What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-16 compared with 2021-03-30 · 1026 added, 1120 removed, 328 unchanged (87% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Dream Finders Homes, Inc.

Opinion on the Financial Statements – Balance Sheets

We have audited the accompanying balance sheets of Dream Finders Homes, Inc.

(the “Company”) as of December 31, 2020 and September 11, 2020, including the related notes (collectively referred to as the “financial statements”).

In our opinion, the

financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and September 11, 2020 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

The financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s 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 of these financial statements 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 financial statements are free of

material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the 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 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

financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to

the financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

We determined there are no critical audit matters.

/s/ PricewaterhouseCoopers LLP

Jacksonville, FL

March 30, 2021

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

Dream Finders Homes, Inc.

Balance Sheets

September 11,

Cash and cash equivalents

Commitments and contingencies (Note 3)

Stockholders’ Equity

Common stock $0.01 per share, 1,000 shares authorized, no shares outstanding

Total stockholders’ equity

The accompanying notes are an integral part of these financial statements.

Dream Finders Homes, Inc.

Notes to Financial Statements

Nature of Business and Basis of Presentation

Dream Finders Homes, Inc.

(the “Company” or “DFH, Inc.”) was incorporated in the State of Delaware on September 11, 2020.

The Company was formed for the purpose of completing an initial public offering (“IPO”) of its common

stock and related transactions in order to carry on the business of Dream Finders Holdings LLC (“DFH LLC”) as a publicly-traded entity.

Pursuant to a corporate reorganization and completion of the Company’s IPO on January 25, 2021, the Company became a

holding company for DFH LLC and its subsidiaries.

On January 25, 2021, DFH, Inc., the holding company and sole manager of DFH LLC, successfully completed its initial public offering of 11,040,000 shares of Class A common stock (which

included full exercise of the over-allotment option) at an IPO price of $13.00 per share.

Shares of the Company’s Class A common stock began trading on the NASDAQ Global Select Market under the ticker symbol “DFH” on January 21, 2021.

The Company is

the sole manager of DFH LLC and owns 100% of the voting membership interests in DFH LLC.

The accompanying balance sheet has been prepared in accordance with accounting principles generally accepted in the United States of America.

Statements of income, stockholders’ equity and cash flows have not been presented

because the Company has not engaged in any business or other activities except in connection with its formation.

Stockholders’ Equity

As of December 31, 2020 and September 11, 2020, the Company was authorized to issue 1,000 shares of common stock, par value $0.01 per share.

Following the IPO and the Corporate Reorganization (Note 4), the Company is

authorized to issue 350,000,000 shares of common stock, par value of $0.01 per share, consisting of 289,000,000 shares of Class A common stock and 61,000,000 shares of Class B common stock.

The Board of Directors of the Company (the “Board of

Directors”) has the authority to issue, in one or more series, up to 5,000,000 shares of preferred stock, par value $0.01 per share, without stockholder approval.

Commitments and Contingencies

The Company may be subject to legal proceedings that arise in the ordinary course of business.

As of December 31, 2020, the Company had no outstanding commitments and contingencies.

Subsequent Events

The Company has evaluated subsequent events through March 30, 2021, the date the financial statements were issued, and no additional matters were identified requiring recognition or

disclosure in the financial statements, except for events described below.

Equity Incentive Plan

On January 20, 2021, the Board of Directors approved the DFH, Inc.

2021 Equity Incentive Plan (the “2021 Plan”), which became effective in connection with the IPO.

The 2021 Plan is

administered by the Compensation Committee of the Board of Directors, and authorizes the Company to grant incentive stock-based awards.

The Company granted 759,709 restricted stock grants to certain executives and directors in conjunction with the 2021

These stock grants vest over a period of three years of continuous service, commencing on the date of the grant and vesting ratably in one third increments at the end of each quarter of a three year term.

Corporate Reorganization and Initial Public Offering

In connection with the IPO, and pursuant to the terms of the Agreement and Plan of Merger by and among DFH, Inc., DFH LLC and DFH Merger Sub LLC, a Delaware limited liability company

and direct, wholly owned subsidiary of DFH, Inc., DFH Merger Sub LLC merged with and into DFH LLC with DFH LLC as the surviving entity.

As a result of the merger, all of the outstanding non-voting common units and Series A Preferred Units of DFH LLC

converted into 21,255,329 shares of Class A common stock of DFH, Inc., all of the outstanding common units of DFH LLC converted into 60,266,153 shares of Class B common stock of DFH, Inc.

and all of the outstanding Series B Preferred Units and Series C

Preferred Units of DFH LLC remained outstanding as Series B Preferred Units and Series C Preferred Units of DFH LLC, as the surviving entity in the merger.

We refer to this and certain other related events and transactions, as the “Corporate

Reorganization”.

Dream Finders Homes, Inc.

Notes to Financial Statements

Immediately following the Corporate Reorganization, (1) DFH, Inc.

became a holding company and the sole manager of DFH LLC, with no material assets other than 100% of the voting

membership interests in DFH LLC, (2) the holders of common units, non-voting common units and Series A Preferred Units of DFH LLC became stockholders of DFH, Inc., (3) the holders of the Series B Preferred Units of DFH LLC outstanding immediately prior

to the Corporate Reorganization continued to hold all 7,143 of the outstanding Series B Preferred Units of DFH LLC, and (4) the holders of the Series C Preferred Units of DFH LLC outstanding immediately prior to the Corporate Reorganization continued

to hold all 26,000 of the outstanding Series C Preferred Units of DFH LLC.

On January 25, 2021, the Company successfully completed its IPO of 11,040,000 shares of Class A common stock (which included full exercise of the over-allotment option) at an IPO price

of $13.00 per share.

Shares of the Company’s Class A common stock began trading on the NASDAQ Global Select Market under the ticker symbol “DFH” on January 21, 2021.

Unsecured Syndicated Credit Facility

On January 25, 2021 and in connection with the IPO, the Company entered into a $450.0 million syndicated credit facility with Bank of America, N.A.

and other lenders, and subsequently

repaid $340.0 million in outstanding debt, including the $20.0 million bridge loan with Boston Omaha Corporation, LLC, and terminated all existing construction lines of credit.

Under the terms of the new credit agreement, the Company has the option to

enter into Base Rate or LIBOR Rate borrowings.

The interest is payable based on the borrowing terms and is variable dependent on the Company’s debt to capitalization ratio and current LIBOR rates.

Dream Finders Holdings LLC and Subsidiaries

and Subsidiaries

Report of Independent Registered Public Accounting Firm ( 238 )

2 unchanged sentences

Consolidated Statements of Comprehensive Income

Consolidated Statements of Members’ Equity and Mezzanine Equity

Consolidated Statements of Mezzanine Equity, Members’ Equity and Stockholders’ Equity

Consolidated Statements of Cash Flows

1 unchanged sentence

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Dream Finders Holdings LLC

To the Board of Directors and Stockholders of Dream Finders Homes, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Dream Finders Holdings LLC and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of comprehensive income, of members’ equity

and mezzanine equity and of cash flows for each of the three years in the period ended December 31, 2020, including 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in

conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Dream Finders Homes, Inc.

and its subsidiaries (the “Company”) as of

December 31, 2021 and 2020, and the related consolidated statements of comprehensive income, of mezzanine equity, members’ equity and stockholders’ equity, and of cash flows for each of the three years in the period ended December 31, 2021,

including 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As described in Note 1 to the consolidated financial statements, the

Company changed the manner in which it accounts for cash proceeds from home closings that are in-transit from or held within title company escrow accounts for the benefit of the Company in 2021.

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.

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 of these consolidated financial statements 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.

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.

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

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or

disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the

consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements

that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or

complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a

separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Contingent Consideration

As described in Note 1 to the consolidated financial statements, the Company recognized contingent consideration related to the acquisitions of Village Park Homes and H&H Constructors of Fayetteville in 2019 and 2020, respectively.

measurement of contingent consideration was based on projected cash flows such as revenues, gross margin, overhead expenses and pre-tax income and discounted back using the discounted cash flow method.

The Company recorded the fair value of the

contingent consideration as a liability on the respective acquisition dates.

The estimated earn-out payments are subsequently remeasured to fair value each at reporting date based on the estimated future earnings of the acquired entities.

December 31, 2020, contingent consideration was $23.1 million.

The principal considerations for our determination that performing procedures relating to the valuation of contingent consideration is a critical audit matter are i) the significant judgment by management when estimating the fair value of

contingent consideration;

ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant judgments and assumptions related to gross margin, overhead expense and pre-tax income

forecasts, as applicable;

and iii) the audit effort involved the use of professional with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others, testing management’s process for

estimating the fair value of the contingent consideration, which included evaluating the appropriateness of the discounted cash flow models, testing the completeness and accuracy of data used in the models, and evaluating the reasonableness of

significant assumptions related to gross margin, overhead expense and pre-tax income forecasts, as applicable.

Evaluating the reasonableness of the gross margin, overhead expense and pre-tax income forecasts involved considering the past performance

of the acquired businesses, as well as economic and industry forecasts.

Professionals with specialized skill and knowledge were used to assist with the evaluation of the Company’s discounted cash flow models.

As described in Note 1 to the consolidated financial statements, the Company has recorded contingent consideration related to the

acquisitions of McGuyer Homebuilders, Inc.

in 2021, H&H Constructors of Fayetteville in 2020, and Village Park Homes in 2019.

Management recorded the fair value of the contingent consideration as a liability on the respective acquisition

The estimated earn-out payments are subsequently remeasured to fair value at each reporting date based on the estimated future earnings of the acquired entities and the reassessment of risk-adjusted discount rates.

The measurement of

contingent consideration was based on projected cash flows such as revenues, gross margin, overhead expenses, and pre-tax income and discounted to present value using the discounted cash flow method.

As of December 31, 2021, the liability for

contingent consideration was $124.1 million.

The principal considerations for our determination that performing procedures relating to the valuation of contingent consideration is a

critical audit matter are (i) the significant judgment by management when estimating the fair value of contingent consideration;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s

significant assumptions related to projected pre-tax income and the risk-adjusted discount rates;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the

consolidated financial statements.

These procedures included, among others, testing management’s process for estimating the fair value of contingent consideration, which included evaluating the appropriateness of the discounted cash flow methods,

testing the completeness and accuracy of data used in the methods, and evaluating the reasonableness of management’s significant assumptions related to projected pre-tax income and the risk-adjusted discount rates.

Evaluating the reasonableness

of the projected pre-tax income involved considering the past performance of the acquired businesses, as well as economic and industry forecasts.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the

appropriateness of the discounted cash flow methods and the reasonableness of the risk-adjusted discount rates.

/s/ PricewaterhouseCoopers LLP

2 unchanged sentences

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

Dream Finders Holdings LLC and Subsidiaries

Dream Finders Homes, Inc.

and Subsidiaries

Consolidated Balance Sheets

1 unchanged sentence

Restricted cash (VIE amounts of $ 4,275,399 and $ 8,793,201 )

Accounts receivable (VIE amounts of $ 2,683,870 and $ 1,288,359 )

Construction in process and finished homes

Joint venture owned land and lots (VIE amounts of $41,072,325 and $38,080,738)

VIE owned land and lots

Company owned land and lots

4 unchanged sentences

Intangible assets, net of amortization

Deferred tax asset

Other assets (VIE amounts of $ 2,185,265 and $ 0 )

1,894,247,623

Accounts payable (VIE amounts of $ 1,308,806 and $ 1,315,582 )

7 unchanged sentences

Total liabilities

1,337,864,345

Commitments and contingencies (Note 8)

6 unchanged sentences

Total members’ equity

Stockholders’ Equity - Dream Finders Homes, Inc.

Class A common stock, $ 0.01 per share, 289,000,000 authorized, 32,295,329

Class B common stock, $ 0.01 per share, 61,000,000 authorized, 60,226,153

Additional paid-in capital

Retained earnings

Non-controlling interests

Total liabilities, mezzanine equity and members’ equity

Total mezzanine equity, members’ equity and stockholders’ equity

Total liabilities, mezzanine equity, members’ equity and stockholders’ equity

1,894,247,623

The accompanying notes are an integral part of these consolidated financial statements.

Dream Finders Holdings LLC and Subsidiaries

Dream Finders Homes, Inc.

and Subsidiaries

Consolidated Statements of Comprehensive Income

Twelve Months Ended December 31,

1,923,909,806

1,133,806,607

Cost of sales

1,610,331,738

Selling, general and administrative expense

1 unchanged sentence

Gain on sale of assets

Loss on extinguishment of debt

Paycheck Protection Program forgiveness

Other Expense

Contingent consideration revaluation

Interest expense

Income before taxes

Income tax expense

Net and comprehensive income

Net and comprehensive income attributable to non-controlling interests

Net and comprehensive income attributable to Dream Finders Holdings LLC

Earnings per unit

Weighted-average number of units

Pro forma information (unaudited - see Note 16)

Income before income taxes

Pro forma income tax expense

Pro forma net income and comprehensive income

Pro forma net income and comprehensive income attributable to non-controlling interests

Pro forma net income and comprehensive income attributable to Dream Finders Holdings LLC

Pro forma earnings per unit

Pro forma weighted-average number of units

Net and comprehensive income attributable to Dream Finders Homes, Inc.

Earnings per share (1)

Weighted-average number of shares

The Company calculated earnings per share (“EPS”) based on net income attributable to common stockholders for the period January 21, 2021

through December 31, 2021 over the weighted average diluted shares outstanding for the same period.

EPS was calculated prospectively for the period subsequent to the Company’s initial public offering and corporate reorganization,

resulting in 92,521,482 shares of common stock outstanding as of the closing of the initial public offering.

The total outstanding shares of common stock are made up of Class A common stock and Class B common stock, which participate

equally in their ratable ownership share of the Company.

Diluted shares were calculated by using the treasury stock method for stock grants and the if‐converted method for the convertible preferred stock and the associated preferred

The accompanying notes are an integral part of these consolidated financial statements.

Dream Finders Holdings LLC and Subsidiaries

Consolidated Statements of Members’ Equity and Mezzanine Equity

Mezzanine and

Non-Controlling

Dream Finders Homes, Inc.

and Subsidiaries

Consolidated Statements of Mezzanine Equity, Members’ Equity and Stockholders’ Equity

Redeemable Preferred

Common Stock -

Additional Paid-in Capital

Retained Earnings

Balance at December 31, 2018

1 unchanged sentence

Contributions

Member receivable

Contribution from non-controlling interests

Contributions from non-controlling

Conversion of units

Distributions

Balance December 31, 2018

Balance at December 31, 2019

Unit compensation

Contributions

Contributions from non-controlling interests

Contributions from non-controlling

Conversion of units

3 unchanged sentences

Contributions

Contributions from non-controlling interests

Contributions from non-controlling

Conversion of units

Distributions

January 20, 2021 - prior to reorganiation and transactions and IPO

Reorganization transactions

Issuance of common stock in IPO, net

Issuance of convertible preferred

Equity-based compensation

Contributions

Contibutions from non-controlling

Conversion of units

Distributions

Preferred dividends declared

Net income (loss)

Balance at December 31, 2021

The accompanying notes are an integral part of these consolidated financial statements

Dream Finders Holdings LLC and Subsidiaries

Dream Finders Homes, Inc.

and Subsidiaries

Consolidated Statements of Cash Flows

Twelve Months Ended December 31,

Cash Flows from Operating Activities

Net income (loss)

Adjustments to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities

Gain (Loss) on sale of property and equipment

Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities

Depreciation and amortization

Gain on sale of property and equipment

Amortization of debt issuance costs

Amortization of ROU operating lease

Amortization of ROU financing lease

Unit compensation expense

Income from equity method investments, net distributions received

Extinguishment of unamortized debt issuance costs

Amortization of right-of-use operating lease

Amortization of right-of-use financing lease

Stock compensation expense

Income from Paycheck Protection Program

Deferred tax benefit

Income from equity method investments, net of distributions received

Remeasurement of contingent consideration

Changes in Operating Assets and Liabilities

Changes in Operating Assets and Liabilities, Net of Effects from Acquisitions

( 134,238,066

Other assets and accounts receivable

Accounts payable and accrued expenses

Customer deposits

Operating lease ROU Assets

Operating lease liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash Flows from Investing Activities

4 unchanged sentences

Business combinations, net of cash acquired

Net cash provided by (used in) investing activities

( 519,464,971

Net cash used in investing activities

( 523,042,849

Cash Flows from Financing Activities

Proceeds from issuance of common stock in IPO, net

Proceeds from issuance of convertible preferred stock, net

Proceeds from construction lines of credit

1,894,574,866

Principal payments on construction lines of credit

( 1,424,960,047

( 758,681,883

( 522,926,492

Proceeds from notes payable

1 unchanged sentence

Payment of debt issue costs

Payments of equity issuance costs

Payments on financing leases

Contributions to non-controlling interests

Payments on contingent consideration

Other financing activities

Contributions from non-controlling interests

Distributions to non-controlling interests

1 unchanged sentence

Distributions

Contribution from conversion of converted LLC units

Conversion of LLC units

( 123,657,596

Net cash provided by (used in) financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of year

Cash, cash equivalents and restricted cash at end of year

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Supplemental Disclosure of Cash Flow Information

1 unchanged sentence

Non-cash Financing Activities

Contingent consideration

Financed land payments to seller

Leased assets obtained in exchange for new operating lease liabilities

Leased assets obtained in exchange for new financing lease liabilities

Preferred issuance

Accrued distributions

Equity issuance costs incurred

Contingent Consideration

Non-cash Investing Activities

4 unchanged sentences

Restricted cash

Total cash, cash equivalents and restriced cash shown on the Consolidated Statements of Cash Flows

Total cash, cash equivalents and restricted cash shown on the Consolidated Statements of Cash Flows

The accompanying notes are an integral part of these consolidated financial statements.

Dream Finders Holdings LLC and Subsidiaries

Dream Finders Homes, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

1 unchanged sentence

Nature of Business

Dream Finders Holdings LLC, a Florida limited liability company and its subsidiaries (collectively the “Company”), operates as a general contractor engaged in the construction and sale of residential homes and speculative

homes in Central and Northeast Florida, Georgia, South Carolina, North Carolina, Colorado, Texas and the Washington DC metro area.

The consolidated financial statements of the Company include Dream Finders Holdings LLC (the “Parent” or “DFH LLC”) and its wholly owned subsidiaries Dream Finders Homes LLC, DFH Land LLC, DFH Greyhawk LLC, DFH Wildwood

LLC, DFH Corona LLC, DFH John’s Landing LLC, DFH Magnolia LLC, DFH Mandarin LLC, DFH Mandarin Land Holding LLC, DFH Office LLC, DFH Savannah LLC, Dream Finders Title LLC, HM7 JV Owner LLC, PSJ JV Owner LLC, ANT JV Owner LLC, VPH LLC, H&H

Constructors of Fayetteville, LLC and Ventures LLC (the “Subsidiaries”) as well as partially owned subsidiaries Jet Home Loans LLC, DFH Leyden LLC, DFH Amelia LLC, DFH Clover LLC, DFH Leyden II LLC, DFH MOF Eagle Landing LLC, DCE DFH JV LLC, DFH

Capital LLC, DFC Mandarin Estates LLC, DFC Wilford LLC, DFC East Village LLC, DFC Seminole Crossing LLC, DFC Amelia Phase III LLC, DFC Beachwalk LLC, DFC Blackburn LLC, DFC Goose Creek LLC, DFC Sterling Ranch LLC, and DFC Grand Landings LLC.

Dream Finders Homes, Inc.

(“DFH, Inc.”), the holding company and sole manager of the Parent, successfully completed its initial public offering (“IPO”) of 11,040,000 shares of Class A common stock (which included full

exercise of the over-allotment option) at an IPO price of $13.00 per share on January 25, 2021.

Shares of DFH, Inc.’s Class A common stock began trading on the NASDAQ Global Select Market under the ticker symbol “DFH” on January 21, 2021.

the sole manager of the Parent and owns 100% of the voting membership interest in the Parent (Note 17).

(the “Company” or “DFH, Inc.”) was incorporated in the State of Delaware on September 11, 2020.

The Company was formed for the purpose of

completing an initial public offering (“IPO”) of its common stock and related transactions in order to carry on the business of Dream Finders Holdings LLC, a Florida limited liability company (“DFH LLC”), as a publicly-traded entity.

Pursuant to a

corporate reorganization and completion of its Initial Public Offering (“IPO”) on January 25, 2021, the Company became a holding company for DFH LLC and its subsidiaries.

In connection with the IPO and pursuant to the terms of the Agreement and Plan of Merger by and among DFH, Inc., DFH LLC and DFH Merger Sub LLC, a Delaware limited liability company and direct, wholly owned subsidiary of DFH, Inc., DFH Merger Sub LLC

merged with and into DFH LLC with DFH LLC as the surviving entity (the “Merger”).

As a result of the Merger, all of the outstanding non-voting common units and Series A Preferred Units of DFH LLC converted into 21,255,329 shares of Class A common stock of DFH, Inc., all of the outstanding common units of DFH LLC converted into 60,226,152 shares of Class B common stock of DFH, Inc.

and all of the outstanding Series B Preferred Units and Series C Preferred Units of DFH LLC

remained outstanding.

We refer to this and certain other related events and transactions, as the “Corporate Reorganization”.

The Company successfully completed its IPO of 11,040,000 shares of Class A common stock (which included full exercise of the

over-allotment option) at an IPO price of $ 13.00 per share.

Shares of the Company’s Class A common stock began trading on the NASDAQ Global

Select Market under the ticker symbol “DFH” on January 21, 2021, and the IPO closed on January 25, 2021.

The Company is the sole manager of DFH LLC and owns 100 %

of the voting membership interest in DFH LLC.

The following is a description of the significant accounting policies and practices, which conform to accounting principles generally accepted in the United States of America (U.S.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Parent, its wholly owned subsidiaries and the Company’s investments that qualify for consolidation treatment (see Note 11).

All intercompany

accounts and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements include the accounts of DFH, its wholly owned subsidiaries and its investments that qualify for consolidation treatment

(see Note 11).

As a result of the reorganization transactions in connection with the IPO, for accounting purposes, our historical results included herein present the combined assets, liabilities and results of operations of Dream Finders Homes, Inc.

since the date of its formation and Dream Finders Holdings LLC, a Florida limited liability company (“DFH LLC”) and its direct and indirect subsidiaries prior to the IPO.

All intercompany accounts and transactions have been eliminated in

consolidation.

There are no other components of comprehensive income not already reflected in net and comprehensive income on our Consolidated Statements of Comprehensive Income.

1 unchanged sentence

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure

of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Significant estimates include the valuation and impairment of goodwill, impairment of

inventories and business combination estimates.

GAAP requires management to make estimates and assumptions that affect the reported

amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Significant estimates include the

valuation and impairment of goodwill, impairment of inventories and business combination estimates.

Actual results could differ materially from those estimates.

1 unchanged sentence

Cash and cash equivalents consist of highly liquid instruments, with original maturities of three months or less.

At various times throughout the year, the Company may have cash deposited with

financial institutions that exceed the federally insured deposit amount.

Management reviews the financial viability of these financial institutions on a periodic basis and does not anticipate nonperformance by the financial institutions.

had $9,676,416 and $18,617,105 of cash and cash equivalents in interest bearing money market accounts at December 31, 2020 and 2019, respectively.

Cash and cash equivalents includes

cash proceeds from home closings in-transit from or held by third-party escrow agents for the Company’s benefit, typically for less than five days, which are considered deposits in-transit.

At various times throughout the year, the Company may have

cash deposited with financial institutions that exceed the federally insured deposit amount.

Management reviews the financial viability of these financial institutions on a periodic basis and does not anticipate nonperformance by the financial

institutions.

The Company had $ 372,726 and $ 9,676,416

of cash and cash equivalents in interest bearing money market accounts at December 31, 2021 and 2020, respectively.

Restricted Cash

Restricted cash represents funds held in accounts that are restricted for specific purposes.

Restricted cash at December 31, 2020, includes $0 of funds restricted as an interest reserve relating to

note payables, $39,837,702 of escrow monies held in the title company, and $9,877,851 of funds related to specific future projects.

Restricted cash at December 31, 2019, includes $492,681 of funds restricted as an interest reserve relating to note

payables, $15,363,543 of escrow monies held in the title company, and $8,864,946 of funds related to specific future projects.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

Restricted cash at December 31, 2021, includes $ 48,597,903 of escrow monies held in the title company, and $ 5,496,935

of funds related to specific future projects.

Restricted cash at December 31, 2020, includes $ 39,837,702 of escrow monies held in the title

company, and $ 9,877,851 of funds related to specific future projects.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”).

provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.

ASU 2014-09 requires an entity

to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

This update creates a five-step model that

requires entities to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the

transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied.

to the issuance of ASU 2014-09, the FASB has issued several ASUs such as ASU 2016-08, Revenue from Contracts with Customers (Topic 606):

Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-12, Revenue from Contracts

with Customers (Topic 606):

Narrow-Scope Improvements and Practical Expedients, and ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20):

Clarifying the Scope of Asset Derecognition Guidance and

Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”), among others.

These ASUs do not change the core principle of the guidance stated in ASU 2014-09, instead these amendments are intended to clarify and improve operability of certain

topics included within the revenue standard.

These ASUs had the same effective date and transition requirements as ASU 2014-09.

The Company has adopted the full retrospective method to all contracts as of the beginning of the earliest period

The adoption of the standard did not have a material effect on the Company’s consolidated financial statements.

The Company’s revenues consist primarily of home sales.

The Company sells its products in the United States, which is also its principal market.

Home sale transactions are made pursuant to contracts

under which the Company typically has a single performance obligation to deliver a completed home to the homebuyer when closing conditions are met.

The Company recognizes revenue in accordance with Accounting Standards Codification Topic 606, Revenue from

Contracts with Customers (“ASC 606”), which requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for

those goods or services.

We recognize revenue by following the five-step model:

(i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv)

allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied.

The Company’s revenues consist primarily of home sales in the United States, which is its principal market.

Home sale transactions are made pursuant to contracts under which the Company typically has a single performance obligation to deliver a

completed home to the homebuyer when closing conditions are met.

The Company generally determines the selling price per home based on the expected cost-plus margin.

Company has performed an assessment and its contracts do not contain significant financing terms.

Performance obligations are satisfied at the point in time when control of the asset is transferred to the customer, which is generally when title to and

possession of the home and the risks and rewards of ownership are transferred to the homebuyer on the closing date.

Under home sale contracts, the Company typically receives an initial cash deposit from the homebuyer at the time the sales contract is

executed and receives the remaining consideration to which the Company is entitled, through an escrow agent, at closing.

The Company has performed an assessment and its contracts do not contain

significant financing terms.

Performance obligations are satisfied at the point in time when control of the asset is transferred to the customer, which is generally when title to and possession of the home and the risks and rewards of ownership are

transferred to the homebuyer on the closing date.

Under home sale contracts, the Company typically receives an initial cash deposit from the homebuyer at the time the sales contract is executed and receives the remaining consideration to which the

Company is entitled, through an escrow agent, at closing.

In certain contracts, the customer controls the underlying land upon which the home is constructed.

For these specific contracts,

the performance obligation is satisfied over time, as the Company’s performance creates or enhances an asset that the customer controls.

The Company recognizes revenue for these contracts based on the percentage of completion of the project.

For these specific contracts, the performance obligation is satisfied over time, as the

Company’s performance creates or enhances an asset that the customer controls.

The Company recognizes revenue for these contracts based on the percentage of completion of the projec t.

Typically, the Company has two types of percentage of

completion contracts.

The first type is with individual customers for which the Company acts as a general contractor on land owned by the homebuyer.

The second is with institutional buyers for which the Company acts as a general contractor on land

owned by the institution.

Individual customers generally have construction-to-permanent loans that are taken out by the customer.

During the underwriting process for our individual customers and institutional customers a draw schedule is agreed

upon by the bank, the customer and the Company.

Funds are disbursed for labor and materials that have been completed or installed.

These both result in a contract asset as work is being completed prior to receiving funds.

A contract liability would

be recorded in cases where we have received funds in excess of costs incurred.

At December 31, 2021 and 2020, the contract asset related to percentage of completion contracts was $ 21,030,708 and $ 6,259,567 , respectively, and included in other

assets on the Consolidated Balance Sheets.

At December 31, 2021 and 2020, the contract liability related to percentage of completion contracts was $ 3,906,312

and $ 0 , respectively, included in accrued expenses on the Consolidated Balance Sheets.

Sales incentives in the form of price concessions on the selling price of a home are recorded as a reduction of revenues.

The cost of sales incentives in the form of free or discounted products or

services provided to homebuyers, including option upgrades, are reflected as construction and land costs because such incentives are identified in home sale contracts with homebuyers as an intrinsic part of the Company’s single performance obligation

to deliver and transfer title to the home for the transaction price stated in the contracts.

The cost of sales incentives

in the form of free or discounted products or services provided to homebuyers, including option upgrades, are reflected as construction and land costs because such incentives are identified in home sale contracts with homebuyers as an intrinsic part

of the Company’s single performance obligation to deliver and transfer title to the home for the transaction price stated in the contracts.

Revenues include forfeited deposits, which occur when home sale or land sale contracts that include a nonrefundable deposit are cancelled.

A large portion of the Company’s contracts with customers and the related performance obligations have an original expected duration of one year or less.

A large portion of the Company’s contracts with customers and the related performance obligations have an original expected duration of one year or

Refer to Note 13 for a more detailed disaggregation of our revenues by reportable segments.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

Other Income and Expense

Other income consists of interest income and management fees that the Company earns for managing certain joint ventures.

In general, the Company earns four to six percent of the sales price of homes

built on behalf of the joint ventures.

Other expenses consist primarily of payments made to a land developer on homes closed in a single community in the Company’s Colorado segment, contingency fees related to the previous owner of H&H Homes and

stock based compensation expense.

This community in the Company’s Colorado segment was no longer active as of December 31, 2020.

Inventories include the costs of direct land acquisition, land development, construction, capitalized interest, real estate taxes and direct overhead costs incurred related to land acquisition and

development and home construction.

Other income includes income related to the forgiveness of the Paycheck Protection Program (“PPP”) grant, proceeds from sale of non-core assets and

interest income and management fees we earn for managing certain joint ventures.

In general, we earn four to six percent of the sales price of homes built by us on behalf of the joint ventures.

Other expense consists primarily of expenses related to the sale of

non-core assets and contingent consideration valuation changes associated with earn out agreements with former owners of acquired entities.

Inventories include the costs of direct land acquisition, land development, construction, capitalized interest, real estate taxes and direct overhead

costs incurred related to land acquisition and development and home construction.

Indirect overhead costs are charged to selling, general, and administrative expenses (SG&A) as incurred.

Land and development costs are typically allocated to individual residential lots on a pro rata basis based on the number of lots in the development, and the costs of residential lots are transferred

to construction work in progress when home construction begins.

Land and development costs are typically allocated to individual residential lots on a pro rata basis based on the number of lots in the development,

and the costs of residential lots are transferred to construction work in progress when home construction begins.

Sold units are expensed on a specific identification basis as cost of contract revenues earned.

Cost of contract revenues earned for homes closed includes the specific construction costs

of each home and all applicable land acquisition, land development and related costs allocated to each residential lot.

Cost of contract revenues earned for

homes closed includes the specific construction costs of each home and all applicable land acquisition, land development and related costs allocated to each residential lot.

Inventories are carried at the lower of accumulated cost or net realizable value.

The Company reviews the performance and outlook of its inventories for indicators of potential impairment on a

quarterly basis at the community level.

In addition to considering market and economic conditions the Company assesses current sales absorption levels and recent sales’ profitability.

The Company looks for instances where sales prices for a home in

backlog or potential sales prices for a future sold home would be at a level that results in a negative gross margin.

The Company reviews the performance and outlook of its inventories

for indicators of potential impairment on a quarterly basis at the community level.

In addition to considering market and economic conditions the Company assesses current sales absorption levels and recent profitability.

The Company looks for

instances where sales prices for a home in backlog or potential sales prices for a future sold home would be at a level at which the carrying value of the home may not be recoverable.

No impairments were recognized during the years ended December 31, 2021, 2020 or 2019.

1 unchanged sentence

Property and equipment are stated at cost less accumulated depreciation.

Maintenance and repairs are charged to expense as incurred and betterments are capitalized.

When items of property and equipment

are sold or otherwise disposed, the asset and related accumulated depreciation accounts are eliminated and any gain or loss is included in operations.

Maintenance and repairs are charged to expense as incurred and betterments

are capitalized.

When items of property and equipment are sold or otherwise disposed, the asset and related accumulated depreciation accounts are eliminated and any gain or loss is included in operations.

Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets as follows:

2 unchanged sentences

Long-Lived Assets

The Company evaluates the carrying value of its long-lived assets for impairment whenever events or changes in circumstances indicate an impairment may exist.

Recoverability is measured by the expected

undiscounted future cash flows of the assets compared to the carrying amount of the assets.

If the expected undiscounted future cash flows are less than the carrying amount of the assets, the excess of the net book value over the estimated fair value

is charged to current earnings.

Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate, current estimated net sales proceeds from

pending offers.

There were no triggering events or impairments recorded during the years ended December 31, 2020, 2019 or 2018.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

The Company evaluates the carrying value of its long-lived assets for impairment whenever events or changes in circumstances indicate an impairment

Recoverability is measured by the expected undiscounted future cash flows of the assets compared to the carrying amount of the assets.

If the expected undiscounted future cash flows are less than the carrying amount of the assets, the

excess of the net book value over the estimated fair value is charged to current earnings.

Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals,

and, if appropriate, current estimated net sales proceeds from pending offers.

There were no triggering events or impairments recorded

during the years ended December 31, 2021, 2020 or 2019.

Intangibles Asset, Net of Amortization

The Company has intangible assets that consist of tradenames that are recorded in connection with acquisitions at their fair value based on the

results of valuation analyses.

Trademarks acquired in business combinations are generally valued using the relief-from-royalty method, which are Level 3-type measurements.

Trademarks with finite lives are amortized over five-year periods.

Goodwill represents the excess of purchase price over the fair value of the assets acquired and the liabilities assumed in a business combination.

See Note 2 for details on recent acquisitions.

Company tests for impairment at least annually as of October 1, but the Company tests for impairment more frequently if a triggering event occurs.

This test assesses qualitative factors to determine if it is more likely than not that the fair value of

the reporting units is less than their carrying value.

These qualitative factors include, but are not limited to, economic conditions, industry and market considerations, cost factors, overall performance of the reporting unit and other entity and

reporting unit specific events.

Note 2 for details on recent acquisitions.

The Company tests for impairment at least annually as of October 1, but the Company tests for impairment more frequently if a triggering event occurs.

This test assesses qualitative factors to determine if

it is more likely than not that the fair value of the reporting units is less than their carrying value.

These qualitative factors include, but are not limited to, economic conditions, industry and market considerations, cost factors, overall

performance of the reporting unit and other entity and reporting unit specific events.

If the qualitative assessment indicates a stable fair value, no further testing is required.

However, if the qualitative assessment indicates that the fair value of a reporting unit has declined past its carrying value,

the Company will then calculate the fair value of the reporting unit based on discounted future cash flows.

An impairment loss is recorded if this assessment concludes that the fair value of the reporting unit is less than its current carrying value.

However, if the qualitative assessment indicates that the fair value

of a reporting unit has declined past its carrying value, the Company will then calculate the fair value of the reporting unit based on discounted future cash flows.

An impairment loss is recorded if this assessment concludes that the fair value of

the reporting unit is less than its current carrying value.

The Company completed its most recent goodwill impairment test on October 1, 2021, and determined that the fair value of all the reporting units was not less than carrying value.

No impairment was recognized during the years ended December 31, 2021, 2020 or 2019.

In addition, the Company has not recognized any impairment relating to triggering events that would cause additional impairment testing over goodwill.

In addition, the Company has not recognized any impairment

relating to triggering events that would cause additional impairment testing over goodwill.

The Company determines if an arrangement is, or contains, a lease at inception.

We recognize leases when the contract provides us the right to use an identified asset for a period of time in exchange

for consideration.

We recognize leases when the contract provides us the right to use an

identified asset for a period of time in exchange for consideration.

Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the Consolidated Balance Sheets.

Finance leases are included in finance lease ROU assets and finance lease liabilities in

the Consolidated Balance Sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

As most of the Company’s leases do not provide an explicit rate, management uses the Company’s incremental borrowing rate based on

the information available at the commencement date in determining the present value of lease payments.

Finance leases are included in

finance lease ROU assets and finance lease liabilities in the Consolidated Balance Sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to

make lease payments arising from the lease.

ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

As most of the Company’s leases do not provide an explicit rate,

management uses the Company’s incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.

An explicit rate is used when readily determinable.

The ROU assets also include any lease payments made, reduced by any lease incentives.

may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Lease expense for operating leases is recognized on a straight-line basis over the lease term.

The Company elected the

practical expedient to combine lease and nonlease components when accounting for the ROU assets and liabilities for all asset classes.

The ROU assets also include

any lease payments made, reduced by any lease incentives.

Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Lease expense for operating leases is recognized on a

straight-line basis over the lease term.

The Company elected the practical expedient to combine lease and nonlease components when accounting for the ROU assets and liabilities for all asset classes.

Variable lease costs are expensed as incurred.

Leases with an initial term of 12 months or less are not recorded in

the Consolidated Balance Sheets.

Leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheets.

Lot deposits represent amounts paid by the Company to secure the ability to acquire land for development or home sites through a contract.

The Company enters into contracts with different land sellers

to ensure it has property on which to build future homes over a two to four year timeline.

The contracts provide for a due diligence period during which the deposit is refundable, after which time the deposit may be partially or completely forfeited

should the Company decide not to proceed.

The Company reviews lot deposits for impairment on a quarterly basis and will record an impairment charge if it believes it will forfeit its deposit on an individual or portfolio of lots.

There were no deposit

forfeitures or impairments recorded as of December 31, 2020 and 2019, respectively, and the Company does not expect any over the next twelve months.

enters into contracts with different land sellers to ensure it has property on which to build future homes over a two to four-year timeline.

The contracts provide for a due diligence period during which the deposit is refundable, after which time the deposit may be partially

or completely forfeited should the Company decide not to proceed.

The Company reviews lot deposits for impairment on a quarterly basis and will record an impairment charge if it believes it will forfeit its deposit on an individual or portfolio of

There were no deposit forfeitures or impairments recorded as of December 31, 2021, 2020 and 2019, and the Company does not

expect any over the next twelve months.

Warranty Reserve

The Company provides a limited warranty for its homes for a period of one year .

The Company’s standard warranty requires the Company or its subcontractors to repair or replace defective construction

during such warranty period at no cost to the homebuyer.

At the time a home is sold, the Company records an estimate of warranty expense based on historical warranty costs.

An analysis of the warranty reserve is performed periodically to ensure the

reserve’s adequacy.

The warranty reserve is classified on the Consolidated Balance Sheets as an accrued expense.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

The Company’s standard warranty requires the Company or its subcontractors to repair or replace defective construction during such warranty period at no cost to the homebuyer.

At the time a home is sold,

the Company records an estimate of warranty expense based on historical warranty costs.

An analysis of the warranty reserve is performed periodically to ensure the reserve’s adequacy.

The warranty reserve is classified on the Consolidated Balance

Sheets as an accrued expense.

Contingent Consideration

In connection with the Village Park Homes, LLC (“VPH”) acquisition in May 2019 (Note 2), the Company recorded contingent consideration based on estimated pre-tax income of the acquired entity for

fiscal years 2019, 2020, 2021 and 2022.

In connection with the H&H Constructors of Fayetteville (“H&H”) acquisition in October 2020 (Note 2), the Company recorded contingent consideration based on estimated pre-tax net income of the acquired

entity for fiscal years 2020, 2021, 2022, 2023 and the first quarter of 2024.

The measurement of contingent consideration was based on projected cash flows such as revenues, gross margin, overhead expenses and pre-tax income and discounted back using

the discounted cash flow method.

The Company recorded the fair value of the contingent consideration as a liability on the respective acquisition dates.

The estimated earn-out payments are subsequently remeasured to fair value each at reporting date

based on the estimated future earnings of the acquired entities.

The contingent consideration for each acquisition is scheduled to be paid out each year subsequent to the anniversary of the respective acquisition closing date.

At December 31, 2020 and 2019, the Company remeasured contingent consideration related to the acquisition of VPH and adjusted the liability to $6,847,524 and $5,468,738, respectively, based on revised

pre-tax income forecasts as of the balance sheet date.

The Company recorded contingent consideration adjustments resulting in $1,378,686 of expense and $3,944,030 of income for the years ended December 31, 2020 and 2019, respectively.

These adjustments

are included in selling, general and administrative expenses on the Consolidated Statements of Comprehensive Income.

The Company measured contingent consideration related to the acquisition of H&H on October5, 2020, which approximated the value at December 31, 2020.

At December 31, 2020, the Company recorded

contingent consideration for H&H of $16,310,000.

In connection with the H&H Constructors of Fayetteville (“H&H”) acquisition in October 2020 (Note 2), the Company recorded contingent

consideration based on estimated pre-tax net income of the acquired entity for the fourth quarter of 2020, fiscal years 2021, 2022, 2023 and the first quarter of 2024.

In connection with the McGuyer Homebuilders, Inc.

(“MHI”) acquisition in October

2021 (Note 2), the Company recorded contingent consideration based on estimated pre-tax net income of the acquired entity for the fourth quarter of 2021, fiscal years 2022, 2023, 2024 and the first three quarters of 2025.

The measurement of

contingent consideration was based on projected cash flows such as revenues, gross margin, overhead expenses and pre-tax income and discounted to present value using the discounted cash flow method.

The Company recorded the fair value of the

contingent consideration as a liability on the respective acquisition dates.

The estimated earn-out payments are subsequently remeasured to fair value at each reporting date based on the estimated future earnings of the acquired entities and the

re-assessment of risk-adjusted discount rates.

The contingent consideration for each acquisition is scheduled to be paid out in April of each year subsequent to the anniversary of the respective acquisition closing date.

At December 31, 2021 and 2020, the Company remeasured contingent consideration related to the 2019 acquisition of Village Park Homes, LLC (“VPH”) and

adjusted the liability to $ 7,580,126 and $ 6,847,524 ,

respectively, based on revised pre-tax income forecasts as of the balance sheet date.

The Company recorded contingent consideration adjustments resulting in $ 732,602

of expense, $ 1,378,686 of expense, and $ 3,944,030

of income for the years ended December 31, 2021, 2020 and 2019, respectively.

These adjustments are included in Other expense – Contingent consideration valuation on the Consolidated Statements of Comprehensive Income.

At December 31, 2021 and 2020, the Company remeasured contingent consideration related to the acquisition of H&H and adjusted the liability to $ 19,739,135

and $ 16,310,000 , respectively, based on revised pre-tax income forecasts as of the balance sheet date.

The Company recorded contingent

consideration adjustments resulting in $ 4,635,904 of expense and $ 0 of expense for the years ended December 31, 2021 and 2020, respectively.

These adjustments are included in Other expense – Contingent consideration valuation on the

Consolidated Statements of Comprehensive Income.

The Company measured contingent consideration related to the acquisition of MHI on October 1, 2021, and recorded a liability in the opening balance sheet of $ 94,572,694 .

At December 31, 2021, the Company remeasured contingent consideration related to the acquisition and adjusted the liability to $ 96,737,018 ,

based on revised pre-tax income forecasts as of the balance sheet date.

For the year ended December 31, 2021, the Company recorded Other expense - Contingent consideration valuation for MHI of $ 2,164,324 .

Total contingent consideration on the Consolidated Balance Sheets is $ 124,056,279 .

The Company’s contingent consideration related to acquisition earn-out payments is based on a percentage of pre-tax

net and comprehensive income achieved by the acquired entity, and as such, is revised accordingly.

The payment of the H&H earn-out is subject to contain minimal earnings thresholds which must be met by H&H before an earn-out payment occurs.

Maximum potential exposure for contingent consideration is not estimable based on the contractual terms of the contingent consideration agreements, which allow for a percentage payout based on a

potentially unlimited range of pre-tax income.

There were no payments of contingent consideration for the years ended December 31, 2020 and 2019.

The Company’s contingent consideration related to

acquisition earn-out payments is based on a percentage of pre-tax net and comprehensive income achieved by the acquired entity and is discounted to present value using risk-adjusted discount rates that reflect current market conditions.

of the H&H and MHI earn-out is subject to minimal earnings thresholds, which must be met by H&H and MHI, respectively, before an earn-out payment occurs.

Maximum potential exposure for contingent consideration is not estimable based on the contractual terms of the contingent consideration agreements, which allow for a percentage payout based on a potentially unlimited range of pre-tax income.

2021, the Company paid $ 1,206,769 in contingent consideration to H&H.

There were no other payments of contingent consideration for the years ended December 31, 2021, 2020 and 2019.

See Note 15 — Fair Value Disclosures for additional discussion on fair

value measurement inputs related to contingent consideration.

Customer Deposits

Customer deposits are amounts collected from customers in conjunction with the execution of the home sale contract.

Customer deposits are applied against the final settlement due at the home closing.

Customer deposits are applied

against the final settlement due at the home closing.

In the event of contract default or termination, the customer deposit generally is forfeited and recognized as revenue.

Debt Issuance Costs and Debt Discounts

Debt issuance costs and debt discounts are amortized to interest expense using the effective interest method over the estimated economic life of the underlying debt instrument.

Portions of this

amortization are evaluated for capitalization as inventories and subsequently expensed through cost of sales at the home closing.

Debt issuance costs are recorded as a direct reduction from the carrying amount of the related debt in the Consolidated

Balance Sheets (Notes 4 and 5).

Debt issuance costs and debt discounts are amortized to interest expense using the effective interest method over the estimated economic life of the

underlying debt instrument.

Portions of this amortization are evaluated for capitalization as inventories and subsequently expensed through cost of sales at the home closing.

Variable Interest Entities

The Company participates in joint ventures that conduct land acquisition, land development and/or other homebuilding activities in various markets where the Company’s homebuilding operations are

The Company participates in joint ventures that conduct land acquisition, land development and/or other homebuilding activities in various markets

where the Company’s homebuilding operations are located.

The Company’s investments in these joint ventures may create a variable interest in a variable interest entity (“VIE”), depending on the contractual terms of the arrangement.

Additionally, the Company, in the ordinary course of business,

enters into contracts with third parties and unconsolidated entities for the ability to acquire rights to land for the construction of homes.

Under these contracts, the Company typically makes a specified payment or earnest money deposit in

consideration for the right to purchase land in the future, usually at a predetermined price.

Additionally, the

Company, in the ordinary course of business, enters into contracts with third parties and unconsolidated entities for the ability to acquire rights to land for the construction of homes.

Under these contracts, the Company typically makes a specified

earnest money deposit in consideration for the right to purchase land in the future, usually at a predetermined price.

Consideration paid for these contracts is recorded as lot deposits on the Consolidated Balance Sheets.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

Pursuant to FASB Accounting Standards Codification (“ASC”) 810 and subtopics related to the consolidation of variable interest entities, the Company analyzes

its joint ventures under the variable interest model to determine if such are required to be consolidated in the Company’s consolidated financial statements.

The accounting standard requires a VIE to be

consolidated by a company if that company is determined to be the primary beneficiary.

Pursuant to Financial Accounting Standards Board ( “ FASB ” )

Accounting Standards Codification (“ASC”) 810 and subtopics related to the consolidation of variable interest entities, the Company analyzes its joint ventures under the variable interest model to determine if such are required to be consolidated in the Company’s consolidated financial statements.

The accounting standard requires a VIE to be consolidated by a company if that company is determined to be the primary

The primary beneficiary is defined as the entity having both of the following characteristics:

1) the power to direct the activities that most significantly impact

the VIE’s performance, and 2) the obligation to absorb losses and rights to receive the returns from the VIE that would be potentially significant to the VIE.

See Note 11 for a description of the Company’s joint ventures, including those that were

determined to be VIEs, and the related accounting treatment.

1) the power to direct the activities that most significantly impact the VIE’s performance, and 2) the obligation to absorb losses and

rights to receive the returns from the VIE that would be potentially significant to the VIE.

See Note 11 for a description of the Company’s joint ventures, including those that were determined to be VIEs, and the related accounting treatment.

Management determines whether the Company is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion continually.

determination, management considers factors such as whether the Company should direct finance, determine or limit the scope of the entity, sell or transfer property, direct development or direct other operating decisions.

To make this determination, management considers factors such as whether the

Company should direct finance, determine or limit the scope of the entity, sell or transfer property, direct development or direct other operating decisions.

Joint ventures for which the Company is not identified as the primary beneficiary are accounted for as equity method investments.

The Company and its unconsolidated joint venture partners make initial

and/or ongoing capital contributions to these unconsolidated joint ventures, typically on a pro rata basis, according to each party’s respective equity interests.

The obligations to make capital contributions are governed by each such unconsolidated

joint venture’s respective operating agreement and related governing documents.

Partners in these unconsolidated joint ventures are unrelated homebuilders, land developers or other real estate entities.

For distributions received from these unconsolidated joint ventures, the Company has elected to use the cumulative earnings approach for the Consolidated Statements of Cash Flows.

Under the cumulative

earnings approach, distributions up to the amount of cumulative equity in earnings recognized are treated as returns on investment within operating cash flows and those in excess of that amount are treated as returns of investment within investing cash

The Company typically has obtained options to acquire portions of the land held by the unconsolidated joint ventures in which the Company currently participates.

When an unconsolidated joint venture

sells land to the Company, the Company defers recognition of its share of such unconsolidated joint venture’s earnings (losses) until the Company recognizes revenues on the corresponding home sale.

At that time, the Company accounts for the earnings

(losses) as a reduction (increase) to the cost of purchasing the land from the unconsolidated joint venture.

The Company and its

unconsolidated joint venture partners make initial and/or ongoing capital contributions to these unconsolidated joint ventures, typically on a pro rata basis, according to each party’s respective equity interests.

The obligations to make capital

contributions are governed by each such unconsolidated joint venture’s respective operating agreement and related governing documents.

Partners in these unconsolidated joint ventures are unrelated homebuilders, land developers or other real estate

For distributions received from these unconsolidated joint ventures, the Company has elected to use the cumulative earnings approach for the

Consolidated Statements of Cash Flows.

Under the cumulative earnings approach, distributions up to the amount of cumulative equity in earnings recognized are treated as returns on investment within operating cash flows and those in excess of that

amount are treated as returns of investment within investing cash flows.

The Company typically has obtained options to acquire portions of the land held by the unconsolidated joint ventures in which the Company currently

participates.

When an unconsolidated joint venture sells land to the Company, the Company defers recognition of its share of such unconsolidated joint venture’s earnings (losses) until the Company recognizes revenues on the corresponding home sale.

At that time, the Company accounts for the earnings (losses) as a reduction (increase) to the cost of purchasing the land from the unconsolidated joint venture.

The Company shares in the earnings (losses) of these unconsolidated joint ventures generally in accordance with its respective equity interests.

In some instances, the Company recognizes earnings

(losses) that differ from its equity interest in the unconsolidated joint venture.

This typically arises from the Company’s deferral of the unconsolidated joint venture’s earnings (losses) from land sales to the Company.

some instances, the Company recognizes earnings (losses) that differ from its equity interest in the unconsolidated joint venture.

This typically arises from the Company’s deferral of the unconsolidated joint venture’s earnings (losses) from land

sales to the Company.

Non-Controlling Interests

The equity interests in DFH Leyden LLC, DFH Amelia LLC, DFH Clover LLC, DFH Leyden II LLC, DFH MOF Eagle Landing LLC, DCE DFH JV LLC, DFH Capitol LLC, DFC Mandarin Estates LLC, DFC East Village LLC,

DFC Wilford LLC, DFC Seminole Crossing LLC, DFC Amelia Phase III LLC, DFC Sterling Ranch LLC and DFC Grand Landings LLC have been reflected as non-controlling interests in the Consolidated Balance Sheets.

Income attributable to these non-controlling

interests are presented in the Consolidated Statements of Comprehensive Income as net income attributable to non-controlling interests.

No provision for federal or state income taxes has been made since the Company elected to be treated as a partnership and, thus, income taxes resulting from the Company’s operations are the

responsibility of its members.

The Company made tax distributions of $14,886,698 ($150.27 per member unit), $5,531,610 ($56.50 per member unit) and $12,312,129 ($125.90 per member unit) in total, in cash for the years ended December 31, 2020, 2019 and

2018, respectively.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

The equity interests held by others in DFH Leyden LLC, DFH Amelia LLC, DFH Clover LLC, DFH Leyden II LLC, DFH MOF Eagle Landing LLC, DCE DFH JV LLC,

DFH Capitol LLC, DFC Mandarin Estates LLC, DFC East Village LLC, DFC Wilford LLC, DFC Amelia Phase III LLC, DFC Sterling Ranch LLC, DFC Grand Landings LLC and FMR IP, LLC.

have been reflected as non-controlling interests in the Consolidated Balance

Income attributable to these non-controlling interests are presented in the Consolidated Statements of Comprehensive Income as net income attributable to non-controlling interests.

We are a corporation subject to income taxes in the United States.

Our proportional share of the Company’s subsidiaries’ provisions are included in

our consolidated financial statements.

Our deferred income tax assets and liabilities are computed for differences between the asset and liability method and financial statement amounts that will result in taxable or deductible amounts in the future.

We compute deferred balances based on enacted tax laws and applicable rates for the periods in which the differences are expected to affect taxable income.

A valuation allowance is recognized for deferred tax assets if it is more likely than not that

some portion or all of the net deferred tax assets will not be realized.

In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future

taxable income, tax-planning strategies and results of recent operations.

If we determine we would be able to realize our deferred tax assets for which a valuation allowance had been recorded, then we would adjust the deferred tax asset valuation

allowance, which would reduce our provision for income taxes.

We evaluate the tax positions taken on income tax returns that remain open and positions expected to be taken on the current year tax returns to identify uncertain tax positions.

Unrecognized tax benefits on uncertain tax positions are recorded on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the

position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit that is more than 50 percent likely to be realized is recognized.

Interest and penalties related to unrecognized tax

benefits are recorded in income tax benefit.

Income Taxes.

The Company expenses advertising costs as they are incurred.

1 unchanged sentence

Equity-Based Compensation

Certain individuals on our executive-level management team are eligible for equity-based compensation, which is awarded according to the terms of individual contracts with those managers.

Certain individuals on our executive-level management team are eligible for equity-based compensation, which is awarded according to the terms of

individual contracts with those managers.

The Company records compensation cost for units awarded to employees in return for employee service.

The cost is measured at the grant-date fair value of the award and recognized as compensation expense over the

employee service period, which is normally the vesting period.

The Company does not estimate forfeitures.

The cost is measured at the grant-date fair value of the award and

recognized as compensation expense over the employee service period, which is normally the vesting period.

The Company estimates that there are no forfeitures.

In the event of forfeitures, the compensation expense recognized would be adjusted.

Change in Accounting Principle – Cash and cash equivalents

On December 31, 2021, the Company elected to change its accounting policy for presentation of cash proceeds from home closings that are in-transit from or held within title company escrow

accounts for the benefit of the Company.

Under the new principle, cash proceeds in-transit from or held by third-party escrow agents for its benefit, typically for less than five days, are included in cash and cash equivalents, whereas

previously, they were considered accounts receivable and included in other assets.

This reclassification for cash proceeds from home closings in-transit from or held in escrow represents a change in accounting principle which the Company believes

to be preferable because it is a more accurate reflection of its liquidity at period end and the predominant method used in our industry.

This change in accounting principle has been applied retrospectively, and the Consolidated Balance Sheets as

well as Consolidated Statements of Cash Flows reflect the effect of this accounting principle change in all years presented.

This reclassification had no impact on the Consolidated Statements of Comprehensive Income or Consolidated Statements of

Mezzanine Equity, Members’ Equity and Stockholders’ Equity.

The following financial statement line items for fiscal years 2019, 2020 and 2021 were affected by the change in accounting principle:

As of and for the year ended December 31, 2021:

Under previous

Under current

Effect of change

Cash and cash equivalents

Accounts receivable

Net cash provided by operating activities

As of and for the year ended December 31, 2020:

As previously reported

Effect of change

Cash and cash equivalents

Net cash provided by operating activities

For the year ended December 31, 2019:

As previously reported

Effect of change

Net cash provided by operating activities

Certain Reclassifications

Certain reclassifications have been made in the 2019 and 2020 Consolidated Financial Statements to conform to the classifications used in 2021.

Recent Accounting Pronouncements

The FASB issued certain new or modifications, or interpretations of, existing accounting guidance.

The Company has considered the new un-adopted guidance and does not believe that any other new or

modified guidance, other than those pronouncements shown below, will have a material impact on the Company’s reported consolidated financial position or operations.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , requiring an entity to recognize the amount of revenue to which it

expects to be entitled for the transfer of promised goods or services to customers.

The updated standard replaced most existing revenue recognition guidance in U.S.

GAAP when it became effective and permits the use of either a full retrospective or

retrospective with cumulative effect transition method.

In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 one year making it effective for annual reporting periods beginning after December 15, 2018.

Company adopted the guidance effective January 1, 2018 using a retrospective approach.

The adoption did not have a material effect on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU No.

2016-15, Statement of Cash Flows (Topic 230):

Classification of Certain Cash Receipts and Cash Payments.

The new guidance is intended to eliminate diversity in

practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.

The guidance requires application using a retrospective transition method.

The Company adopted the new standard on January 1, 2019.

adoption of this ASU did not have a material effect on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230):

Restricted Cash (a consensus of the FASB Emerging Issues Task Force), which provides guidance on the presentation of

restricted cash or restricted cash equivalents in the statement of cash flows.

ASU 2016-18 was effective for the Company beginning on January 1, 2019.

ASU 2016-18 must be applied using a retrospective transition method with early adoption permitted.

of January 1, 2019, the Company adopted ASU 2016-18, which among other things, requires restricted cash to be included within the Consolidated Statements of Cash Flows.

This adoption is applied retrospectively, which resulted in a reclassification in

operating activities within the Consolidated Statements of Cash Flows as of December 31, 2018.

In January 2017, the FASB issued ASU 2017-01, Business Combinations - Clarifying the Definition of a Business (Topic 805), which clarifies the definition of a

business with the objective of addressing whether transactions involving in-substance nonfinancial assets, held directly or in a subsidiary, should be accounted for as acquisitions or disposals of nonfinancial assets or of businesses.

ASU 2017-01 was

adopted prospectively by the Company on January 1, 2018, and subsequent interim periods.

The adoption did not have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment .

The standard’s

objective is to simplify the subsequent measurement of goodwill by eliminating the second step from the goodwill impairment test.

Under the amendments in the standard, an entity would perform its annual, or interim, goodwill impairment test by

comparing the fair value of a reporting unit with its carrying amount.

If the carrying amount of a reporting unit exceeds its fair value, an impairment charge would then be recognized, not to exceed the amount of goodwill allocated to that reporting

The Company adopted the updated standard prospectively on January 1, 2020.

The adoption did not have a material effect on the Company’s consolidated financial statements.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement - Disclosure Framework (Topic 820) , which improves the disclosure requirements for fair

value measurements.

The Company adopted this new standard prospectively on January 1, 2020.

The adoption did not have a material effect on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Report (Topic 848) ,

which provides practical expedients and exceptions for applying GAAP when modifying contracts and hedging relationships that use LIBOR as a reference rate.

In addition, these amendments are not applicable to contract modifications made and hedging

relationship entered into or evaluated after December 31, 2022.

We do not anticipate a material increase in interest rates from our creditors as a result of the shift away from LIBOR as a reference rate, and we are currently evaluating the

impact of the shift and this guidance on our financial statements and disclosures.

Business Acquisition

On May 31, 2019, the Company acquired 100% of the issued and outstanding membership interests in VPH, a South Carolina based homebuilder, for a purchase price of $23,912,768.

To fund the acquisition,

the Company paid $14,500,000 in cash and agreed to pay additional consideration if VPH met certain financial metrics.

The previous owner of VPH repaid $2,284,998 for an outstanding receivable where the balance was owed by VPH’s previous owner.

receivable was legally acquired on the date of acquisition.

This payment was completed in July 2019.

As part of the purchase price, the Company recognized contingent consideration in the amount of $9,412,768.

The aggregate purchase price exceeded the

fair value of the net assets acquired.

Accordingly, the Company recognized the excess purchase price over the fair value of the net assets acquired as goodwill of $12,208,783.

The goodwill arising from the acquisition consists largely of synergies and

economies of scale from VPH’s operating footprint, which includes owned properties, increased future revenue and earnings from organic growth, new business opportunities and strategic initiatives.

Transaction costs were not material and were expensed

The business combination was accounted for under the acquisition method, and the acquisition has been included in the Company’s consolidated results of operations since the date of acquisition.

fair value of assets acquired included cash of $1,493,604, other assets of $4,511,911, inventories of $39,442,397 and liabilities assumed of $33,743,837, including $26,479,308 of construction lines of credit.

On October 5, 2020, the Company acquired 100% of the issued and outstanding membership interests in H&H, an operative homebuilder, for a purchase price of $44,096,448, net of $1,710,275 in purchase price reduction

related to customary closing adjustments.

To fund the acquisition, the Company obtained a $20,000,000 bridge loan from Boston Omaha Corporation, LLC, with an interest rate of 14% per annum maturing on May 1, 2021, paid cash of $9,496,723 and agreed to

pay contingent consideration in the amount of $16,310,000 if H&H met certain financial metrics.

Accordingly, the Company recognized the excess purchase price over the fair value of the net assets acquired as goodwill of $16,357,450.

The goodwill arising from the acquisition consists largely of

synergies and economies of scale from H&H’s operating footprint, which includes owned properties, increased future revenue and earnings from organic growth, new business opportunities and strategic initiatives.

Transaction costs were not material

and were expensed as incurred.

The business combination was accounted for under the acquisition method, and the acquisition has been included in the Company’s consolidated results of operations since the date of acquisition.

fair value of assets acquired includes cash of $10,956,359, other assets of $8,253,966, tradename of $2,660,000, inventories of $143,817,075 and liabilities assumed of $137,949,737, including $116,894,907 of construction lines of credit.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

The following unaudited pro forma condensed consolidated results of operations are provided for illustrative purposes only and have been presented as if the VPH and H&H acquisitions had occurred on

January 1, 2018.

This unaudited pro forma information should not be relied upon as being indicative of the historical results that would have been obtained if the acquisition had occurred on that date, nor of the results that may be obtained in the

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), which provides practical expedients and exceptions for applying GAAP

when modifying contracts and hedging relationships that use LIBOR as a reference rate.

In addition, these amendments are not applicable to contract modifications made and hedging relationship entered into or evaluated after December 31, 2022.

not anticipate a material increase in interest rates from our creditors as a result of the shift away from LIBOR as a reference rate, and we are currently evaluating the impact of the shift and this guidance on our financial statements and

Business Acquisitions

On October 5, 2020, the Company acquired 100 % of the issued and outstanding membership interests in H&H, an operative

homebuilder, for a purchase price of $ 44,096,448 , net of $ 1,710,275

in purchase price reduction related to customary closing adjustments.

To fund the acquisition, the Company obtained a $ 20,000,000 bridge loan from Boston Omaha Corporation, LLC, with an interest rate of 14 % per annum maturing on May 1, 2021 , paid cash of $ 9,496,723 and agreed to pay contingent consideration in the

amount of $ 16,310,000 if H&H

met certain financial metrics.

The acquisition was accounted for as a business combination under FASB ASC Topic 805, Business Combinations (“Topic

805”) under the acquisition method, and the acquisition has been included in the Company’s consolidated results of operations since the date of acquisition.

We recorded an allocation of the purchase price to H&H tangible assets and

identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of October 1, 2020.

The amounts for intangible assets were supported by third-party valuations performed.

Goodwill was recorded as the

residual amount by which the purchase price exceeded the provisional fair value of the net assets acquired.

Goodwill consists largely of synergies and economies of scale from H&H’s operating footprint, which includes owned properties,

increased future revenue and earnings from organic growth, new business opportunities and strategic initiatives, none of which qualify as separately identifiable intangible assets.

Transaction costs were not material and were expensed as

The final purchase price allocation is as follows:

As Originally Reported

Measurement period adjustments (1)

Acquired Value

Cash acquired

Construction lines of credit

( 116,894,907

Other liabilities

Total purchase price

period adjustments were recorded during the period, impacting inventories, accounts receivable and goodwill.

These adjustments were related to and reflect the final valuation of the acquired assets.

The measurement period adjustments did

not have a material effect on our results of operations in prior periods.

Century Homes

On January 31, 2021, the Company completed the acquisition of Century Homes Florida, LLC (“Century Homes”).

from Tavistock Development Company for a total purchase price of $ 35,584,376 .

The acquisition was accounted for as a business combination under Topic 805.

We recorded an allocation of the purchase price to Century Homes tangible assets

acquired and liabilities assumed based on their estimated fair values as of January 31, 2021.

There were no identifiable intangible

Goodwill was recorded as the residual amount by which the purchase price exceeded the provisional fair value of the net assets acquired and is expected to be fully deductible for tax purposes.

Goodwill consists primarily of expected

synergies of combining operations, the acquired workforce, and growth opportunities, none of which qualify as separately identifiable intangible assets.

As of January 31, 2022, the Company has completed its allocation of the purchase price and no

measurement period adjustments were identified.

The purchase price allocation as of December 31, 2021 is as follows:

Cash acquired

Property and equipment, net

Total purchase price

On October 1, 2021, we completed the acquisition of certain assets, rights and properties, and assumed certain

liabilities of privately held Texas homebuilder McGuyer Homebuilders, Inc.

and related affiliates (“MHI”), including:

(i) single-family residential home-building;

(ii) owning model homes;

(iii) acquisition, ownership and licensing of intellectual

property (including architectural plans);

(iv) purchasing and reselling homebuilding supplies;

(v) development, construction and sale of condominium units in Austin, Texas;

(vi) mortgage origination through a mortgage company;

and (vii) title

insurance, escrow and closing services through a title company.

The acquisition allows the Company to expand its existing footprint in the Texas market.

Total cash paid at closing of approximately $ 471,000,000 included $ 463,004,096 in purchase price based on

preliminary value of purchased net assets and a 10 % deposit on a separate land bank facility.

On December 3, 2021, the Company paid an

additional $ 25,173,742 in cash for customary post-closing adjustments based on final value of the net assets acquired as of September 30,

Additionally, the Company agreed to the future payment of additional consideration of up to 25 % of pre-tax net income for up to five periods, the last of which ends 48

months after the closing subject to certain minimum pre-tax income thresholds and certain overhead expenses, estimated at approximately $ 94,472,694

as of the acquisition date.

The total purchase price is as follows:

Cash consideration

Contingent consideration based on future earnings

Total consideration

The Company used $ 20,000,000 of cash on hand and proceeds from the sale of the Convertible Preferred Stock and from unsecured debt

incurred under the Credit Agreement, to fund the MHI acquisition.

On October 1, 2021, the Company borrowed approximately $ 300,000,000

million under the Credit Agreement and paid off MHI’s vertical lines of credit in connection with the closing of the acquisition (See Note 4).

acquisition was accounted for as a business combination under Topic 805.

We recorded an allocation of the purchase price to MHI tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as

of October 1, 2021.

The amounts for intangible assets were based on third-party valuations performed.

Goodwill was recorded as the residual amount by which the purchase price exceeded the provisional fair value of the net assets acquired and is

expected to be fully deductible for tax purposes.

Goodwill consists primarily of expected synergies of combining operations, the acquired workforce, and growth opportunities, none of which qualify as separately identifiable intangible assets.

of December 31, 2021, the Company has substantially completed its allocation of the purchase price.

The principal open items relate to the valuation of certain contingencies as management is awaiting additional information to complete its

Estimates have been recorded as of the acquisition date and updates to these estimates may increase or decrease goodwill.

Pursuant to Topic 805, the financial statements will not be retrospectively adjusted for any provisional amount changes that occur in subsequent periods.

Rather, we will recognize any provisional adjustments during the reporting period in

which the adjustments are determined.

We will also be required to record, in the same period’s financial statements, the effect on earnings, if any, as a result of any change to the provisional amounts, calculated as if the accounting had been

completed at the acquisition date.

We expect to finalize the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.

The purchase price allocation as of

December 31, 2021, is as follows:

Cash acquired

Equity method investments

Intangible assets, net of amortization

Property and equipment, net

Operating lease right-of-use assets

Accounts payable

Accrued expenses

Customer deposits

Operating lease liabilities

Total purchase price

The following unaudited pro forma condensed consolidated results of operations are provided for illustrative purposes

only and have been presented as if the H&H, Century Homes and MHI acquisitions had occurred on January 1, 2020.

This unaudited pro forma information should not be relied upon as being indicative of the historical results that would have been

obtained if the acquisition had occurred on that date, nor of the results that may be obtained in the future.

For the Year Ended

3 unchanged sentences

2,291,993,087

Net and comprehensive income attributable to Dream Finders Holdings LLC

Net and comprehensive income attributable to Dream Finders Homes, Inc.

Property and Equipment

6 unchanged sentences

Property and equipment, net

Depreciation expense was $3,851,876, $3,035,451 and $2,270,710 for the years ended December 31, 2020, 2019 and 2018, respectively.

Depreciation expense was $ 3,720,011 , $ 3,851,876 and $ 3,035,451 for the years

ended December 31, 2021, 2020 and 2019, respectively.

Construction Lines of Credit

As of December 31, 2020, the Company had 34 lines of credit with cumulative maximum availability of $762,979,000, and an aggregate outstanding balance of $289,878,716.

As of December 31, 2019, the

Company had 19 lines of credit with cumulative maximum availability of $457,800,000 and aggregate outstanding balances of $217,667,344.

The construction lines of credit are fully collateralized by finished lots and homes under construction and are personally guaranteed by the majority member of the Company.

We pledge collateral valued

at up to the gross lending limit for each line and can then borrow funds up to the net limit of each line, which is calculated as a percentage of the value of pledged collateral.

The pool of assets pledged as collateral for each line rotates as

finished homes are sold and we begin construction on new homes.

The guarantee provides additional assurance to the Company’s lenders, as they have recourse to the personal assets of the majority member beyond the pledged collateral in the vertical

facilities to be made whole in instances of default.

The vertical construction facilities are renewed annually upon the completion of due diligence procedures performed by the lenders.

Rather than hard maturity dates, these lines of credit have customary

wind-down features that allow the Company to naturally unwind the collateral over a predetermined period of time (generally 12 months), in potential occurrences of non-renewal.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

The Company’s construction lines of credit consist of the following:

Payment Terms

Effective Rate

November 30, 2019

Interest is payable monthly, at the greater of Prime rate or 4.25%

November 30, 2019

Interest is payable monthly at the greater of the Prime rate plus 1.00% or 5.50%

February 9, 2021

Interest is payable monthly at 3.40% plus 30-day LIBOR

March 31, 2021

Interest is payable monthly at 9.50%

April 30, 2021

Interest is payable monthly at the greater of the Prime rate plus .50% or 3.75%

April 30, 2021

Interest is payable monthly at the Prime rate plus .50%

Interest is payale monthly at the greater of Prime rate plus .50% or 4.25%

June 12, 2021

Interest is payable monthly at 3.00% plus three-month LIBOR

June 30, 2021

Interest is payable monthly at the greater of 3.50% plus 30-day LIBOR or 4.5%

June 30, 2021

Interest is payable monthly at 3.75% plus 1-month LIBOR

August 25, 2021

Interest is payable monthly at the Prime rate plus 0.75%

September 30, 2021

Interest is payable monthly at 3.00% plus three-month LIBOR.

October 1, 2021

Interest is payable monthly at the greater of 4.50% or 3.90% plus one-month LIBOR.

October 2, 2021

Interest is payable at the greater of 4.00% or 3.75% plus one-month LIBOR

October 2, 2021

Interest is payable monthly at the greater of the Prime rate plus 1.00% or 5.00%

October 5, 2021

Interest is payable monthly at 4.50% plus one-month LIBOR

October 25, 2021

Interest is payable monthly at the Prime rate plus 0.50%

November 2, 2021

Interest is payable monthly at the greater of the Prime rate plus .75% or 4.50%

December 15, 2021

Interest is payable monthly at the greater of the Prime rate plus .50% or 5.00%

December 18, 2021

Interest is payable monthly at 3.00% plus 30-day LIBOR

December 18, 2021

Interest is payable monthly at 3.95% plus one-month LIBOR

December 31, 2021

Interest is payable monthly at 9.00%

December 31, 2021

Interest is payable monthly at 9.50%

April 1, 2022

Interest is payable monthly at 9.5%.

April 20, 2022

Interest is payable monthly at 9.50%

April 30, 2022

Interest is payable monthly at 9.5%.

October 5, 2022

Interest is payable monthly at the greater of the Prime rate plus .50% or 4.00%

October 20, 2022

Interest is payable monthly at the greater of 4.00% or 2.75% plus three-month LIBOR

October 20, 2022

Interest is payable monthly at the greater of 4.50% or 3.90% plus three-month LIBOR

June 19, 2023

Interest is payable monthly at the greater of 4.0% or 2.75% plus three-month LIBOR.

June 19, 2023

Interest is payable monthly at the greater of 4.00% or the Prime rate plus 0.5%.

November 6, 2023

Interest is payable monthly at the greater of the Prime rate plus .375% or 3.65%

December 31, 2023

Interest is payable monthly at the greater of the Prime rate plus .50% or 4.00%

Interest is payable monthly at the greater of the Prime rate or 5.0%.

Lines of credit paid in full during 2020

Total lines of credit outstanding

Debt issuance costs from lines of credit

Lines of credit, net of discount

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

All lines of credit that were paid in full during 2020 and 2019, are no longer active and the Company does not intend to renew these facilities.

The outstanding balance in the vertical lines of credit

is payable upon the delivery of the collateralized individual homes to end-home buyers.

On an annual basis and in the normal course of business, the Company may negotiate the underlying vertical line facilities’ terms during the due diligence period.

In addition, lenders may modify the

financial or qualitative covenants within the loan agreements.

As a result, it is not unusual for the terms on the Company’s vertical facilities to change year over year.

These changes may include, but are not limited to, increases to unit-level

maturity periods, higher spec inventory ratios, increased tangible net worth requirements, increases/decreases in renewal fees, and other changes.

As of December 31, 2020 and 2019, there were no material changes to the terms of the Company’s vertical

The changes are considered to be within the Company’s normal operations to manage collateral efficiently and did not materially affect the Company’s result of operations.

Between December 31, 2019 and December 31, 2020, the Company had an increase in overall commitment availability of $305,179,000, primarily due to the H&H Homes acquisition.

The Company capitalized $2,249,683 and $2,264,286 as of December 31, 2020 and 2019, respectively, and amortized $2,090,711, $2,318,286 and $3,084,988 of debt issuance costs for the years ended December

31, 2020, 2019 and 2018, respectively.

Debt issuance costs related to the Company’s lines of credit and notes payable, net of amortization, were $506,466 and $602,318 as of December 31, 2020 and 2019, respectively.

The Company’s vertical line facilities contain various restrictive covenants and financial covenants.

In January 2021, the Company entered into an unsecured syndicated credit facility with Bank of

America and subsequently paid off and terminated all the then-existing vertical lines of credit (Note 17).

As such, the Company was not required to prepare covenant calculations for the various vertical lines of credit in the table above.

was in compliance with all debt covenants as of December 31, 2019.

On January 25, 2021, the Company entered into a $ 450,000,000 syndicated senior, unsecured credit facility with Bank of America, N.A.

(the “Credit Agreement”), and subsequently repaid $ 340,000,000 in outstanding debt, including the $ 20,000,000 bridge loan with Boston Omaha Corporation,

LLC, and terminated all then-existing construction lines of credit.

Under the Credit Agreement, the Company has the option to enter into Base Rate or LIBOR Rate contracts.

The interest is payable based on the contract terms and is variable dependent

on the Company’s debt to capitalization ratio, and applicable interest rates in the market (LIBOR Rate, Prime Rate, etc.).

On September 8, 2021, the Company entered into a First Amendment and Commitment Increase Agreement (the “Amendment”) to its Credit

The Company exercised its right, and the Amendment provides, for an increase in the aggregate commitments under the Credit Agreement of up to $ 300,000,000 .

The aggregate commitments increase amounted to $ 292,500,000 , and the total availability under the Credit Agreement reached $ 742,500,000 .

Three new lenders were added

as additional lenders under the Credit Agreement.

As amended by the Amendment, the Credit Agreement includes provisions for any existing lender to, at the Company’s request, increase its revolving commitment under the Credit Agreement, add new

revolving loan tranches under the Credit Agreement or add new term loan tranches under the Credit Agreement, in all cases not to exceed an aggregate of $ 1,050,000,000 .

In addition, the Amendment clarified and modified certain definitions and covenants as more fully set forth therein, including modifications of certain financial covenants to facilitate the consummation of the MHI acquisition (Note 2).

29, 2021, in connection with the closing of the MHI acquisition, the Company exercised its right to further increase the aggregate commitments under the Credit Agreement to $ 817,500,000 and one lender was added as an additional lender under

the Credit Agreement.

Certain of the Company’s subsidiaries guaranteed the Company’s obligations under the Credit Agreement.

The Credit Agreement will mature on January 25, 2024 .

As of December 31, 2021, the outstanding balance under the Credit Agreement was $ 760,000,000 and the effective interest rate was 3.75 %.

December 31, 2020, the Company had 34 lines of credit with cumulative maximum availability of $ 762,979,000 , and an aggregate outstanding balance of $ 289,878,716 .

During 2020, the effective interest rates for these lines of credit ranged from 3.81 % to 10.33 %.

Our indebtedness as of December 31, 2020, was fully collateralized by homes under construction and, to a much smaller extent,

finished lots.

Under the Credit Agreement, the funds available are unsecured and availability is calculated based on work-in-progress inventory value on the Company’s Balance Sheets.

The outstanding lines of credit were paid in full during 2021 (in connection with the Company entering into the Credit Agreement),

are no longer active and the Company does not intend to renew these facilities.

The outstanding balance in the lines of credit were payable upon the delivery of the collateralized individual homes to end-home buyers.

The Company capitalized $ 7,505,214

and $ 2,249,683 as of December 31, 2021 and 2020, respectively, and amortized $ 1,959,943 and $ 2,090,711 of debt issuance costs for the years ended

December 31, 2021 and 2020, respectively.

As of December 31, 2021, the Company extinguished unamortized debt issuance costs of $ 506,466 .

Debt issuance costs related to the Company’s lines of credit and notes payable were $ 5,545,271 and $ 506,466 as of December 31, 2021 and 2020, respectively, included in other assets on the Consolidated Balance Sheets.

The Credit Agreement contains restrictive covenants and financial covenants.

The Company was in compliance with all debt covenants

as of December 31, 2021 and 2020.

The Company expects to remain in compliance with all debt covenants over the next twelve months.

5 unchanged sentences

Effective Rate

Interest is payable monthly at 14.00%

Interest is payable monthly

February 28, 2022

1 unchanged sentence

April 1, 2022

Interest is payable monthly at 12.50%

April 1, 2022

Interest is payable monthly at 12.50%

Interest is payable monthly

July 31, 2022

Interest is payable monthly at 9.25%

Interest is payable monthly

March 25, 2023

Interest is payable monthly at 5.00%

Notes paid in full during 2020

Interest is payable monthly

Total notes payable

Debt issuance costs from notes payable

Notes payable, net of discount

These notes payable relate to our consolidated joint ventures and are non-recourse to the Company.

Included within notes payable is a $20,000,000 bridge loan from Boston Omaha Corporation, LLC, which was utilized to fund a portion of the purchase price of the H&H Homes acquisition (Note 2).

note was paid off subsequent to the execution of the Bank of America unsecured syndicated facility in January 2021 (Note 17).

The principal balance on all notes payable is payable upon the sale of project specific collateral, and is collateralized by a real estate mortgage and a limited guarantee ensuring project completeness

and the nonexistence of fraudulent acts.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

These notes payable relate to our consolidated joint ventures and are non-recourse

to the Company.

Included within notes payable as of December 31, 2020 is a $ 20,000,000 bridge loan from Boston Omaha Corporation, LLC, which was utilized to fund a portion of the purchase price of the H&H Homes acquisition (Note 2).

This note was

paid off subsequent to the execution of the Credit Agreement in January 2021 (Note 3).

The principal balance on all notes payable is payable upon the sale of project specific collateral, and is collateralized by a real estate mortgage

and a limited guarantee ensuring project completeness and the nonexistence of fraudulent acts.

Contractual maturities of notes payable as of December 31, 2021, are as follows:

Maturity of Notes Payable

During the year ended December 31, 2020, there were no material changes in the contractual maturities of our notes payable.

Inventories consist of raw entitled land, finished lots, and construction in process (“CIP”), including capitalized interest.

Raw land is purchased with the intent to develop such land into finished

Finished lots are held with the intent of building and selling a home.

The asset is owned by the Company either as a result of developing purchased raw land or purchasing developed lots.

CIP represents the homebuilding activity associated with

both homes to be sold and speculative homes.

CIP includes the cost of the developed lot as well as all of the direct costs incurred to build the home.

The cost of the home is expensed on a specific identification basis.

During the year ended December 31, 2021, there were no material changes in the contractual maturities of our remaining notes payable.

Inventories consist of finished lots, construction in process (“CIP”) and finished homes, including capitalized interest.

In addition, lot option fees related to off-balance sheet

arrangements and due diligence costs related to land development are also capitalized into inventories – finished lots and land.

Finished lots are purchased with the intent of building and selling a home, and are generally purchased just-in-time

for construction.

CIP represents the homebuilding activity associated with both homes to be sold and speculative homes.

CIP includes the cost of the finished lot as well as all of the direct costs incurred to build the home.

The cost of the home is

expensed on a specific identification basis.

As mentioned in Note 11, the Company consolidated several joint ventures that own land and finished lots.

The Company owns a percentage of these joint ventures but does not own the underlying assets.

The Company owns a

percentage of these joint ventures, but does not own the underlying assets.

The table below shows the Company’s owned real estate inventory and real estate inventory owned by the joint ventures:

Construction in process

Construction in process and finished homes

Finished lots and land

Inventories owned by the Company

1,044,976,056

Inventories owned by consolidated joint ventures

Total inventories

1,066,661,744

Inventories owned by the Company

as a percentage of total inventories

Construction in process

Construction in process and finished homes

Finished lots and land

Interest is capitalized and included within each inventory category above.

Capitalized interest activity is summarized in the table below for the years ended December 31, 2020 and 2019.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

Capitalized interest activity is summarized in the table below for the

years ended December 31, 2021 and 2020:

Capitalized interest at the beginning of the period

4 unchanged sentences

Warranty Reserves

The Company establishes warranty reserves to provide for estimated future expenses as a result of construction and product defects, product recalls and litigation incidental to its homebuilding

The Company establishes warranty reserves to provide for estimated future expenses as a result of construction and product defects, product recalls

and litigation incidental to its homebuilding business.

Estimates are determined based on management’s judgment considering factors such as historical spend and the most likely current cost of corrective action.

The table below presents the activity related to warranty reserves, which are included

in accrued expenses in the accompanying Consolidated Balance Sheets.

The table below presents the activity related to warranty reserves, which are included in accrued expenses in the accompanying Consolidated Balance Sheets:

Warranty reserves at the beginning of the year

Additions to reserves for new homes deliveries

Additions to reserves for new home deliveries

Payments for warranty costs

1 unchanged sentence

Commitments and Contingencies

The Company is currently involved in the appeals phase of civil litigation related to defective products provided by Weyerhaeuser NR Company (“Weyerhaeuser”) (NYSE:

WY), one of the Company’s lumber

The Company’s Colorado division builds a number of floor plans that include basements using specialized fir lumber.

On July 18, 2017, Weyerhaeuser issued a press release indicating a recall and potential solution for TJI Joists with Flak

Jacket Protection manufactured after December 1, 2016.

The press release indicated the TJI Joists used a Flak Jacket coating that included a formaldehyde-based resin that could be harmful to consumers and produced an odor in certain newly constructed

The Company had 38 homes impacted by the harmful and odorous Flak Jacket coating and incurred significant costs directly related to Weyerhaeuser’s defective TJI Joists.

Accordingly, the Company sought remediation and damages from Weyerhaeuser.

The press release by Weyerhaeuser had a pronounced impact on the Company’s sales and cancellation rates in Colorado.

The Company filed suit on December 27, 2017— Dream Finders Homes LLC and DFH Mandarin, LLC v.

Company is currently involved in the appeals phase of

civil litigation related to defective products provided by Weyerhaeuser NR Company (“Weyerhaeuser”) (NYSE:

WY), one of our lumber suppliers.

Our Colorado division builds a number of floor plans that include basements using specialized fir lumber.

On July 18, 2017, Weyerhaeuser issued a press release indicating a recall and potential solution for TJI Joists with Flak Jacket Protection manufactured after December 1, 2016.

The press release indicated the TJI Joists used a Flak Jacket coating

that included a formaldehyde-based resin that could be harmful to consumers and produced an odor in certain newly constructed homes.

homes impacted by the harmful and odorous Flak Jacket coating and incurred significant costs directly related to Weyerhaeuser’s defective TJI Joists.

Accordingly, we sought remediation and damages from Weyerhaeuser.

The press release by

Weyerhaeuser had a pronounced impact on our sales and cancellation rates in Colorado.

We filed suit on December 27, 2017—Dream Finders Homes LLC and DFH Mandarin, LLC v.

Weyerhaeuser NR Company, No.

17CV34801 (District Court, City and County of Denver, State of Colorado)—and included claims against Weyerhaeuser for manufacturer’s liability based on negligence, negligent misrepresentation causing financial loss

in a business transaction and fraudulent concealment.

Weyerhaeuser asserted a counterclaim asserting an equitable claim for unjust enrichment.

After completion of a jury trial on November 18, 2019, the District Court issued a verdict in favor of the

Company’s claims, awarding DFH LLC $3,000,000 in damages and DFH Mandarin, LLC $11,650,000 in damages.

17CV34801 (District Court, City and County of

Denver, State of Colorado)—and included claims against Weyerhaeuser for manufacturer’s liability based on negligence, negligent misrepresentation causing financial loss in a business transaction and fraudulent concealment.

Weyerhaeuser asserted a

counterclaim asserting an equitable claim for unjust enrichment.

After completion of a jury trial on November 18, 2019, the District Court issued a verdict in our favor on our claims, awarding Dream Finders Homes LLC $ 3,000,000 in damages and DFH Mandarin, LLC $ 11,650,000

On February 21, 2020, the District Court dismissed Weyerhaeuser’s counterclaim.

Weyerhaeuser has appealed the District Court ruling— Dream Finders Homes LLC and DFH Mandarin, LLC v.

Weyerhaeuser NR Company, No.

2020CA2 (Court of Appeals, State of Colorado)—and that appeal is currently pending.

The Company has incurred all costs to date related to

the Weyerhaeuser matter and has recognized no gain on the damages awarded to it by the District Court.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

In April 2020, the Company received proceeds from the Paycheck Protection Program (“PPP”) in the amount $7,220,207, which is classified in accrued expenses on the Consolidated Balance Sheets and

accounted for as an in-substance grant.

The Company utilized all of the PPP proceeds to pay payroll and permissible operating expenses, and believes the full amount of the proceeds will be forgiven.

No income has been recognized for the years ended

December 31, 2020, related to the PPP proceeds.

The Company has operating leases primarily associated with office space that is used by divisions outside of the Jacksonville area, four model home sale-leasebacks and a corporate office building

sale-leaseback.

This corporate office building lease has a remaining lease term of 13 years.

The Company has an operating lease with a related party, the former owner of VPH.

The lease has a remaining term of approximately 6 years.

The Company also has

finance leases for corporate office furniture and copiers.

Weyerhaeuser appealed the Colorado District Court’s jury verdict and on December 2, 2021, the Colorado Court of Appeals reversed the judgment entered

against Weyerhaeuser for negligence, negligent misrepresentation and fraudulent concealment.

As a result, Dream Finders Homes LLC and DFH Mandarin, LLC filed a petition for writ of certiorari to the Colorado Supreme Court on January 13, 2022 to

appeal the Colorado Court of Appeals ruling —Dream Finders Homes LLC and DFH Mandarin, LLC v.

Weyerhaeuser NR Company, Case No.

2022SC24 (Colorado Supreme Court)—and that appeal is currently pending.

We are awaiting the Colorado Supreme Court’s

decision on whether it will grant our petition for writ of certiorari.

We have incurred all costs to date related to the Weyerhaeuser matter and have recognized no gain on the damages awarded to us by the District Court.

In April 2020, the Company received proceeds

from the PPP grant in the amount $ 7,219,794 , which is classified in accrued expenses on the Consolidated Balance Sheets and accounted for

as an in-substance grant.

The Company utilized all of the PPP proceeds to pay payroll and permissible operating expenses.

On June 16, 2021, approximately the total amount of the PPP proceeds were forgiven by the Small Business Association (“SBA”).

As such, the Company has included the PPP proceeds as other income on the Consolidated Statements of Comprehensive Income for the year ended December 31, 2021.

The Company has operating leases primarily associated with office space that is used by divisions outside of the Jacksonville area,

model home sale-leasebacks and a corporate office building sale-leaseback.

This corporate office building lease has a remaining lease term of 12

The Company also has finance leases for corporate office furniture.

Leases with an initial term of 12 months or less are not recorded on the balance sheet;

the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

nonlease components for new and reassessed leases are combined.

the Company recognizes lease expense for

these leases on a straight-line basis over the lease term.

Lease and nonlease components for new and reassessed leases are combined.

There are no significant operating or finance leases that have not yet commenced as of December 31, 2021.

Most leases include one or more options to renew, with renewal terms that can

extend the lease term.

include one or more options to renew, with renewal terms that can extend the lease term.

The exercise of lease renewal options is at the Company’s sole discretion.

The Company only includes these renewal options in its lease terms if they are reasonably certain to be exercised.

The Company only includes these renewal options in its lease terms if they are

reasonably certain to be exercised.

Finance lease assets are recorded net of accumulated amortization of $ 333,407 and $ 919,552 as of December 31, 2021 and 2020, respectively.

Model Home Sale-Leaseback

On September 28, 2018, the Company sold 23 completed Model Homes for $11,459,822.

The Company simultaneously entered into 23 individual lease agreements.

The Company is responsible for paying the

operating expenses associated with the homes while under lease.

The Company is also responsible for preparing and actively marketing the homes for sale.

The buyer has an option to require the Company to repurchase the homes at 90% of the original

purchase price at three months after the end of the lease term;

however, the Company does not believe the buyer has a significant economic incentive to exercise the option.

The Company recorded a gain related to this transaction in the amount of

On May 30, 2019, the Company sold 11 completed Model Homes for $4,417,674.

On May 30, 2019, the Company sold 11

completed Model Homes for $ 4,417,674 .

The Company simultaneously entered into 11 individual lease agreements.

The Company is responsible for paying the operating

expenses associated with the homes while under lease.

The Company is also responsible for preparing and actively marketing the homes for sale.

The Company is responsible for paying the operating expenses associated with the homes while under lease.

The Company is also responsible for preparing and

actively marketing the homes for sale.

The Company recorded a gain related to this transaction in the amount of $ 321,128 .

On December 27, 2019, the Company sold 20 completed Model Homes for $9,240,680.

On December 27, 2019, the Company sold 20

completed Model Homes for $ 9,240,680 .

The Company simultaneously entered into 17 individual lease agreements.

The Company is responsible for paying the

operating expenses associated with the homes while under lease.

The Company is also responsible for preparing and actively marketing the homes for sale.

The Company is responsible for paying the operating expenses associated with the homes while under lease.

The Company is also responsible for preparing and

actively marketing the homes for sale.

The Company recorded a gain related to this transaction in the amount of $ 1,928,671 .

Corporate Office Building Sale-Leaseback

In 2018, the Company sold its corporate headquarters in Jacksonville, and simultaneously entered into a lease for the same location.

The lease term was for 15 years with potential renewal options at

the end of the initial term.

The Company is responsible for paying the operating expenses associated with the corporate office.

The Company recorded a gain related to this transaction in the amount of $3,277,810, which is recorded in gain on sale of

assets within the Consolidated Statements of Comprehensive Income.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended

9 unchanged sentences

Net lease cost

Includes short-term leases and variable lease costs which are immaterial.

Includes short-term leases and variable lease costs which are

The following table shows the maturities of our lease liabilities as of December 31, 2021:

2 unchanged sentences

Present value of lease liabilities

We use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.

We use our incremental borrowing rate based on the information

available at the commencement date in determining the present value of lease payments.

During the year ended December 31, 2021, there have been no material changes in our lease liabilities for the next five years.

6 unchanged sentences

Financing leases

Members’ Equity

Redeemable Common Units and Redeemable Preferred Units

All of the Company’s preferred units are classified in mezzanine equity as they can be redeemed in a deemed liquidation of the Company outside of the Company’s control.

Additionally, the Company has

certain non-voting common units that can be redeemed outside the Company’s control, and therefore, are classified in mezzanine equity (the “Redeemable Non-Voting Common Units”).

As of December 31, 2020 and 2019, none of the events have occurred that

could result in the securities being redeemed by the unit holders.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

Redeemable Series A Preferred Units

As of December 31, 2020, 2019 and 2018, the Company had 15,400, 15,400 and 15,400, respectively, Redeemable Series A Preferred Units (“Series A Preferred Units”) issued and outstanding with a carrying

value of $23,774,912, $14,111,565 and $10,870,247, respectively.

In the event of a liquidation, dissolution or winding up of the Company, the Series A Preferred Units have a liquidation preference of $335.57 per unit and are senior to the common units

and Series B Preferred Units.

The Series A Preferred Units have a 4% annual cumulative preferred distribution on the liquidation preference that is payable if and when distributions are declared.

The Series A Preferred Units participate in

discretionary distributions with common units, and each unit has the right to one vote on any matter presented for a vote of the members.

As of December 31, 2020, 2019 and 2018, the Company did not have any cumulative preferred distributions in arrears

for the Series A Preferred Units.

The Series A Preferred Units can be redeemed at the option of the holders on or after December 31, 2021 or upon a sale of the Company at a price per unit that provides an 8% annual rate of return on

the liquidation preference.

The Company allocates earnings pari passu each period to the Series A Preferred Units.

As mentioned in Note 17, in the Corporate Reorganization in connection with the IPO, all Series

A Preferred Units were converted into shares of Class A common stock of DFH, Inc.

Redeemable Series B Preferred Units

As of December 31, 2020, 2019 and 2018, the Company had 7,143, 7,143 and 7,143, respectively, Redeemable Series B Preferred Units (“Series B Preferred Units”) issued and outstanding with a carrying

value of $6,333,036, $5,627,099 and $5,005,293, respectively.

In the event of a liquidation, dissolution or winding up of the Company, the Series B Preferred Units have a liquidation preference of $1,000 per unit and are senior to common units.

Series B Preferred Units have an 8% annual cumulative preferred distribution on the liquidation preference that is payable if and when distributions are declared.

The Series B Preferred units do not participate in discretionary distributions, and each

unit has the right to one vote on any matter presented for a vote of the members.

As of December 31, 2020, 2019 and 2018, these units have an aggregate unpaid amount of cumulative preferred distributions of $2,102,692, $1,396,755 and $746,414

Mezzanine Equity, Members’ Equity and Stockholders’ Equity

All of the Company’s outstanding preferred units are classified in mezzanine equity as they can be redeemed in a deemed liquidation of the Company outside of the

Company’s control.

Additionally, prior to the Corporate Reorganization, the Company had certain non-voting common units that could have been redeemed outside the Company’s control, and therefore, were classified in mezzanine equity (the “Redeemable

Common Units Mezzanine”).

In April 2020, the

Company redeemed 1,000 Series C Preferred Units for $ 1,000,000 plus accrued unpaid preferred distributions of $ 62,500 .

Pursuant to the Corporate Reorganization effective January 25, 2021, the Company is authorized to issue 350,000,000 shares of common stock, par value of $ 0.01 per share,

consisting of 289,000,000 shares of Class A common stock and 61,000,000 shares of Class B common stock.

The Board of Directors of the Company (the “Board of Directors”) has the authority to issue one or more series of preferred stock, par value $ 0.01 per share, without

stockholder approval.

As a result of the Corporate Reorganization, all of the outstanding non-voting common units and Series A Preferred Units of DFH LLC converted into 21,255,329 shares of the Company’s Class A common stock and all of the outstanding common units of DFH LLC converted into 60,226,153 shares of the Company’s Class B common stock.

January 27, 2021, the Company redeemed

all of the outstanding Series C Preferred Units for $ 26,000,000 , including $ 500,000 of discounted costs, plus accrued unpaid preferred distributions of $ 200,000 .

Following the Corporate Reorganization, the Company owns all of the voting membership interest of DFH LLC.

Redeemable Series B Preferred Units of DFH LLC

As of December 31, 2021 and 2020, the Company had 7,143 and 7,143 , respectively, of Redeemable Series B Preferred Units (“Series B

Preferred Units”) issued and outstanding with a carrying value of $ 7,095,178 and $ 6,333,036 , respectively.

In the event of a liquidation, dissolution or winding up of DFH LLC, the Series B Preferred Units have a liquidation preference of $ 1,000 per unit and are senior to common units.

The Series B Preferred Units have an 8 % annual cumulative preferred distribution on the

liquidation preference that is payable if and when distributions are declared.

The Series B Preferred units do not participate in discretionary distributions, and each unit has the right to one vote on any matter presented for a vote of the members of DFH LLC.

As of December 31, 2021 and 2020, these units have an aggregate unpaid amount of

cumulative preferred distributions of $ 2,864,834 and $ 2,102,692 ,

respectively, which is $ 401.07 and $ 294.37 , respectively, per unit.

The Series B Preferred Units can be redeemed at the Company’s option for $1,000 per unit plus any accrued and unpaid preferred distributions per unit at any time prior to December 31, 2022.

may also be redeemed at the option of the holder upon a sale of the Company for $1,000 per unit plus any accrued and unpaid preferred distributions.

As the units are not currently probable of becoming redeemable outside the Company’s control, no

accretion has been recorded.

As mentioned in Note 17, the Series B Preferred Units remained outstanding after the Corporate Reorganization in connection with the IPO.

Redeemable Convertible Series C Preferred Units

As of December 31, 2020, 2019 and 2018, the Company had 26,000, 27,000 and 27,000 Redeemable Convertible Series C Preferred Units (“Series C Preferred Units”) issued and outstanding, respectively.

of December 31, 2020, the Series C Preferred Units had a carrying value of $25,530,505 which included the impact of an origination fee of $270,000 that was paid to the holders upon issuance and $199,495 of other costs directly attributable to the

As of December 31, 2019 and 2018, the Series C Preferred Units had a carrying value of $26,530,505, of which the corresponding member receivable is presented as contra-mezzanine equity in the Consolidated Statements of Members’ Equity and

Mezzanine Equity, includes the impact of an origination fee of $270,000 that was paid to the holders upon issuance and $199,495 of other costs directly attributable to the issuance.

As of December 31, 2020, 2019 and 2018, the Company had cumulative

preferred distributions in arrears of $718,907, $748,603 and $0, respectively, for the Series C Preferred Units.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

In April 2020, the Company redeemed 1,000 Series C Preferred Units for $1,000,000 plus accrued unpaid preferred distributions of $62,500.

On January 27, 2021, the Company redeemed all of the

outstanding Series C Preferred Units for $2.6 million plus accrued unpaid preferred distributions of $0.2 million.

Redeemable Convertible Series D Preferred Units

Series D-1 Units

In May 2019, the Company issued three Redeemable Convertible Series D-1 Preferred Units (“Series D-1 Preferred Units”) for $3,000,000.

As of December 31, 2020, 2019 and 2018, the Company had zero,

three and zero Series D-1 Preferred Units issued and outstanding.

The carrying amounts as of December 31, 2020, 2019 and 2018 were $0, $3,000,000 and $0, respectively.

In the event of a liquidation, dissolution or winding up of the Company, the Series

D-1 Preferred Units have a liquidation preference of $1,000,000 per unit, are senior to Series A Preferred Unit holders, Series B Preferred Unit holders and common unitholders and are pari passu with Series

The Series D-1 Preferred Units had a 14% per annum quarterly preferred distribution, which would have increased to 17.5% after May 30, 2020.

The Series D-1 Preferred Units do not have any voting rights and do not participate in discretionary

The holders of the Series D-1 Preferred Units had the option to convert to a number of nonvoting common units at a predetermined metric until May 30, 2020.

Between May 30, 2020 and May 29, 2021, the

Series D-1 Preferred Units would have been redeemable at the Company’s option at $1,000,000 per unit plus accrued and unpaid preferred distributions.

The Series D-1 Preferred Units would have been required to be redeemed in the event of a sale of the

Company at $1,000,000 per unit plus accrued and unpaid preferred distributions.

The Company was required to obtain the consent of the Series C Preferred Unit holders before redeeming any Series D-1 Preferred Units prior to the redemption of any Series

C Preferred Units.

As of December 31, 2020, 2019 and 2018, the Company had cumulative preferred distributions in arrears of $0, $100,808 and $0, respectively, for the Series D-1 Preferred Units.

As of December 31, 2019 and 2018, the units were not probable of becoming redeemable outside the Company’s control, and no accretion was recorded.

In July 2020, the Company redeemed three series D-1 Preferred Units in the amount of $3,000,000, plus accrued unpaid preferred distributions of $38,730.

Series D-2 Units

In May 2019, the Company issued nine Redeemable Convertible Series D-2 Preferred Units (“Series D-2 Preferred Units”) for $9,000,000.

As of December 31, 2020, 2019 and 2018, the Company had zero, nine

and zero Series D-2 Preferred Units issued and outstanding.

The carrying amounts as of December 31, 2020, 2019 and 2018 were $0, $9,000,000 and $0, respectively.

In the event of a liquidation, dissolution or winding up of the Company, the Series D-2

Preferred Units have a liquidation preference of $1,000,000 per unit, are senior to Series A Preferred Unit holders, Series B Preferred Unit holders and common units and are pari passu with Series D-1.

Series D-2 Preferred Units had a 14% per annum quarterly preferred dividend, which increased to 17.5% after May 30, 2020.

The Series D-2 Preferred Units do not have any voting rights and do not participate in discretionary distributions.

The holders of the Series D-2 Preferred Units had the option to convert to a number of nonvoting common units equal to a formulaic amount after May 30, 2021.

The Series D-2 Preferred Units are

redeemable at the Company’s option until May 29, 2021 at $1,000,000 per unit plus accrued and unpaid preferred distributions.

The Company may not redeem any Series D-2 Preferred Units without prior consent of the Series C Preferred Unit holders unless

certain conditions have been met.

Upon a sale of the Company, the Series D-2 Preferred Units must be redeemed at $1,000,000 per unit plus accrued and unpaid preferred distributions.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2020, 2019 and 2018, the Company had cumulative preferred distributions in arrears of $0, $302,425 and $0, respectively, for the Series D-2 Preferred Units.

In January 2020, the Company redeemed six Series D-2 Preferred Units for $6,000,000.

In July 2020, the Company redeemed three series D-2 Preferred Units in the amount of $3,000,000, plus accrued unpaid preferred distributions of $20,082.

Redeemable Non-Voting Common Units

As of December 31, 2020, 2019 and 2018, the Company had 7,010, 5,774 and 5,774 Redeemable Non-Voting Common Units issued and outstanding, respectively.

The carrying amounts as of December 31, 2020,

2019 and 2018 were $20,592,999, $16,248,246 and $13,534,739, respectively.

In the event of a liquidation, dissolution or winding up of the Company, the Redeemable Non-Voting Common Units are pari passu with all

other common units.

The Redeemable Non-Voting Common Units participate in discretionary dividends and do not have any voting rights.

These units contain a feature that provides each unit holder 0.428 additional units per unit owned if the Company does not achieve $60,000,000 of net income for the years ended December 31, 2018 and

2019 (the “Valuation Feature”).

The fixed ratio per unit included in the Valuation Feature was subsequently renegotiated with the investor in January of 2020.

Each unit holder now receives 0.214 additional units per unit owned.

None of the other

provisions in the Valuation Feature changed.

The Redeemable Non-Voting Common Units are redeemable at the holder’s option after January 1, 2023, for $3,200 per unit if an initial public offering has not been declared effective by the United States

Securities and Exchange Commission before such date.

In January 2020, the Company issued an additional 1,236 Redeemable Non-Voting Common Units pursuant to the Valuation Feature described above.

The Company allocates earnings pari passu every period to the redeemable non-voting common units.

As mentioned in Note 17, in the Corporate Reorganization in connection with the IPO, all Redeemable Non-Voting Common Units were converted into shares of Class A

common stock of DFH, Inc.

The Series B Preferred Units can be redeemed at

DFH LLC’s option for $ 1,000 per unit

plus any accrued and unpaid preferred distributions per unit at any time prior to December 31, 2022.

The units may also be redeemed at the option of the holder upon a sale of DFH LLC for $ 1,000 per unit plus any accrued and unpaid preferred distributions.

As the units are not currently

probable of becoming redeemable outside the Company’s control, no accretion has been recorded.

Series A Convertible

Preferred Stock of the Company

On September 29, 2021, the Company filed a

Certificate of Designations with the State of Delaware establishing 150,000 shares of Series A Convertible Preferred Stock with an

initial liquidation preference of $ 1,000 per share and a par value $ 0.01 per share (the “Convertible Preferred Stock”) and sold 150,000 shares of

Convertible Preferred Stock for an aggregate purchase price of $ 150,000,000 .

The Company used the proceeds from the sale of the

Convertible Preferred Stock to fund a portion of the MHI acquisition (See Note 2).

Pursuant to the Certificate of Designations, the

Convertible Preferred Stock ranks senior to the Company’s Class A and B common stock with respect to dividends and distributions on liquidation, winding-up and dissolution.

Upon a liquidation, dissolution or winding up of the Company, each share of

Convertible Preferred Stock will be entitled to receive the initial liquidation preference of $ 1,000 per share, subject to adjustment, plus

all accrued and unpaid dividends thereon.

In addition, the Convertible Preferred Stock has the following terms:

Cumulative Dividends:

The Convertible Preferred Stock accumulates cumulative dividends at a rate

per annum equal to 9.00 % payable quarterly in arrears.

The Convertible Preferred Stock is perpetual with call and conversion rights.

The Convertible Preferred Stock is not convertible by the Purchasers in the first five years following issuance, with the exception of the acceleration of

the Conversion Right (as defined below) upon breach of the protective covenants (described below).

The Company can call the outstanding Convertible Preferred Stock at any time for one-hundred and two percent ( 102 %) of its liquidation preference during the fourth year following its issuance and for one-hundred and one percent ( 101 %) of its liquidation preference during the fifth year following its issuance (in each case, for the avoidance of doubt, plus accrued but unpaid dividends, if any).

to the fifth anniversary of its issuance, a Purchaser can convert the Convertible Preferred Stock into Class A common stock of the Company (the “Conversion Right”).

The conversion price will be based on the average of the trailing 90 days’ closing price of Class A common stock of the Company, less 20 % of the average and subject to a floor conversion price of $ 4.00

(the “Conversion Discount”).

Protective Covenants:

The protective covenants of the Convertible Preferred Stock require the

Company to maintain compliance with all covenants related to (i) the Credit Agreement, as may be further amended from time to time;

provided that any amendment, restatement, modification or waiver of the Credit Agreement that would

adversely and materially affect the rights of the Purchasers will require the written consent of holders of a majority of the then-outstanding shares of Convertible Preferred Stock;

and (ii) any agreement between the Company and any

Purchaser (the covenants referred to in clauses (i) and (ii), collectively, the “Protective Covenants”).

Non-compliance beyond any applicable cure period with the Protective Covenants (in the case of the Protective Covenants related to

the Credit Agreement) will accelerate the Conversion Right, and in the event of such acceleration that occurs before the fifth anniversary following the issuance of the Convertible Preferred Stock, the “Conversion Discount” shall be

increased from 20 % to 25 %.

Voting Rights:

Except as may be expressly required by Delaware law, the shares of Convertible Preferred Stock have no voting rights.

Redemption in a Change of Control:

The Convertible Preferred Stock will be redeemed, contingent upon and concurrently with the consummation of a change of control of the Company.

of Convertible Preferred Stock will be redeemed in a change of control of the Company at a price, in cash, equal to the liquidation preference, subject to adjustment, plus all accumulated and unpaid dividends, plus, if the change of control

occurs before the fourth anniversary of the date of issuance of the Convertible Preferred Stock, a premium equal to the dividends that would have accumulated on such share of Convertible Preferred Stock from and after the change of control

redemption date and through the fourth anniversary of the issuance of the Convertible Preferred Stock.

Pursuant to the terms of

the Certificate of Designations, unless and until approval of the Company’s stockholders is obtained as contemplated by Nasdaq listing rules, no shares of Class A common stock will be issued or delivered upon conversion of any Convertible Preferred

Stock to the extent that such issuance would (i) result in the holder beneficially owning in excess of 19.99 % of the outstanding Class A

common stock as of the date of the Certificate of Designations or (ii) exceed 19.99 % of the outstanding shares of Class A and Class B

common stock combined as of the date of the Certificate of Designations.

In addition, in

connection with the sale of the Convertible Preferred Stock, on September 29, 2021, the Company and the Purchasers entered into a Registration Rights Agreement (the “Registration Rights Agreement”) pursuant to which, among other things, the Company

granted the Purchasers certain registration rights.

Under the Registration Rights Agreement, the Company is required to register the Convertible Preferred Stock owned by the Purchasers and the shares of Class A common stock issuable upon conversion

of such shares equal to 19.99 % of the outstanding shares of Class A common stock for resale within the earlier of (i) three business days after the filing of the Company’s Form 10-K for the fiscal year ended December 31, 2021 and (ii) six months after September 29, 2021.

If the Company fails to comply with its registration requirements under the Registration Rights Agreement, the

Purchasers, in addition to any regular dividends, will be entitled to an additional 2 % per annum dividend for an additional quarter

period on the Convertible Preferred Stock if the breach is cured within 30 days and for each additional 30 day period in which the Company fails to cure such breach, each Purchaser will be entitled to an additional 2 % per annum for an additional quarter period until cured.

In addition, the Purchaser has rights to demand the registration of the Convertible Preferred Stock and the shares

of Class A common stock in certain instances.

Equity-Based Compensation

In 2020 and 2019, the Company did not issue any units as compensation to employees.

In 2018, the Company issued 25 non-voting common units as compensation to employees.

The non-voting common units

issued vest ratably over a five-year period.

Compensation expense is based on the grant-date fair value of the units granted, and is recognized on a straight-line basis over the requisite service period for the entire award.

The Company calculates the

fair value of its grants using the valuation from the latest equity transaction between the Company and a third party, and in all cases, these transactions occurred within twelve months of the grant date of the non-voting common units.

Expense related

to equity-based compensation was $946,609, $895,000 and $895,610 for the years ended December 31, 2020, 2019 and 2018.

As of December 31, 2020, the total unrecognized compensation expense was $1,240,309, which will be recognized at the earlier of a

liquidation event or a weighted-average period of 2.7 years.

As of December 31, 2019, the total unrecognized compensation expense was $2,186,917, which will be recognized at the earlier of a liquidation event or a weighted-average period of 2.2 years.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

The Company’s non-vested non-voting common units as of December 31, 2020, 2019 and 2018, and changes during the years then ended are presented below:

Dream Finders Homes, Inc.

On January 20, 2021, the Board of Directors approved and adopted the

2021 Equity Incentive Plan (the “2021 Plan”).

The 2021 Plan is administered by the Compensation Committee of the Board of Directors, and authorizes the Company to grant incentive stock-based awards.

The Company granted 759,709 restricted stock grants to certain executives and directors, which had a weighted-average grant date fair value of $ 23.15 per share, in conjunction with the adoption of the 2021 Plan.

These stock grants vest over a period of three years of continuous service, commencing on the date of the grant and vesting ratably in one third increments at the end of each year of a three-year term.

The fair value of these grants was derived by using the closing stock price on the date of the grant.

Expense related to equity-based compensation

under the 2021 Plan was $ 5,233,676 and $ 0

for the year ended December 31, 2021 and 2020, respectively.

As of December 31, 2021 and 2020, the total unrecognized compensation expense under the 2021 Plan was $ 16,690,354 and $ 0 , respectively.

The unrecognized compensation expense will be recognized over a

weighted-average period of 2.0 years.

The Company’s restricted

stock awards as of December 31, 2021 and changes during the year then ended are presented below:

Weighted Average

Units - December 31, 2018

Units - December 31, 2019

Units - December 31, 2020

Outstanding - December 31, 2020

Outstanding - December 31, 2021

Dream Finders

As of December 31, 2020, the Company had 3,532 non-vested, non-voting units issued to employees, valued at $ 4,741,657 , which converted into shares of the Company’s Class A common stock on January 21, 2021.

As a result, the Company expensed the remaining

unrecognized stock compensation expense associated with these units in the amount of $ 1,240,309 for the year ended December 31, 2021.

Expense related to equity-based compensation for these units was $ 697,054 for the year ended December 31, 2020.

There were no outstanding non-vested, non-voting units at December 31, 2021.

Variable Interest Entities and Investments in Other Entities

The Company holds investments in certain limited partnerships and similar entities that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations

The Company also has an interest in one unconsolidated variable interest entities (“VIE”), Jet Home Loans LLC, where the primary activities include underwriting, originating and selling home mortgages.

The Company’s VIEs are funded by

initial capital contributions from the Company, as well as its other partners and generally do not have significant debt.

The primary risk of loss associated with the Company’s involvement in these VIEs is limited to the Company’s initial capital

contributions due to bankruptcy or insolvency of the VIE;

Company holds investments in certain limited partnerships and similar entities that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located, which are considered

variable interests.

The Company also has an interest in an unconsolidated variable interest entity (“VIE”), Jet LLC, where the primary activities include underwriting, originating and selling home mortgages.

The aforementioned investments together

with Jet LLC, comprise the Company’s VIEs.

The VIEs are funded by initial capital contributions from the Company, as well as its other partners and generally do not have significant debt.

The primary risk of loss associated with the Company’s

involvement in these VIEs is limited to the Company’s initial capital contributions due to bankruptcy or insolvency of the VIE;

however, management has deemed the likelihood of this as remote.

The maximum exposure to loss related to the VIEs is disclosed below for both consolidated and unconsolidated VIEs, which equals

the Company’s capital investment in each entity.

The maximum exposure to loss related to the VIEs is

disclosed below for both consolidated and unconsolidated VIEs, which equals the Company’s capital investment in each entity.

In some cases, an unrelated third party is the general partner or managing member and in others, the general partner or managing member is a related party.

Management analyzed the Company’s investments first under the

variable interest model to determine if they are VIEs and, if so, whether the Company is the primary beneficiary.

Management consolidates the entity if the Company is the primary beneficiary or if a standalone primary beneficiary does not exist and the

Company and its related parties collectively meet the definition of a primary beneficiary.

If the joint venture does not qualify as a VIE under the variable interest model, management then evaluates the entity under the voting interest model to assess

if consolidation is appropriate.

analyzed the Company’s investments first under the variable interest model to determine if they are VIEs and, if so, whether the Company is the primary beneficiary.

Management consolidates the entity if the Company is the primary beneficiary or if a

standalone primary beneficiary does not exist and the Company and its related parties collectively meet the definition of a primary beneficiary.

If the joint venture does not qualify as a VIE under the variable interest model, management then

evaluates the entity under the voting interest model to assess if consolidation is appropriate.

The assets of a VIE can only be used to satisfy the obligations of that specific VIE, even for assets that are included within the Consolidated Balance Sheets.

The Company and its partners do not have an obligation to make

capital contributions to the VIEs and there are no liquidity arrangements or other agreements that could require the Company to provide financial support to the VIEs.

Furthermore, the creditors of the VIEs have no recourse to the Company’s general

and its partners do not have an obligation to make capital contributions to the VIEs and there are no liquidity arrangements or other agreements that could require the Company to provide financial support to the VIEs.

Furthermore, the creditors of

the VIEs have no recourse to the Company’s general credit.

Consolidated VIEs

For VIEs that the Company does consolidate, management has the power to direct the activities that most significantly impact the VIE’s economic performance.

The Company typically serves as the party with homebuilding

expertise in the VIE.

typically serves as the party with homebuilding expertise in the VIE.

The Company does not guarantee the debts of the VIEs, and creditors of the VIEs have no recourse against the Company.

There were no new consolidated VIEs during the years ended December 31, 2021, 2020 or 2019.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

The table below displays the carrying amounts of the assets and liabilities related to the consolidated VIEs:

Unconsolidated VIEs and Other Equity Method Investments

Unconsolidated VIEs

For VIEs that the Company does not consolidate, the power to direct the activities that most significantly impact the VIE’s economic performance is held by a third party.

These entities are accounted for as equity method

There were no entities that were deconsolidated during the years ended December 31, 2020, 2019 or 2018.

The Company’s maximum exposure to loss is limited to its investment in the entities because the Company is not obligated to provide any

additional capital to or guarantee any of the unconsolidated VIEs’ debt.

These entities are accounted for as equity method investments and, other than Jet Home Loans, are not individually significant.

The amount of retained earnings that represents undistributed earnings of 50-percent-or-less-owned entities accounted for

by the equity method was $ 9,972,266 and $ 2,966,644

as of December 31, 2021 and 2020, respectively.

There were no significant entities that were deconsolidated during the years ended December 31, 2021 or 2020.

The Company’s maximum exposure to loss is limited to its investment in the entities because

the Company is not obligated to provide any additional capital to or guarantee any of the unconsolidated VIEs’ debt.

The table below shows the Company’s investment in the unconsolidated VIEs:

Unconsolidated

Unconsolidated homebuilding VIE’s (1)

Jet Home Loans

Total investment in unconsolidated VIE’s

Other equity method investments

Total equity method investments

(1) The Company converted several of its equity method joint ventures to traditional land bank structures during the year ended December 31, 2020.

Investment capital of

$1,171,112 was reallocated from an equity method investment to a lot deposit.

Accordingly, a cash inflow from investing activities of $1,171,112 is included within the return of investments from equity method investments line item within the

Consolidated Statements of Cash Flows.

This is offset by a cash outflow from operating activities of $1,171,112 included within the lot deposits line item in the Consolidated Statements of Cash Flows.

Other unconsolidated VIEs

Total investment in unconsolidated VIEs

Lot Option Contracts

The Company generally does not engage in the land development business.

Instead, we employ an asset-light land financing strategy, providing us optionality to purchase lots on a ‘‘just-in-time’’ for construction and

affording us flexibility to acquire lots at a rate that matches the expected sales pace in a given community at predetermined market prices from various land bank entities.

We typically execute this strategy through the purchase of finished lot option

and land bank option contracts, which require deposits in the form of cash or letters of credit.

We operate an asset-light and capital efficient lot acquisition strategy that is intended to avoid the financial commitments and risks associated with direct land ownership and land development by allowing us to control a

significant number of lots for a relatively low capital cost.

Instead, we employ an asset-light land financing strategy, providing us optionality to purchase

lots on a ‘‘just-in-time’’ basis for construction and affording us flexibility to acquire lots at a rate that matches the expected sales pace in a given community.

We primarily employ two variations of our asset-light land financing strategy, finished lot option contracts and land bank option contracts, pursuant to which we secure the right to purchase

finished lots at market prices from various land sellers and land bank partners, by paying deposits based on the aggregate purchase price of the finished lots (typically 10% or less in the case of finished lot option contracts and 15% or less in the

case of land bank option contracts).

These option contracts generally allow us, at our option, to forfeit our right to purchase the lots controlled for any reason, and our sole legal obligation and economic loss as a result of such forfeitures is

limited to the amount of the deposits paid pursuant to such option contracts and, in the case of land bank option contracts, any related fees paid to the land bank partner.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

finished lots at predetermined market prices from various land sellers and land bank partners, by paying deposits based on the aggregate purchase price of the finished lots (typically 10 % or less in the case of finished lot option contracts and 15 %

or less in the case of land bank option contracts).

These option contracts generally allow us, at our option, to forfeit our right to purchase the lots controlled for any reason, and our sole legal obligation and economic loss as a result of such

forfeitures is limited to the amount of the deposits paid pursuant to such option contracts and, in the case of land bank option contracts, any related fees paid to the land bank partner.

None of the creditors of any of the land bank entities with which we enter into lot option contracts have recourse to our general credit.

We generally do not have any specific performance obligations to purchase a certain

number or any of the lots or guarantee any of the land bankers’ financial or other liabilities.

We are not involved in the design or creation of the land bank entities from which we purchase lots under lot option contracts.

The land bankers’ equity

holders have the power to direct 100% of the operating activities of the land bank entity.

We generally do not have any

specific performance obligations to purchase a certain number or any of the lots or guarantee any of the land bankers’ financial or other liabilities.

We are not involved in the design or creation of the land bank entities from which we purchase lots

under lot option contracts.

The land bankers’ equity holders have the power to direct 100 % of the operating activities of the land bank

We have no voting rights in any of the land bank entities.

The sole purpose of the land bank entity’s activities is to generate positive cash flow returns for

such entity’s equity holders.

Further, we do not share in any of the profit or loss generated by the project’s development.

The sole purpose of the land bank entity’s activities is to generate positive cash flow returns for such entity’s equity holders.

Further, we do not share in any of the profit or loss

generated by the project’s development.

The profits and losses are passed directly to the land banker’s equity holders.

The deposit placed by us pursuant to the lot option contracts is deemed to be a variable interest in the respective land bank entities.

Certain of those land bank entities are deemed to be variable interest entities

Certain of those land bank entities

are deemed to be VIEs.

Therefore, the land bank entities with which we enter into lot option contracts are evaluated for possible consolidation by the Company.

A reporting entity must consolidate a VIE when that reporting entity has a controlling financial interest

A reporting entity is deemed to have a controlling financial interest if it has i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance, and ii) the obligation to absorb losses of the

VIE that could be significant to the VIE or the rights to receive benefits from the VIE that could be significant to the VIE.

We believe the activities that most significantly impact a land bank entity’s economic performance are the operating activities of the land bank entity.

In the case of development projects, unless and until a land bank

entity delivers finished lots for sale, the land bank entity’s equity investors bear the risk of land ownership and do not earn any revenues.

We believe the activities that most significantly impact a land bank entity’s economic

performance are the operating activities of the land bank entity.

In the case of development projects, unless and until a land bank entity delivers finished lots for sale, the land bank entity’s equity investors bear the risk of land ownership and do

not earn any revenues.

The operating development activities are managed by the land bank entity’s equity investors.

We possess no more than limited protective legal rights through the lot option contracts in the specific finished lots that we are purchasing, and we possess no participative rights in the land bank entities.

we do not have the power to direct the activities of a land bank entity that most significantly impact its economic performance.

For the aforementioned reasons, the Company concluded that it is not the primary beneficiary of the land bank entities with

which it enters into lot option contracts, and therefore the Company does not consolidate any of these VIEs.

The Company’s total risk of loss related to lot option contracts was $66,272,347 and $24,447,707 as of December 31, 2020 and 2019,

respectively.

Accordingly, we do not have the power to direct the activities of a land bank entity that most

significantly impact its economic performance.

For the aforementioned reasons, the Company concluded that it is not the primary beneficiary of the land bank entities with which it enters into lot option contracts, and therefore the Company does not

consolidate any of these VIEs.

The Company’s total risk of loss related to finished lot option and land bank option contracts was $ 274,868,933

and $ 70,130,710 as of December 31, 2021 and 2020, respectively.

Asset Purchase of Joint Venture Interests

In December 2018, the Company purchased the membership interests of its joint venture partner in PSJ JV Owner LLC, HM7 JV Owner LLC and ANT JV Owner LLC.

After the transaction, the Company owned 100% of these companies,

and received all income, expenses and margin.

Since all of the identified assets in these companies were their land assets and no systems, people or processes were acquired, the transactions were accounted for as an asset purchase.

purchase price of these entities was $27,532,174, net of the Company’s outstanding equity investment in joint ventures.

The Company has a payable to the former owner of $27,532,174 in accrued expenses within the Consolidated Balance Sheets as of

December 31, 2018, which was paid in January 2019.

December 2018, the Company purchased the membership interests of its joint venture partner in PSJ JV Owner LLC, HM7 JV Owner LLC and ANT JV Owner LLC.

After the transaction, the Company owned 100 % of these companies, and received all income, expenses and margin.

Since all of the identified assets in these companies were their land assets and no systems, people or

processes were acquired, the transactions were accounted for as an asset purchase.

The combined purchase price of these entities was $ 27,532,174 ,

net of the Company’s outstanding equity investment in joint ventures, which was paid to the former owner in January 2019.

As such, for the year ended December 31, 2019, there is a cash outflow from operating activities of $ 27,532,174 included within the accounts payable and accrued expenses line item in the Consolidated Statements of Cash Flows.

Segment Reporting

The Company operates in the homebuilding business and is organized and reported by division.

There are twelve operating segments and six reportable segments:

Jacksonville, Orlando, Denver, Washington DC (“Capital”), and

the Carolinas (H&H Homes), the Company’s homebuilding operations;

and Jet Home Loans LLC (“Jet”), the Company’s mortgage operations.

The revenues of each remaining operating segment are not material and will be combined into an “Other” category for

the purposes of segment reporting.

The corporate component of the Company’s operations, which is not considered an operating segment, is also combined into the “Other” category.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

In accordance with ASC Topic 280, Segment Reporting, operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating

decision-makers (“CODMs”) in deciding how to allocate resources and in assessing performance.

The Company’s CODM primarily evaluates performance based on the number of homes closed, average sales price, and financial results.

Segment profitability is

measured by net and comprehensive income.

The Company’s homebuilding operations employ an asset-light business model with a focus on the design, construction and sale of single-family entry-level and first-time move-up homes.

On October 1, 2020, an unrelated party, FBC Mortgage, Inc., an Orlando-based mortgage lender, purchased Prime’s membership interest in Jet for book value.

The Company’s mortgage operations are conducted through Jet, which

is a licensed home mortgage broker that underwrites, originates and sells mortgages to FBC Mortgage LLC.

There are twelve operating segments and eight reportable segments:

(i) Jacksonville,

(ii) Colorado, (iii) Orlando, (iv) Washington DC (“DC Metro”), (v) the Carolinas, (vi) Texas, (vii) Jet Home Loans LLC (“Jet”), the Company’s mortgage operations, and (viii) Other.

The Company includes Century Homes operations acquired within the

Orlando segment and the MHI operations comprises the Texas segment.

The revenues of each remaining operating segment are not material and are therefore combined into an “Other” category for the purposes of segment reporting.

The corporate component

of the Company’s operations, which is not considered an operating segment, is also included in the “Other” category.

In accordance with ASC Topic 280, Segment Reporting, operating segments are defined as components of an enterprise for which separate financial information is available

that is evaluated regularly by the chief operating decision-makers (“CODMs”) in deciding how to allocate resources and in assessing performance.

The Company’s CODM primarily evaluates performance based on the number of homes closed, average sales

price and financial results.

Segment profitability is primarily measured by income before taxes.

The Company’s homebuilding operations employ an asset-light business model with a focus on the design, construction and sale of single-family entry-level and first-time

move-up homes.

On October 1, 2020, an unrelated party, FBC Mortgage, Inc., an Orlando-based mortgage lender, purchased Prime Lending Corp.’s membership interest in Jet for book value.

The Company’s mortgage operations are conducted through Jet, which is a licensed home mortgage broker that underwrites, originates and sells mortgages to FBC Mortgage LLC.

The Company owns 49.9 % of Jet, and FBC Mortgage, LLC owns the remaining 50.1 %.

Jet is accounted for as an equity method investment.

Financial information relating to the Company’s reportable segments is as follows.

Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the

reportable segment been an independent, stand-alone entity during the periods presented.

Jet is accounted

for as an equity method investment.

Summarized financial information relating to the Company’s reportable segments is shown in the following tables.

Operational results of each reportable segment are not

necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented.

The following tables summarize home sale revenues and net and comprehensive income by segment for the years ended December 31, 2021, 2020 and 2019

as well as total assets and goodwill by segment as of December 31, 2021 and 2020:

For the Years Ended

The Carolinas

Jet Home Loans

The Carolinas (H&H)

Total segment revenues

1,951,965,589

1,162,435,561

Reconciling items from equity method investments

1 unchanged sentence

1,923,909,806

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

1,133,806,607

For the Years Ended

Net and comprehensive income:

The Carolinas

Jet Home Loans

South Carolina (H&H)

Total segment net and comprehensive income

1 unchanged sentence

Consolidated net and comprehensive income

Net and comprehensive losses related to the Company’s Other segments in 2020 are primarily attributable to unallocated corporate expenses, of which $8.0 million is related to corporate selling, general

and administrative expenses and expenses associated with DFH, Inc.’s initial public offering.

The following table summarizes Company assets by segment as of December 31, 2020 and 2019:

As of December 31,

The Carolinas

Jet Home Loans

The Carolinas (H&H)

Total segment assets

Total segment

1,965,045,402

Reconciling items from equity method investments

Consolidated assets

Other includes the Company’s title operations, homebuilding operations in non-reportable segments, operations of the corporate component, and corporate assets such as cash and cash equivalents, cash held in trust, prepaid insurance,

operating and financing leases, lot deposits, goodwill, as well as property and equipment.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

1,894,247,623

Other includes the Company’s title operations, homebuilding operations in non-reportable segments, operations of the

corporate component and corporate assets such as cash and cash equivalents, cash held in trust, prepaid insurance, operating and financing leases, lot deposits, goodwill, as well as property and equipment.

As a result of the IPO and the Corporate Reorganization completed in January 2021, we own all of the Common Units of DFH LLC, which is treated as a

partnership for U.S.

federal and most applicable state and local income tax purposes.

As a partnership, DFH LLC is generally not subject to U.S.

federal and certain state and local income taxes.

Any taxable income or loss generated by DFH LLC

is passed through to and included in the taxable income or loss of its member, Dream Finders Homes, Inc., in accordance with the terms of the Operating Agreement.

The Company is a corporation subject to U.S.

federal income taxes, in addition to

state and local income taxes, based on our share of DFH LLC’s pass-through taxable income.

As of the 2021 tax year, the Company will file a consolidated U.S.

federal corporate income tax return, as well as state and local tax returns in all

jurisdictions where it maintains operations.

As the Company became subject to tax as a corporation in 2021, no provision for federal or state income taxes was made prior to 2021 and therefore, there are no comparative balances relating to

corporate income taxes for the 2020 or 2019 periods herein.

Income tax expense for the year ended December 31, 2021 consists of the following:

Current expense:

Total current expense

Deferred expense:

Total deferred (benefit)

Total income tax expense

The following table reconciles the statutory federal income tax rate to the effective income tax rate:

Income taxes at federal statutory rate

State and local income taxes, net of federal tax

Federal tax credits

Non-deductible executive compensation

Effective rate

The significant components of deferred income tax assets and liabilities as of December 31, 2021 consist of the following:

Deferred tax assets:

Property and equipment, net

Intangible assets

Contingent consideration valuation

Stock options

Warranty reserve

Deferred tax liabilities:

Property and equipment, net

Net deferred income tax asset

Deferred tax assets arise principally as a result of various accruals required for financial reporting purposes which are not

currently deductible for tax return purposes.

Management believes that we will have sufficient future taxable income to make it more likely than not that the net deferred tax assets will be realized.

As of December 31, 2021, the Company had no valuation allowance recorded against deferred tax assets.

the Company did not exist at such time and DFH LLC was treated as a partnership

generally not subject to U.S.

federal and most applicable state and local income taxes.

As of December 31, 2021and 2020, we have no uncertain tax positions that qualify for inclusion in our consolidated financial statements.

Fair Value Disclosures

ASC 820, Fair Value Measurement, defines fair value as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and

requires assets and liabilities carried at fair value.

GAAP assigns a fair value hierarchy to the inputs used to measure fair value.

Level 1 inputs are quoted prices in active markets for identical assets and liabilities.

Level 2 inputs are inputs other than quoted market

prices that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs.

Fair value measurements may also be utilized on a nonrecurring basis, such as for the impairment of long-lived assets and inventory.

The fair value of financial instruments, including cash and cash equivalents, accounts

receivable, accounts payable and construction lines of credit, approximate their carrying amounts due to the short-term nature of these instruments.

Fair value represents the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the

measurement date using.

The fair values are determined using a fair value hierarchy based on the inputs used to measure fair value.

Level 1 inputs are unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2 inputs

are inputs other than quoted market prices that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs are unobservable and significant to the fair value.

The following table presents a summary of the change in fair value measurement of contingent consideration, which is based on

Level 3 inputs and is the only asset or liability measured at fair value on a recurring basis:

Beginning balance, December 31, 2020

Contingent consideration adjustments related to prior year acquisitions

Contingent consideration increase related to current year acquisition

Ending balance, December 31, 2021

Fair value measurements may also be utilized on a nonrecurring basis, such as for the impairment of long-lived assets and

The fair value of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and construction lines of credit, approximate their carrying amounts due to the short-term nature of these instruments.

Related Party Transactions

During the years ended December 31, 2021, 2020 and 2019, the Company entered into or participated in related party transactions.

The majority of these transactions were entered into to control finished lots for

homebuilding.

The majority of these transactions were

entered into to secure finished lots for homebuilding.

In addition, the Company has built and sold homes for employees and members of their immediate families.

1 unchanged sentence

The Company has entered into joint venture arrangements to acquire land, finished lots and build homes.

Certain members of the Company, directors and members of management, have invested in these joint ventures and some

are limited partners in these joint ventures.

DFH Investors LLC (which owned 15,400 Series A Preferred Units, representing 11.65% of the membership interest in the Company, prior to the Corporate Reorganization) is the managing member of certain of

these joint ventures.

Certain members of the Company, directors and members of

management, have invested in these joint ventures and some are limited partners in these joint ventures DFH Investors LLC (which owned 15,400

Series A Preferred Units, representing 11.65 % of the membership interest in DFH LLC, prior to the Corporate Reorganization) is the

managing member of certain of these joint ventures.

The joint ventures are consolidated for accounting purposes.

2 unchanged sentences

DF Residential I, LP (Fund I) is a real estate investment vehicle, organized for the purpose of acquiring and developing finished lots.

Dream Finders Homes, LLC, has entered into six joint ventures and ten land bank

projects with Fund I since its formation in January 2017.

Dream Finders Homes LLC, has

entered into six joint ventures and ten

land bank projects with Fund I since its formation in January 2017.

DF Capital Management, LLC (“DF Capital”) is the investment manager in Fund I.

1 unchanged sentence

DF Capital is controlled by unaffiliated parties.

directors and executive officers have made investments in Fund I as limited partners.

In addition, certain members of management have made investments in Fund I.

The total committed capital in Fund I was $36,706,163 and $36,706,163 as of December 31,

2020 and 2019, respectively.

Collectively, the Company’s directors, executive officers and members of management have invested $8,725,000 or 23.77% and $8,725,000 or 23.77% of the total committed capital of Fund I as of December 31, 2020 and 2019,

respectively.

Certain directors and executive officers have made investments in Fund I as limited partners.

In addition, certain members of

management have made investments in Fund I.

The total committed capital in Fund I was $ 36,706,163 as of December 31, 2021 and 2020.

Collectively, the Company’s directors, executive officers and members of management have invested $ 8,725,000 or 23.77 % of the total committed capital of Fund I as of December 31, 2021 and 2020.

The general partner of Fund I is DF Management GP, LLC (“DF Management”).

Dream Finders Homes LLC is one of four members of DF Management with a 25.81 % membership interest.

Certain members of DFH Investors LLC, including

one of the Company’s directors, have a 65.33% membership interest.

Certain members of DFH Investors LLC, including one of the Company’s directors, have a 65.33 % membership interest.

Collectively, Dream Finders Homes LLC and DFH Investors LLC have invested $ 1,400,000 in Fund I as of December 31, 2021 and 2020.

This investment represents 3.81% of the total committed

Capital in Fund I of $36,706,163.

This investment represents 3.81 %

of the total committed Capital in Fund I of $ 36,706,163 .

DF Residential II, LP

DF Residential II, LP, a Delaware limited partnership (“Fund II”) initiated its first close on March 11, 2021.

DF Management GP II, LLC, a Florida limited liability company, serves as the general partner of Fund II (the “General Partner”).

Fund II raised total capital commitments of $ 322,090,000 and was fully committed as of January 2022.

DF Capital is the investment manager of Fund II.

The Company indirectly owns 72 % of the membership interests in the General Partner and receives 72 % of the economic interests.

The General Partner is controlled by unaffiliated parties.

Company’s investment commitment in Fund II is $ 3,000,000 or 0.9 % of the total expected capital commitment of Fund II of $ 322,090,000 .

On March 11, 2021, the Company entered into land bank financing arrangements and a Memorandum of Right of First Offer with Fund II, under which Fund II has an exclusive right of first offer on any land bank financing projects up to $ 20,000,000 that meet its investment criteria and are undertaken by the Company during Fund II’s

investment period.

Certain directors, executive officers and other officers have made investment commitments as

limited partners in Fund II in an aggregate amount $ 33,900,000 and $ 0 , or 10.5 % and 0.0 %, as of December 31, 2021 and 2020, respectively, of the total expected capital commitment of Fund II.

Land Bank Transactions with DF Capital

After Fund I was fully committed, DF Capital provided land bank financing in a total of seven further projects and subsequently raised additional commitments from limited partners in Fund I as well as other parties.

the Company’s officers, invested $180,000 in one of these funds managed by DF Capital as a limited partner in 2019.

As of December 31, 2020, funds managed by DF Capital (other than Fund I) controlled an additional 595 lots as a result of these

transactions outside of Fund I.

One of the Company’s officers, invested $ 180,000 in one of these funds managed by DF Capital as a limited partner in 2019.

As of December 31, 2021, funds managed by DF Capital (other than Fund I

and Fund II) controlled an additional 347 lots as a result of these transactions outside of Fund I and Fund II.

As of December 31, 2020,

funds managed by DF Capital (other than Fund I and Fund II) controlled an additional 595 lots as a result of these transactions outside of

Fund I and Fund II.

During the years ended December 31, 2021 and 2020, the Company purchased 248 and 140 of these lots and the outstanding lot deposit balance in relation to these projects was $ 3,676,096 and $ 6,200,000 , respectively.

addition, the Company paid lot option fees related to these transactions of $974,250, $106,394 and $0 for the years ended December 31, 2020, 2019 and 2018, respectively.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

Medley Capital

The holders of the Series B Preferred Units had an outstanding collateralized loan with the Company for the purposes of land acquisition and development.

The loan carried monthly interest at an annual rate of 10%.

outstanding loan balance was $0 and $4,910,598 as of December 31, 2020 and 2019, respectively.

On March 4, 2020, the outstanding loan balance plus accrued interest was paid in full for a total of $4,676,251.

In connection with the loan payoff, the

holders released back to the Company reserve funds in the amount of $492,472.

Varde Capital

Certain DF Capital joint ventures in which the Company is a member have entered into lending arrangements with the holders of the Series C Preferred Units.

The Varde Private Debt Opportunities Fund (On Shore), L.P.

Capital) has a loan with a principal amount of $18,000,000, whose borrowers are DFC East Village, LLC, DFC Seminole Crossing, LLC and DFC Sterling Ranch, LLC.

These joint ventures are between Fund I and the Company.

As of December 31, 2020 and 2019,

the outstanding loan balance was $1,700,000 and $9,000,000, respectively.

In addition, Dream Finders Holdings LLC and DF Capital are, individually and collectively, the “Guarantor” in favor of the Värde Private Debt Opportunities Fund (On Shore), L.P.

in connection with this loan agreement.

Dream Finders Holdings LLC guarantee provides additional assurance to Varde Capital, as they have recourse to the assets of the Company beyond the pledged collateral in the joint ventures to be made whole in instances of default.

The Company believes

an event of default is unlikely.

In addition, the Company

paid lot option fees related to these transactions of $ 293,812 , $ 974,250 and $ 106,394 for the years ended December 31, 2021, 2020

and 2019, respectively.

Land Bank Transactions with LB Parker Owners, LLC

On August 10, 2021, the Company entered into a land banking transaction with LB Parker Owners, LLC, a Delaware limited liability company, which is beneficially owned by Rockpoint Group,

LLC (“Rockpoint”) in connection with the Company’s acquisition and development of certain residential real property located in Parker, Colorado known as “Looking Glass” pursuant to which LB Parker Owners, LLC provided $ 3,300,000 for the acquisition of the real property.

Walton III is the founding

principal of Rockpoint and also a member of the Company’s Board of Directors, its Audit Committee and its Compensation Committee.

Jet Home Loans

Jet performs mortgage origination activities for the Company.

Jet underwrites and originates home mortgages for Company customers and non-Company customers.

Jet underwrites and originates home mortgages for Company customers and non-Company

The Company owns 49.9 % of Jet, but is not the primary beneficiary.

Jet is accounted for under the equity method and is a related party of the Company.

Sales to Employees and Related Parties

From time to time, the Company builds homes for employees and related parties.

For the years ended December 31, 2020, 2019 and 2018, the Company delivered 9, 9, and 8 homes, respectively, to employees and related parties

generating gross revenues of $6,400,000, $3,900,000, and $6,600,000, respectively.

Dream Finders Homes LLC is a Guarantor in favor of Flagstar Bank (Lender), in connection with a loan of $5,670,000 and $0 to DFC Seminole Crossing, LLC (Borrower) as of December 31, 2020 and 2019, respectively.

is a joint venture between the Company and DF Capital.

The guaranty is a Limited Recourse Carve-out (Guaranty).

There was no consideration provided by DF Capital to the Company for this guaranty.

The Dream Finders Holdings LLC guarantee provides

additional assurance to Flagstar Bank, as they have recourse to the assets of the Company beyond the pledged collateral in the joint venture to be made whole in instances of default.

The Company believes an event of default under the underlying loan is

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

Net Income per Unit

Basic and diluted net income per unit for the years ended December 31, 2020, 2019 and 2018, was calculated by adjusting net and comprehensive income attributable to Dream Finders Holdings LLC for preferred distributions,

and dividing by basic and diluted weighted-average number of participating units outstanding.

Basic weighted-average unit count was derived by using a weighted-average of participating units outstanding during each reporting period.

weighted-average unit count was derived by using participating units outstanding during each reporting period, adding convertible units that could be issued during the reporting period and using a weighted-average of total units.

For the Years Ended

Net and comprehensive income attributable to Dream Finders Holdings LLC

Preferred distributions

Net and comprehensive income available to common units

Denominator - Basic

Weighted-average number of common units outstanding

Net income per unit, basic

Denominator - Diluted

Weighted-average number of common units outstanding, basic

Convertible units

Weighted-average number of units outstanding, diluted

Net income per unit, diluted

The EPS amounts calculated in the table above are relevant for all classes of common and participating units, which include common units, non-voting common units, redeemable non-voting common units and Series A Preferred

The Company excluded anti-dilutive convertible units from the calculation of weighted-average number of units outstanding for diluted EPS.

The Company excluded anti-dilutive convertible units of 0, 581 and 0 for the years ended December 31,

2020, 2019 and 2018, respectively.

Unaudited Pro Forma Net Income per Unit

Unaudited pro forma basic and diluted net income per unit for the years ended December 31, 2020, 2019 and 2018, gives effect to pro forma net income taxes, which reflect federal and state income taxes, assuming a 5.5%

state tax rate, a 21% federal tax rate and a 1.5% 45L New Energy Efficient Home Tax Credit available to builders and developers for meeting certain energy efficiency requirements, which results in a federal tax rate of 19.5%.

The Company utilized a 25%

combined effective rate, which is the state tax rate and adjusted federal tax rate, as if the Company had been taxed as a corporation in accordance with Subchapter C of the Internal Revenue Code (“C-Corporation”) for those periods.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended

Pro forma net and comprehensive income attributable to Dream Finders Holdings LLC

Preferred distributions

Pro forma net and comprehensive income available to common units

Denominator - Basic

Pro forma weighted-average number of common units outstanding

Net income per unit, basic

Denominator - Diluted

Pro forma weighted-average number of common units outstanding, basic

Convertible units

Pro forma weighted-average number of units outstanding, diluted

Pro forma net income per unit, diluted

The unaudited pro forma EPS amounts calculated in the table above are relevant for all classes of common and participating units, which include common units, non-voting common units, redeemable non-voting common units and

Series A Preferred Units.

The Company excluded anti-dilutive convertible units from the calculation of weighted-average number of units outstanding for unaudited pro forma diluted EPS.

The Company excluded anti-dilutive convertible units of 0, 581 and

0 for the years ended December 31, 2020, 2019 and 2018, respectively.

Pro forma earnings per unit was derived by adjusting income before taxes for pro forma income tax expense, pro forma net and comprehensive income attributable to non-controlling interest and preferred distributions, and

dividing by basic and diluted weighted-average number of participating units outstanding.

Basic weighted-average unit count was derived by using a weighted-average of participating units outstanding during each reporting period.

weighted-average unit count was derived by using participating units outstanding during each reporting period, adding convertible units could be issued during the reporting period and using a weighted-average of total units.

Jet is accounted for under the equity method and is a

related party of the Company, accounted for in its own segment (see Note 13).

Earnings per Share

The following weighted-average shares and share equivalents were used to calculate basic and diluted earnings per share for the year ended December 31,

Net and comprehensive income attributable to Dream Finders Homes, Inc.

Preferred dividends

Loss prior to reorganization attributable to DFH LLC members

Net and comprehensive income available to common stockholders

Weighted-average number of common shares outstanding - basic

Common stock equivalent shares

Weighted-average number of shares outstanding - diluted

The Corporate Reorganization created the current

capital structure of DFH, Inc.

Therefore, the net income per share for DFH, Inc.

is not shown for the fiscal years ended December 31, 2020 or 2019.

In addition, the basic and diluted net income per share only includes earnings subsequent to

January 21, 2021, the date of the Corporate Reorganization.

net income per share is calculated by dividing net income attributable to DFH, Inc.

for the period subsequent to the Corporate Reorganization, by the weighted-average number of shares of Class A common stock and Class B common stock outstanding for

The total outstanding shares of common stock are made up of Class A common stock and Class B common stock, which participate equally in their ratable ownership share of the Company.

Diluted net income per share has been calculated in a

manner consistent with that of basic net income per share while giving effect to shares of potentially dilutive restricted stock grants outstanding during the period and the convertible preferred stock.

were no anti-dilutive shares for the year ended December 31, 2021.

Subsequent Events

The Company has evaluated subsequent events through March 30, 2021, the date the financial statements were issued, and no additional matters were identified requiring recognition or disclosure in the financial statements,

except for events described below.

Equity Incentive Plan

On January 20, 2021, the Board of Directors of DFH, Inc.

(the “Board of Directors”) approved the DFH, Inc.

2021 Equity Incentive Plan (the “2021 Plan”), which became effective in connection with the IPO.

The 2021 Plan is

administered by the Compensation Committee of the Board of Directors, and authorizes DFH, Inc.

to grant incentive stock-based awards.

granted 759,709 restricted stock grants to certain executives and directors in conjunction with the 2021

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

Corporate Reorganization and Initial Public Offering

DFH, Inc., DFH Merger Sub LLC merged with and into DFH LLC with DFH LLC as the surviving entity.

As a result of the merger, all of the outstanding non-voting common units and Series A Preferred Units of DFH LLC converted into 21,255,329 shares of Class

A common stock of DFH, Inc., all of the outstanding common units of DFH LLC converted into 60,266,153 shares of Class B common stock of DFH, Inc.

and all of the outstanding Series B Preferred Units and Series C Preferred Units of DFH LLC remained

outstanding as Series B Preferred Units and Series C Preferred Units of DFH LLC, as the surviving entity in the merger.

We refer to this and certain other related events and transactions, as the “Corporate Reorganization”.

In connection with the

Corporate Reorganization, the Company made distributions to its members for estimated federal income taxes of approximately $28 million on earnings of the Company (which was a pass-through entity for tax purposes), for the period from January 1, 2020

through January 25, 2021 (the date of the Corporate Reorganization).

Immediately following the Corporate Reorganization, (1) DFH, Inc.

became a holding company and the sole manager of DFH LLC, with no material assets other than 100% of the voting membership interests in DFH LLC, (2) the

holders of common units, non-voting common units and Series A Preferred Units of DFH LLC became stockholders of DFH, Inc., (3) the holders of the Series B Preferred Units of DFH LLC outstanding immediately prior to the Corporate Reorganization

continued to hold all 7,143 of the outstanding Series B Preferred Units of DFH LLC, and (4) the holders of the Series C Preferred Units of DFH LLC outstanding immediately prior to the Corporate Reorganization continued to hold all 26,000 of the

outstanding Series C Preferred Units of DFH LLC.

successfully completed its IPO of 11,040,000 shares of Class A common stock (which included full exercise of the over-allotment option) at an IPO price of $13.00 per share on January 25, 2021.

Shares of DFH,

Inc.’s Class A common stock began trading on the NASDAQ Global Select Market under the ticker symbol “DFH” on January 21, 2021.

is the sole manager of DFH LLC and owns 100% of the voting membership interest in DFH LLC.

Unsecured Syndicated Credit Facility

On January 25, 2021, and in connection with the IPO, DFH, Inc.

entered into a $450.0 million syndicated credit facility with Bank of America, N.A.

and other lenders, and subsequently repaid $340.0 million in outstanding

debt, including the $20.0 million bridge loan with Boston Omaha Corporation, LLC, and terminated all existing construction lines of credit.

Under the terms of the new credit agreement, DFH, Inc.

has the option to enter into Base Rate or LIBOR Rate

The interest is payable based on the borrowing terms and is variable dependent on DFH, Inc.’s net debt to net capitalization ratio and borrowing LIBOR rates.

Series C Redemption

On January 27, 2021, after the IPO, DFH LLC redeemed all of its Series C Preferred Units at a redemption price of $26.0 million, plus accrued unpaid preferred distributions of $0.2 million.

Following the redemption of all

of the Series C Preferred Units, 7,143 Series B Preferred Units of DFH LLC remain outstanding, in addition to 83,665 common units of DFH LLC owned by DFH, Inc.

following the Corporate Reorganization.

Century Homes Florida Acquisition

On January 31, 2021, the Company completed the acquisition of Orlando-based homebuilder Century Homes Florida, LLC from Tavistock Development Company.

The Company paid $26.5 million, subject to post-closing adjustments, to

acquire 134 units under construction, 229 finished lots on which the Company expects to begin construction during 2021 and 2022, and will not land bank finance, and an additional 490 lots that the Company has land bank financed.

The purchase price

allocation is in process and has not yet been finalized.

The acquisition will allow the Company to expand its existing footprint in the Orlando MSA and keep up with the growing demands of the Central Florida market.

DFH and Tavistock have agreed to

future lot supply within Tavistock’s vast portfolio of communities for homes and purpose built, single family rental properties.

Dream Finders Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

DF Residential II, LP

DF Residential II, LP, a Delaware limited partnership (“Fund II”), initiated its first close on March 11, 2021.

DF Management GP II, LLC, a Florida limited liability company, will serve as the

general partner of Fund II (the “General Partner”).

The General Partner has raised approximately $137 million to date, and will remain open for a period of at least six months, seeking to raise a total of at least $200 million in capital commitments.

The Company indirectly owns 72% of the membership interests in the General Partner and receives 72% of the economic interests.

The General Partner is controlled by unaffiliated

The Company’s investment commitment in Fund II is $3.0 million or 1.5% of the total expected commitment of Fund II.

DF Capital is the investment manager of Fund II.

On March 11, 2021, the Company entered into land bank financing arrangements and a Memorandum of Right of First Offer with Fund II, under which Fund II has an exclusive right of first offer on any

land bank financing projects up to $20 million that meet its investment criteria and are undertaken by the Company during Fund II’s investment period.

Certain directors, executive officers and other officers have made investment commitments as limited partners in Fund II in an aggregate amount $30.8 million, or 15.4% of the total expected commitment of Fund II.

The Company has evaluated subsequent events through March 16, 2022, the date the financial statements were issued, and

no matters were identified requiring recognition or disclosure in the financial statements, except for events described below.

On October 9, 2019, Silver Meadows Townhome Owners Association, Inc.

filed a lawsuit in Boulder County Colorado District

Court against DFH Mandarin, LLC (“Mandarin”) and Dream Finders Homes, LLC (collectively with Mandarin, “DFH”), both wholly owned subsidiaries of the Company, as well as other named defendants.

The lawsuit alleges certain construction and development

Mandarin successfully compelled arbitration.

On March 2, 2022 during arbitration proceedings, the parties settled the matter for $ 12,000,000

subject to the execution of a mutually acceptable settlement agreement, which will include a denial of any admission of liability on behalf of DFH.

DFH’s insurance carrier agreed to pay the policy limit of $ 4,000,000 toward the settlement.

The settlement payment shall be due no later than May 1, 2022.

DFH will seek contribution toward the settlement amount from subcontractors and

other vendors who performed work on the project.

On January 31, 2021, the Company, through its subsidiaries Dream Finders Holdings LLC, a

Florida limited liability company, and DFH Coventry, LLC, a Florida limited liability company, made a cash payment of $ 35 million for

the assets, rights and properties, and certain liabilities of MHI Models, Ltd., a Texas limited partnership.

The post-close consideration payment completed the asset purchase transaction in relation to the MHI acquisition.

Transaction costs were

not material and were expensed as incurred.

On February 15, 2022, Rockpoint, whose founding principal, William H.

is on the DFH Board of Directors, its Audit Committee and its Compensation Committee, committed $ 100,000,000 to Fund II.

date, DFH also entered into a Memorandum of Right of First Offer with Rockpoint, under which Rockpoint has an exclusive right of first offer on certain land bank financing projects that meet certain criteria and are undertaken by the Company during

Fund II’s investment period.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data