs. Depending on the levels of our land purchases,
we could generate positive or negative cash flow in future years. If the market conditions in the homebuilding industry deteriorate,
our cash flows could be insufficient to fund our obligations and support land purchases, and if we cannot buy additional land, we would
ultimately be unable to generate future revenues from the sale of houses. If our cash flows and capital resources are insufficient to
fund our debt service obligations or we are unable to refinance our indebtedness, we may be forced to reduce or delay investments and
capital expenditures, sell assets, seek additional capital, or restructure our indebtedness. These alternative measures may not be successful
or, if successful, made on desirable terms and may not permit us to meet our debt service obligations. If our available cash and capital
resources are insufficient to meet our debt service and other obligations, we could face liquidity problems and might be required to
dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions
or the proceeds from the dispositions may not be permitted under the terms of our debt instruments to be used to service indebtedness
or may not be adequate to meet any debt service obligations then due. For additional information about capital resources and liquidity.
(See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources.)

 Our
indebtedness could adversely affect our business, prospects, financial condition, or results of operations and prevent us from fulfilling
our obligations under loan agreements.

 We
have a significant amount of indebtedness. (See Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations—Liquidity and Capital Resources—Liabilities.) If we incur additional indebtedness, the risks related to our
level of indebtedness could intensify. Specifically, an increased level of indebtedness could have negative ramifications, including
but not limited to the following:

 making
 it more difficult for us to satisfy our obligations with respect to our indebtedness, including our loan agreements;

 limiting
 our ability to obtain additional financing to fund future working capital, capital expenditures, debt service requirements, execution
 of our business strategy or finance other general corporate requirements;

 requiring
 us to make non-strategic divestitures, particularly when the availability of financing in the capital markets is limited, which may
 adversely impact sales prices;

 requiring
 a substantial portion of our cash flow to be allocated to debt service payments instead of other business purposes, thereby reducing
 the amount of cash flow available for working capital, capital expenditures, acquisitions, dividends and other general corporate
 purposes;

 increasing
 our vulnerability to general adverse economic and industry conditions, including increases in interest rates, particularly given
 that certain indebtedness bears interest at variable rates;

 limiting
 our ability to capitalize on business opportunities, reinvest in and develop properties and to react to competitive pressures and
 adverse changes in government regulations;

 placing
 us at a disadvantage compared to other, less leveraged competitors;

 limiting
 our ability or increasing the costs to refinance indebtedness resulting in an event of default if we fail to satisfy our obligations
 under our indebtedness, which default could result in all or part of our indebtedness becoming immediately due and payable and, in
 the case of our secured debt, could permit the lenders to foreclose on our assets securing such debt.

 A
breach of the covenants under any of the agreements governing our indebtedness could result in an event of default.

 A
default under any of the agreements governing our indebtedness may allow our creditors to accelerate the related debt and may result
in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default
under the credit agreement governing our credit facility would permit the lenders thereunder to terminate all commitments to extend further
credit under the applicable facility. Furthermore, if we were unable to repay the amounts due and payable under any secured indebtedness,
those lenders could proceed against the collateral granted to them to secure that indebtedness. In the event our lenders or the holders
of our notes accelerate the repayment of our borrowings, we cannot assure that we would have sufficient assets to repay such indebtedness.
As a result of these restrictions, we may be:

 limited
 in how we conduct our business;

 unable
 to raise additional debt or equity financing to operate during general economic or business downturns; or

 unable
 to compete effectively or to take advantage of new business opportunities.

 These
restrictions may affect our ability to grow or continue our existing operations.

 Our
stock price is volatile and could decline.

 The
securities markets in general and our common stock in particular have experienced significant price and volume volatility. The market
price and volume of our common stock may continue to experience significant fluctuations due not only to general stock market conditions,
but also to a change in sentiment in the market regarding our industry, operations, or business prospects. The price and volume volatility
of our common stock may be affected by:

 our
 Chapter 11 Case;

 operating
 results that vary from the expectations of securities analysts and investors;

 factors
 influencing home purchases, such as higher interest rates and availability of home mortgage loans, credit criteria applicable to
 prospective borrowers, ability to sell existing residences and homebuyer sentiment in general;

 the
 operating and securities price performance of companies that investors consider comparable to us;

 announcements
 of strategic developments, acquisitions and other material events by us or our competitors; and

 changes
 in global financial markets and global economies and general market conditions, such as interest rates, commodity and equity prices
 and the value of financial assets.

 Our
ability to raise funds through the issuance of equity or otherwise use our common stock as consideration is impacted by the price of
our common stock. A low stock price may adversely impact our ability to reduce our financial leverage, as measured by the ratio of total
debt to total capital. Continued high levels of leverage or significant increases may adversely affect our credit ratings and make it
more difficult for us to access additional capital. These factors may limit our ability to implement our operating and growth plans.

 We
may not realize the value of our tax assets.

 Certain
provisions of the Internal Revenue Code could limit our ability to fully utilize certain tax assets due to a previous change in control,
or if we were to experience a future change in control. If such an event were to occur, the cash flow benefits we might otherwise have
received could be decreased.

 Any
limitation on, or reduction or elimination of tax benefits associated with homeownership would have an adverse effect upon the demand
for homes, which could be material to our business.

 While
tax laws generally permit significant expenses associated with homeownership, primarily mortgage interest expense and real estate taxes,
to be deducted for the purpose of calculating an individual's federal and, in many cases, state taxable income, the ability to
deduct mortgage interest expense and real estate taxes for federal income tax purposes is limited. The federal government or a state
government may change its income tax laws by eliminating, limiting, or substantially reducing these income tax benefits without offsetting
provisions, which may increase the after-tax cost of owning a new home for many of our potential homebuyers. Any such future changes
may have an adverse effect on the homebuilding industry in general. For example, the loss or reduction of homeowner tax deductions could
decrease the demand for new homes. Any such future changes could also have a material adverse impact on our business, prospects, liquidity,
financial condition, and results of operations.

 Federal
income tax credits available to builders of certain energy efficient new homes may not be extended by future legislation.

 On
August 12, 2022, the U.S. Congress passed the Inflation Reduction Act of 2022, which President Biden signed into law on August 16, 2022.
This Act extended the availability of Code Section 45L credit for energy efficient new homes ("federal energy efficient homes tax
credits"), which provides a tax credit of $5,000 per qualifying home to eligible homebuilders and made such tax credits available
for homes delivered through December 31, 2032. It is uncertain whether an extension or similar tax credit will be adopted in the future.

 We
may suffer uninsured losses or material losses in excess of insurance limits.

 We
could suffer physical damage to property and liabilities resulting in losses that may not be fully recoverable by insurance. Insurance
against certain types of risks, such as terrorism, earthquakes, floods, or personal injury claims, may be unavailable, available in amounts
that are less than the full market value or replacement cost of investment or underlying assets or subject to a large deductible or self-insurance
retention amount. In addition, there can be no assurance that certain types of risks that are currently insurable will continue to be
insurable on an economically feasible basis. Should an uninsured loss or a loss in excess of insured limits occur or be subject to deductibles
or self-insurance retention, we could sustain financial loss or lose capital invested in the affected property, as well as anticipated
future income from that property. Furthermore, we could be liable to repair damage or meet liabilities caused by risks that are uninsured
or subject to deductibles. We may also be liable for any debt or other financial obligations related to the affected property.

 Changes
in accounting rules, assumptions and/or judgments could materially and adversely affect us.

 Accounting
rules and interpretations for certain aspects of our financial reporting are highly complex and involve significant assumptions and judgment.
These complexities could lead to a delay in the preparation and dissemination of our financial statements. Furthermore, changes in accounting
rules and interpretations or in our accounting assumptions and/or judgments, such as those related to asset impairments, could significantly
impact our financial statements. In some cases, we could be required to apply a new or revised standard retroactively, resulting in restating
prior period financial statements. Any of these circumstances could have a material adverse effect on our business, prospects, liquidity,
financial condition, and results of operations.

 If
we fail to implement and maintain an effective system of internal controls, we may not be able to accurately determine our financial
results or prevent fraud. As a result, investors could lose confidence in our financial results, which could materially and adversely
affect us.

internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We may in the future discover
areas of our internal controls that need improvement. We cannot be certain that we will be successful in maintaining adequate internal
control over our financial reporting and financial processes. Furthermore, as we grow our business, our internal controls will become
more complex, and we will require significantly more resources to ensure our internal controls remain effective. Additionally, the existence
of any material weakness or significant deficiency would require management to devote significant time and incur significant expense
to remediate any such material weakness or significant deficiency and management may not be able to remediate any such material weakness
or significant deficiency in a timely manner. The existence of any material weakness in our internal control over financial reporting
could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to
meet our reporting obligations and cause investors to lose confidence in our reported financial information, all of which could materially
and adversely affect us. Please refer to Item 9A. CONTROLS AND PROCEDURES.

 Organizational
and Structural Risks:

 Delisting
our securities from Nasdaq limits investors' abilities to make transactions in our securities and subject us to additional trading
restrictions.

 Our
securities are quoted on an over-the-counter market. We now face significant material adverse consequences, including:

 a limited availability of market quotations for our securities;

reduced liquidity for our securities;

 our Common Stock is a "penny stock" which will require brokers trading in our common stock to adhere to more stringent rules
and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

a limited amount of news and analyst coverage; and

 a decreased ability to issue additional securities or obtain additional financing in the future.

 The
National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the
sale of certain securities, which are referred to as "covered securities." Because our common stock, preferred stock, and
public warrants are no longer listed on Nasdaq, they are no longer covered securities, and we are subject to regulation in each state
in which we offer our securities.

 The
exercise of our warrants and conversion of our preferred stock will result in dilution to our stockholders.

 We
issued warrants to purchase shares of common stock and issued preferred stock that include an option for the holder to convert the shares
into common stock. (See Note 18. Stockholders' Equity.) The shares of common stock issued upon exercise of our warrants and conversion
of our preferred stock will result in dilution to the then existing holders of common stock and increase the number of shares eligible
for resale in the public market. Sales of such shares in the public market could adversely affect the market price of our common stock
or public warrants.

 We
do not intend to pay dividends on our common stock and preferred stock for the foreseeable future.

 Due
to our illiquidity and the Chapter 11 Case, we do not intend to pay cash dividends on our common and preferred stock for the foreseeable
future. Any future determination to pay dividends on our common stock will be at the discretion of the Bankruptcy Court.

 Future
offerings of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future offerings of
equity securities that may be senior to our common stock for the purposes of dividend and liquidation distributions, may adversely affect
the market price of our common stock.

 In
the future, we may attempt to increase our capital resources by making offerings of debt securities. Upon bankruptcy or liquidation,
holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution
of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing
stockholders or reduce the market price of our common stock, or both. Our preferred stock will have a preference on liquidating distributions
and dividend payments, which could limit our ability to make a dividend distribution to the holders of our common stock.

 General
Risk Factors:

 The
JOBS Act permits "emerging growth companies" like us to take advantage of certain exemptions from various reporting requirements
applicable to other public companies that are not emerging growth companies.

 We
qualify as an "emerging growth company" as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart
Our Business Startups Act of 2012, which we refer to as the "JOBS Act." As such, we take advantage of certain exemptions
from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as we continue
to be an emerging growth company, including (i) the exemption from the auditor attestation requirements with respect to internal control
over financial reporting under Section 404 of SOX, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute
voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
As a result, our stockholders may not have access to certain information they deem important. We will remain an emerging growth company
until the earliest of (i) the last day of the fiscal year (a) following the fifth anniversary of our IPO, (b) in which we have total
annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be a large accelerated filer, which means the market
value of our common stock and public warrants that is held by non-affiliates exceeds $700 million as of the last business day of our
prior second fiscal quarter, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior
three-year period. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions.
If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active
trading market for our common stock and the price of our common stock may be more volatile. In addition, Section 107 of the JOBS Act
also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards
provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore
delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The JOBS Act provides
that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth
companies, but any such election to opt out is irrevocable. We have elected to avail ourselves of such extended transition period, which
means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging
growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make
comparison of our financial statements with another public company that is neither an emerging growth company nor an emerging growth
company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting
standards used. As a result of our reliance on these exemptions or reduced disclosures, investors may not have access to certain information
they deem important or may find our securities less attractive. This may result in a less active trading market for our securities and
the price of our securities, including our common stock or public warrants may be more volatile.

 Our
business could be materially and adversely disrupted by an epidemic or pandemic or similar public threat, or fear of such an event, and
the measures that federal, state, and local governments and other authorities implement to address it.

 An
epidemic, pandemic or similar serious public health issue, and the measures undertaken by governmental authorities to address it, could
significantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, along with
any associated economic and social instability or distress, have a material adverse impact on our business, financial condition, results
of operations, cash flows, strategies, or prospects.

 Acts
of war or terrorism may seriously harm our business.

 Acts
of war, any outbreak or escalation of hostilities between the United States and any foreign power, acts of terrorism, political uncertainty
or civil unrest may cause disruption to the U.S. economy, or the local economies of the markets in which we operate, cause shortages
of building materials, increase costs associated with obtaining building materials, result in building code changes that could increase
costs of construction, result in uninsured losses, affect job growth and consumer confidence, or cause economic changes that we cannot
anticipate, all of which could reduce demand for our homes and adversely impact our business, prospects, liquidity, financial condition
and results of operations.

 We
are subject to litigation, arbitration, or other claims, which could materially and adversely affect us.

 We
are subject to litigation, and we may in the future be subject to enforcement actions, such as claims relating to our operations, securities
offerings and otherwise in the ordinary course of business. Some of these claims may result in significant defense costs and potentially
significant judgments against us, some of which are not, or cannot be, insured against. We cannot be certain of the ultimate outcomes
of any claims that may arise in the future, and legal proceedings may result in the award of substantial damages. Resolution of these
types of matters against us may result in our having to pay significant fines, judgments, or settlements, which, if uninsured or in excess
of insured levels, could adversely impact our earnings and cash flows, thereby materially and adversely affecting us. Furthermore, plaintiffs
may in certain of these legal proceedings seek class action status with potential class sizes that vary from case to case. Class action
lawsuits can be costly to defend, and if we were to lose any certified class action suit, it could result in substantial liability for
us. Certain litigation or the resolution thereof may affect the availability or cost of some of our insurance coverage, which could materially
and adversely impact us, expose us to increased risks that would be uninsured, and materially and adversely impact our ability to attract
directors and officers.

 Information
system failures, interruptions, cyber incidents, or breaches in security could adversely affect us.

 We
rely on accounting, financial, operational, management and other information systems, including the Internet and third-party hosted services,
to conduct our operations, store sensitive data, process financial information and results of operations for internal reporting purposes
and comply with financial reporting, legal and tax requirements. Our information systems, and those of our vendors and service providers,
are subject to damage or interruption from power outages, computer and telecommunication failures, computer viruses, security breaches,
including malware and phishing, cyberattacks, natural disasters, usage errors by employees and other related risks. Any cyber incident
or attack or other disruption or failure in these information systems, or other systems or infrastructure upon which they rely, could
adversely affect our ability to conduct our business and could have a material adverse effect on our business, prospects, liquidity,
financial condition, and results of operations. Furthermore, any failure or security breach of information systems or data could result
in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, or a loss of
confidence in our security measures, which could harm our business and could have a material adverse effect on our business, prospects,
liquidity, financial condition, and results of operations. Although we have implemented systems and processes intended to secure our
information systems, there can be no assurance that our efforts to maintain the security and integrity of our information systems will
be effective or that future attempted security breaches or disruptions would not be successful or damaging.

 Our
business is subject to complex and evolving U.S. laws and regulations regarding privacy and data security.

 As
part of our normal business activities, we collect and store certain information, including information specific to homebuyers, customers,
employees, vendors, and suppliers. We may share some of this information with third parties who assist us with certain aspects of our
business. Consumer personal privacy and data security have become significant issues and the subject of rapidly evolving regulation in
the United States. Furthermore, federal, state, and local government bodies or agencies have in the past adopted, and may in the future
adopt, more laws and regulations affecting data privacy. Laws and regulations governing data privacy and the unauthorized disclosure
of confidential information including recently implemented may significantly impact our business activities and require substantial compliance
costs, which could have a material adverse effect on our business, prospects, liquidity, financial condition, and results of operations.
Any failure, or perceived failure, by us to adequately address privacy and data security concerns, even if unfounded, or comply with
applicable privacy and data security laws, regulations and policies could result in proceedings or actions against us by governmental
entities or others, subject us to significant fines, penalties, judgments, and negative publicity, require us to change our business
practices, increase the costs and complexity of compliance, and adversely affect our business. If we are not able to adjust to changing
laws, regulations and standards relating to privacy or data security, our business may be materially harmed. As noted above, we are also
subject to the possibility of cyber incidents or attacks, which themselves may result in a violation of these laws.

 Failure
to comply with laws and regulations may adversely affect us.

 We
are required to comply with laws and regulations governing many aspects of our business, such as land acquisition and development, home
construction and sales, and employment practices. Despite our oversight, contractual protections, and other mitigation efforts, our employees
or subcontractors could violate some of these laws or regulations, as a result of which we may incur fines, penalties, or other liabilities,
which could be significant, and our reputation with governmental agencies, customers, vendors, or suppliers could be damaged.

 Increasing
attention to environmental, social, and governance matters may impact our business, financial results, or stock price.

 In
recent years, increasing attention has been given to corporate activities related to environmental, social, and governance ("ESG")
matters in public discourse and the investment community. A number of advocacy groups, both domestically and internationally, have campaigned
for governmental and private action to promote change at public companies related to ESG matters, including through the investment and
voting practices of investment advisers, public pension funds, universities, and other members of the investing community. These activities
include increasing attention and demands for action related to climate change and promoting the use of energy saving building materials.
A failure to comply with investor or customer expectations and standards, which are evolving, or if we are perceived to not have responded
appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, could also cause reputational
harm to our business and could have a material adverse effect on us.

 Negative
publicity could adversely affect our reputation as well as our business, financial results, and stock price.

 Our
reputation and brand are critical to accomplish our business objectives. Unfavorable media related to our industry, company, brands,
marketing, personnel, operations, business performance, or prospects may affect our stock price and the performance of our business,
regardless of its accuracy or inaccuracy. The speed at which negative publicity can be disseminated has increased dramatically with the
capabilities of electronic communication, including social media outlets, websites, blogs, newsletters, and other digital platforms.
Our success in maintaining, extending, and expanding our brand image depends on our ability to adapt to this rapidly changing media environment.
Adverse publicity or negative commentary from any media outlets could damage our reputation and reduce the demand for our homes, which
would adversely affect our business.

 Changes
in laws, regulations or rules, or a failure to comply with any laws, regulations, or rules, may adversely affect our business, investments,
and results of operations.

 We
are subject to laws, regulations and rules enacted by national, regional, and local governments. In particular, we are required to comply
with certain SEC, OTC, and other legal or regulatory requirements. Compliance with, and monitoring of, applicable laws, regulations and
rules may be difficult, time consuming and costly. Those laws, regulations or rules and their interpretation and application may also
change from time to time and those changes could have a material adverse effect on our business, investments, and results of operations.
In addition, a failure to comply with applicable laws, regulations, or rules, as interpreted and applied, could have a material adverse
effect on our business and results of operations.

 ITEM
1B. UNRESOLVED STAFF COMMENTS

 Not

 ITEM
1C. CYBERSECURITY.

 We
appreciate the importance of preventing, assessing, identifying, and managing material risks associated with cybersecurity threats. In
the ordinary course of our business, we collect and store certain confidential information about our employees, contractors, vendors,
and suppliers. Consequently, we have established processes for managing material risks posed by cybersecurity threats.

 Risk
Management and Strategy

 We
have established information security practices to provide effective security controls to protect the privacy and confidentiality of
our information. Where appropriate, these processes and policies are integrated into our overall risk management systems and processes.

 To
address cybersecurity risks and strengthen our defenses against potential threats, we employ a set of various measures. This involves
staying up to date on emerging data protection laws and promptly adjusting our processes to ensure compliance. Our network is protected
by regularly monitored firewalls with intrusion and malware protection. Our employees have also undergone training in customer data handling
and usage requirements, proper internet usage, and secure email and social media training. Employees are encouraged to report all suspicious
emails or communications to management. Regular phishing email simulations further enhance employee awareness and resilience against
cyber threats. Alongside regularly updated endpoint protection provided by TrendMicro, Inc., multiple layers of redundancy are implemented
through Microsoft365 and Datto, Inc., ensuring all company and employee data is safe from deletion, either accidental or deliberate.

 Our
processes also include assessing cybersecurity threat risks associated with our use of third-party service providers in the normal course
of business, including those who have access to our customer and employee data or our systems. Additionally, we assess cybersecurity
considerations in the selection and oversight of our third-party service providers, including due diligence on the third parties that
have access to our systems and facilities that house systems and data.

 We
have not experienced any material computer data security breaches as a result of a compromise of our information systems and we are not
aware and have not had a significant cybersecurity breach or attack that had a material impact on our business or operating results to
date.

 Protecting
our information from cyber threats remains a persistent priority, and we are committed to identifying and assessing emerging risks related
to data protection and cybersecurity. This commitment extends to our internal operations and our collaborations with third-party service
providers.

 Governance

 Our
Board of Directors is aware of the critical nature of managing risks associated with cybersecurity threats. Our Board of Directors has
delegated to the Audit Committee the responsibility to oversee our cybersecurity efforts and cyber related risks. The Audit Committee,
which is comprised of entirely independent directors, oversees risk assessment, training programs, significant threat changes, and vulnerabilities
as well as the effectiveness of any information security practices.

 Although
none of the members of the Audit Committee have any work experience, degree, or certifications related to information security or cybersecurity,
the Audit Committee is often guided by IT professionals on cybersecurity related issues. Periodically, the Audit Committee receives an
overview from IT professionals on our cybersecurity threat risk management and strategy processes, including potential impact on our
company, the efforts of management to manage the risks that are identified, and our disaster recovery preparations. IT professionals
provide updates to inform and educate our Audit Committee and Board of Directors on current trends of cybersecurity threats, emerging
trends, and best practices.

 Our
cybersecurity risk management and strategy processes, as highlighted above, were led by our IT director. Our IT director had over 20
of experience in managing information security, developing cybersecurity strategy, and implementing cybersecurity programs. The IT director
monitored the prevention, mitigation, detection, and remediation of cybersecurity incidents through their management of the cybersecurity
risk management and strategy processes described above. Subsequent to the year-ended December 31, 2023, our IT Director no longer works
for the Company, effective February 14, 2024. We have hired a third-party IT service provider to assist with the responsibilities previously
conducted by the former IT Director.

 ITEM
2. PROPERTIES

 We
leased several suites of office space at 11505 Burnham Dr., Gig Harbor, Washington under multiple lease agreements for 26 to 60 month
periods with the leases ending in February 2023 through May 2023. During 2022, we terminated the leases for three suites and have the
remaining leases for four suites as of December 31, 2022. Additionally, we lease office space at 1201 Pacific Avenue, Tacoma, Washington,
for a 126-month period from the commencement date of February 2022 through July 2032.

 We
leased land where one of our field offices is located to store our heavy equipment and quarry materials such as dirt and rocks for sale
to customers (9000 W. Werner Road, Bremerton, Washington). This land was under a lease initiated as of January 28, 2019 for a 24-month
period and had been renewed annually through March 8, 2023, at which time the lease terminated.

 The
following table summarizes certain key metrics of the 15 communities that we own as of March 28, 2024:

 Project
 Name

 Location

 Total
 Units

 Unsold
 Units

 Business
 Plan

 Status

 Bridgeview
 Trails

 Sell
 Land

 Owned

 Horizon
 at Semiahmoo

 Sell
 Land

 Owned

 Inverness

 Sell
 Land

 Owned

 Meadowscape

 Sell
 Apartments

 Owned

 Olympic
 Sunset Phase 1

 Sell
 Apartments

 Owned

 Olympic
 Sunset Phase 2

 Sell
 Land / Partially Constructed Buildings

 Owned

 Pacific
 Ridge

 Sell
 Apartments

 Owned

 Steel
 Creek

 Sell
 Lot

 Owned

 Darkhorse

 California

 Sell
 Lots

 Owned

 Punta
 Gorda

 Florida

 Sell
 Land

 Owned

 Cimarron
 Hills

 Texas

 Sell
 Homes

 Owned

 Creek's
 Edge

 Texas

 Sell
 Homes

 Owned

 Flintrock
 Falls

 Texas

 Sell
 Home

 Owned

 Siena
 Creek

 Texas

 Sell
 Lots and Sell Homes

 Owned

 Stone
 House

 Texas

 Sell
 Land

 Owned

 Summit
 Rock

 Texas

 Sell
 Lots and Sell Homes

 Owned

 Total

 ITEM
3. 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 Annual 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.

 On
December 11, 2023, we filed a voluntary petition (the "Bankruptcy Petition") for reorganization under Chapter 11 of the United
States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Western District of Washington
(such court, the "Bankruptcy Court" and such case, the "Chapter 11 Case"). The Chapter 11 Case is being jointly
administered under the caption In re Harbor Custom Development, Inc., et al., Case No. 23-42180-MJH.

 Various
claims have been made as part of the Chapter 11 Cases in amounts that are disputed and may be material, but are subject to the final
determination of the Bankruptcy Court, the specific amounts of which cannot be determined at this time.

 ITEM
4. MINE SAFETY DISCLOSURES

 Not

 PART
II

 ITEM
5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 Market
Information

 Our
common stock is quoted on the OTC Markets under Pink Current Information tier ("OTC Pink") under the symbol "HCDIQ."

 Our
8.0% Series A Cumulative Convertible Preferred Stock (the "Series A Preferred Stock") and warrants are quoted on the OTC
Pink under the symbols "HCDPQ," "HCDWQ," and "HCDZQ," respectively.

 Dividends

Stock. We have not declared a dividend on our common stock, and we do not anticipate the payment of dividends in the near future
due to the Chapter 11 Case. Any future determination to pay dividends will be at the discretion of the Bankruptcy Court.

 Series
A Preferred Stock. The holders of our Series A Preferred Stock are entitled to receive dividends at a rate of 8% per annum
payable monthly in arrears. During the year ended December 31, 2023, we made one payment of accrued dividends of $0.6 million as of December 31,
2022, which were paid to the holders of the Series A Preferred Stock on January 20, 2023. On January 20, 2023, our Board of Directors
voted to suspend the cash dividend on the Series A Preferred Stock as announced on a Current Report on Form 8-K on January 25, 2023.

 On
February 23, 2023, as part of the Amendment to our Loan Agreement with BankUnited, we agreed to pay $0.6 million to BankUnited each month,
which otherwise would have been paid as a dividend to the holders of the Series A Preferred Stock. These dividends will accrue as a liability
until paid or otherwise settled in the discretion of the Bankruptcy Court.

of Holders of Record

 We
have approximately 13 record holders of our common stock as of March 28, 2024 according to the records of our transfer agent. The number
of our stockholders of record excludes any estimate by us of the number of beneficial owners of shares held in street name, the accuracy
of which cannot be guaranteed.

 Our
transfer agent is Mountain Share Transfer, Inc., 2030 Powers Ferry Rd. SE, Suite # 212, Atlanta, Georgia 30339. Their telephone number
is (404) 474-3110.

 Repurchase
of 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. As part of the Amendment to the Loan Agreement with BankUnited, we agreed that we will not repurchase any of our currently
outstanding securities. Therefore, the stock repurchase program was terminated.

 2020
Restricted Stock Plan

 We
did not acquire any shares of our common stock during the fourth quarter 2023 as a result of the surrender of shares by our employees
to satisfy tax withholding obligations in connection with the vesting of restricted shares of common stock awarded under our 2020 Restricted
Stock Plan.

 Reverse
Stock Split

 We
filed Articles of Amendment to our Articles of Incorporation to effect a reverse split of our outstanding shares of common stock at a
ratio of 1-for-20 (the "Reverse Stock Split") with the Washington Secretary of State on March 1, 2023 and the Reverse Stock
Split was effected on the Nasdaq Capital Market on March 6, 2023.

 As
a result of the Reverse Stock Split, every 20 shares of common stock either issued and outstanding immediately prior to the effective
time was, automatically and without any action on the part of the respective holders thereof, combined and converted into one share of
common stock. The Reverse Stock Split also applied to common stock issuable upon the exercise of our outstanding warrants, outstanding
stock options, unvested restricted stock awards, stock and stock option plans, and upon the conversion of our Series A Preferred Stock.
The Reverse Stock Split did not affect the par value of our common stock or the shares of common stock we are authorized to issue under
our Articles of Incorporation, as amended. No fractional shares were issued in connection with the Reverse Stock Split. Fractional shares
which would otherwise result from the Reverse Stock Split were rounded up to the nearest whole share. All share and per share amounts
of common stock presented in this Annual Report on Form 10-K have been retroactively adjusted to reflect the 1-for-20 Reverse Stock Split.

 ITEM
6. [Reserved]

 ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 Overview

Custom Development, Inc. is a real estate development company, which is now in the process of winding-down its operations and liquidating
all of its assets pursuant to a proposed Chapter 11 Liquidation Plan, subject to Bankruptcy Court approval.

 We
were involved in all aspects of the land development cycle, including land acquisition, entitlements, development, construction of project
infrastructure, home and apartment building construction, marketing, and sales of various residential projects in Western Washington's
Puget Sound region; Sacramento, California; Austin, Texas; and Punta Gorda, Florida.

 As
of December 31, 2023, we own or control 15 communities in Washington, Texas, California, and Florida, containing approximately 539 lots
or units in various stages of development.

 Results
of Operations

 The
following table sets forth the summary statements of operations for the years ended December 31, 2023 and 2022. For information on the
year ended December 31, 2021, refer to Part II, Item 7 of our 2022 Annual Report on Form 10-K/A.

 2023

 2022

 Sales

 $

 $

 Cost of sales

 110,691,900

 55,866,800

 Gross loss

 (51,435,200
)

 (452,500
)

 Operating expenses

 9,754,200

 16,237,700

 Other expense, net of other income

 2,447,800

 4,690,200

 Bankruptcy expense

 392,500

 -

 Income tax expense (benefit)

 4,589,400

 (4,458,200
)

 Net loss

 $
 (68,619,100
)

 $
 (16,922,200
)

 Sales

 Our
sales increased by 6.9% to $59.3 million for the year ended December 31, 2023 as compared to $55.4 million for the year ended December
31, 2022. This increase was primarily due to increases in multi-family revenue of $38.1 million and the sale of developed lots of $1.5
million, which were partially offset by decreases in home sales of $19.6 million, fee build revenue of $8.2 million and the sale of entitled
land of $7.9 million. The increase in multi-family revenue was mainly due to closing of Wyndstone apartments and Mills Crossing townhomes
in the current year. The decreases in home and entitled land sales were mainly due to a decrease in number of home closed in Texas and
non-recurrence of a large entitled land sales in Washington. The fee build revenue continued to decrease as the fee build projects have
been substantially completed.

 Gross
Loss

 Our
overall gross loss for the year ended December 31, 2023 increased to $(51.4) million compared to $(0.5) million for the year ended December
31, 2022. Gross loss was (86.8)% for the year ended December 31, 2023 compared to (0.8)% for the same period last year. The increase
in gross loss was primarily due to increases in multi-family gross loss of $18.7 million, entitled land gross loss of $18.6 million,
developed lots gross loss of $10.0 million, and home gross loss of $9.6 million, which was partially offset by a decrease in fee build
gross loss of $4.4 million. The 86.0% increase in gross loss was primarily driven by impairment charges in the current year. The decrease
was also partly due to interest expense incurred to finance the multi-family rental properties and non-recurrence of high margin land
and home sales. Such decrease was partially offset by gross loss due to cost overruns with fee build projects in 2022 that did not recur
in 2023.

 Operating
Expenses

 Our
operating expenses decreased by 39.9% to $9.8 million for the year ended December 31, 2023, as compared to $16.2 million for the year
ended December 31, 2022. The decrease in operating expenses was primarily attributable to our focused reduction in general and administrative
costs. Compensation costs of $2.0 million, bad debt expense of $2.0 million, depreciation of $1.1 million, insurance expense of $0.6
million, professional fees of $0.5 million, and right of use expense of $0.4 million were the largest contributors to the cost savings.
These decreases were partially offset by an increase in cancelled projects costs of $0.6 million related to Grandis Pond and Firecrest
cancellations in 2023 as compared to the Westry Village cancellation in 2022.

 Other
Expense

 Other
expense decreased for the year ended December 31, 2023 to $2.4 million as compared to $4.7 million for the year ended December 31, 2022.
The decrease in other expense was primarily due to a $3.3 million loss incurred in the prior year from selling a significant portion
of machinery and equipment which was primarily used for fee build and quarry projects. This decrease was partially offset by increase
in interest expense from a revolving line of credit and decrease in interest income from notes receivables.

 Bankruptcy
Expenses

 Bankruptcy
expenses increased for the year ended December 31, 2023 to $0.4 million as compared to $0 for the year ended December 31, 2022. They
were primarily related to the salary of Chief Restructuring Officer and professional fees incurred on the bankruptcy filing in the current
year.

 Net
Loss

 Our
net loss increased by 305.5% to $(68.6) million for the year ended December 31, 2023 as compared to $(16.9) million for the year ended
December 31, 2022. The increase in net loss was primarily attributable to an increase in gross loss 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.

 As
a result of our significant debt of $140.3 million maturing over the next 12 months as of December 31, 2023, a net loss of $68.6 million
for the year ended December 31, 2023, the real estate and construction industries experiencing declining market conditions, lack of financing
capabilities, along with the cessation of our major business activities, lack of any additional sources of revenue, as well as the risks
and uncertainties related to our ability to successfully complete the Chapter 11 Case, including our ability to realize value from our
assets; our ability to develop, negotiate, confirm, and consummate the Proposed Plan, after which our ongoing operations are expected
to be limited; the effects of disruption from the Chapter 11 Case; and the costs of the Chapter 11 Case, substantial doubt exists regarding
our ability to continue as a going concern for a period of at least one year from the date of issuance of our consolidated financial
statements.

 Due
to the failed purchase contracts for some of our properties, the lack of suitable revenue-generating offers for our properties, and our
limited ability to raise sufficient capital in the current market environment, we determined it was in the best interests of our stakeholders
to take aggressive actions to cut costs and preserve cash, file the Chapter 11 Case and cease our major business activities.

 On
December 11, 2023, we voluntarily initiated the Chapter 11 Case in the Bankruptcy Court. Since filing the Chapter 11 Case, we have operated
our business as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy
Court. After we filed our Chapter 11 petitions, the Bankruptcy Court granted certain relief enabling us to conduct our business activities
in the ordinary course.

 Our
liquidity and ability to continue as a Chapter 11 Case is dependent upon, among other things: (i) our ability to develop, confirm and
consummate the Proposed Plan or other alternative liquidating transaction, (ii) the outcome of the Company's efforts to realize
value, of any, from its remaining assets, and (iii) the cost, duration and outcome of the Chapter 11 Case.

 We
have incurred significant professional fees and other costs in connection with preparation for the Chapter 11 Case and expect to continue
to incur significant professional fees and costs The Bankruptcy Court established February 16, 2024, as the deadline by which parties
are required to file proofs of claim in the Chapter 11 Case and June 10, 2024 for all governmental entities to file their proofs of claim.
We cannot provide any assurances regarding what the Company's total actual liabilities based on such claims will be.

 We
have engaged Keen in order to sell our multi-family properties. Any sale by Keen is subject to the approval of the Bankruptcy Court.

 Real
Estate Assets

 The
value of our real estate assets has decreased to $156.7 million as of December 31, 2023 from $205.5 million as of December 31, 2022.
This decrease was primarily due to impairment charges and large multi-family sales, partially offset by development and construction
activities for houses and apartments.

 Liabilities

 Liabilities
slightly decreased to $158.3 million as of December 31, 2023 from $160.6 million as of December 31, 2022. This decrease was primarily
attributable to the following:

 1.

 Construction loans, net of related party loans increased by $9.7 million to fund the development of land and construction of houses,
townhomes, and apartments;

 2.

 Dividend payable increased by $7.0 million due to a suspension of preferred dividends starting in January 2023;

 3.

 Revolving line of credit decreased by $10.2 million due to continued paydown pursuant to the amended loan terms, effective February 2023;

 4.

 Accounts payable and accrued expenses decreased by $6.1 million, primarily driven by decrease in real estate spending; and

 5.

 Equipment loan decreased by $2.1 million due to the sale of machinery and equipment related to fee build and quarry projects.

 Unrestricted
Cash Balance

 As
of December 31, 2023, our cash balance was $3.6 million compared to $9.7 million as of December 31, 2022.

 Operating
Activities

 Net
cash used in operating activities for the year ended December 31, 2023 was $8.2 million as compared to net cash used of $93.9 million
for the year ended December 31, 2022. The decrease in cash used was primarily attributable to a decrease in real estate spending of $87.6
million, increase in impairment loss on real estate of $45.2 million, increase in deferred tax asset change of $8.7 million, increase
in note receivable change of $7.3 million, and increase in prepaid and other assets change of $5.9 million, partially offset by an increase
in net loss of $51.7 million, and a decrease in accounts payable and accrued expenses of $9.5 million.

 Investing
Activities

 Net
cash provided in investing activities for the year ended December 31, 2023 was $0.2 million as compared to $2.5 million for the year
ended December 31, 2022. The decrease was primarily due to a decrease in proceeds from the sale of equipment of $4.9 million, which was
offset by a decrease in cash used for property and equipment. During the year ended December 31, 2023, there was no purchase of fixed
assets as compared to $2.6 million was used for the furniture, fixtures, and leasehold improvements of the new corporate office and purchase
of equipment for the year ended December 31, 2022.

 Financing
Activities

 Net
cash provided by financing activities for the year ended December 31, 2023 was $1.8 million as compared to $75.4 million for the year
ended December 31, 2022. This decrease was primarily caused by a decrease in cash provided by the revolving line of credit of $25.0 million,
an increase in payments on the revolving line of credit of $10.8 million, a decrease in cash provided by construction loans net of payments
of $54.6 million, and a decrease in related party construction loans, net of payments of $2.7 million. This decrease was partially offset
by an increase in cash provided from the public offering of $8.9 million, and a decrease in cash used for preferred dividends of $7.2
million.

 Debtor-in
Possession

 In
general, as debtors-in-possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business but may
not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Pursuant to certain
motions and applications intended to limit the disruption of the bankruptcy proceedings on our operations (the First Day Motions) and
other motions filed with the Bankruptcy Court, the Bankruptcy Court has authorized us to conduct our business activities in the ordinary
course, including, among other things and subject to the terms and conditions of such orders, pay employee wages and benefits, settle
certain de minimis disputes, and pay vendors and suppliers in the ordinary course for all goods and services.

 Off-Balance
Sheet Arrangements

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

 Inflation

 Our
operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material, and construction costs. In
addition, inflation can lead to higher mortgage rates which can significantly affect the affordability of mortgage financing to homebuyers.
While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we may be
unable to offset cost increases with higher selling prices. Please refer to "Item 1A. Risk Factors" for further details on
industry and economic risks.

 Critical
Accounting Policies

 Our
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 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 1 of our 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 Annual 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
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 We
borrow from lenders using financial instruments such as term loans, notes payable, and a 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
are exposed to market risks related to fluctuations in interest rates on our outstanding revolving line of credit and our construction
loans relating to the Meadowscape and Bridgeview. The interest rate for our variable rate indebtedness as of December 31, 2023 was equal
to the daily simple secured overnight financing rate (SOFR) plus an applicable margin of 4.75% for the line of credit, equal to the SOFR
one month rate plus an applicable margin of 7.25% for the Meadowscape construction loan, and equal to the variable prime rate plus an
applicable margin of 4.38% for the Bridgeview construction loan.

 At
December 31, 2023, the daily SOFR was 5.38%, one month SOFR was 5.34%. The variable prime rate was 8.50%. A hypothetical 100 basis point
increase in the interest rate on our variable rate indebtedness would increase our annual interest cost by approximately $0.1 million
for the line of credit and $0.4 million for the two construction loans, respectively. Based on this, we do not believe that the future
interest rate risks related to our existing indebtedness will have a material adverse impact on our financial position, results of operations,
or liquidity.

 At
December 31, 2023, we had outstanding fixed-rate borrowings net of debt discount and financing fees of approximately $87.1 million and
outstanding variable-rate borrowings net of debt discount and financing fees of approximately $52.9 million.

 ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TO CONSOLIDATED FINANCIAL STATEMENTS

 Page

 Report of Independent Registered Public Accounting Firm [PCAOB Number 0 89 ]

 Consolidated Balance Sheets

 Consolidated Statements of Operations

 Consolidated Statements of Changes in Stockholders' Equity (Deficit)

 Consolidated Statements of Cash Flows

 Notes to Consolidated Financial Statements

 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 To
the Board of Directors and Stockholders of

Custom Development, Inc.

 Opinion
on the Consolidated Financial Statements

 We
have audited the accompanying consolidated balance sheets of Harbor Custom Development, Inc. (Debtor In Possession) (the Company) as
of December 31, 2023 and 2022, and the related consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the consolidated
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years
in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

 Going
Concern

 The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has experienced recurring losses from operations, has substantial debt maturing
over the next 12 months and has filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code on December 11, 2023.
The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 Basis
for Opinion

 These
consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing
an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.

 /s/
 Rosenberg Rich Baker Berman, P.A.

 We
have served as the Company's auditor since 2019.

 Somerset,
New Jersey

 March

CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES

 D/B/A
HARBOR CUSTOM HOMES

 (DEBTOR-IN-POSSESSION)

 CONSOLIDATED
BALANCE SHEETS

 As
of December 31, 2023 and 2022

 ASSETS

 Cash

 $
 3,574,500

 $
 9,665,300

 Restricted Cash

 597,600

 597,600

 Accounts Receivable, net

 279,800

 1,707,000

 Note Receivable, net

 950,000

 4,525,300

 Prepaid Expense and Other Assets

 1,250,900

 5,318,100

 Real Estate

 156,738,400

 205,478,200

 Property and Equipment, net

 1,610,500

 2,289,500

 Right of Use Assets

 1,749,200

 1,926,100

 Deferred Tax Asset, net

 —

 TOTAL ASSETS

 $
 166,750,900

 $
 236,166,400

 LIABILITIES AND STOCKHOLDERS' EQUITY

 LIABILITIES

 Accounts Payable and Accrued Expenses

 $
 5,945,900

 $
 14,090,700

 Dividends Payable

 —

 634,700

 Contract Liabilities

 25,300

 497,400

 Deferred Revenue

 49,900

 52,000

 Note Payable - Insurance

 529,300

 378,500

 Revolving Line of Credit Loan, net of Unamortized Debt Discount of $ 0 and $ 0.6 million respectively

 14,178,700

 24,359,700

 Equipment Loans

 —

 2,057,100

 Finance Leases

 —

 154,500

 Construction Loans, net of Unamortized Debt Discount of $ 0.8 million and $ 1.9 million respectively

 125,322,300

 107,483,700

 Construction Loans - Related Parties, net of Unamortized Debt Discount of $ 0 and $ 0.1 million respectively

 —

 8,122,800

 Right of Use Liabilities

 —

 2,779,400

 Total Liabilities Not Subject to Compromise

 $
 146,051,400

 $
 160,610,500

 Liabilities Subject to Compromise

 12,221,500

 —

 TOTAL LIABILITIES

 $
 158,272,900

 $
 160,610,500

 COMMITMENTS AND CONTINGENCIES - SEE NOTE 14

 -

 -

 STOCKHOLDERS' EQUITY

 Preferred Stock, no par value per share, 10,000,000 shares authorized and 3,799,799 issued and outstanding at December 31, 2023 and December 31, 2022

 $

 $

 Common Stock, no par value per share, 50,000,000 shares authorized and 2,686,431 issued and outstanding at December 31, 2023 and 718,835 issued and outstanding at December 31, 2022

 43,030,200

 35,704,700

 Additional Paid In Capital

 3,096,800

 1,266,300

 Accumulated Deficit

 ( 100,561,100
)

 ( 24,327,200
)

 TOTAL STOCKHOLDERS' EQUITY

 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 $
 166,750,900

 $
 236,166,400

 See
accompanying notes to the consolidated financial statements.

 (Amounts
rounded to the nearest $100)

CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES

 D/B/A
HARBOR CUSTOM HOMES

 (DEBTOR-IN-POSSESSION)

 CONSOLIDATED
STATEMENTS OF OPERATIONS

 Years
Ended December 31, 2023 and 2022

 2023

 2022

 Sales

 $

 $

 Cost of Sales

 110,691,900

 55,866,800

 Gross Loss

 ( 51,435,200
)

 ( 452,500
)

 Operating Expenses

 9,754,200

 16,237,700

 Operating Loss

 ( 61,189,400
)

 ( 16,690,200
)

 Other Income (Expense)

 Interest Expense

 ( 2,602,600
)

 ( 1,760,000
)

 Interest Income

 151,000

 465,600

 Loss on Sale of Equipment

 ( 47,700
)

 ( 3,433,800
)

 Other Income

 51,500

 38,000

 Total Other Expense

 ( 2,447,800
)

 ( 4,690,200
)

 Bankruptcy Expense

 392,500

 —

 Loss Before Income Tax

 ( 64,029,700
)

 ( 21,380,400
)

 Income Tax Expense (Benefit)

 4,589,400

 ( 4,458,200
)

 Net Loss

)

 ( 16,922,200
)

 Net Loss Attributable to Non-controlling interests

 —

 ( 500
)

 Preferred Dividends

)

 ( 7,759,900
)

 Net Loss Attributable to Common Stockholders

 $
 ( 76,233,900
)

 $
 ( 24,681,600
)

 Loss Per Share - Basic

 $
 ( 39.19
)

 $
 ( 35.29
)

 Loss Per Share - Diluted

 $
 ( 39.19
)

 $
 ( 35.29
)

 Weighted Average Common Shares Outstanding - Basic

 1,945,233

 699,490

 Weighted Average Common Shares Outstanding - Diluted

 1,945,233

 699,490

 See
accompanying notes to the consolidated financial statements.

 (Amounts
rounded to the nearest $100)

CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES

 D/B/A
HARBOR CUSTOM HOMES

 (DEBTOR-IN-POSSESSION)

 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

 For
the Periods January 1, 2022 through December 31, 2023

 Shares

 Issued

 No Par

 Shares

 Issued

 No Par

 Paid
 in

 Capital

 (Accumulated

 Deficit)

 (Deficit)

 Controlling

 Interest

 (Deficit)

 Stock

 Stock

 Additional

 Retained
 Earnings

 Stockholders'

 Non-

 Total

 Shares

 Issued

 No Par

 Shares

 Issued

 No Par

 Paid
 in

 Capital

 (Accumulated

 Deficit)

 (Deficit)

 Controlling

 Interest

 (Deficit)

 Balance,
 January 1, 2022

 657,767

 $
 32,122,700

 4,016,955

 $
 66,507,500

 $
 752,700

 $
 1,646,500

 $
 101,029,400

 $
 ( 1,291,600
)

 $
 99,737,800

 of stock options

 1,081

 10,500

 ( 1,900
)

 8,600

 8,600

 Stock
 Compensation Expense

 5,293

 515,500

 515,500

 515,500

 Dissolution
 of Non-Controlling Interest

 ( 1,292,100
)

 ( 1,292,100
)

 1,292,100

 —

 Stock Dividends

 ( 7,759,900
)

 ( 7,759,900
)

 ( 7,759,900
)

 Repurchase
 of Stock

 ( 12,597
)

 ( 437,700
)

 ( 437,700
)

 ( 437,700
)

 Conversion
 of Preferred Stock

 60,326

 3,595,400

 ( 217,156
)

 ( 3,595,400
)

 —

 —

 of Warrants

 6,965

 413,800

 413,800

 413,800

 Net
 Loss

 ( 16,921,700
)

 ( 16,921,700
)

 ( 500
)

 ( 16,922,200
)

 Balance,

 718,835

 $
 35,704,700

 $

 $
 1,266,300

 $
 ( 24,327,200
)

 $

 $
 —

 $

 Balance

 718,835

 $
 35,704,700

 $

 $
 1,266,300

 $
 ( 24,327,200
)

 $

 $
 —

 $

 Stock
 Compensation Expense

 3,285

 -

 -

 -

 Stock Dividends

)

)

)

 Public
 Offering - Common Stock

 160,500

 Public
 Offering - Pre-funded Warrants and Common Warrants

 -

 -

 8,335,300

 8,335,300

 -

 8,335,300

 of Pre-funded Warrants

 1,790,718

 6,722,900

 ( 6,722,900
)

 —

 —

 Round
 Up of Shares from Reverse Stock Split

 13,093

 -

 -

 —

 -

 —

 Net
 Loss

)

)

)

 Balance,

 2,686,431

 $
 43,030,200

 $

 $
 3,096,800

 $
 ( 100,561,100
)

 $

 $
 —

 $

 Balance

 2,686,431

 $
 43,030,200

 $

 $
 3,096,800

 $
 ( 100,561,100
)

 $

 $
 —

 $

 See
accompanying notes to the consolidated financial statements.

 (Amounts
rounded to the nearest $100)

CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES

 D/B/A
HARBOR CUSTOM HOMES

 (DEBTOR-IN-POSSESSION)

 CONSOLIDATED
STATEMENTS OF CASH FLOWS

 Years
Ended December 31, 2023 and 2022

 2023

 2022

 CASH FLOWS FROM OPERATING ACTIVITIES

 Net Loss

 $
)

 $
 ( 16,922,200
)

 Adjustments to reconcile net loss to net cash used in operating activities:

 Depreciation

 333,500

 1,407,400

 Amortization of right of use assets

 176,900

 542,800

 Loss on sale of equipment

 47,700

 3,433,800

 Provision for loss on contract

 153,400

 159,100

 Impairment loss on real estate

 48,825,700

 3,602,600

 Impairment loss on note receivable

 —

 1,200,000

 Stock compensation

 515,500

 Amortization of revolver issuance costs

 640,300

 457,400

 Net change in assets and liabilities:

 Accounts receivable

 1,427,200

 ( 593,500
)

 Contract assets

 —

 2,167,200

 Notes receivable

 3,575,300

 ( 3,725,300
)

 Prepaid expenses and other assets

 4,413,300

 ( 1,499,900
)

 Real estate

 2,937,900

 ( 84,637,700
)

 Deferred tax asset

 ( 4,010,300
)

 Accounts payable and accrued expenses

 ( 6,093,000
)

 3,428,100

 Contract liabilities

 ( 625,500
)

 338,300

 Deferred revenue

 ( 2,100
)

 7,200

 Payments on right of use liability, net of incentives

 ( 224,600
)

 255,800

 NET CASH USED IN OPERATING ACTIVITIES

 ( 8,155,700
)

 ( 93,873,700
)

 CASH FLOWS FROM INVESTING ACTIVITIES

 Purchase of property and equipment

 —

 ( 2,646,400
)

 Proceeds on the sale of equipment

 5,113,300

 NET CASH PROVIDED BY INVESTING ACTIVITIES

 2,466,900

 CASH FLOWS FROM FINANCING ACTIVITIES

 Construction loans

 65,836,600

 89,559,300

 Payments on construction loans

 ( 48,578,300
)

 ( 17,115,900
)

 Financing fees construction loans

 ( 1,864,000
)

 ( 2,470,200
)

 Related party construction loans

 ( 8,177,300
)

 8,669,900

 Payments on related party construction loans

 ( 75,000
)

 ( 14,071,800
)

 Financing fees related party construction loans

 —

 ( 105,400
)

 Revolving line of credit loan

 —

 25,000,000

 Payments on revolving line of credit loan

 ( 10,821,300
)

 —

 Financing fees revolving line of credit loan

 —

 ( 1,097,700
)

 Payments on note payable - insurance

 ( 645,300
)

 ( 1,115,500
)

 Payments on equipment loans

 ( 2,057,100
)

 ( 3,894,200
)

 Payments on financing leases

 ( 74,800
)

 ( 104,100
)

 Preferred dividends

 ( 634,700
)

 ( 7,796,100
)

 Repurchase of common stock

 —

 ( 437,700
)

 Proceeds from common stock offering

 —

 Proceeds from pre-funded and common warrants offering

 8,335,400

 —

 Proceeds from exercise of stock options

 —

 8,600

 Proceeds from exercise of warrants

 —

 413,700

 NET CASH PROVIDED BY FINANCING ACTIVITIES

 1,846,800

 75,442,900

 NET DECREASE IN CASH AND RESTRICTED CASH

 ( 6,090,800
)

 ( 15,963,900
)

 CASH AND RESTRICTED CASH AT BEGINNING OF YEAR

 10,262,900

 26,226,800

 CASH AND RESTRICTED CASH AT END OF YEAR

 $
 4,172,100

 $
 10,262,900

 SUPPLEMENTAL CASH FLOW INFORMATION

 Interest paid

 $
 14,760,300

 $
 8,635,600

 Bankruptcy items - Professional fees and employee compensation paid

 $
 261,000

 $
 —

 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

 Termination of right of use leases

 $
 —

 $
 346,900

 Amortization of debt discount capitalized

 $
 3,023,800

 $
 2,307,000

 Promissory notes issued for earnest money

 $
 300,000

 $
 450,000

 Cancellation of promissory note for earnest money

 $
 750,000

 $
 —

 Financing of insurance

 $
 796,200

 $
 590,100

 Conversion of finance lease to equipment loan

 $
 —

 $
 394,800

 Termination of finance leases

 $
 79,700

 $
 —

 Financing of fixed assets additions

 $
 —

 $
 110,000

 Dividends declared but not paid

 $
 7,614,800

 $
 634,600

 Conversion of preferred to common stock

 $
 —

 $
 3,595,400

 Exercise of Pre-funded warrants

 $
 6,723,000

 $
 —

 See
accompanying notes to the consolidated financial statements.

 (Amounts
rounded to the nearest $100)

 1.
 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.

 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 SEC and started trading on The Nasdaq Stock Market LLC ("Nasdaq") on August 28,
2020.

 Nasdaq
determined that the Company's securities will be delisted from Nasdaq on December 12, 2023. Trading of the Company's common
stock (HCDI), preferred stock (HCDIP), and two classes of warrants (HCDIW and HCDIZ) was suspended at the opening of trading on December
21, 2023.

 On
December 20, 2023, the Company received a notice from FINRA's Department of Market Operations (the "FINRA Notice")
informing the Company that the trading symbols HCDIQ, HCDPQ, HCDWQ, and HCDZQ were assigned to its common stock, preferred stock, and
warrants, respectively, and that as of December 21, 2023, the aforementioned securities would be quoted and traded in the market for
unlisted securities (i.e., the "over-the-counter market"). As a result, trading of such securities commenced on OTC Pink
Current Information on December 21, 2023 under the trading symbols HCDIQ, HCDPQ, HCDWQ, and HCDZQ.

 On
December 11, 2023 (the "Petition Date"), Harbor Custom Development, Inc. and certain of its wholly owned subsidiaries, including
Belfair Apartments, LLC; Pacific Ridge CMS, LLC; HCDI FL Condo LLC; HCDI Bridgeview LLC; HCDI Semiahmoo LLC; and Beacon Studio Farms
LLC (collectively, the "Debtors"), filed a voluntary petition (the "Bankruptcy Petition") for reorganization
under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the
Western District of Washington (such court, the "Bankruptcy Court" and such case, the "Chapter 11 Case"). The
Chapter 11 Case is being jointly administered under the caption In re Harbor Custom Development, Inc., et al., Case No. 23-42180-MJH.

 Principles
of Consolidation

 The
consolidated financial statements include the following subsidiaries of Harbor Custom Development, Inc. as of the reporting period ending
dates as follow:

OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF SUBSIDIARIES

 Attributable Interest

 Names

 Dates of Formation

 December 31,
 2023

 December 31,
 2022

 Saylor View Estates, LLC*

 March 30, 2014

 N/A

 N/A

 Belfair Apartments, LLC

 December 3, 2019

 %

 %

 Pacific Ridge CMS, LLC

 May 24, 2021

 %

 %

 Tanglewilde, LLC

 June 25, 2021

 %

 %

 HCDI FL CONDO LLC

 July 30, 2021

 %

 %

 HCDI Mira, LLC**

 August 31, 2021

 N/A

 %

 HCDI, Bridgeview LLC

 October 28, 2021

 %

 %

 HCDI Wyndstone, LLC

 September 15, 2021

 %

 %

 HCDI Semiahmoo, LLC

 December 17, 2021

 %

 %

 Mills Crossing, LLC***

 July 21, 2022

 %

 %

 Broadmoor Ventures, LLC***

 August 24, 2022

 %

 %

 GPB Holdings LLC***

 October 29, 2022

 %

 %

 Winding Lane Estate LLC***

 November 30, 2022

 %

 %

 Beacon Studio Farms LLC

 March 20, 2023

 %

 N/A

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

 **
 HCDI Mira, LLC
was voluntarily dissolved with the State of Washington as of May 1, 2023.

 ***
 These subsidiaries
no longer have any activities and not in use as they were either sold or cancelled during 2023.

 As
of December 31, 2023 and December 31, 2022, the aggregate non-controlling interest was $ 0.

 Basis
of Presentation

 The
accompanying consolidated financial statements include the accounts of Harbor Custom Development, Inc and, its wholly owned subsidiaries,
and are presented using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States
of America ("U.S. GAAP"). All intercompany accounts and transactions have been eliminated in consolidation. References to
the "ASC" hereafter refer to the Accounting Standards Codification established by the Financial Accounting Standards Board
("FASB") as the source of authoritative U.S. GAAP.

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

 Going
Concern Uncertainty

 The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might
result from the outcome of this uncertainty.

 For
the year ended December 31, 2023, the Company generated a net loss of $ 68.6 million and negative cash flows from operations of $ 8.2 million.
The Company has an unrestricted cash balance of $ 3.6 million with substantial debt of $ 140.3 million maturing over the next 12 months
as of December 31, 2023. The real estate and construction industries experiencing declining market conditions, lack of financing capabilities,
along with the cessation of our major business activities, lack of any additional sources of revenue, as well as the risks and uncertainties
related to our ability to successfully complete the Chapter 11 Case, including our ability to realize value from our assets; our ability
to develop, negotiate, confirm, and consummate the Proposed Plan, after which our ongoing operations are expected to be limited; the
effects of disruption from the Chapter 11 Case; and the costs of the Chapter 11 Case, substantial doubt exists regarding our ability
to continue as a going concern for a period of at least one year from the date of issuance of our consolidated financial statements.

 Debtor-in
Possession

 In
general, as debtors-in-possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business but may
not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Pursuant to certain
motions and applications intended to limit the disruption of the bankruptcy proceedings on our operations (the First Day Motions) and
other motions filed with the Bankruptcy Court, the Bankruptcy Court has authorized the Company to conduct its business activities in
the ordinary course, including, among other things and subject to the terms and conditions of such orders, pay employee wages and benefits,
settle certain de minimis disputes and pay vendors and suppliers in the ordinary course for all goods and services.

 Reorganization

on December 11, 2023, the Company began to apply the provisions of ASC 852, Reorganizations ("ASC 852"), which is applicable
to companies under bankruptcy protection, and requires amendments to the presentation of certain financial statement line items. ASC
852 requires that the financial statements for periods including and after the filing of the Chapter 11 Case distinguish transactions
and events that are directly associated with the reorganization from the

 ongoing
operations of the business.

 Expenses
(including professional fees), realized gains and losses, and provisions for losses that can be directly associated with the reorganization
must be reported separately as Bankruptcy items in the consolidated statements of operations beginning December 11, 2023, the date of
filing of the Chapter 11 Case. For the year ended December 31, 2023, Bankruptcy expense consisted of legal and professional fees and
employee compensation costs directly attributable to bankruptcy.

 Liabilities
that may be affected by the Plan must be classified as liabilities subject to compromise at the amounts expected to be allowed by the
Bankruptcy Court, even if they may be settled for lesser amounts as a result of the Plan or negotiations with creditors. The amounts
currently classified as liabilities subject to compromise may be subject to future adjustments depending on Bankruptcy Court actions,
further developments with respect to disputed claims, determinations of secured status of certain claims, the values of any collateral
securing such claims, or other events. Any resulting changes in classification will be reflected in subsequent financial statements.
If there is uncertainty about whether a secured claim is undersecured, or will be impaired under the Plan, the entire amount of the claim
is included with prepetition claims in liabilities subject to compromise. (See Note 12. Liabilities Subject to Compromise.)

 As
a result of the filing of the Chapter 11 Case on December 11, 2023, the classification of pre-petition indebtedness is generally subject
to compromise pursuant to the Plan. Generally, actions to enforce or otherwise effect payment of pre-bankruptcy filing liabilities are
stayed. Although payment of pre-petition claims generally is not permitted, the Bankruptcy Court granted the Debtors authority to pay
certain pre-petition claims in designated categories and subject to certain terms and conditions. This relief generally was designed
to preserve the value of the Debtors' businesses and assets. Among other things, the Bankruptcy Court authorized the Debtors'
to pay certain pre-petition claims relating to employee wages and benefits, taxes and critical vendors. The Debtors are paying and intend
to pay undisputed post-petition liabilities in the ordinary course of business. In addition, the Debtors may reject certain pre-petition
executory contracts and unexpired leases with respect to their operations with the approval of the Bankruptcy Court. Any damages resulting
from the rejection of executory contracts and unexpired leases are treated as general unsecured claims.

 Stock-Based
Compensation

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 33,784 shares of common stock for issuance under the 2018 Plan. On June
1, 2022, the stockholders of the Company voted to approve an amendment to the 2018 Plan to increase, by 100,000, the authorized number
of shares of common stock reserved for issuance as options under the 2018 Plan.

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 the Compensation Committee, to determine the issuance of restricted stock
to eligible officers, directors, and key employees. The Company reserved 35,000 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 100,000, 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 Financial Accounting Standards Board ("FASB") Accounting
Standard Codification ("ASC") Topic 718, "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.

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 are generally the vesting period. The Company accounts for forfeitures of stock options as
they occur. When forfeitures occur, the unvested portion of the previously recognized compensation cost is reversed in the period of
the forfeiture.

 Stock-based
compensation expenses are included in operating expenses in the consolidated statements of operations.

 For
the years ended December 31, 2023 and 2022 when computing fair value of share-based payments, the Company has considered the following
range of assumptions:

OF COMPUTING FAIR VALUE OF SHARE-BASED PAYMENTS

 Risk-free interest rate

 4.30
 %

 1.73 %- 3.54 %

 Exercise price

 $
 3.73

 $ 22.40 -$ 60.00

 Expected life of grants in years

 6.38

 3.93 - 6.51

 Expected volatility of underlying stock

 43.50
 %

 42.34 %- 48.13 %

 Dividends

 —

 —

 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 is the closing
price on the date 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 expected terms.

 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 were being repurchased for the purpose of constructive retirement. (See Note 18. Stockholders' Equity.)

 Reverse
Stock Split

 On
March 6, 2023, the Company effected a 1-for-20 reverse stock split of its issued and outstanding shares of common stock (the "Reverse
Stock Split") on the Nasdaq Capital Market. Accordingly, all share and per share data included in these consolidated financial
statements and notes thereto have been adjusted retroactively to reflect the impact of the Reverse Stock Split.

 2023
Public Offering

 On
May 18, 2023, the Company closed on a public offering of 160,500 shares of common stock, 1,790,718 pre-funded warrants, and 1,951,218
common warrants for net proceeds of $ 8.9 million. In addition, upon closing of this public offering, the Company issued to the placement
agent 117,073 warrants to purchase shares of common stock.

 The
pre-funded warrants and common warrants were evaluated in accordance with FASB ASC Topics 480, Distinguishing Liabilities from Equity
and 815, Derivatives and Hedging. The Company assessed whether the pre-funded warrants and common warrants are freestanding financial
instruments that are legally detachable and separately exercisable from the equity instruments, are mandatorily redeemable, embody obligations
to repurchase shares or issue a variable number of shares, are exercisable without any contingent provisions, permit the holders to receive
a fixed number of shares of common stock upon exercise, are indexed to the Company's common stock, and are settled in shares. Based
on this assessment, the pre-funded warrants and common warrants were classified as a component of permanent stockholders' equity
within additional paid-in capital and were recorded at the issuance date using a relative fair value allocation method. The Company values
these equity instruments at issuance and allocated net proceeds from the sale proportionately to the common stock, the pre-funded warrants,
and the common warrants. Of the net proceeds, $ 0.6 million was allocated to common stock, $ 6.7 million was allocated to pre-funded warrants,
$ 1.6 million was allocated to common warrants, and $ 0.1 million was allocated to the placement agent warrants.

 The
common warrants and placement agent warrants were valued using a Black-Scholes pricing model. When computing the fair value of these
warrants, the Company used 3.94 % as the risk free interest rate, an exercise price of $ 5.00 or $ 6.41, an expected life of 2.5 years,
and expected volatility of 37.83 % as assumptions in the model. (See Note 18. Stockholders' Equity.)

 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 topic 260-10-45 of the 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 may have to adjust to include the number of additional shares of common stock that would
have been outstanding if the dilutive potential shares of common stock had been issued during the period to reflect the potential dilution
that could occur from shares of common stock issuable through a contingent shares issuance arrangement, stock options, warrants, RSUs,
or 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. Because of the net loss for the year ended December 31, 2023, the impact of including these in the computation of diluted EPS was
anti-dilutive.

 In
accordance with FASB ASC Topic 260-10-45, pre-funded warrants have been included in the weighted average common shares outstanding number
for the purpose of calculating EPS.

 The
following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net loss attributable
to common stockholders per share of common stock for the years ended December 31, 2023 and 2022.

OF COMPUTATION BASIC AND DILUTED NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE OF COMMON STOCK

 Year
Ended

 Year
Ended

 Numerator:

 Net loss attributable to common stockholders

 $
 ( 76,233,900
)

 $
 ( 24,681,600
)

 Effect of dilutive securities:

 —

 —

 Diluted net loss

 $
 ( 76,233,900
)

 $
 ( 24,681,600
)

 Denominator:

 Weighted average common shares outstanding - basic

 1,945,233

 699,490

 Dilutive securities (a):

 Restricted Stock Awards

 —

 —

 —

 —

 —

 —

 Convertible Preferred Stock

 —

 —

 Dilutive securities

 —

 —

 Weighted average common shares outstanding and assumed conversion – diluted

 1,945,233

 699,490

 Basic net loss per common share

 $
 ( 39.19
)

 $
 ( 35.29
)

 Diluted net loss per common share

 $
 ( 39.19
)

 $
 ( 35.29
)

 (a) - Outstanding anti-dilutive securities excluded:

 Unvested restricted stock awards

 1,167

 Stock options

 98,459

 37,546

 Warrants to purchase common stock (20:1) ( 1)

 Warrants to purchase common stock (1:1) ( 2)

 —

 Convertible preferred stock ( 3)

 Warrants to purchase convertible preferred stock ( 3)

 Outstanding anti-dilutive securities excluded

 (1)

 The number of outstanding
 warrants, issued prior to the reverse stock split on March 6, 2023, did not change or split pursuant to the reverse stock split,
 but the number of shares of common stock issuable upon exercise of these warrants was adjusted based on a 1 to 0.05 ratio.

 (2)

 The number of outstanding
 warrants issued after the reverse stock split on March 6, 2023 are exercisable for shares of common stock on a 1 to 1 ratio.

 (3)

 Preferred stock and warrants
 to purchase convertible preferred stock are convertible into common stock on a 0.2778 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

 The
Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents. There were
 no cash equivalents as of December 31, 2023 and December 31, 2022.

 Accounts
Receivable

 Accounts
receivables are reported at the amount the Company expects to collect from outstanding balances. The Company provides for an allowance
for credit losses 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 credit losses was $ 0.1 million and $ 0 as of December 31, 2023 and December 31,
2022, respectively.

 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 credit losses whenever events or circumstances indicate that the note may not be fully recoverable.
Credit losses are 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. Under ASU No. 2016-13, Financial Instruments – Credit Losses
(Topic 326): Measurements of Credit Losses on Financial Instruments, 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 credit losses are measured
based on the estimated uncollectible amount less the fair value of the underlying collateral. Credit loss is recognized with an allowance
against the note receivable with a corresponding charge to bad debt expense under operating expenses. The allowance for credit losses
is written down when the remaining note amount is collected in full. There was no valuation allowance as of December 31, 2023. The allowance
for credit losses was $ 1.2 million for notes receivable as of December 31, 2022. (See Note
3. Notes Receivable.)

 In
March 2022, the Company entered into a promissory note with Rocklin Winding Lane 22, LLC for $ 4.8 million ("the 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 missed interest
payment on June 30, 2022. As a result, the Company issued a letter of default in August 2022 and began foreclosure proceedings on the
underlying real estate asset in October 2022. In the third quarter of 2022, the Company recorded a valuation allowance against the note
and related bad debt expense within operating expenses of $ 0.8 million. In the fourth quarter of 2022, the Company foreclosed on the
underlying property and took ownership of the property, which was recorded for a fair value of $ 5.1 million at the time of repossession.
Pursuant to the subordination agreement, the underlying real estate asset had a $ 1.0 million senior loan to a third party that was taken
over by the Company upon the foreclosure of the property.

 Property
and Equipment and Depreciation

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

OF PROPERTY AND EQUIPMENT ESTIMATED USEFUL LIVES

 Construction
 Equipment

 5 - 10
 years

 Leasehold
 Improvements

 The
 lesser of 10 years or the remaining life of the lease

 Furniture
 and Fixtures

 years

 Computers

 years

 Vehicles

 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 construction is completed and ready for rental or when the asset is sold, depending on the asset and
the intended use. The capitalized costs are recorded as part of the asset to which they relate and are expensed as part of the rental
costs or when the underlying asset is sold.

 The
Company capitalized interest from related party borrowings of $ 0.4 million and $ 1.1 million for the years ended December 31, 2023 and
2022, respectively. The Company capitalized interest from third-party borrowings of $ 9.8 million and $ 5.7 million for the years ended
December 31, 2023 and 2022, 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.

 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 December 31, 2023, the Company recorded impairment charges of $ 14.1 million for entitled land and $ 5.4 million for homes. The Company
recorded developed lot impairment of $ 10.1 million and $ 1.2 million and multi-family impairment of $ 19.3 million and $ 2.4 million as
of December 31, 2023 and 2022, respectively. These charges are included in the real estate balance as presented in Note 5. Real Estate.
The Company did not identify any other real estate that qualified for an impairment charge.

 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 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 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, 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, lots, and homes are separate performance 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

 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.

 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. Amounts by which cumulative billings to the customer under a contract
as of a given date exceed cumulative contract revenue recognized on the contract would be reflected as a current contract liability in
the Company's balance sheet. (See Note 20. Uncompleted Contracts.)

 Revenues
from contracts with customers are summarized by category as follows for the years ended December 31, 2023 and 2022:

OF REVENUE FROM CONTRACTS WITH CUSTOMERS AND BASED ON THE TIMING OF SATISFACTION OF PERFORMANCE OBLIGATIONS

 Homes

 $
 9,104,000

 $
 28,670,000

 Developed Lots

 11,033,500

 9,510,000

 Entitled Land

 —

 7,880,000

 877,800

 9,124,000

 38,241,400

 175,900

 Construction Materials

 —

 54,400

 Total Revenue

 $

 $

 The
following table disaggregates the Company's revenue based on the timing of satisfaction of performance obligations for the years
ended December 31, 2023 and 2022:

 Performance obligations satisfied at a point in time

 $
 58,378,900

 $
 46,290,300

 Performance obligations satisfied over time

 877,800

 9,124,000

 Total Revenue

 $

 $

Income

income attributable to residential leases has been evaluated under FASB ASC Topic 842, Leases. Rental income is recorded when due from
residents and recognized monthly as it was earned. Residential apartment leases may include lease income related to such items as utility
recoveries, parking rent, storage rent and pet rent that the Company treats as a single lease component because the amenities cannot
be leased on their own and the timing and pattern of revenue recognition are the same. Leases entered into between a resident and a property
for the rental of an apartment unit are generally six months to one year, and typically renewed on a month-to-month basis after the initial
term.

income is included as a part of sales on the statement of operations and within the multi-family segment presented in Note 19. Segments.
Rental income was $ 3.5 million and $ 0.2 million for the years ended December 31, 2023 and 2022, respectively.

 Security
deposits related to the residential apartment leases are maintained in a checking account, separate from the Company's operating
account, in accordance with Washington State laws. These security deposits are recorded within cash and customer deposit liabilities
within accounts payable and accrued expenses.

 Cost
of Sales

 Land
acquisition costs are typically allocated to each lot based on the size of the lot in relation to the size of the total project or market
value in relation to total purchase price. Development 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.

expenses, relating to multi-family rental revenue, are charged to cost of sales as incurred.

 Advertising

 Advertising
expenses, which are expensed as incurred and included in operating expenses, were $ 0.3 million and $ 0.4 million for the years ended December
31, 2023 and 2022.

 Leases

 The
Company's leases consist of leaseholds on office space. The Company determines if an arrangement contains a lease at inception
as defined by ASC 842. In order to meet the definition of a lease under ASC 842, the contractual arrangement must convey to us the right
to control the use of an identifiable asset for a period of time in exchange for consideration. ROU assets represent the right to use
an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease.
ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over
the lease term.

 The
Company is a lessor for its residential apartment leases during the development and until the property is sold. The lease agreement is
evaluated to determine the accounting treatment as a finance or operating lease in accordance with the ASC 842 lease standard. Rental
income attributable to residential leases is recorded when due from residents and recognized monthly as it was earned. Residential apartment
leases may include lease income related to such items as utility recoveries, parking rent, storage rent and pet rent that the Company
treats as a single lease component because the amenities cannot be leased on their own and the timing and pattern of revenue recognition
are the same. Leases entered into between a resident and a property for the rental of an apartment unit are generally 6 months to a year,
and typically renewed on a month-to-month basis after the initial term.

 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 under FASB ASC Topic 740, Income Taxes, to determine whether
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 December
31, 2023 and December 31, 2022.

 On
August 16, 2022, the Inflation Reduction Act of 2022 ("IRA") was signed into law. The IRA includes a 15% Corporate Alternative
Minimum Tax ("Corporate AMT") for tax years beginning after December 31, 2022. The Company does not expect the Corporate
AMT to have a material impact on its consolidated financial statements. Additionally, the 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. The IRA also extended the federal tax credit for building
new energy-efficient homes delivered from January 1, 2022 (retroactively) through December 31, 2032, as well as modifies and increases
it starting in 2023. The federal tax credits in 2022 reflected the impact of the extension under the IRA.

 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 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 adoption of ASU 2016-13 did not have a material impact on the Company's consolidated financial statements.

 On
March 12, 2020, the FASB issued 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 exceptions for applying GAAP to contracts, hedging relationships, and
other transactions affected by reference rate reform. The amendments in this update are elective and apply to 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 optional expedients
that are retained through the end of the hedging relationship. In December 2022, ASU 2022-06 was issued which was effective upon issuance,
defers the sunset date of this prior guidance from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted
to apply the relief guidance in Topic 848. The adoption of ASU 2020-04 and ASU 2022-06 did not have a material impact on the Company's
consolidated financial statements.

 On
May 3, 2021, the FASB released ASU No. 2021-04, Compensation – Earning Per Share (Topic 260), Debt - Modifications and Extinguishments
(subtopic 470-50), Compensation - Stock 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 is effective for fiscal
years beginning after December 15, 2021. The Company adopted ASU 2021-04 on January 1, 2022, however the adoption did not have an impact
on the Company's consolidated financial statements.

 In
July 2023, the FASB released ASU No. 2023-03, Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive
Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation
(Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24,
2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income
or Loss Applicable to Common Stock (SEC Update). The FASB issued this update to describe and clarify the amendments as listed above.
The Company assessed the amendments related to this update, specifically for Topics 205, 505 and 718 and noted that ASU No. 2023-03 does
not have an impact on the Company's consolidated financial statements.

 In
July 2023, the SEC adopted the final rule under SEC Release No. 33-11216, Cybersecurity Risk Management, Strategy, Governance, and Incident
Disclosure, requiring disclosure of material cybersecurity incidents on Form 8-K and periodic disclosure of a registrant's cybersecurity
risk management, strategy and governance in annual reports. Regulation S-K Item 6 disclosure requirements under this rule will be effective
for the Company in the fourth quarter of 2023. Incident disclosure requirements in Form 8-K will be effective for the Company on June
15, 2024. The Company has adopted this rule and included the required disclosure within Item 1C. CYBERSECURITY. The Company is still
evaluating and addressing the incident disclosure requirements effective June 15, 2024.

 In
November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures which requires,
among other things, the following: (i) enhanced disclosures about significant segment expenses that are regularly provided to the chief
operating decision maker and included in a segment's reported measure of profit or loss; (ii) disclosure of the amount and description
of the composition of other segment items, as defined in ASU 2023-07, by reportable segment; and (iii) reporting the disclosures about
each reportable segment's profit or loss and assets on an annual and interim basis. The provisions of ASU 2023-07 are effective
for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024; early
adoption is permitted. The Company is currently evaluating the impact of ASU 2023-07 on the Company's consolidated financial statements.

 In
December 2023, the FASB issued ASU No. 2023-09 ("ASU 2023-09"), Income Taxes (Topic 740): Improvements to Income Tax Disclosures,
which requires, among other things, entities to disclose additional information with respect to the effective tax rate reconciliation
and to disclose the disaggregation by jurisdiction of income tax expense and income taxes paid. ASU 2023-09 is effective for fiscal years
beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of ASU 2023-09 on the
Company's consolidated financial statements.

 Impairment
of Property and Equipment

 The
Company reviews fixed 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 December 31,
2023 and December 31, 2022, there were no impairment losses recognized for fixed assets.

 2.
 CONCENTRATIONS

 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 $ 2.6 million and $ 8.1 million
as of December 31, 2023 and December 31, 2022, respectively.

 Revenue
Concentrations

 Homes

 For
the year ended December 31, 2023, six individual customers represented more than 10 % of our home revenue for the year end December 31,
2023. There were no concentrations in relation to the homes revenue segment for the year ended December 31, 2022.

 Developed
Lots

 For
the year ended December 31, 2023, two customers each represented 11 % and 10 % of the developed lots revenue, respectively. For the year
ended December 31, 2022, two customers each represented 59 % and 25 % of the developed lots revenue, respectively.

 Entitled
Land

 For
the year ended December 31, 2023, there were no concentrations in relation to the entitled land segment.. For the year ended December
31, 2022, two customers each represented 57 % and 43 % of the entitled land revenue, respectively.

 Fee
Build

 One
customer represented 100 % of fee build revenue for the years ended December 31, 2023 and 2022.

 Multi-Family

 For
the year ended December 31, 2023, two customers represented 54 % and 37 % of the multi-family revenue. There were no concentrations in
relation to the multi-family revenue segment for the year ended December 31, 2022.

 3.
 NOTES RECEIVABLE

 The
outstanding balance of notes receivable amounted to $ 1.0 million and $ 4.5 million at December 31, 2023 and December 31, 2022, respectively.
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 and are secured by the underlying improved real estate properties. The remaining note accrues interest at an annual rate
of 9 % and all payments of principal and interest are due in full on December 20, 2024. Interest income was $ 0.2 million and $ 0.5 million
for the years ended December 31, 2023 and 2022, respectively. The accrued interest income receivable was $ 0.2 million and $ 0.2 million
as of the year ended December 31, 2023 and 2022, respectively.

 In
March 2022, the Company and Noffke Horizon View, LLC entered into a promissory note with a payment in full due on March 31, 2023 of $ 3.3
million ("the note") for the sale of land. In March 2023, Noffke Horizon View, LLC notified the Company that they were unable
to pay this amount in full by the due date and the Company agreed to settle the note for a reduced amount totaling $ 2.1 million. The
Company recorded a valuation allowance against the note receivable as of December 31, 2022 and the reduced note amount was fully collected
during the quarter ended March 31, 2023.

 The
details of notes receivables, net of valuation allowance are as follows:

 SCHEDULE OF NOTES RECEIVABLES, NET OF VALUATION ALLOWANCE

 Broadmoor Commons LLC

 $
 —

 $
 1,000,300

 Modern Homestead LLC

 950,000

 1,445,000

 Noffke Horizon View, LLC

 —

 2,080,000

 Total Notes Receivable, Net

 $
 950,000

 $
 4,525,300

 4.
 PROPERTY AND EQUIPMENT

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

OF PROPERTY AND EQUIPMENT

 Machinery and Equipment

 $
 44,000

 $
 505,300

 Vehicles

 —

 26,200

 Furniture and Fixtures

 692,100

 695,600

 Leasehold Improvements

 1,467,100

 1,524,000

 Total Fixed Assets

 2,203,200

 2,751,100

 Less Accumulated Depreciation

 ( 592,700
)

 ( 461,600
)

 Fixed Assets, Net

 $
 1,610,500

 $
 2,289,500

 Depreciation
expense was $ 0.3 million and $ 1.4 million for the years ended December 31, 2023 and 2022, respectively.

 5.
 REAL ESTATE

 Real
Estate consisted of the following components:

OF REAL ESTATE

 Land Held for Development

 $
 31,410,100

 $
 47,166,700

 Construction in Progress

 96,205,900

 123,927,300

 Held for Sale

 29,122,400

 34,384,200

 Total Real Estate

 $
 156,738,400

 $
 205,478,200

 6.
 ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 Accounts
payable and accrued liabilities consisted of the following:

 SCHEDULE OF ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES

 Trade Accounts Payable

 $
 6,599,600

 $
 11,472,100

 Retainage Payable

 65,500

 1,130,300

 Accrued Compensation, Bonuses, and Benefits

 143,200

 384,700

 Accrued Quarry Reclamation Costs

 10,000

 76,200

 Other Accruals

 1,179,500

 1,027,400

 Pre-petition Liabilities Subject to Compromise

 ( 2,051,900
)

 —

 Total Accounts Payable and Accrued Expenses Not Subject to Compromise

 $
 5,945,900

 $
 14,090,700

 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 year ended December 31, 2022, the Company capitalized debt issuance costs of $ 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. In connection with the Company's
Chapter 11 proceedings, the nature, validity, extent, and priority of Lender's liens are currently disputed. The credit facility
also contains specific financial covenants. As of December 31, 2022, the Company was not in compliance with the minimum interest coverage
ratio requirement and consolidated liquidity covenant.

 On
February 23, 2023, the Company entered into an amended loan agreement (the "Amendment") with the Lender, whereby the Lender
agreed to waive its right to accelerate and declare all of the debt immediately due and owing, based upon the previously disclosed non-compliance
with financial covenants resulting in technical default under the loan agreement. Further, the Lender waived the requirement that the
Company comply with certain financial covenants through maturity of the debt. These concessions were made as a result of the Company
granting the Lender second mortgage positions for certain properties owned by the Company, as well as transferring to the Lender membership
certificates pledging certain properties as collateral. Additionally, the Company agreed to make principal reduction payments including
paying the Lender $ 0.6 million on the 20th of every month which otherwise would have been paid to preferred shareholders as a dividend
on the preferred stock, and pay to the Lender 25 % of all net cash proceeds from asset sales, public offerings of any class of stock or
debt, private equity recaptures, or any capital raise. The Company also agreed that it will not close on the purchase of any new projects
without the Lender's express written consent and will not repurchase any of its outstanding securities. The aforementioned payments
will continue to be made until the earlier of March 7, 2024 or until the loan has been paid in full. On November 20, 2023, the Company
suspended making payments.

 The
Company evaluated the Amendment in accordance with ASC 470-50, Debt - Modifications and Extinguishments and applied the borrowing capacity
model as it relates to a revolving debt arrangement. Under the Amendment, the Lender is no longer committed and has no further lending
obligations to the Company, which reduced the borrowing capacity of available credit to $ 0. The Company determined that this modification
is considered a partial extinguishment and expensed the remaining unamortized debt discount of $ 0.5 million within interest expense for
the year ended December 31, 2023.

 The
filing of the Bankruptcy Petition constituted an event of default under the loan agreement dated March 7, 2022 and the Amendment to the
Loan Agreement, dated February 22, 2023. The interest accrues at the default rate from December 2023, which rate floats at the contract
rate plus 3 %, until the debt is paid in full. As of December 31, 2023, the Company accrued $ 0.03 million of default interests as incurred.
The Company cannot reasonably estimate as of December 31, 2023 whether the default interest will be paid or not.

 Interest
expense was $ 2.5 million and $ 1.6 million for the years ended December 31, 2023 and 2022, respectively.

 As
of December 31, 2023 and December 31, 2022, the revolving line of credit loan balance was $ 14.2 million and $ 25.0 million and the unamortized
debt discount balance was $ 0 and $ 0.6 million, respectively.

 8.
 EQUIPMENT LOANS

 Equipment
loans consists of the following:

OF EQUIPMENT LOANS

 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 $ 10,500:

 $
 —

 $
 2,057,100

 Book value of collateralized equipment:

 $
 —

 $
 11,800

 There
were no future equipment loan maturities as of December 31, 2023.

 Interest
expense was $ 0.001 million and $ 0.2 million for the years ended December 31, 2023 and 2022, respectively.

 9.
 CONSTRUCTION LOANS

 The
Company has various construction loans with private individuals and finance companies. The loans are collateralized by specific construction
projects. Most loans are generally on one to two year terms but will be extended or refinanced if the project is not completed within
 one to two years and will be due upon the completion of the project.

 The
loans have interest ranging from 7.99 % to 13.00 %. The commencement of the Chapter 11 Case constituted an event of default under most
of the Company's debt agreements. The interests at the default rates are ranging from 13.55 % to 24.00 %. The interest accrues at
the default rate from the event of default until the debt is paid in full. As of December 31, 2023, the Company accrued $ 0.8 million
of default interests as incurred. The Company cannot reasonably estimate as of December 31, 2023, whether the default interests will
be paid or not. Interest expense and amortization of debt discount are capitalized when incurred and expensed as cost of goods sold when
the corresponding property is sold or expensed as incurred when the property is substantially complete.

 The
loan balances related to third party lenders as of December 31, 2023 and December 31, 2022 were $ 126.2 million and $ 109.4 million, respectively.
The unamortized debt discounts related to these construction loans as of December 31, 2023 and December 31, 2022 were $ 0.8 million and
$ 1.9 million, respectively. The book value of collateralized real estate as of December 31, 2023 and December 31, 2022 was $ 156.7 million
and $ 193.1 million, respectively.

 10.
LETTER OF CREDIT

 The
Company has a letter of credit agreement with WaFd Bank of $ 0.6 million. The letter of credit expires February 1, 2032. The interest
rate of the letter of credit is Prime plus 1 %. The letter of credit was established for the purpose of collateralizing the Company's
new Tacoma office lease obligations with the landlord which is the beneficiary of the letter of credit.

 11.
 NOTE PAYABLE - INSURANCE

 The
Company purchased Directors & Officers (D&O) insurance on August 28, 2023 for $ 0.4 million. A down payment of $ 0.03 million was
made and the remaining balance was financed over 11 months. The interest rate on the loan is 7.90 %. The Company purchased D&O insurance
on August 28, 2022 for $ 0.6 million. A down payment of $ 0.1 million was made and the remaining balance was financed over 11 months. The
interest rate on the loan is 4.75 %. The loan balance as of December 31, 2023 and December 31, 2022 was $ 0.2 million and $ 0.4 million,
respectively.

 The
Company also obtained financing on General Liability insurance for $ 0.5 million effective October 1, 2023. A down payment of $ 0.1 million
was made and the remaining balance was financed over 10 months. The interest rate on the loan is $ 8.95 % and the remaining balance as
of December 31, 2023 was $ 0.3 million.

 12.
 LIABILITIES SUBJECT TO COMPROMISE

 Liabilities
subject to compromise as part of the Chapter 11 Case consisted of the following:

OF LIABILITIES SUBJECT TO COMPROMISE

 Pre-petition Accounts Payable and Accrued Expenses

 $
 2,051,900

 Dividends Payable

 7,614,800

 Right of Use Liabilities

 2,554,800

 Pre-petition Liabilities Subject to Compromise

 $
 12,221,500

 These
amounts represent the Company's current estimate of known or potential obligations to be resolved in connection with the Chapter
11 Case and may differ from actual future settlement amounts paid. Differences between liabilities estimated and claims filed, or to
be filed, will be investigated and resolved in connection with the claims resolution process. Determination of the value at which liabilities
will ultimately be settled cannot be made until the Plan becomes effective. The Company will continue to evaluate and adjust the amount
and classification of its pre-petition liabilities. Such adjustments may be material. Any additional liabilities that are subject to
compromise will be recognized accordingly, and the aggregate amount of Liabilities subject to compromise may change.

 13.
 DEFINED CONTRIBUTION PLAN

January 1, 2016, the Company established a 401(k) plan for qualifying employees; employee contributions are voluntary. Company contributions
to the plan for the years ended December 31, 2023 and 2022 were $ 0.1 million and $ 0.1 million, respectively.

 14.
 COMMITMENTS AND CONTINGENCIES

 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 other than the uncertainty with the results of the Chapter 11 proceedings.

 15.
 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 June 2021; the loans generally have a 12 to 24 month maturity, including
those that have been extended. The interest rates range between 7.99 % and 11.00 %. As of December 31, 2023, and December 31, 2022, the
outstanding loan balances were $ 0 and $ 8.2 million, respectively. For the years ended December 31, 2023 and 2022, the Company capitalized
loan fees of $ 0.1 million and $ 0.1 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 December 31, 2023 and December 31, 2022, there were $ 0 and $ 0.1 million of
remaining unamortized debt discounts, respectively. The interest is capitalized to real estate as incurred and will be expensed to cost
of goods sold when the property is sold. During the years ended December 31, 2023 and 2022, the Company incurred interest of $ 0.4 million
and $ 1.1 million, respectively.

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

 Due
to Related Party

 The
Company previously utilized a quarry to process waste materials from the completion of raw land into sellable/buildable lots. The materials
produced by the quarry and sold by the Company to others were subject to a 25 % commission payable to SGRE, LLC, which is 100 % owned by
the Company's former Chief Executive Officer and President. The commission expense was recorded in operating expenses. On December
31, 2023 and December 31, 2022, the commission payable was $ 0 and $ 0, respectively. For the years ended December 31, 2023 and 2022, the
commission expense was $ 0 and $ 0.04 million, respectively. The Company has completed its quarry operations and no longer incurs any commission
expenses.

Expense

 The
Company previously entered into property management agreements with Olympic Management Company ("OMC"), which was owned and
operated by a family member related to the Company's former Chief Executive Officer and President. OMC served as a managing agent
for leasing and managing the Company's Mills Crossing, Belfair View, Pacific Ridge, and Wyndstone multi-family properties. The
Company paid management fees to OMC, which consisted of service fees of up to $ 3,000 per month and $ 500 for each lease of a vacant apartment
unit. The Company also reimbursed the payroll, benefits, and other employment costs relating to an office manager, leasing consultant,
and maintenance staff employed by OMC for their time incurred in the operations of the property. For the years ended December 31, 2023
and 2022, the management fees and payroll and benefits incurred and recorded as rental expense within cost of sales were $ 0.3 million
and $ 0.04 million, respectively. The Company terminated the agreements with OMC and transitioned to a third party property management
company, effective June 7, 2023 for leasing and managing the Company's Belfair, Pacific Ridge, and Wyndstone multi-family properties.
Mills Crossing was managed by OMC until it was sold on June 16, 2023.

 16.
 LEASES

 The
Company determines if an arrangement contains a lease at inception. ROU assets represent the right to use an underlying asset for the
lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are
recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

 The
Company's leases consist of leaseholds on office space, machinery, and equipment. The Company utilized a portfolio approach in
determining the discount rate. The portfolio approach takes into consideration the range of the term, the range of the lease payments,
the category of the underlying asset and the Company's estimated incremental borrowing rate, which is derived from information
available at the lease commencement date, in determining the present value of lease payments. The Company also considered its recent
debt issuances as well as publicly available data for instruments with similar characteristics when calculating the incremental borrowing
rates.

 The
lease term includes options to extend the lease when it is reasonably certain that the Company will exercise that option. These operating
leases contain renewal options for periods ranging from three to five years that expire at various dates with no residual value guarantees.
Future obligations relating to the exercise of renewal options are included in the measurement if, based on the judgment of management,
the renewal option is reasonably certain to be exercised. Factors in determining whether an option is reasonably certain of exercise
include, but are not limited to, the value of leasehold improvements, the value of the renewal rate compared to market rates, and the
presence of factors that would cause a significant economic penalty to the Company if the option is not exercised. Management reasonably
plans to exercise all options, and as such, all renewal options are included in the measurement of the right-of-use assets and operating
lease liabilities.

 Leases
with a term of 12 months or less are not recorded on the balance sheet, per the election of the practical expedient noted above. The
Company recognizes lease expense for these leases on a straight-line basis over the lease term.

 The
Company recognizes variable lease payments in the period in which the obligation for those payments is incurred. Variable lease payments
that depend on an index or a rate are initially measured using the index or rate at the commencement date, otherwise variable lease payments
are recognized in the period incurred.

 The
components of lease expense were as follows:

OF COMPONENTS OF LEASE EXPENSE

 Finance leases expense

 Depreciation of assets

 $
 8,900

 $
 76,000

 Interest on lease liabilities

 2,000

 17,700

 Operating lease expense

 286,800

 677,400

 Total net lease cost

 $
 297,700

 $
 771,100

 Supplemental
balance sheet information related to leases was as follows:

OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES

 Operating leases:

 Operating lease ROU assets

 $
 1,749,200

 $
 1,926,100

 Total ROU Liabilities

 $
 2,554,800

 $
 2,779,400

 Finance leases:

 Property and equipment, at cost

 $
 —

 $
 178,800

 Less: Accumulated depreciation

 —

 79,100

 Property and equipment, net

 $
 —

 $
 99,700

 Total Finance lease liabilities

 $
 —

 $
 154,500

 Supplemental
cash flow and other information related to leases was as follows:

OF CASH FLOW AND OTHER INFORMATION RELATED TO LEASES

 Cash paid for amounts included in the measurement of lease liabilities:

 Operating cash flows from operating leases - lease payments

 $
 ( 224,600
)

 $
 ( 358,100
)

 Operating cash flows from operating leases - lease incentives

 —

 613,900

 Financing cash flows from finance leases - lease payments

 ( 74,800
)

 ( 104,100
)

 Assets obtained in exchange for lease liabilities:

 Operating leases

 $
 —

 $
 —

 Finance leases

 —

 110,000

 Weighted average remaining lease term (in years):

 Operating leases

 8.25

 9.2

 Finance leases

 —

 0.9

 Weighted average discount rate:

 Operating leases

 4.0
 %

 4.0
 %

 Finance leases

 —

 7.5
 %

 The
minimum lease payments under the terms of the operating leases are as follows for the years ended December 31:

OF MINIMUM LEASE PAYMENTS UNDER THE TERMS OF OPERATING LEASES

 Operating Leases

 2024

 $
 316,300

 2025

 325,700

 2026

 335,400

 2027

 345,500

 2028

 355,800

 Thereafter

 1,365,900

 Total lease payments

 $
 3,044,600

 Less amount of discount/interest

 ( 489,800
)

 Operating leases

 $
 2,554,800

 17.
 INCOME TAX

 The
components of net deferred tax assets and liabilities at December 31, 2023 and 2022 are set forth below:

OF COMPONENTS OF NET DEFERRED TAX ASSETS AND LIABILITIES

 Deferred tax assets:

 Federal NOL carryforwards

 $
 6,790,800

 $
 1,905,900

 UNICAP

 783,700

 1,865,900

 Lease liability

 561,400

 586,300

 Stock based compensation

 7,400

 15,400

 Investments

 —

 Impairment loss on note receivable and real estate and loss provision on fee build contracts

 10,388,700

 1,046,700

 Sec. 163(j) interest deduction carryforwards

 823,100

 273,100

 Tax Credits

 72,000

 72,000

 Charitable Contribution Carryover

 2,000

 —

 Bad Debt Expense

 263,700

 —

 Advanced Rent Payments

 11,000

 —

 Total assets

 $
 19,703,800

 $
 5,765,500

 Deferred tax liabilities:

 Property and equipment

 $
 290,200

 $
 480,200

 Right of use assets

 538,000

 553,800

 Sec. 481(a) adjustments

 37,600

 72,200

 Total liabilities

 $
 865,800

 $
 1,106,200

 Subtotal deferred tax assets

 $
 18,838,000

 $

 Valuation allowance

 ( 18,838,000
)

 —

 Net deferred tax assets

 $
 —

 $

 The
Company is required to establish a valuation allowance for any portion of the deferred tax asset that the Company concludes is more likely
than not to be unrealizable. The Company's assessment considered all evidence, both positive and negative, including the nature,
frequency, and severity of any current and cumulative losses, taxable income in carry back years, the scheduled reversal of deferred
tax liabilities, tax planning strategies, and projected future taxable income in making this assessment. As of December 31, 2023, the
Company determined that it was not more likely than not that the Company's deferred tax assets would be realized and therefore
recorded a valuation allowance of $ 15.8 million. As of December 31, 2022, the Company had no valuation allowance recorded against the
deferred tax assets.

 The
Company has approximately $ 30.9 million and $ 13.0 million of federal net operating losses ("NOL") for the years ended December
31, 2023 and December 31, 2022, respectively. Section 382 of the Internal Revenue Code limits the utilization of NOL carryforwards following
a change of control. Based on our analysis under Section 382, the Company is subjected to such restrictions for the years ended December
31, 2023 and December 31, 2022. The Company has no t utilized the NOL carryforwards for the years ended December 31, 2023 and 2022. This
will be updated pending finalization of the analysis and the filing of the 2023 tax return. These NOLs will not expire and will remain
available for future periods, but are limited to 80% of taxable income, due to the Tax Cuts and Jobs Act, passed in 2017.

 The
components of income tax expense (benefit) and the effective tax rates for the years ended December
31, 2023 and 2022 are as follows:

OF COMPONENTS OF INCOME TAX EXPENSE (BENEFIT)

 Current:

 Federal

 $
 ( 107,500
)

 $
 ( 456,300
)

 State

 28,700

 8,400

 Total Current

 ( 78,800
)

 ( 447,900
)

 Deferred:

 Federal

 ( 13,335,700
)

 ( 3,989,100
)

 State

 ( 834,100
)

 ( 21,200
)

 Total Deferred

 ( 14,169,800
)

 ( 4,010,300
)

 Valuation Allowance

 18,838,000

 —

 Total Income Tax Expense (Benefit)

 $
 4,589,400

 $
 ( 4,458,200
)

 The
expected tax rate differs from the U.S. Federal statutory rate as follows:

OF EXPECTED TAX RATE

 2023

 2022

 US federal statutory rate

 21.0
 %

 21.0
 %

 Change in federal valuation allowance

 ( 29.4
)%

 —
 %

 Accrual to return changes and other adjustments to deferred balances

 ( 0.1
)%

 ( 0.5
)%

 Tax credits

 0.1
 %

 0.3
 %

 Incentive stock options

 —
 %

 ( 0.1
)%

 State taxes

 1.2
 %

 0.1
 %

 Change in tax rate

 —
 %

 0.1
 %

 Other

 —
 %

 —
 %

 Effective Tax Rate

 ( 7.2
)%

 20.9
 %

 The
Company has not recorded any uncertain tax positions for any tax year and treats accrued interest and penalties on income tax liabilities
as income tax expense for the years ended December 31, 2023 and 2022.

 The
Company files an income tax return in the U.S. and is subject to examination by the IRS for the tax years 2019, 2020, 2021 and 2022.

 18.
 STOCKHOLDERS' EQUITY

Stock

 The
Company is authorized to issue 50,000,000 shares of common stock, at no par value per share. At December 31, 2023, the Company had 2,686,431
shares of common stock issued and outstanding and 718,835 shares of common stock issued and outstanding as of December 31, 2022.

 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.

Stock

 The
Company is authorized to issue 10,000,000 shares of preferred stock, no par value per share. As of December 31, 2023 and 2022, the Company
had 3,799,399 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 $ 2.00 per share per annum which are paid monthly in
arrears starting June 30, 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 per share, plus any accrued and unpaid dividends to but not including the date of redemption. To the extent
declared by the 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 0.2778 shares
of common stock (subject to adjustment) at any time at the option of the holder.

 Dividends

Stock. The holders of the Series A Preferred Shares are entitled to receive dividends in the amount of $ 2.00 per share, which is
equivalent to 8 % of the $ 25.00 liquidation preference per share. The Company has accrued dividends of $ 7.6 million as of December 31,
2023. The Company had accrued dividends of $ 0.6 million as of December 31, 2022 which were paid to the shareholders on January 20, 2023.

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.

 2023
Public Offering

 On
May 16, 2023, the Company entered into securities purchase agreements (the "Purchase Agreements") with certain institutional
investors (the "Investors"), pursuant to which the Company agreed to issue and sell to the Investors in a public offering
(the "Offering") (i) 160,500 shares (the "Shares") of common stock of the Company, no par value, (ii) pre-funded
warrants (the "Pre-Funded Warrants") to purchase up to 1,790,718 shares of common stock and (iii) warrants to purchase up
to 1,951,218 shares of common stock (the "Warrants") at a combined public offering price of $ 5.125 per share of common stock
and accompanying Warrant or $ 5.1249 per Pre-Funded Warrant and accompanying Warrant. On May 18, 2023, the Company closed on the Offering.
The net proceeds after deducting Offering costs were $ 8.9 million. In addition, upon the closing the Offering, the Company issued to
the placement agent warrants to purchase 117,073 shares of common stock with an exercise price of $ 6.41 per share of common stock for
a term of five years beginning on May 18, 2023, all of which vested immediately upon closing. The net proceeds allocated to each of these
instruments were $ 0.6 million for common stock, $ 6.7 million for Pre-Funded Warrants, $ 1.6 million for Warrants, and $ 0.1 million for
placement agent warrants.

 Reverse
Stock Split

 On
February 17, 2023, the Company held a special meeting of stockholders at which the stockholders approved a proposal to effect a reverse
split of its issued and outstanding shares of common stock at a ratio of between 1-for-3 and 1-for-25 (the "Reverse Stock Split"),
such ratio to be selected at the sole discretion of the Company's Board without further stockholder action.

 On
February 27, 2023, the Board of Directors approved the implementation of the Reverse Stock Split at a ratio of 1-for-20 shares of the
common stock. The Company filed Articles of Amendment to Articles of Incorporation for the Reverse Stock Split with the Washington Secretary
of State on March 1, 2023 and the Reverse Stock Split was effected on the Nasdaq Capital Market on March 6, 2023.

 As
a result of the Reverse Stock Split, every 20 shares of common stock either issued or outstanding immediately prior to the effective
time was, automatically and without any action on the part of the respective holders thereof, combined and converted into one share of
common stock. The Reverse Stock Split also applied to common stock issuable upon the exercise of the Company's outstanding warrants,
outstanding stock options, unvested restricted stock awards, stock and stock option plans, and upon the conversion of the Series A Preferred
Stock. The Reverse Stock Split did not affect the par value of common stock or the shares of common stock authorized to issue under the
Articles of Incorporation, as amended. No fractional shares were issued in connection with the Reverse Stock Split. Fractional shares
which would otherwise result from the Reverse Stock Split were rounded up to the nearest whole share.

 Repurchase
of 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 beginning May 10, 2022. The amount of the repurchase program represented approximately 15 % of the outstanding shares
of the Company's common stock valued at the closing price on May 10, 2022. During the nine months ended December 31, 2023, the
Company did not repurchase any shares of common stock. During the year ended December 31, 2022, the Company repurchased 12,597 shares
of common stock under this repurchase program at an average price of $ 35.23 per share for a total of approximately $ 0.4 million.

 As
a part of the amended loan agreement reached with BankUnited, N.A. on February 23, 2023, the Company agreed that it will not repurchase
any of its currently outstanding securities.

 (A)

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

OF STOCK OPTION ACTIVITY

 Price

 Outstanding – January 1, 2022

 23,163

 $
 56.43

 Exercisable – January 1, 2022

 17,186

 $
 55.47

 19,600

 $
 23.79

 ( 1,081
)

 $
 8.00

 ( 4,135
)

 $
 34.48

 Outstanding – December 31, 2022

 37,546

 $
 41.51

 Exercisable – December 31, 2022

 19,696

 $
 55.55

 140,000

 $
 3.73

 —

 $
 —

 ( 79,087
)

 $
 8.97

 98,459

 $
 13.93

 17,543

 $
 54.67

OF STOCK OPTION OUTSTANDING AND EXERCISABLE

 Options Outstanding

 Options Exercisable

 Remaining
 Contractual
 Life
 (in years)

 Price

 Exercisable

 $
 3.73 - $ 130.00

 98,459

 9.00

 $
 13.93

 17,543

 $
 54.67

the year ended December 31, 2023, 140,000 options were issued to officers of the Company. These options have an exercise price of $ 3.73
per share and a term of ten years. One half of these options will vest upon the filing of the Company's Form 10-K for the year
ended December 31, 2024 with the U.S. Securities and Exchange Commission, with the remainder to vest in equal proportions upon the first
and second anniversary of said filing. The options have an aggregated fair value of approximately $ 0.3 million that was calculated using
the Black-Scholes option-pricing model based on the assumptions discussed above in Note 1 under Stock-Based Compensation.

the year ended December 31, 2022, the Company issued 19,600 options to employees. The options have an exercise price between $ 22.40 and
$ 41.80 per share, a term of ten years, and vest over one or three years. The options have an aggregated fair value of approximately $ 0.2
million that was calculated using the Black-Scholes option-pricing model based on the assumptions discussed above and in Note 1 under
 Stock-Based Compensation.

the year ended December 31, 2023, the Company had no options exercised by employees and former employees. During the year ended December
31, 2022, the Company had 1,081 options exercised by former employees. These options were exercised at $ 8.00 per share for a total of
$ 0.01 million.

 The
Company recognized share-based compensation net of forfeitures related to options of $ 0.1 million and $ 0.1 million for the years ended
December 31, 2023 and 2022, respectively.

 On
December 31, 2023, unrecognized share-based compensation was $ 0.2 million.

 The
intrinsic value for outstanding and exercisable options as of December 31, 2023 and 2022 was $ 0 and $ 0, respectively.

 (B)

 The
following is a summary of the Company's common stock warrant activity, for warrants that are exercisable at a 20 to 1 ratio to
common stock:

OF COMMON STOCK WARRANT ACTIVITY

 Warrants*

 Weighted Average

 Outstanding – January 1, 2022

 18,486,859

 $
 3.46

 Exercisable – January 1, 2022

 18,486,859

 $
 3.46

 100,000

 $
 3.00

 ( 139,295
)

 $
 2.97

 —

 $
 —

 Outstanding – December 31, 2022

 $
 3.47

 Exercisable – December 31, 2022

 18,380,897

 $
 3.47

 —

 $
 —

 —

 $
 —

 —

 $
 —

 $
 3.47

 18,414,231

 $
 3.47

 *
 As a result of the Reverse
 Stock Split, each warrant now entitles the holder to purchase one-twentieth (0.05) of one share of common stock.

 SCHEDULE OF WARRANT OUTSTANDING AND EXERCISABLE

 Warrants Outstanding

 Warrants Exercisable

 Remaining
 Contractual
 Life
 (in years)

 Price

 Exercisable

 $
 0.40 - $ 7.50

 2.68

 $
 3.47

 18,414,231

 $
 3.47

the year ended December 31, 2023, the Company did not issue any warrants with a 20 to 1 ratio. During the year ended December 31, 2022,
the Company issued 100,000 warrants to purchase 5,000 shares of common stock in connection with investor relation services being performed.
The warrants have an exercise price of $ 3.00 per warrant, a term of five years, and vest over three years. The fair value of these warrants
is $ 0.1 million as of December 31, 2022.

 The
intrinsic value for outstanding and exercisable warrants as of December 31, 2023 and 2022 was $ 0 and $ 0, respectively.

 The
following is a summary of the Company's common stock warrant activity, for warrants that are exercisable at a 1 to 1 ratio to common
stock:

 Outstanding – January 1, 2023

 —

 $
 —

 Exercisable – January 1, 2023

 —

 $
 —

 $
 5.08

 —

 $
 —

 —

 $
 —

 $
 5.08

 $
 5.08

 Warrants Outstanding

 Warrants Exercisable

 Remaining
 Contractual
 Life
 (in years)

 Price

 Number Exercisable

 $
 5.00 - $ 6.41

 4.38

 $
 5.08

 $
 5.08

the year ended December 31, 2023, the Company issued 2,068,291 warrants in connection with the Offering. The warrants have an exercise
price between $ 5.00 and $ 6.41 per warrant, a term of five years, and vested immediately. The fair value of these warrants was $ 1.8 million
before the net proceed allocations.

 The
intrinsic value for outstanding and exercisable warrants as of December 31, 2023 was $ 0.

 The
following is a summary of the Company's preferred stock warrant activity:

 Weighted Average

 Outstanding – January 1, 2022

 $
 24.97

 Exercisable – January 1, 2022

 $
 24.97

 —

 $
 —

 —

 $
 —

 —

 $
 —

 Outstanding – December 31, 2022

 $
 24.97

 Exercisable – December 31, 2022

 $
 24.97

 —

 $
 —

 —

 $
 —

 —

 $
 —

 $
 24.97

 $
 24.97

 Warrants Outstanding

 Warrants Exercisable

 Number Outstanding

 Average Remaining Contractual
 Life
 (in years)

 Number Exercisable

 $
 24.97

 2.44

 $
 24.97

 $
 24.97

the years ended December 31, 2023 and 2022, the Company did no t issue any preferred warrants.

 The
intrinsic value for outstanding and exercisable preferred warrants as of December 31, 2023 and 2022 was $ 0.

 (C)
Pre-Funded Warrants

 The
following is a summary of the Pre-Funded Warrant activity:

 Pre-Funded

 Weighted Average

 Outstanding – January 1, 2023

 —

 $
 —

 Exercisable – January 1, 2023

 —

 $
 —

 1,790,718

 $
 0.0001

 ( 1,790,718
)

 $
 0.0001

 —

 $
 —

 —

 $
 —

 —

 $
 —

the year ended December 31, 2023, the Company issued Pre-Funded Warrants to purchase 1,790,718 shares of common stock in connection with
the Offering. The Pre-Funded Warrants have an exercise price of $ 0.0001 per Pre-Funded Warrant, and are exercisable at any time after
their original issuance at the option of the holder, subject to certain restrictions. The fair value of these Pre-Funded Warrants was
$ 7.6 million before the net proceed allocations.

the year ended December 31, 2023, all Pre-Funded Warrants were exercised for 1,790,718 shares of common stock.

 (D)
Restricted Stock Plan

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

OF RESTRICTED STOCK ACTIVITY

 Restricted Stock

 Weighted Average
 Fair
 Value

 Non Vested Balance - January 1, 2022

 7,250

 $
 49.02

 11,555

 $
 39.16

 Vested

 6,805

 $
 50.87

 —

 $
 —

 Non Vested Balance - December 31, 2022

 $
 38.48

 —

 $
 —

 Vested

 3,834

 $
 38.78

 6,999

 $
 38.70

 Non Vested Balance - December 31, 2023

 1,167

 $
 36.20

 The
Company periodically grants restricted stock awards to the Board of Directors and certain employees pursuant to the 2020 Plan. These
typically are awarded by the Compensation Committee at one time and from time to time, to vest over one to three years, unless otherwise
determined by the Compensation Committee.

 The
Company recognized $ 0.1 million and $ 0.4 million of share-based compensation during the years ended December 31, 2023 and 2022, respectively.

 On
December 31, 2023, there was $ 0.03 million of unrecognized compensation related to non-vested restricted stock.

 19.
 SEGMENTS

 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 two executive officers, the interim Chief Executive Officer and Chief Accounting 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.

 The
Company's business is organized into five material reportable segments which aggregate 100% of revenue for the year ended December
31, 2023:

 1)

 Homes;

 2)

 Developed lots;

 3)

 Entitled land;

 4)

 Multi-family; and

 5)

 Fee Build.

 The
reporting segments follow the same accounting policies used in the preparation of the Company's consolidated financial statements.
The following represents revenue, cost of goods sold, and gross profit (loss) information for the Company's reportable segments
for the years ended December 31, 2023 and 2022.

OF REVENUE FROM SEGMENT REPORTING INFORMATION

 Year
Ended

 Year
Ended

 Revenue by segment

 Homes

 $
 9,104,000

 $
 28,670,000

 Developed lots

 11,033,500

 9,510,000

 Entitled land

 —

 7,880,000

 38,241,400

 175,900

 877,800

 9,124,000

 Other

 —

 54,400

 Total Sales

 $

 $

 Cost of goods sold by segment

 Homes

 $
 14,061,900

 $
 24,027,100

 Developed lots

 21,325,400

 9,797,700

 Entitled land

 14,817,500

 4,060,200

 59,337,300

 2,564,400

 942,600

 13,597,500

 Other

 207,200

 1,819,900

 Total Cost of Sales

 $
 110,691,900

 $
 55,866,800

 Gross profit (loss) by segment

 Homes

 $
 ( 4,957,900
)

 $
 4,642,900

 Developed lots

 ( 10,291,900
)

 ( 287,700
)

 Entitled land

 ( 14,817,500
)

 3,819,800

 ( 21,095,900
)

 ( 2,388,500
)

 ( 64,800
)

 ( 4,473,500
)

 Other

 ( 207,200
)

 ( 1,765,500
)

 Total
Gross Profit (Loss)

 $
 ( 51,435,200
)

 $
 ( 452,500
)

 The
following represents total assets for the Company's reportable segments at December 31, 2023 and December 31, 2022:

OF TOTAL ASSETS FOR THE COMPANY'S REPORTABLE SEGMENTS

 Homes

 $
 18,786,400

 $
 29,880,500

 Developed lots

 15,789,800

 43,469,900

 Entitled land

 26,126,600

 9,499,600

 98,167,300

 131,485,900

 22,100

 1,703,200

 Unallocated (Shared)

 7,858,700

 20,127,300

 Total Assets

 $
 166,750,900

 $
 236,166,400

 20.
 UNCOMPLETED CONTRACTS

 Costs,
estimated earnings and billings on uncompleted contracts are summarized as follows at December 31, 2023 and December 31, 2022:

OF COSTS ESTIMATED EARNINGS AND BILLINGS ON UNCOMPLETED CONTRACTS

 Costs incurred on uncompleted contracts

 $
 20,525,800

 $
 19,429,800

 Estimated loss

 ( 3,702,800
)

 ( 3,495,100
)

 Costs and estimated earnings on uncompleted contracts

 16,823,000

 15,934,700

 Billings to date

 16,842,700

 16,273,000

 Costs and estimated earnings in excess of billings on uncompleted contracts

 —

 —

 Billings in excess of costs and estimated earnings on uncompleted contracts

 ( 19,700
)

 ( 338,300
)

 Provision for loss on contract

 ( 5,600
)

 ( 159,100
)

 Contract Liabilities, net

 $
 ( 25,300
)

 $
 ( 497,400
)

 At
December 31, 2023, the contract liability was $ 0.03 million as compared to $ 0.5 million at December 31, 2022. The uncollected billings
were $ 0.02 million and $ 1.7 million as of December 31, 2023 and December 31, 2022, respectively.

 21.
 CONDENSED COMBINED DEBTOR-IN-POSSESSION FINANCIAL INFORMATION (UNADUITED)

 The
financial statements included in this Note represent the Condensed Combined Financial Statements of the Debtors only, which include Harbor
Custom Development, Inc. and most of its wholly-owned subsidiaries, except for its Tanglewilde, LLC, HCDI Wyndstone, LLC, and other subsidiaries
either sold or cancelled during the year. These statements reflect the results of operations, financial position and cash flows of the
combined Debtors, including certain amounts and activities between Debtors and Non-Debtor subsidiaries of the Company that are eliminated
in the Consolidated Financial Statements.

 CONDENSED COMBINED BALANCE SHEETS (Unaudited)

 Amounts rounded to the nearest $100

 SCHEDULE OF CONDENSED COMBINED FINANCIAL
STATEMENTS

 ASSETS

 Cash

 $
 3,263,800

 Restricted Cash

 597,600

 Accounts Receivable, net

 279,800

 Notes Receivable, net

 950,000

 Prepaid Expense and Other Assets

 1,193,800

 Real Estate

 112,680,200

 Property and Equipment, net

 1,610,500

 Right of Use Assets

 1,749,200

 Deferred Tax Asset, net

 -

 Intercompany balance due from non-debtor subsidiaries

 16,574,400

 TOTAL ASSETS

 $
 138,899,300

 LIABILITIES AND STOCKHOLDERS' EQUITY

 LIABILITIES

 Accounts Payable and Accrued Expenses

 $
 3,976,900

 Contract Liabilities

 25,300

 Deferred Revenue

 29,600

 Note Payable - Insurance

 529,300

 Revolving Line of Credit Loan

 14,178,700

 Construction Loans

 91,913,600

 Liabilities not subject to compromise

 $
 110,653,400

 Liabilities subject to compromise

 12,221,500

 TOTAL LIABILITIES

 $
 122,874,900

 STOCKHOLDERS' EQUITY

 Preferred Stock

 $

 Common Stock

 43,030,200

 Additional Paid In Capital

 3,096,800

 Accumulated Deficit

 ( 93,014,700
)

 TOTAL STOCKHOLDERS' EQUITY

 16,024,400

 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 $
 138,899,300

 CONDENSED COMBINED STATEMENTS OF OPERATIONS (Unaudited)

 Amounts rounded to the nearest $100

 Year
 Ended

 December
 31, 2023

 Sales

 $
 23,061,600

 Cost of Sales

 70,402,700

 Gross Loss

 ( 47,341,100
)

 Operating Expenses

 8,976,300

 Operating Loss

 ( 56,317,400
)

 Other Income (Expense)

 Interest Expense

 ( 2,602,600
)

 Interest Income

 151,000

 Management fee income from subsidiary

 687,900

 Equity income of non-debtor subsidiaries, net

 1,118,000

 Loss on Sale of Equipment

 ( 47,700
)

 Other Income

 51,600

 Total Other Expense

 ( 641,800
)

 Bankruptcy Expense

 392,500

 Loss Before Income Tax

 $
 ( 57,351,700
)

 Income Tax Expense (Benefit)

 4,589,400

 Net Loss

 $
 ( 61,941,100
)

 Preferred Dividends

)

 Net Loss Attributable to Common Stockholders

 $
 ( 69,555,900
)

 CONDENSED COMBINED STATEMENTS OF CASH FLOWS (Unaudited)

 Amounts rounded to the nearest $100

 Year
 Ended

 December
 31, 2023

 OPERATING ACTIVITIES

 Net Loss

 $
 ( 61,941,100
)

 Adjustments to reconcile net loss to net cash from operating activities:

 Depreciation

 333,500

 Amortization of right of use assets

 176,900

 Loss on sale of equipment

 47,700

 Provision for loss on contract

 153,400

 Impairment loss on real estate

 44,758,000

 Stock compensation

 Amortization of revolver issuance costs

 640,300

 Net change in assets and liabilities:

 Accounts receivable

 1,427,200

 Notes receivable

 3,575,300

 Prepaid expenses and other assets

 4,468,200

 Real estate

 ( 9,741,000
)

 Deferred tax asset

 Accounts payable and accrued expenses

 ( 3,994,700
)

 Contract Liabilities

 ( 625,500
)

 Deferred revenue

 ( 22,400
)

 Payments on right of use liability, net of incentives

 ( 224,600
)

 NET CASH USED IN OPERATING ACTIVITIES

 ( 16,091,400
)

 INVESTING ACTIVITIES

 Proceeds on the sale of equipment

 NET CASH PROVIDED BY INVESTING ACTIVITIES

 FINANCING ACTIVITIES

 Construction loans

 44,050,100

 Payments on construction loans

 ( 31,363,300
)

 Financing fees construction loans

 ( 1,804,000
)

 Payments on related party construction loans

 ( 677,300
)

 Payments on revolving line of credit loan

 ( 10,821,300
)

 Payments on note payable - insurance

 ( 645,300
)

 Payments on equipment loans

 ( 2,057,100
)

 Payments on financing leases

 ( 74,800
)

 Preferred dividends

 ( 634,700
)

 Proceeds from common stock offering

 Proceeds from pre-funded and common warrants offering

 8,335,400

 Intercompany transfers from non-debtor subsidiaries

 7,669,800

 NET CASH PROVIDED BY FINANCING ACTIVITIES

 12,580,100

 NET DECREASE IN CASH AND RESTRICTED CASH

 ( 3,293,200
)

 CASH AND RESTRICTED CASH AT BEGINNING OF YEAR

 7,154,600

 CASH AND RESTRICTED CASH AT END OF PERIOD

 $
 3,861,400

 22.
 SUBSEQUENT EVENTS

 The
Company received a notice of default for Meadowscape construction loan from Buchanan Mortgage Holdings, LLC dated January 23, 2024. The
default rate which shall be the lessor of (a) the maximum per annum rate of interest allowed by applicable legal requirements, and (b)
six percent ( 6 %) per annum in excess of the Interest Rate. The Company owes the principal amount of $ 34,048,901 as of February 2, 2024.

 On
February 2, 2024, the Company's wholly owned subsidiary, Tanglewilde, LLC (included as a "Debtor"), also filed a Bankruptcy
Petition for reorganization under Chapter 11 of the Bankruptcy Code. Tanglewilde, LLC was added into the Company's pending Chapter
11 Case. The Chapter 11 Case is being jointly administered under the caption In re Harbor Custom Development, Inc., et al., Case No.
23-42180-MJH.

 On
March 5, 2024, the Board of Directors approved a joint plan of liquidation and/or reorganization to sell in an orderly manner all of
the real estate assets of the Company and establish new equity interests of the Company, subject to Court approval (the "Proposed
Plan").

 ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

 No
events occurred requiring disclosure under Item 304 of Regulation S-K.

 ITEM
9A. CONTROLS AND PROCEDURES

 Evaluation
of Disclosure Controls and Procedures

 Our
management, under the supervision of our Interim Chief Executive Officer and Interim President (Principal Executive Officer) and Chief
Accounting Officer (Principal Financial and Accounting 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 Annual Report. Based on that Evaluation, our Principal Executive Officer and our Principal Financial and Accounting Officer have
concluded that, because of the deficiencies in our internal control over financial reporting described below, our disclosure controls
and procedures as defined in Rule 13a-15(e) were not effective in ensuring that information required to be included in our periodic filings
with the Securities and Exchange Commission is recorded, processed, summarized, and reported to management to allow timely decisions
regarding required disclosures because of the significant deficiencies which, in the aggregate, constitute a material weakness, as described
below.

 Notwithstanding
management's assessment that our internal control over financial reporting as of December 31, 2023, was ineffective and the material
weaknesses described below, we are not aware that such deficiencies have resulted in the issuance of any material errors or omissions
in our consolidated financial statements contained in this Annual Report on Form 10-K for the year ended December 31, 2023 or related
disclosures.

 Management's
Report on Internal Control Over Financial Reporting

 Management
is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act and for performing an assessment of the effectiveness of internal control over financial reporting
as of December 31, 2023. Our internal control over financial reporting is a process under the supervision of our Interim Chief Executive
Officer and President and Chief Accounting Officer (our principal executive and principal financial and accounting officers, respectively),
and effected by our Board of Directors, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with U.S. generally accepted accounting principles ("GAAP").

 Our
internal control over financial reporting includes those policies and procedures that:

 (i)

 pertain to the maintenance
 of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the Company;

 (ii)

 provide reasonable assurance
 that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that
 receipts and expenditures are being made only in accordance with authorizations of the Company's management and Board of Directors;
 and

 (iii)

 provide reasonable assurance
 regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could
 have a material effect on the financial statements.

 Management,
including our Interim Chief Executive Officer and President and Chief Accounting Officer, does not expect that our internal controls
will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances
of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods is subject to the risk
that those internal controls may become inadequate because of changes in business conditions or that the degree of compliance with the
policies or procedures may deteriorate.

 Management
performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2023 based on the framework
in Internal Control – Integrated Framework issued by the 2013 Committee of Sponsoring Organizations of the Treadway Commission
("COSO"). Based on our evaluation under such framework, management determined that our internal control over financial reporting
was ineffective as of December 31, 2023. The ineffectiveness of our internal control over financial reporting was due to a lack of segregation
of duties due to a decrease in personnel and resources, which we have identified as a material weakness. A material weakness is a deficiency
or a combination of control deficiencies in internal control over financial reporting such 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. Notwithstanding
our identification of this omission as a material weakness, it had no impact on the consolidated financial statements contained in the
Annual Report.

 This
Annual Report does not include an attestation report from our independent registered public accounting firm regarding internal control
over financial reporting as this management's report is not subject to attestation by our independent registered public accounting
firm due to an exemption established by rules of the SEC for emerging growth companies as defined in the JOBS Act.

 Changes
in Internal Control over Financial Reporting

 Due
to the significant reduction in our employees, we no longer have effective internal control for the segregation of duties so that no
one individual handles a transaction from inception to completion. We previously had a full staff of eight persons working on our financial
reporting, which has now been reduced to two persons. As of the date of issuance, we had one employee in the accounting department. Currently,
there are not enough resources and accounting personnel to permit an adequate segregation of duties in all respects and thus a material
weakness in our internal control exists. The Company is developing more controls to mitigate segregation of duties issues.

 Other
than as described above, there has been no other change in our internal control over financial reporting identified in connection with
the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Annual Report
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 ITEM
9B. OTHER INFORMATION

 Not

 ITEM
9C. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS

 Not

 PART
III

 ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 Directors
and Executive Officers

 Our
board of directors consists of four directors, all of whom are independent directors. Our directors will serve for one-year terms and
until their successors are duly elected and qualified. There is no cumulative voting in the election of directors. Consequently, at each
annual meeting, the successors to each of our seven directors will be elected by a plurality of the votes cast at that meeting.

 Set
forth below are the names, ages and positions of our current and former directors and executive officers for the year ended December
31, 2023.

 Current
Officers and Directors:

 Name

 Age

 Position
 with the Company

 Jeffrey
 B. Habersetzer

 Interim
 Chief Execuitve Officer and Interim President, Chief Operating Officer, General Counsel (Principal Executive Officer)

 Yoshi
 Niino

 Chief
 Accounting Officer (Principal Financial and Accounting Officer)

 Shelly
 Crocker

 Chief
 Restructuring Officer

 Dennis
 Wong

 Independent

 Karen
 Bryant

 Lead
 Independent Director

 Chris
 Corr

 Independent

 David
 Chandler

 Independent

Officers and Directors:

 Name

 Age

 position with the Company

 Sterling
 Griffin

 Chief Executive Officer, President, and Chairman of our Board of Directors

 Lance
 Brown

 Chief Financial Officer

 Richard
 Schmidtke

 Larry
 Swets

 Wally
 Walker

 Biographical
Information

 The
following is a summary of certain biographical information concerning our former and current directors and executive officers.

 Jeffrey
B. Habersetzer. Jeffrey B. Habersetzer serves as our Interim Chief Executive Officer, Interim President, Chief Operating Officer
and General Counsel. Mr. Habersetzer has ten years of experience in real estate, contracts, and corporate
governance. Prior to joining Harbor, Mr. Habersetzer owned a legal practice specializing in real estate, corporate law, multi-family
leasing and acquisitions. Mr. Habersetzer holds a Bachelor's degree from the University of Washington, and a law degree and a
Master's in Business Administration from Seattle University, graduating Cum Laude in both programs simultaneously. Mr.
Habersetzer has been a licensed attorney in the state of Washington since 2017.

 Yoshi
Niino. Mr. Niino joined our company in February 2022 as our Director of Accounting, and currently serves as our Chief Accounting
Officer and is the Principal Financial and Accounting Officer. Previously to joining Harbor, Mr. Niino served as Senior Internal Audit
Manager for Weyerhaeuser (NYSE: WY). Mr. Niino was also previously an Audit Manager at Deloitte. Mr. Niino is a Certified Public Accountant
and graduated from the University of Washington with a B.A. in Economics and Business Administration, Accounting.

 Shelly
Crocker. Ms. Crocker was appointed as our Chief Restructuring Officer on November 14, 2023. For the past ten years, Ms. Crocker operated
Shelly Crocker LLC as a Seattle business consultant for both profit and nonprofit businesses. She regularly conducts strategic planning
processes and provides interim leadership to organizations in transition or seeking strategic direction. She frequently serves as a restructuring
professional, helping manage at-risk companies and building on her prior career as a restructuring attorney. She holds a Bachelor of
Arts in Philosophy and History and a Master of Arts in Philosophy from the University of Washington and a Juris Doctorate from the University
of Minnesota. Ms. Crocker is licensed to practice law in the state of Washington.

 Dennis
A. Wong. Dennis Wong has been an Independent Director on our board of directors and Chair of our Audit Committee since October 2020.
Since 2005, Mr. Wong is the owner of and a consultant with Insurance Resolution Group, a consulting firm focused on providing strategic
advisory services to the insurance and financial services sector. From 1997 to 2005, Mr. Wong worked in a variety of corporate roles
with Kemper Insurance Companies, a leading national insurance provider, including as Chief Financial Officer of its international operations.
From 1991 to 1997, Mr. Wong worked as a public accountant with KPMG LLP, where he specialized in accounting and operational advisory
services for the insurance industry. From 2015 through 2021, he served as an independent member of the Board of Directors for FG Financial
Group, Inc. (Nasdaq: FGF) (formerly 1347 Property Insurance Holdings, Inc.). Mr. Wong obtained a Bachelor of Arts degree in Economics
with an Accountancy Cognate from the University of Illinois. Mr. Wong is a Certified Public Accountant.

 Karen
Bryant. Ms. Bryant has been an Independent Director on our board of directors since June 2021. In December 2022, Ms. Bryant was appointed
Lead Independent Director for Harbor. For 25 years, Karen Bryant has run high-profile organizations, navigating complex internal and
external dynamics while driving business growth and operational excellence. Ms. Bryant has been at the helm of women's professional
basketball for over 18 years. In January 2023, Ms. Bryant was appointed to the role of Chief Administrative Officer and General Manager
of the Los Angeles Sparks. Previously, she served as General Manager of the Seattle Reign and then, ultimately, as President and CEO
of the Seattle Storm from 2008 through 2014. Under her leadership, the Seattle Storm won two WNBA Championships, set multiple attendance
and revenue records, and established itself as one of the WNBA's premier franchises. In 2014, Ms. Bryant started and led a management
consulting firm until one of her clients, Atavus Sports, appointed her CEO in 2016. With Atavus, Ms. Bryant led a three-year process
of market research, competitive analysis, customer discovery, product development, and sales. In Fall 2019, Atavus was acquired by a
private equity firm in a successful exit. After a successful 13-year run as CEO for two organizations, Ms. Bryant returned to her management
consulting firm in March 2020. Ms. Bryant also serves as an Executive Coach to business leaders and entrepreneurs and is well-recognized
for leading high-performing teams. Ms. Bryant's recognition includes Seattle Sports Commission Executive of the Year, Sports Business
Journal Gamechanger, Puget Sound Business Journal Woman of Influence, Greater Seattle Business Association Businessperson of the Year
Finalist, and Girl Scouts of Western Washington Woman of Distinction. Ms. Bryant was a scholarship athlete at Seattle University and
the University of Washington, where she graduated in 1991 with a Bachelor of Arts degree in Communication.

 Chris
Corr. Mr. Corr has been an Independent Director on our board of directors since September 2021. Mr. Corr is a shareholder and Executive
Vice President of Kidder Mathews, the largest independent commercial real estate firm on the West Coast. Mr. Corr specializes in selling
and leasing office and industrial properties in South King County, Washington. Since joining Kidder Mathews in 1986, Mr. Corr has managed
over two million square feet of real estate as a property manager, assisted in the development and leasing of real estate throughout
the region, and, over the past 30+ years, completed over several thousand commercial sale and lease transactions. In 2001, Mr. Corr won
the Washington Chapter Society of Industrial and Office Realtors (SIOR) Broker of the Year award. He is frequently quoted in and writes
for both the Puget Sound Business Journal and Daily Journal of Commerce. Mr. Corr has also spoken on real estate trends at the NAIOP
Commercial Real Estate Development Association Forecast Breakfast. Mr. Corr graduated with honors from the University of Washington,
earning his Bachelor of Science in building construction and Bachelor of Arts in business administration. He is a former member of the
Seattle University Board of Regents and Kidder Mathews Board of Directors. In his spare time, Mr. Corr is a member of and served as membership
chair for both the Seattle Tennis Club and Broadmoor Golf Club.

 David
Chandler. Mr. Chandler was elected as an Independent Director on our Board of Directors in July 2023. Mr. Chandler is a senior financial
executive with over 35 years in finance, strategic planning and business management, merger & acquisitions, investor relations and
accounting. From December 2016 through March 2018, he was Chief Financial Officer of Atavus, an early-stage sports analytics company
where he was responsible for investor and board relations, fund-raising, strategic planning and budgeting, accounting, and human resources.
Mr. Chandler earned a B.A. in Business Administration and a B.A. in German Language and Literature from the University of Washington
where he graduated Cum Laude in December 1981.

 Sterling
Griffin. Sterling Griffin previously served as our Chief Executive Officer, President, and Chairperson of the Board of Directors.
He resigned from all positions on July 12, 2023. Mr. Griffin began his career at James S. Griffin Co. in January 1985 as a principal
and Vice President of Marketing. Beginning in June 1989, Mr. Griffin co-founded several businesses over a 12-year period, while actively
self-employed as a real estate broker, investor, and developer. In January 2012, he became the Chief Operating Officer for Hudson Homes
LLC. In 2014, Mr. Griffin founded Harbor Custom Development, Inc. Mr. Griffin is a lifelong Washington resident who graduated from Colorado
College with a B.A. in History in 1984.

 Lance
Brown. Mr. Brown previously served as our Chief Financial Officer. He resigned on July 21, 2023. Prior to joining Harbor, Mr. Brown
was Vice President and Chief Accounting Officer at Select Interior Concepts (NASDAQ: SIC), where he was responsible for Finance, Accounting,
SEC Reporting, and Tax. Mr. Brown started his career in public accounting at PricewaterhouseCoopers. He holds a Bachelor of Business
Administration degree from the University of Georgia and a Master of Accountancy from Auburn University. Mr. Brown is a Certified Public
Accountant.

 Richard
Schmidtke. Richard Schmidtke was Director on our board of directors from October 2018 through July 2023. Mr. Schmidtke is the founder
of Schmidtke & Associates, PLLC, a full-service accounting company he founded in August 2008. Mr. Schmidtke has 30 years of public
accounting experience. He was a Trustee and Board Member of Tacoma Goodwill Foundation, past president of the Tacoma Goodwill, Trustee
of the Tacoma Art Museum, board member of the Tacoma Community Redevelopment Authority Board, and Tacoma Lawn and Tennis Club. Mr. Schmidtke
graduated from the University of Washington with a BA in Economics.

 Larry
Swets. Larry Swets was an Independent Director on our board of directors from February 2020 through November 1, 2023. Mr. Swets founded
Itasca Financial LLC in 2005 and has served as its managing member since inception. In August 2018, Mr. Swets also founded and is the
President of Itasca Golf Managers, Inc.. Mr. Swets has served as the Chief Executive Officer of FG Financial Group, Inc. (Nasdaq: FGF)
(formerly 1347 Property Insurance Holdings, Inc.) since November 2020, after having served as Interim CEO from June 2020 to November
2020. Mr. Swets has also served as Senior Advisor to Aldel Financial Inc. (NYSE: ADF) since March 2021, and as Chief Executive Officer
of FG New America Acquisition II Corp. since February 2021. Mr. Swets is a member of the board of directors of FG Financial Group, Inc.
(Nasdaq: FGF) since November 2013; GreenFirst Forest Products Inc. (TSXV: GFP) since June 2016; Ballantyne Strong, Inc. (NYSE American:
BTN) since October 2021; Insurance Income Strategies Ltd. since October 2017; Alexian Brothers Foundation since March 2018; and Unbounded
Media Corporation since June 2019. Mr. Swets earned a Master's Degree in Finance from DePaul University in 1999 and a Bachelor's
Degree from Valparaiso University in 1997. He is a member of the Young Presidents' Organization and holds the Chartered Financial
Analyst (CFA) designation.

 Walter
("Wally") Walker. Wally Walker was an Independent Director on our board of directors from October 2020 through September
18, 2023. Mr. Walker served as a Vice President in Goldman, Sachs & Co.'s Private Client Services group from 1987 through 1994.
In April 1994, Mr. Walker formed Walker Capital, Inc.. In September 1994, Mr. Walker became President and General Manager of the Seattle
SuperSonics and the Seattle Storm, and in addition to being an owner, served as Chief Executive Officer and President of the teams until
their sale in 2006. In late 2007, he formed Hana Road Capital LLC, where he remains as its owner and Chief Investment Officer. Mr. Walker
graduated from the University of Virginia in 1976 as an Academic All-American with a BA in psychology. He received his Masters of Business
Administration from Stanford University Graduate School of Business in 1987. He was conferred as a Chartered Financial Analyst in 1992.
He served on the Board of Visitors, at the University of Virginia from 1997 through 2001. Since 2005, Mr. Walker has been a member of
the Advisory Council of Stone Arch Capital, a Minneapolis based private equity firm. Mr. Walker also serves as an independent trustee
at Smead Capital Management, a Seattle based mutual fund. In 2018, he joined the Governing Council of the Miller Center of Public Affairs,
at The University of Virginia.

 Family
Relationships

 There
are no family relationships between any of our directors or executive officers.

 Involvement
in Certain Legal Proceedings

the past five years, none of our officers, directors, promoters, or control persons has been a party to or executive officer of an entity
that has filed any bankruptcy petitions. During the past five years, none of our officers, directors, promoters, or control persons have
been convicted or been a named subject of any pending criminal proceedings. During the past five years, none of our officers, directors,
promoters, or control persons has been held to have violated any state or Federal Securities laws or any Federal commodities law or otherwise
have been subject to any order, judgment, or decree not subsequently reversed, suspended, or vacated permanently enjoining such officer,
director promoters, or control persons from the activities enumerated in Regulation S-K Item 4.01(f)(3).

 Delinquent
Section 16(a) Reports

 Section
16(a) of the Exchange Act requires that our officers, directors, and persons who own more than 10% of our common stock file reports of
ownership and changes in ownership with the SEC. Based solely on our review of the SEC's EDGAR database, copies of such forms received
by us, or written representations from certain reporting persons, we believe that during the fiscal year ended December 31, 2023, the
following delinquencies have occurred:

 None.

 Code
of Business Conduct and Ethics

 We
adopted a written code of business conduct and ethics that applies to our directors, officers, and employees, including our principal
executive officer, principal financial and accounting officer, controller, or persons performing similar functions and agents and representatives,
including consultants. A copy of the code of business conduct and ethics is available on our website at www.harborcustomdev.com. We intend
to disclose future amendments to such code, or any waivers of its requirements, applicable to any principal executive officer, principal
financial and accounting officer, controller, or persons performing similar functions or our directors on our website identified above.
The inclusion of our website address in this Annual Report does not include or incorporate by reference the information on our website
into this Annual Report.

 Board
Diversity

 The
following is our Board Diversity Matrix as of March 28, 2024:

 Board
 Diversity Matrix

 Total
 Number of Directors

 Part
 I: Gender Identity

 Female

 Male

 Directors

 of Directors who Identify in Any of the Categories Below:

 Asian
 (other than South Asian)

 White

 LGBTQ+

 Audit
Committee and Audit Committee Financial Expert

 We
have a separately designated Audit Committee consisting of Dennis Wong and David Chandler, both of whom are independent directors and
qualify as financial experts.

 ITEM
11. EXECUTIVE COMPENSATION

 Executive
Compensation

 On
March 6, 2023, we effected a 1-for-20 reverse stock split of our issued and outstanding shares of common stock (the "Reverse Stock
Split"). All share and per share data included below have been adjusted retroactively to reflect the impact of the Reverse Stock
Split.

 Summary
Compensation Table

 The
following is a summary of the elements of our compensation arrangements paid to our executive officers for fiscal years 2023 and 2022.

 Name and Principal Position

 Year

 Salary

 ($)

 Stock

 ($)

 Option

 ($)

 All Other

 Compensation

 ($)

 Total

 ($)

 Jeffrey Habersetzer

 2023

 290,874

 —

 140,330
 (2)

 29,745
 (3)

 460,949

 Interim Chief Executive Officer and President(1)

 2022

 379,639

 130,184
 (4)

 —

 33,640
 (3)

 543,463

 Yoshi Niino,

 2023

 187,617
 (5)

 —

 —

 7,022
 (3)

 194,639

 Chief Accounting Officer

 2022

 157,619
 (5)

 —

 13,409
 (6)

 3,779
 (3)

 174,807

 Shelly Crocker,

 2023

 80,833
 (7)

 —

 —

 (3)

 81,512

 Chief Restructuring Officer

 2022

 —

 —

 —

 —

 —

 Sterling Griffin

 2023

 290,874
 (8)

 —

 —

 149,345
 (13)

 440,219

 Former Chief Executive Officer and President

 2022

 707,140

 247,834
 (9)

 —

 127,770
 (14)

 1,082,744

 Lance Brown

 2023

 177,350
 (10)

 —

 121,619
 (11)

 21,027
 (3)

 319,996

 Former Chief Financial Officer

 2022

 376,633

 74,489
 (12)

 —

 80,808
 (3)

 531,930

 (1)

 Mr. Habersetzer was appointed
 as Interim Chief Executive Officer and Interim President on July 12, 2023.

 (2)

 On June 13, 2023, Mr. Habersetzer
 was granted an option to purchase 75,000 shares of common stock pursuant to our 2018 Equity Incentive Plan with an exercise price
 of $3.73. One half of these options will vest upon the filing of this Annual Report, with the remainder to vest in equal proportions
 upon the first and second anniversary of said filing.

 (3)

 Includes cell phone allowance,
 401K matching, health insurance payments, and/or commuting expenses.

 (4)

 On January 10, 2022 Mr. Habersetzer
 was granted 1,410 RSUs pursuant to our 2020 Restricted Stock Plan, whereby all RSUs vested immediately on January 10, 2022. The grant
 date fair value of the RSU Award was $47.40. On May 26, 2022, Mr. Habersetzer was granted 1,750 RSUs pursuant to our 2020 Restricted
 Stock Plan, whereby 1/3 of the RSUs vest on the anniversary date each year, beginning on May 26, 2023. The grant date fair value
 of the RSU Award was $36.20.

 (5)

 Mr. Niino was promoted to
 Chief Accounting Officer on July 12, 2023. In 2022 and prior to his appointment as Chief Accounting Officer in 2023, Mr. Niino's
 role was Director of Accounting.

 (6)

 On September 1, 2022, Mr.
 Niino was granted options to purchase 1,250 shares of common stock pursuant to our 2018 Equity Incentive Plan, that vest in monthly
 equal installments over three years with an exercise price of $22.40.

 (7)

 Ms. Crocker was appointed
 as Chief Restructuring Officer on November 14, 2023.

 (8)

 Mr. Griffin resigned from
 all positions on July 12, 2023.

 (9)

 On January 10, 2022, Mr.
 Griffin was granted 1,410 RSUs pursuant to our 2020 Restricted Stock Plan, whereby all RSUs vested immediately on January 10, 2022.
 The grant date fair value of the RSU Award was $47.40. On May 26, 2022, Mr. Griffin was granted 5,000 RSUs pursuant to our 2020 Restricted
 Stock Plan, whereby 1/3 of the RSUs vest on the anniversary date each year, beginning on May 26, 2023. The grant date fair value
 of the RSU Award was $36.20.

 (10)

 Mr. Brown resigned as Chief
 Financial Officer on July 21, 2023.

 (11)

 On June 13, 2023, Mr. Brown
 was granted an option to purchase 65,000 shares of common stock pursuant to our 2018 Equity Incentive Plan with an exercise price
 of $3.73. One half of these options will vest upon the filing of this Annual Report, with the remainder to vest in equal proportions
 upon the first and second anniversary of said filing.

 (12)

 On January 10, 2022, Mr.
 Brown was granted 235 RSUs pursuant to our 2020 Restricted Stock Plan, whereby all RSUs vested immediately on January 10, 2022. The
 grant date fair value of the RSU Award was $47.40. On May 26, 2022, Mr. Brown was granted 1,750 RSUs pursuant to our 2020 Restricted
 Stock Plan, whereby 1/3 of the RSUs vest on the anniversary date each year, beginning on May 26, 2023. The grant date fair value
 of the RSU Award was $36.20.

 (13)

 Includes cell phone allowance,
 401K matching, health insurance payments and strategic advisor fees.

 (14)

 Includes commuting expenses,
 401K matching, health insurance payments, director compensation, and commissions earned by SGRE, LLC.

 We
believe that the primary goal of executive compensation is to align the interests of our executive officers with those of our shareholders
in a way that allows us to attract and retain the best executive talent. Additionally, in order to ensure our executive officers are
compensated within the current industry ranges for their respective duties we engaged a national, independent, professional employee
consulting firm to evaluate and provide an assessment and recommendations for executive compensation in 2022.

 The
compensation incentives designed to further these goals take the form of annual cash compensation and equity awards, as well as long-term
cash and/or equity incentives measured by Company and/or individual performance targets to be established by our Compensation Committee.
In addition, our Compensation Committee may determine to make equity-based awards to new executive officers in order to attract talented
professionals to serve us.

 Annual
Base Salary. Base salary is designed to compensate our named executive officers at a fixed level of compensation that serves as a
retention tool throughout the executive's career. In determining base salaries, our Compensation Committee considers each executive's
role and responsibility, unique skills, future potential with us, salary levels for similar positions in our market, and internal pay
equity.

 Option
Plan. Certain executives were issued options pursuant to our 2018 Equity Incentive Plan. We plan to continue to offer option awards
to executives, in the discretion of the board of directors, considering the executive's role and other compensation.

 Stock
Award plan. Certain executives were issued restricted stock units ("RSUs") pursuant to our 2020 Restricted Stock Plan.

Equity Awards at Year End

 The
following table sets forth information regarding outstanding stock options held by our executive officers as of December 31, 2023:

 Name and Principal Position

 Grant Date

 Number of

 Securities

 Underlying

 Vesting

 Commencement

 Date

 Price per

 share

 Expiration

 Date

 Jeffrey Habersetzer,

 12/19/2019

 12/19/2019
 (1)

 $
 7.99

 12/19/2029

 Chief Operating Officer

 9/1/2020

 1,000

 9/1/2020
 (2)

 $
 130.00

 9/1/2030

 6/28/2021

 5,000

 6/28/2021
 (3)

 $
 65.00

 6/28/2031

 6/13/2023

 75,000

 6/13/2023
 (4)

 $
 3.73

 6/13/2033

 Yoshi Niino,
Chief Accounting Officer

 9/1/2022

 1,250

 9/1/2022
 (5)

 $
 22.40

 9/1/2032

 (1)
One thirty-sixth of the shares subject to this option vest each month beginning on December 19, 2010.

 (2)
Equal installments of 83 stock options vest on the last day of each calendar month, beginning on September 30, 2020.

 (3)
Equal installments of 208 stock options vest on the last day of each calendar month, beginning on June 28, 2021.

 (4)
One half of these options will vest upon the filing of this Annual Report, with the remainder to vest in equal proportions upon the first
and second anniversary of said filing.

 (5)
One third of the shares subject to this option vest each year beginning September 1, 2023.

 The
following table sets forth information regarding RSUs held by our executive officers as of December 31, 2023:

 Name and Principal Position

 Grant Date

 Number of

 RSUs

 Fair

 Value of

 Stock

 Award

 Vesting

 Commencement

 Date

 Number of

 Unvested

 RSUs

 Fair

 Value of

 Unvested

 RSUs

 Jeffrey Habersetzer

 1/10/2022

 1,410

 $
 66,834

 1/10/2022
 (1)

 —

 $
 —

 Interim Chief Executive Officer and President

 5/26/2022

 1,750

 $
 63,350

 5/26/2023
 (2)

 1,167

 $
 42,333

 (1)
All RSUs vested immediately on January 10, 2022. The grant date fair value of the RSU Award was $47.40.

 (2)
One third of the RSUs vest on the anniversary date each year, beginning on May 26, 2023. The grant date fair value of the RSU Award was
$36.20.

 Other
Elements of Compensation

 401(k)
Plan. We offer all of our non-union employees, including executives, a 401k safe harbor nonelective contribution, where employer
contributions equal to 3% of employee compensation are contributed.

 Health/Welfare
Plans. We have a health care, dental, and vision plan available to all employees, including our executives, who become eligible on
the first day of the month following the commencement of their employment.

 PTO
Plan. Executives may take PTO at any time, at their own reasonable discretion.

 Other
Benefits. Executives are provided with car allowance or reimbursement of commuting and cell phone expenses.

Agreements with our Former and Current Named Executive Officers

Agreement with Jeff Habersetzer

 We
entered into an employment agreement with Mr. Habersetzer on May 26, 2022 for his role as our Chief Operating Officer. This employment
agreement is for a term of three years with automatic one-year renewals unless either party gives notice of termination at least 90 days
prior to the expiration of its initial term or any renewal term. Mr. Habersetzer is entitled to an annual salary of $280,000, discretionary
bonuses in the discretion of the Compensation Committee, participation in all benefit plans, and reimbursement of business expenses including
related travel expenses. In the event of our termination of Mr. Habersetzer without cause, Mr. Habersetzer is entitled to his unreimbursed
business expenses, 100% of his annual base salary plus 50% of his target annual bonus as severance. Additionally, all outstanding restricted
stock units and other previously granted awards that would have vested within 12 months of the date of termination shall become fully
vested. Mr. Habersetzer's compensation arrangements did not change when he assumed the role of Interim Chief Executive Officer
and Interim President.

Agreement with Shelly Crocker

 We
entered into an employment agreement with Ms. Crocker in November 2023 for her role as Chief Restructuring Officer. Her employment is
at will. Ms. Crocker is entitled to compensation of $50,000 per month, until such time as the Company determines that Ms. Crocker is
only needed on a part time basis, and at such time, her compensation shall be $500 per hour. Ms. Crocker is entitled to all benefits
and programs that are generally available to senior executives of the Company. We have agreed to maintain a D&O policy and an employment
practices liability insurance policy.

Agreement with Sterling Griffin

 We
entered into an employment agreement with Mr. Griffin on May 26, 2022 for his role as our Chief Executive Officer. The employment agreement
was for a term of three years with automatic one-year renewals unless either party gives notice of termination at least 90 days prior
to the expiration of its initial term or any renewal term. Mr. Griffin was entitled to an annual salary of $510,000, discretionary bonuses
in the discretion of the Compensation Committee, participation in all benefit plans, and reimbursement of business expenses including
related travel expenses. Mr. Griffin resigned from all positions on July 12, 2023.

 Following
his resignation, we entered into a Strategic Advisor Agreement with Mr. Griffin effective as of July 12, 2023 where he was entitled to
monthly compensation of $27,777. He was also eligible to receive certain performance based fees contingent on certain projects closing
on or before December 31, 2023.

Agreement with Lance Brown

 On
November 1, 2021, we entered into an employment agreement with Lance Brown to serve as our Chief Financial Officer, reporting to our
Chief Executive Officer. The employment agreement was for a term of three years. Mr. Brown was entitled to an annual salary of $280,000.
In addition, Mr. Brown received a one-time sign on bonus of $75,000, which was paid on January 14, 2022 and was granted 5,000 shares
of common stock pursuant to our 2020 Restricted Stock Plan. Mr. Brown resigned from all positions on July 21, 2023.

Compensation

 The
following table sets forth information regarding the compensation earned for service on our board of directors in 2023. We reimburse
all directors for their reasonable out of pocket expenses incurred in connection with the performance of their duties as directors, including
without limitation, travel expenses in connection with their attendance in-person at board and committee meetings. There were no RSUs
or stock options granted to our directors in 2023.

 Director Name

 Cash

 Sterling Griffin (1)

 $
 —

 Richard Schmidtke (2)

 $
 15,000

 Larry Swets (3)

 $
 25,000

 Dennis Wong

 $
 56,086

 Wally Walker (4)

 $
 20,000

 Karen Bryant

 $
 50,000

 Chris Corr

 $
 35,000

 David Chandler (5)

 $
 19,113

 (1)

 Mr. Griffin resigned as a
 Director in July 2023.

 (2)

 Mr. Schmidtke did not stand
 for re-election during our annual shareholders meeting in July 2023.

 (3)

 Mr. Mr. Swets resigned as
 a Director in September 2023.

 (4)

 Mr. Walker resigned as a
 Director in July 2023.

 (5)

 Mr. Chandler joined the Board
 of Directors in July 2023.

 2018
Equity Incentive Plan

 On
November 12, 2018, we adopted the 2018 Equity Incentive Plan which provides for the grant of incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to our employees and the employees of any subsidiary
corporation, and for the grant of non-statutory stock options to non-employees, including directors and other service providers.

 Authorized
shares. A total of 133,784 shares of our common stock has been reserved for issuance pursuant to the exercise of options issued
from the 2018 Equity Incentive Plan.

 Plan
administration. Our board of directors administers our 2018 Equity Incentive Plan.

 Stock
options. Stock options may be granted under our 2018 Equity Incentive Plan. The exercise price of options granted under our
2018 Equity Incentive Plan must at least be equal to the fair market value of our common stock on the date of grant. The term of an incentive
stock option may not exceed ten years, except that with respect to any participant who owns more than 10% of the voting power of all
classes of our outstanding stock, the term must not exceed five years and the exercise price must equal at least 110% of the fair market
value on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include
cash, shares, or other property acceptable to the administrator, as well as other types of consideration permitted by applicable law.
After the termination of service of an employee, director, or consultant, he or she may exercise his or her option for the period of
time stated in his or her option agreement. Generally, if termination is due to death or disability, the option will remain exercisable
for 12 months. In all other cases, the option will generally remain exercisable for three months following the termination of service.
However, in no event may an option be exercised later than the expiration of its term. Subject to the provisions of our 2018 Equity Incentive
Plan, the administrator determines the other terms of options.

granted. As of December 31, 2023 pursuant to our 2018 Equity Incentive Plan, we have issued 101,793 options to purchase shares of
our common stock to our employees, officers, and directors.

 Non-transferability
of awards. Unless the administrator provides otherwise, our 2018 Equity Incentive Plan generally does not allow for the transfer
of awards and only the recipient of an award may exercise an award during his or her lifetime.

 Certain
adjustments. In the event of certain changes in our capitalization, to prevent diminution or enlargement of the benefits or
potential benefits available under our 2018 Equity Incentive Plan, the administrator will adjust the number and class of shares that
may be delivered under our 2018 Equity Incentive Plan and/or the number, class and price of shares covered by each outstanding award
and the numerical share limits set forth in our 2018 Equity Incentive Plan. In the event of our proposed liquidation or dissolution,
the administrator will notify participants as soon as practicable and all awards will terminate immediately prior to the consummation
of such proposed transaction.

 Merger
or change in control

 Our
2018 Equity Incentive Plan provides that in the event of a merger or change in control, as defined under the 2018 Equity Incentive Plan,
each outstanding award will be treated as the administrator determines, except that if a successor corporation or its parent or subsidiary
does not assume or substitute an equivalent award for any outstanding award, then such award will fully vest, all restrictions on the
shares subject to such award will lapse, all performance goals or other vesting criteria applicable to the shares subject to such award
will be deemed achieved at 100% of target levels, and all of the shares subject to such award will become fully exercisable, if applicable,
for a specified period prior to the transaction. The award will then terminate upon the expiration of the specified period of time.

 Amendment,
termination. The administrator has the authority to amend, suspend, or terminate the 2018 Equity Incentive Plan provided such
action will not impair the existing rights of any participant. Our 2018 Equity Incentive Plan will automatically terminate in 2028, unless
we terminate it sooner.

 2020
Restricted Stock Plan

 Purpose
of the 2020 Restricted Stock Plan. The 2020 Restricted Stock Plan is intended to provide incentives which will attract, retain, motivate,
and reward officers, directors, and key employees of us or any of our Affiliates ("Participants"), by providing them opportunities
to acquire shares of our common stock ("Awards").

 Stock
Subject to the Plan. The aggregate number of shares of common stock that may be subject to Awards granted under the 2020 Restricted
Stock Plan is 135,000 shares of common stock. If any shares of common stock are forfeited, retained by us as payment of tax withholding
obligations with respect to an Award, or surrendered to us to satisfy tax withholding obligations, such shares will be added back to
the shares available for Awards. The 2020 Restricted Stock Plan contains certain adjustment provisions relating to stock dividends, stock
splits, and the like.

 Administration
of the 2020 Restricted Stock Plan. The 2020 Restricted Stock Plan is administered by the Compensation Committee of the board of directors.
The Compensation Committee has the full power and authority to grant Awards to the persons eligible to receive such Awards and to determine
the amount, type, terms, and conditions of each such Award.

 Eligibility.
Participants consist of such officers, directors, and key employees of us or any of our Affiliates as the Compensation Committee, in
its sole discretion, determines to be significantly responsible for our success and future growth and profitability and whom the Compensation
Committee may designate from time to time to receive Awards under the 2020 Restricted Stock Plan.

 Types
of Awards. Stock Awards and Performance Awards may, as determined by the Compensation Committee, in its discretion, constitute Performance-Based
Awards.

 Stock

 The
Compensation Committee is authorized to grant Stock Awards and will, in its sole discretion, determine the recipients and the number
of shares of common stock underlying each Stock Award. Each Stock Award will be subject to such terms and conditions consistent with
the 2020 Restricted Stock Plan as determined by the Compensation Committee and as set forth in an Award agreement, including, without
limitation, restrictions on the sale or other disposition of such shares and our right to reacquire such shares for no consideration
upon termination of the Participant's employment or membership on the board, as applicable, within specified periods.

 Performance

 The
Compensation Committee is authorized to grant Performance Awards and will, in its sole discretion, determine the recipients and the number
of shares of common stock that may be subject to each Performance Award. Each Performance Award will be subject to such terms and conditions
consistent with the 2020 Restricted Stock Plan as determined by the Compensation Committee and as set forth in an Award agreement. The
Compensation Committee will set performance targets at its discretion which, depending on the extent to which they are met, will determine
the number of Performance Awards that will be paid out to the Participants and may attach to such Performance Awards one or more restrictions.
Performance targets may be based upon, without limitation, Company-wide, divisional, and/or individual performance.

 The
Compensation Committee has the authority to adjust performance targets. The Compensation Committee also has the authority to permit a
Participant to elect to defer the receipt of any Performance Award, subject to the 2020 Restricted Stock Plan.

 Performance-Based

 Certain
Stock Awards and Performance Awards granted under the 2020 Restricted Stock Plan and the compensation attributable to such Awards are
intended to (i) qualify as Performance-Based Awards or (ii) be otherwise exempt from the deduction limitation imposed by Section 162(m)
of the Code. The Compensation Committee determines whether Stock Awards and Performance Awards granted under the 2020 Restricted Stock
Plan qualify as Performance-Based Awards. The Compensation Committee will establish in writing the performance goals, the vesting period,
the performance targets, and any other terms and conditions of the Award in its sole discretion.

 Vesting.
Awards granted to Participants under the 2020 Restricted Stock Plan may be subject to a vesting period, unless otherwise determined by
the Compensation Committee.

 If
we have a Change in Control, all unvested Awards granted under the 2020 Restricted Stock Plan will become fully vested immediately upon
the occurrence of the Change in Control and such vested Awards will be paid out or settled, as applicable, within 60 days upon the occurrence
of the Change in Control, subject to requirements of applicable laws and regulations.

 Subject
to the discretion of the Compensation Committee, if a Participant's employment or membership on the board is terminated due to
death or Disability, then all unvested and/or unearned Awards will be forfeited as of such date.

 Section
409A of the Code

under the 2020 Restricted Stock Plan are intended either to be exempt from the rules of Section 409A of the Code or to satisfy those
rules and shall be construed accordingly. However, we will not be liable to any Participant or other holder of an Award with respect
to any Award-related adverse tax consequences arising under Section 409A or other provision of the Code.

 Transferability.
Each Award granted under the 2020 Restricted Stock Plan will not be transferable other than by a will or the laws of decent and distribution
or as otherwise decided by the Compensation Committee.

 Fair
Market Value. For purposes of the 2020 Restricted Stock Plan, "Fair Market Value" means, as of any given date, the closing
price of a share of common stock on Nasdaq or such other public trading market on which shares of common stock are listed or quoted on
that date.

 Withholding.
All payments or distributions of Awards made pursuant to the 2020 Restricted Stock Plan will be net of any amounts required to be withheld
pursuant to applicable federal, state, and local tax withholding requirements.

 Amendments.
Our board or the Compensation Committee may amend the 2020 Restricted Stock Plan from time to time or suspend or terminate it at any
time. However, no amendment will be made, without approval of our shareholders to (i) increase the total number of shares which may be
issued under the 2020 Restricted Stock Plan; (ii) modify the requirements as to eligibility for Awards under the 2020 Restricted Stock
Plan; or (iii) otherwise materially amend the 2020 Restricted Stock Plan.

 Term
of the 2020 Restricted Stock Plan. The 2020 Restricted Stock Plan will terminate on the seventh anniversary of its Effective Date.

Awards. As of December 31, 2023, there were 15,255 Awards issued under the 2020 Restricted Stock Plan.

 Rule
10b5-1 Sales Plan

 Our
directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they would contract with a broker to buy
or sell shares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established
by the director or officer when entering into the plan, without further direction from them. The director or executive officer may amend
a Rule 10b5-1 plan in some circumstances and may terminate a plan at any time. Our directors and executive officers also may buy or sell
additional shares outside a Rule 10b5-1 plan when they are not in possession of material nonpublic information subject to compliance
with the terms of our policy on insider trading and communications with the public. Our directors and executive officers may not establish
any such plan prior to the expiration of certain lock-up agreements.

 ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Compensation Plan Information

 We
filed Articles of Amendment to our Articles of Incorporation for a 1-for-20 Reverse Stock Split with the Washington Secretary of State
on March 1, 2023 and the Reverse Stock Split was effected on the Nasdaq Capital Market on March 6, 2023. All share and per share data
included below have been adjusted retroactively to reflect the impact of the Reverse Stock Split.

 The
following table sets forth information as of December 31, 2023 regarding shares of common stock that may be issued under our equity compensation
plans, consisting of our 2018 Equity Incentive Plan and our 2020 Restricted Stock Plan. We do not have any non-stockholder approved equity
compensation plans.

 Plan Category

 Number of securities to be issued upon exercise of outstanding options, warrants, and rights

 Weighted-average exercise price of outstanding options, warrants and rights

 Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

 (a)

 (b)

 (c)

 Equity compensation plans approved by security holders

 99,626
 (1)

 $
 13.93

 151,736
 (2)

 Equity compensation plans not approved by security holders

 —

 —

 Total

 99,626

 151,736

 (1)
Includes 98,459 outstanding options under the 2018 Equity Incentive Plan and 1,167 unvested RSUs under the 2020 Restricted Stock Plan.

 (2)
Includes 31,991 options remaining under the 2018 Equity Incentive Plan and 119,745 RSUs remaining under the 2020 Restricted Stock Plan.

 Security
Ownership of Certain Beneficial Owners and Management

 The
following table sets forth the beneficial ownership of our common stock as of March 28, 2024 by:

 each director;

 each named executive officer;

 all of our directors and
 executive officers as a group; and

 each person known by us to
 be the beneficial owner of 5% or more of our outstanding common stock.

 The
percentage ownership information is based on 2,686,431 shares of our common stock outstanding.

 We
have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of
securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the
rules include shares of common stock issuable pursuant to the exercise of stock options and warrants that are either immediately exercisable
or exercisable on or before the date which is 60 days after the date of this document. The rules also include restricted stock units
that are vested over 60 days after the date of this document. These shares are deemed to be outstanding and beneficially owned by the
person holding those options, warrants, or restrict stock units the purpose of computing the percentage ownership of that person, but
they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated,
the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially
owned by them, subject to applicable community property laws.

 Amount and Nature of Beneficial Ownership

 Name and Address of Beneficial Owner(8)

 Number of

 Shares of

 Common Stock

 Percentage of

 Class

 Directors and Named Executive Officers:

 Jeffrey Habersetzer, Interim Chief Executive Officer, Interim President, Chief Operating Officer

 46,281
 (1)

 1.7
 %

 Yoshi Niino, Chief Accounting Officer

 (2)

 *

 Shelly Crocker, Chief Restructuring Officer

 —

 *

 Dennis Wong, Director

 2,842
 (3)

 *

 Karen Bryant, Director

 *

 Chris Corr, Director

 *

 David Chandler, Director

 —

 *

 All directors and executive officers as a group (nine persons)

 51,038

 1.9
 %

 *Less
than 1.0%

 (1)
Includes options to purchase 43,951 shares of common stock and 583 restricted stock units.

 (2)
Includes options to purchase 417 shares of common stock.

 (3)
Includes options to purchase 1,000 shares of common stock.

 (8)
Unless otherwise indicated, the address of each beneficial owner is 1201 Pacific Avenue, Suite 1200, Tacoma, Washington 98402.

 ITEM
13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 Refer
to Note 15. Related Party Transactions in the Notes to Consolidated Financial Statements (Part II, Item 8) for disclosure on related
party transactions, which is incorporated by reference herein.

 Policies
and Procedures for Transactions with Related Persons

 All
related party transactions are voted upon and approved by the disinterested board of directors. The Audit Committee of the board of directors
is responsible for evaluating each related party transaction and making a recommendation to the disinterested members of the board of
directors as to whether the transaction at issue is fair, reasonable, and within our policy and whether it should be ratified and approved.
The Audit Committee, in making its recommendation, will consider various factors, including the benefit of the transaction to us, the
terms of the transaction and whether they are at arm's-length and in the ordinary course of our business, the direct or indirect
nature of the related person's interest in the transaction, the size and expected term of the transaction, and other facts and
circumstances that bear on the materiality of the related party transaction under applicable law and listing standards. The Audit Committee
will review, at least annually, a summary of our transactions with our directors and officers and with firms that employ our directors,
as well as any other related person transactions.

Independence

 We
currently have four members on our board of directors, all of whom are independent directors. We use Nasdaq's definition of "independence"
to make this determination. Nasdaq provides that an "independent director" is a person other than an executive officer or
employee of the company or any other individual having a relationship with which, in the opinion of the company's board of directors,
would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The rules provide that
a director cannot be considered independent if:

 the director is, or at any
 time during the past three years was, one of our employees;

 the director who accepted
 or who has a Family Member who accepted any compensation from us in excess of $120,000 during any period of 12 consecutive months
 within the three years preceding the determination of independence (subject to certain exemptions, including, among other things,
 compensation for board or board committee service);

 the director who is a Family
 Member of an individual who is, or at any time during the past three years was, employed as one of our Executive Officers;

 the director who is, or has
 a Family Member who is, a partner in, or a controlling Shareholder or an Executive Officer of, any organization to which we made,
 or from which we received, payments for property or services in the current or any of the past three fiscal years that exceed 5%
 of the recipient's consolidated gross revenues for that year, or $200,000, whichever is more (subject to certain exemptions);
 or

 the director who is, or has
 a Family Member who is, employed as an Executive Officer of another entity where at any time during the past three years any of our
 Executive Officers served on the Compensation Committee of such other entity; or

 the director who is, or has
 a Family Member who is, a current partner of an outside auditor, or was a partner or employee of an outside auditor who worked on
 our audit at any time during any of the past three years.

 Under
such definitions, our board of directors has undertaken a review of the independence of each director and will review the independence
of any new directors based on information provided by each director concerning his background, employment, and affiliations, in order
to make a determination of independence. Our board of directors has determined that there are four independent directors on our board
of directors.

 Role
of our Board of Directors in Risk Oversight

 One
of the key functions of our board of directors is informed oversight of our risk management process. We have formed supporting committees,
including the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee, each of which supports
the Board of Directors by addressing risks specific to its respective areas of oversight. In particular, our Audit Committee has the
responsibility to consider and discuss our major financial risk exposures and the steps our management takes to monitor and control these
exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. The Audit Committee
also monitors compliance with legal and regulatory requirements, in addition to oversight of the performance of our internal audit function.
Our Compensation Committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage
excessive risk-taking. Our Nominating and Corporate Governance Committee provides oversight and monitors the effectiveness of our corporate
governance. The full Board of Directors oversees risk management.

 Lead
Independent Director

 Karen
Bryant currently serves as our board's lead independent director. The lead independent director has the following duties and powers:

 serving
 as the liaison between the independent members of the board and the chair;

 presiding
 at all board meetings at which the chair is not present, including executive sessions and meetings of non-management directors and/or
 independent directors;

 approving
 the agendas for board meetings and the meeting schedule to assure that there is sufficient time for discussion of all agenda items;

 reviewing
 information to be sent to the board;

 reviewing
 with the chair whether there are major risks which the board should focus upon at such meetings;

 facilitating
 communication among the independent directors and with the chair;

 directing
 the chief executive officer or corporate secretary to call a special meeting of the board or of the independent members of the board;

 consulting
 and communicating directly with major stockholders, when requested by management and when it is appropriate to do so; and

 performing
 such other duties as may from time to time be delegated to the lead independent director by the board.

 Committees
of our Board of Directors

 We
have an audit committee, compensation committee, and nominating and corporate governance committee. In addition to these required committees,
we have utilized a Special Pricing Committee associated with our equity raises. We intend to comply with the requirements of Rule 10A-3
of the Exchange within the required timeframe.

 All
of the members of our audit committee are "independent directors" who are "financially literate" as defined under
the Nasdaq listing standards. The Nasdaq listing standards define "financially literate" as being able to read and understand
fundamental financial statements, including a company's balance sheet, income statement, and cash flow statement.

 As
of the fiscal year ended December 31, 2023, our Audit Committee is composed of Dennis Wong and David Chandler. Our board of directors
has affirmatively determined that all of the members of the Audit Committee meet the definition of "independent director"
for purposes of serving on an Audit Committee under Rule 10A-3.

 We
have established a written charter for our Audit Committee, in which we set forth the duties of the Audit Committee, which among other
matters include:

 oversight of our financial
 reporting, auditing, and internal control activities, the integrity and audits of our financial statements, and our compliance with
 legal and regulatory requirements;

 oversight of the performance
 of our internal audit function and independent auditors;

 our overall risk exposure
 and management;

 the annual review and assessment
 of the adequacy of the Audit Committee charter and the performance of the Audit Committee;

 the evaluation of the qualifications,
 performance, and independence of our internal audit function and independent auditors;

 the appointment, retention,
 and termination of our independent auditors and determine the compensation of our independent auditors;

 the review with the independent
 auditors of the plans and results of the audit engagement;

 the sole authority to approve
 in advance all audit and non-audit services by our independent auditors, the scope and terms thereof, and the fees therefor; and

 meeting at least quarterly
 with our executive officers, internal audit staff, and our independent auditors in separate executive sessions.

 A
copy of the Audit Committee charter is available on our website at www.harborcustomdev.com.

 The
members of our Nominating and Corporate Governance Committee are Dennis Wong and Karen Bryant. The members of our Compensation Committee
are Chris Corr and David Chandler. We have also established charters for each of our Nominating Committee and Compensation Committee.

 ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 Rosenberg
Rich Baker Berman, P.A. (RRBB) an independent registered public accounting firm, audited the financial statements and performed quarterly
reviews of the company for 2023 and has been selected to do so for 2024.

 Audit
Fees

 The
aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the annual
audit of our financial statements and review of financial statements included in our quarterly reports and services that are normally
provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:

 For the Fiscal Year Ended

 2023

 2022

 Audit Fees

 $
 167,001
 (1)

 $
 165,200
 (1)

 Audit Related Fees

 14,960
 (2)

 4,450
 (2)

 Tax Fees

 —

 —

 All Other Fees

 —

 —

 Total

 $
 181,961

 $
 169,650

 (1)
Audit fees for 2023 and 2022 include fees for professional services rendered by RRBB for the audit of our consolidated financial statements
included in our Annual Report on Form 10-K, and review of our condensed consolidated financial statements included in our Quarterly Reports
on Form 10-Q.

 (2)
Audit-related fees for 2023 include fees related to consents and comfort letters for our public offering documents and 2022 include fees
related to consents.

 Audit
Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

 Our
Audit Committee pre-approves all audit and permissible non-audit services. These services may include audit services, audit-related services,
tax services, and other services. Our Audit Committee approves these services on a case-by-case basis.

 PART
IV

 ITEM
15. EXHIBITS

 Exhibit
 No.

 Description

 Form

 Exhibit

 Filing
 Date

 Filed

 Herewith

 3.1

 Certificate of Conversion and Articles of Incorporation of the Registrant dated October 1, 2018

 S-1

 3.1

 3.2

 Articles of Amendment of Articles of Incorporation of the Registrant dated December 7, 2018

 S-1

 3.2

 3.3

 Articles of Amendment of Articles of Incorporation of the Registrant dated August 1, 2019

 S-1

 3.3

 3.4

 2nd Amended and Restated Bylaws of the Registrant, dated January 15, 2020

 S-1

 3.4

 3.5

 Articles of Amendment of Articles of Incorporation of the Registrant, dated April 16, 2020

 S-1

 3.5

 04/28/2020

 3.6

 Articles of Amendment of Articles of Incorporation of the Registrant, dated March 1, 2023

 3.1

 03/03/2023

 4.1

 2018 Incentive and Non-Statutory Stock Option Plan, dated November 19, 2018

 S-1

 4.1

 4.2

 2020 Restricted Stock Plan, dated October 13, 2020

 10.1

 11/16/2020

 4.3

 Certificate of Designation of 8.0% Series A Cumulative Convertible Preferred Stock, dated June 8, 2021

 3.1

 06/10/2021

 4.4

 Warrant Agency Agreement between the Registrant and Mountain Share Transfer, Inc., dated June 11, 2021

 4.1

 06/14/2021

 4.5

 Certificate of Amendment of Certificate of Designation of 8.0% Series A Cumulative Convertible Preferred Stock, dated August 13, 2021

 S-1

 3.7

 09/10/2021

 4.6

 Warrant Agency Agreement between the Registrant and Mountain Share Transfer, Inc., dated October 7, 2021

 4.1

 10/08/2021

 4.7

 Description of Capital Stock

 4.7

 03/31/2023

 10.1

 Director Agreement between the Registrant and Richard Schmidtke, dated October 17, 2018

 S-1

 10.4

 10.2

 Independent Director Agreement with Larry Swets, dated March 22, 2020

 S-1

 10.11

 10.3

 SoundEquity, Inc. Loan Package, dated November 13, 2019

 S-1

 10.12

 04/28/2020

 10.4

 Indemnification Agreement with Larry Swets, dated June 1, 2020

 S-1

 10.17

 06/19/2020

 10.5

 Lease Agreement with Burnham Partners LLC, dated February 18, 2021

 10.22

 0 3/31/2021

 10.6

 SoundEquity, Inc. Loan Package, dated October 4-5, 2021

 10.25

 03/31/2021

 10.7

 Promissory Note with Sound Capital Loans, LLC, dated January 22, 2021

 10.26

 0 3/31/2021

 10.8

 Lease Agreement with University Street Properties I, LLC, dated July 27, 2021

 10.13

 03/24/2022

 10.9

 Offer of Employment to Lance Brown dated November 1, 2021.

 10.14

 03/24/2022

 10.10

 Loan Agreement with BankUnited, N.A., dated March 7, 2022

 1.1

 03/10/2022

 10.11

 Security Agreement with BankUnited, N.A., dated March 7, 2022

 1.2

 03/10/2022

 10.12

 Revolving Line of Credit Promissory Note with BankUnited, N.A, dated March 7, 2022

 1.3

 03/10/2022

 10.15

 Employment Agreement with Sterling Griffin, dated May 26, 2022

 10.15

 03/31/2023

 10.16

 Employment Agreement with Jeffrey Habersetzer, dated May 26, 2022

 10.16

 03/31/2023

 10.17

 Amended Loan Agreement with BankUnited N.A., dated February 22, 2023

 10.17

 03/31/2023

 10.18

 Form of Director Indemnification Agreement

 10.2

 11/14/2023

 10.19

 Employment Agreement with Shelly Crocker

 10.1

 11/14/2023

 10.20

 Letter Agreement, dated May 11, 2023, between Harbor Custom Development, Inc. and Sterling Griffin

 10.1

 05/11/2023

 31.1

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

 31.1

 X

 31.2

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

 31.2

 X

 32.1

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

 32.1

 X

.INS

 Instance Document

 101.
 SCH

 Taxonomy Extension Schema Document

 101.
 CAL

 Taxonomy Extension Calculation Linkbase Document

 101.
 DEF

 Taxonomy Extension definition Linkbase Document

 101.
 LAB

 Taxonomy Extension Label Linkbase Document

 101.
 PRE

 Taxonomy Extension Presentation Linkbase Document

 Cover

 ITEM
16. FORM 10-K SUMMARY

 Not

 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.

 CUSTOM DEVELOPMENT, INC.

 Date:
 March 29, 2024

 By

 /s/
 Jeff Habersetzer

 Jeff
 Habersetzer

 Interim
 Chief Executive Officer and Interim President

 (Principal
 Executive Officer)

 Date:
 March 29, 2024

 By

 /s/
 Yoshi Niino

 Yoshi
 Niino

 Chief
 Accounting Officer

 (Principal
 Financial and Accounting Officer)

 Pursuant
to the requirements of 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

 Signature

 Title

 Date

 /s/
 Jeff Habersetzer

 Interim Chief Executive
 Officer and Interim President

 March

 Jeff Habersetzer

 (Principal Executive Officer)

 /s/
 Yoshi Niino

 Chief Accounting Officer

 March

 Yoshi Niino

 (Principal Financial and
 Accounting Officer)

 /s/
 Dennis Wong

 March

 Dennis Wong

 /s/
 Karen Bryant

 March

 Karen Bryant

 /s/
 Chris Corr

 March

 Chris Corr

 /s/ David Chandler

 March

 David
 Chandler