Dream Finders Homes, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Dream Finders Homes, Inc. and Subsidiaries Index Contents Report of Independent Registered Public Accounting Firm ( 238 ) 64 Consolidated Financial Statements Consolidated Balance Sheets 66 Consolidated Statements of Comprehensive Income 67 Consolidated Statements of Mezzanine Equity, Members’ Equity and Stockholders’ Equity 68 Consolidated Statements of Cash Flows 69 Notes to Consolidated Financial Statements 70-96 63 Table of Contents Report of Independent Registered Public Accounting Firm 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 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. 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. 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. Valuation of Contingent Consideration 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 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 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. 64 Table of Contents 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 Jacksonville, Florida March 16, 2022 We have served as the Company’s auditor since 2019. 65 Table of Contents Dream Finders Homes, Inc. and Subsidiaries Consolidated Balance Sheets December 31, December 31, 2021 2020 Assets Cash and cash equivalents $ 227,227,020 $ 43,657,779 Restricted cash (VIE amounts of $ 4,275,399 and $ 8,793,201 ) 54,094,838 49,715,553 Accounts receivable (VIE amounts of $ 2,683,870 and $ 1,288,359 ) 33,482,341 16,765,719 Inventories: Construction in process and finished homes 961,778,789 396,630,945 VIE owned land and lots 21,685,688 40,900,552 Company owned land and lots 83,197,267 46,839,616 Lot deposits 241,405,730 66,272,347 Equity method investments 15,967,376 4,545,349 Property and equipment, net 6,789,005 4,309,071 Operating lease right-of-use assets 19,358,941 14,219,248 Finance lease right-of-use assets 140,484 335,791 Intangible assets, net of amortization 9,139,822 2,660,003 Goodwill 171,927,291 28,566,232 Deferred tax asset 4,231,519 - Other assets (VIE amounts of $ 2,185,265 and $ 0 ) 43,821,512 18,262,036 Total assets $ 1,894,247,623 $ 733,680,241 Liabilities Accounts payable (VIE amounts of $ 1,308,806 and $ 1,315,582 ) $ 113,498,063 $ 37,418,693 Accrued expenses (VIE amounts of $ 6,914,975 and $ 9,977,268 ) 139,367,902 67,401,055 Customer deposits 177,684,898 59,392,135 Construction lines of credit 760,000,000 289,878,716 Notes payable (VIE amounts of $ 1,979,389 and $ 8,821,282 ) 3,291,389 29,653,282 Operating lease liabilities 19,826,233 14,410,560 Finance lease liabilities 139,581 345,062 Contingent consideration 124,056,279 23,157,524 Total liabilities $ 1,337,864,345 $ 521,657,027 Commitments and contingencies (Note 8) Mezzanine Equity Preferred mezzanine equity 155,219,576 55,638,450 Common mezzanine equity - 20,593,001 Total mezzanine equity $ 155,219,576 $ 76,231,451 Members’ Equity Common members’ equity - 103,852,646 Total members’ equity $ - $ 103,852,646 Stockholders’ Equity - Dream Finders Homes, Inc. Class A common stock, $ 0.01 per share, 289,000,000 authorized, 32,295,329 outstanding 322,953 - Class B common stock, $ 0.01 per share, 61,000,000 authorized, 60,226,153 outstanding 602,262 - Additional paid-in capital 257,963,419 - Retained earnings 118,193,998 - Non-controlling interests 24,081,070 31,939,117 Total mezzanine equity, members’ equity and stockholders’ equity 556,383,278 212,023,214 Total liabilities, mezzanine equity, members’ equity and stockholders’ equity $ 1,894,247,623 $ 733,680,241 The accompanying notes are an integral part of these consolidated financial statements. 66 Table of Contents Dream Finders Homes, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income Twelve Months Ended December 31, 2021 2020 2019 Revenues $ 1,923,909,806 $ 1,133,806,607 $ 744,292,323 Cost of sales 1,610,331,738 962,927,606 641,340,496 Selling, general and administrative expense 154,404,500 90,359,182 63,572,811 Income from equity in earnings of unconsolidated entities ( 9,427,868 ) ( 7,991,764 ) ( 2,208,182 ) Gain on sale of assets ( 87,023 ) ( 117,840 ) ( 28,652 ) Loss on extinguishment of debt 711,485 - - Other Income Other ( 7,827,391 ) ( 1,321,741 ) ( 2,447,879 ) Paycheck Protection Program forgiveness ( 7,219,794 ) - - Other Expense Other 12,770,697 3,188,183 2,888,526 Contingent consideration revaluation 7,532,830 1,378,686 ( 3,944,030 ) Interest expense 672,172 870,868 221,449 Income before taxes 162,048,460 84,513,427 44,897,784 Income tax expense ( 27,454,642 ) - - Net and comprehensive income $ 134,593,818 $ 84,513,427 $ 44,897,784 Net and comprehensive income attributable to non-controlling interests ( 13,461,317 ) ( 5,419,972 ) ( 5,706,518 ) Net and comprehensive income attributable to Dream Finders Homes, Inc. $ 121,132,501 $ 79,093,455 $ 39,191,266 Earnings per share (1) Basic $ 1.27 $ - $ - Diluted $ 1.27 $ - $ - Weighted-average number of shares Basic 92,521,482 - - Diluted 95,313,593 - - (1) 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 dividends. The accompanying notes are an integral part of these consolidated financial statements. 67 Table of Contents Dream Finders Homes, Inc. and Subsidiaries Consolidated Statements of Mezzanine Equity, Members’ Equity and Stockholders’ Equity Redeemable Preferred Units/Stock Mezzanine Redeemable Common Units Mezzanine Common Units Members’ Common Stock - Class A Common Stock - Class B Additional Paid-in Capital Retained Earnings Total Non- Controlling Interests Total Equity Units Amount Units Amount Units Amount Shares Amount Shares Amount Balance at December 31, 2018 49,543 $ 15,875,538 5,774 $ 13,534,739 76,655 $ 33,093,591 - $ - - $ - $ - $ - $ 28,929,857 $ 91,433,725 Unit compensation - - - - - 895,000 - - - - - - - 895,000 Contributions 12 38,530,504 - - - - - - - - - - - 38,530,504 Contributions from non-controlling interests - - - - - - - - - - - - 9,783,372 9,783,372 Conversion of units - - - - - - - - - - - - - - Redemptions - - - - - - - - - - - - - - Distributions - ( 2,235,752 ) - ( 401,296 ) - ( 7,463,714 ) - - - - - - ( 13,948,376 ) ( 24,049,138 ) Net income - 6,098,876 - 3,114,803 - 29,977,587 - - - - - - 5,706,518 44,897,784 Balance at December 31, 2019 49,555 $ 58,269,166 5,774 $ 16,248,246 76,655 $ 56,502,464 - $ - - $ - $ - $ - $ 30,471,371 $ 161,491,247 Unit compensation - - - - - 946,609 - - - - - - - 946,609 Contributions - - 1,236 - - - - - - - - - - - Contributions from non-controlling interests - - - - - - - - - - - - 3,882,625 3,882,625 Conversion of units - - - - - - - - - - - - - - Redemptions ( 1,012 ) ( 13,000,000 ) - - - - - - - - - - - ( 13,000,000 ) Distributions - ( 2,521,991 ) - ( 1,201,947 ) - ( 14,251,905 ) - - - - - - ( 7,834,851 ) ( 25,810,694 ) Net income - 12,891,275 - 5,546,702 - 60,655,478 - - - - - - 5,419,972 84,513,427 Balance at December 31, 2020 48,543 $ 55,638,450 7,010 $ 20,593,001 76,655 $ 103,852,646 - $ - - $ - $ - $ - $ 31,939,117 $ 212,023,214 Unit compensation - - - - - - - - - - - - - - Contributions - - - - - - - - - - - - - - Contributions from non-controlling interests - - - - - - - - - - - - - - Conversion of units - - - - - - - - - - - - - - Redemptions - - - - - - - - - - - - - - Distributions - ( 3,617,390 ) - ( 1,274,690 ) - ( 18,384,243 ) - - - - - - ( 3,476,258 ) ( 26,752,581 ) Net income - ( 157,451 ) - ( 91,043 ) - ( 995,588 ) - - - - - - 210,340 ( 1,033,742 ) Balance at January 20, 2021 - prior to reorganiation and transactions and IPO 48,543 $ 51,863,609 7,010 $ 19,227,268 76,655 $ 84,472,815 - $ - - $ - $ - $ - $ 28,673,199 $ 184,236,891 Reorganization transactions ( 15,400 ) ( 19,957,513 ) ( 7,010 ) ( 19,227,268 ) ( 76,655 ) ( 84,472,815 ) 21,255,329 212,553 60,226,153 602,262 122,842,781 - - - Issuance of common stock in IPO, net - - - - - - 11,040,000 110,400 - - 129,886,962 - - 129,997,362 Issuance of convertible preferred stock 150,000 148,124,400 - - - - - - - - - - - 148,124,400 Equity-based compensation - - - - - - - - - - 5,233,676 - - 5,233,676 Contributions - - - - - - - - - - - - 2,000,000 2,000,000 Contibutions from non-controlling interests - - - - - - - - - - - - - - Conversion of units - - - - - - - - - - - - - - Redemptions ( 26,000 ) ( 25,530,505 ) - - - - - - - - - - - ( 25,530,505 ) Distributions - - - - - - - - - - - ( 13,000 ) ( 19,843,105 ) ( 19,856,105 ) Preferred dividends declared - - - - - - - - - - - ( 3,450,000 ) - ( 3,450,000 ) Net income (loss) - 719,585 - - - - - - - - - 121,656,998 13,250,976 135,627,559 Balance at December 31, 2021 157,143 $ 155,219,576 - $ - - $ - 32,295,329 $ 322,953 60,226,153 $ 602,262 $ 257,963,419 $ 118,193,998 $ 24,081,070 $ 556,383,278 The accompanying notes are an integral part of these consolidated financial statements 68 Table of Contents Dream Finders Homes, Inc. and Subsidiaries Consolidated Statements of Cash Flows Twelve Months Ended December 31, 2021 2020 2019 Cash Flows from Operating Activities Net income $ 134,593,818 $ 84,513,427 $ 44,897,784 Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities Depreciation and amortization 5,938,061 3,851,876 3,035,451 Gain on sale of property and equipment ( 87,023 ) ( 117,840 ) ( 28,652 ) Amortization of debt issuance costs 1,959,943 2,090,711 2,318,286 Extinguishment of unamortized debt issuance costs 506,466 - - Amortization of right-of-use operating lease 3,786,381 3,842,801 2,622,569 Amortization of right-of-use financing lease 126,568 158,358 366,241 Stock compensation expense 5,233,676 946,609 895,000 Income from Paycheck Protection Program 7,219,794 - - Deferred tax benefit ( 945,534 ) - - Income from equity method investments, net of distributions received ( 3,918,264 ) ( 2,679,894 ) ( 86,242 ) Remeasurement of contingent consideration 7,532,830 1,378,786 ( 3,944,030 ) Changes in Operating Assets and Liabilities, Net of Effects from Acquisitions Inventories ( 80,195,985 ) 23,512,992 ( 30,902,010 ) Lot deposits ( 134,238,066 ) ( 37,913,129 ) ( 11,216,250 ) Other assets and accounts receivable ( 20,421,568 ) ( 22,793,864 ) ( 1,325,489 ) Accounts payable and accrued expenses 63,360,881 6,197,891 19,398,115 Customer deposits 78,167,415 37,556,519 6,792,918 Operating lease ROU Assets ( 7,418,285 ) Operating lease liabilities 3,907,881 ( 3,633,859 ) ( 2,394,942 ) Net cash provided by operating activities 65,108,989 96,911,384 30,428,749 Cash Flows from Investing Activities Purchase of property and equipment ( 2,774,372 ) ( 2,924,040 ) ( 2,892,130 ) Proceeds from disposal of property and equipment 508,168 241,918 91,397 Investments in equity method investments ( 1,979,813 ) ( 89,767 ) ( 2,717,593 ) Return of investments from equity method investments 668,139 6,578,525 704,703 Business combinations, net of cash acquired ( 519,464,971 ) ( 16,833,369 ) ( 13,006,396 ) Net cash used in investing activities ( 523,042,849 ) ( 13,026,733 ) ( 17,820,019 ) Cash Flows from Financing Activities Proceeds from issuance of common stock in IPO, net 143,630,400 - - Proceeds from issuance of convertible preferred stock, net 148,500,000 - - Proceeds from construction lines of credit 1,894,574,866 713,917,939 550,865,562 Principal payments on construction lines of credit ( 1,424,960,047 ) ( 758,681,883 ) ( 522,926,492 ) Proceeds from notes payable 2,964,323 28,472,680 12,696,227 Principal payments on notes payable ( 25,679,162 ) ( 13,180,967 ) ( 11,454,898 ) Payment of debt issue costs ( 7,656,655 ) ( 1,994,858 ) ( 2,264,196 ) Payments of equity issuance costs ( 14,008,637 ) - - Payments on financing leases ( 127,479 ) ( 153,629 ) ( 375,390 ) Payments on contingent consideration ( 1,206,769 ) - - Other financing activities ( 9,264 ) - - Contributions from non-controlling interests 2,000,000 3,882,625 9,783,371 Distributions to non-controlling interests ( 23,319,363 ) ( 7,834,849 ) ( 13,948,375 ) Contributions - - 12,000,000 Distributions ( 23,289,322 ) ( 17,256,938 ) ( 8,298,586 ) Redemptions ( 25,530,506 ) ( 13,000,000 ) - Contribution from conversion of converted LLC units 123,657,597 - - Conversion of LLC units ( 123,657,596 ) - - Net cash provided by (used in) financing activities 645,882,386 ( 65,829,880 ) 26,077,223 Net increase in cash, cash equivalents and restricted cash 187,948,526 18,054,771 38,685,953 Cash, cash equivalents and restricted cash at beginning of period 93,373,332 75,318,561 36,632,608 Cash, cash equivalents and restricted cash at end of period 281,321,858 93,373,332 75,318,561 Supplemental Disclosure of Cash Flow Information Cash paid for interest, net of amounts capitalized 672,172 900,225 299,689 Non-cash Financing Activities Financed land payments to seller 8,916,211 - - Leased assets obtained in exchange for new operating lease liabilities 8,148,973 2,962,682 3,234,033 Accrued distributions 3,450,000 718,907 1,802,177 Equity issuance costs incurred 1,281,565 - - Contingent Consideration 94,572,694 16,310,000 9,412,768 Non-cash Investing Activities Investment capital reallocation ( 3,468,761 ) 1,171,112 - Total non-cash financing and investing activities 112,900,682 21,162,701 14,448,978 Reconciliation of Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents 227,227,020 43,657,779 50,597,392 Restricted cash 54,094,838 49,715,553 24,721,169 Total cash, cash equivalents and restricted cash shown on the Consolidated Statements of Cash Flows $ 281,321,858 $ 93,373,332 $ 75,318,561 The accompanying notes are an integral part of these consolidated financial statements. 69 Table of Contents Dream Finders Homes, Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. Nature of Business and Significant Accounting Policies Nature of Business 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, 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. GAAP). Principles of 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. Use of Estimates 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. Actual results could differ materially from those estimates. Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid instruments, with original maturities of three months or less. 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. 70 Table of Contents Restricted Cash Restricted cash represents funds held in accounts that are restricted for specific purposes. 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 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. 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 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. 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. Refer to Note 13 for a more detailed disaggregation of our revenues by reportable segments. Other Income and Expense 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. 71 Table of Contents Inventories 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. 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. 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 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. Property and Equipment 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. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets as follows: Asset Class Useful Lives Furnitures and fixtures 2 - 7 Office equipment 4 Software 1 - 4 Vehicles 5 Buildings 39 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, 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 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. 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. 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. 72 Table of Contents Leases 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. 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. 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. 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. Lot Deposits 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, 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. Contingent Consideration 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. 73 Table of Contents 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 is discounted to present value using risk-adjusted discount rates that reflect current market conditions. The payment 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. In April 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. 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. 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 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 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. 74 Table of Contents 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 beneficiary. 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. 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. 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 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. Non-Controlling Interests 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 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. Income Taxes 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. See Note 14. Income Taxes. 75 Table of Contents Advertising The Company expenses advertising costs as they are incurred. Advertising expense for the years ended December 31, 2021, 2020 and 2019 was $ 7,098,015 , $ 6,247,583 and $ 5,291,652 , respectively. 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. 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 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 accounting principle Under current accounting principle Effect of change Cash and cash equivalents $ 190,277,511 $ 227,227,020 $ 36,949,509 Accounts receivable 70,431,850 33,482,341 ( 36,949,509 ) Net cash provided by operating activities $ 36,321,664 $ 65,108,989 $ 28,787,325 As of and for the year ended December 31, 2020: As previously reported As adjusted Effect of change Cash and cash equivalents $ 35,495,595 $ 43,657,779 $ 8,162,184 Other assets 43,189,939 35,027,755 $ ( 8,162,184 ) Net cash provided by operating activities $ 95,339,347 $ 96,911,384 $ 1,572,037 For the year ended December 31, 2019: As previously reported As adjusted Effect of change Net cash provided by operating activities $ 23,838,602 $ 30,428,749 $ 6,590,147 Certain Reclassifications Certain reclassifications have been made in the 2019 and 2020 Consolidated Financial Statements to conform to the classifications used in 2021. 76 Table of Contents Recent Accounting Pronouncements 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. 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. 2. Business Acquisitions H&H 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 incurred. The final purchase price allocation is as follows: As Originally Reported Measurement period adjustments (1) Acquired Value Cash acquired $ 10,956,359 10,956,359 Other assets 8,255,301 680,748 8,936,049 Tradename 2,660,000 2,660,000 Goodwill 16,357,450 495,564 16,853,014 Inventories 143,817,075 ( 1,176,312 ) 142,640,763 Construction lines of credit ( 116,894,907 ) ( 116,894,907 ) Other liabilities ( 21,054,830 ) ( 21,054,830 ) Total purchase price $ 44,096,448 - 44,096,448 (1) Measurement 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. 77 Table of Contents 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 assets. 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 $ 3,993,396 Other assets 754,879 Goodwill 1,794,765 Inventories 34,324,050 Property and equipment, net 548,552 Liabilities ( 5,831,266 ) Total purchase price $ 35,584,376 MHI 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, 2021. 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 $ 488,177,838 Contingent consideration based on future earnings 94,572,694 Total consideration $ 582,750,532 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). 78 Table of Contents The 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. As 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 assessment. 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 $ 296,740 Other assets 14,722,191 Lot deposits 40,451,993 Inventories 473,037,286 Equity method investments 6,192,088 Intangible assets, net of amortization 8,840,000 Goodwill 141,070,730 Property and equipment, net 3,163,143 Operating lease right-of-use assets 1,507,792 Accounts payable ( 41,466,363 ) Accrued expenses ( 25,801,750 ) Customer deposits ( 37,755,526 ) Operating lease liabilities ( 1,507,792 ) Total purchase price $ 582,750,532 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 December 31, Unaudited Pro Forma 2021 2020 Total revenue $ 2,432,947,396 $ 2,291,993,087 Net and comprehensive income attributable to Dream Finders Homes, Inc. $ 151,161,683 $ 128,102,223 79 Table of Contents 3. Property and Equipment Property and equipment consisted of the following as of December 31, 2021 and 2020: For the Years Ended December 31, 2021 2020 Furniture and fixtures $ 17,755,490 $ 13,705,844 Buildings 401,290 - Land 215,962 - Vehicles 21,093 21,093 Office equipment and software 4,384,212 3,620,154 Total property and equipment 22,778,047 17,347,091 Less: Accumulated depreciation ( 15,989,042 ) ( 13,038,020 ) Property and equipment, net $ 6,789,005 $ 4,309,071 Depreciation expense was $ 3,720,011 , $ 3,851,876 and $ 3,035,451 for the years ended December 31, 2021, 2020 and 2019, respectively. 4. Construction Lines of Credit 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 Agreement. 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). On September 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 %. 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 . 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. 80 Table of Contents 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. Notes Payable Notes payable consisted of the following as of December 31, 2021 and 2020: As of December 31, Maturity Date Payment Terms 2021 2021 Effective Rate 2020 2020 Effective Rate May 1, 2021 Interest is payable monthly at 14.00 % $ - 0.00 % $ 20,000,000 14.00 % February 28, 2022 Non-interest bearing 1,312,000 0.00 % 832,000 0.00 % April 1, 2022 Interest is payable monthly at 12.50 % - 0.00 % 1,735,161 12.50 % July 31, 2022 Interest is payable monthly at 9.25 % 1,979,389 9.25 % 3,984,174 9.25 % March 25, 2023 Interest is payable monthly at 5.00 % - 0.00 % 3,101,947 5.00 % Total notes payable $ 3,291,389 $ 29,653,282 (1) 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 2022 $ 3,291,389 2023 - 2024 - 2025 - 2026 - Thereafter - Total $ 3,291,389 During the year ended December 31, 2021, there were no material changes in the contractual maturities of our remaining notes payable. 81 Table of Contents 6. Inventories 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 table below shows the Company’s owned real estate inventory and real estate inventory owned by the joint ventures: As of December 31, 2021 2020 Construction in process and finished homes $ 961,778,789 $ 396,630,945 Finished lots and land 83,197,267 46,839,616 Inventories owned by the Company 1,044,976,056 443,470,561 Inventories owned by consolidated joint ventures 21,685,688 40,900,552 Total inventories $ 1,066,661,744 $ 484,371,113 Inventories owned by the Company as a percentage of total inventories Construction in process and finished homes 90 % 82 % Finished lots and land 8 % 10 % 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, 2021 and 2020: As of December 31, 2021 2020 Capitalized interest at the beginning of the period $ 21,091,297 $ 25,335,924 Interest incurred 45,354,727 28,670,194 Interest expensed ( 672,172 ) ( 870,868 ) Interest charged to cost of contract revenues earned ( 32,507,799 ) ( 32,043,953 ) Capitalized interest at the end of the period $ 33,266,053 $ 21,091,297 82 Table of Contents 7. 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 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: As of December 31, 2021 2020 Warranty reserves at the beginning of the year $ 3,530,461 $ 1,652,634 Additions to reserves for new home deliveries 4,818,481 3,686,123 Payments for warranty costs 3,178,619 1,808,296 Warranty reserves at the end of the period $ 5,170,323 $ 3,530,461 8. 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 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. We 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, 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 our favor on our claims, awarding Dream Finders Homes LLC $ 3,000,000 in damages and DFH Mandarin, LLC $ 11,650,000 in damages. On February 21, 2020, the District Court dismissed Weyerhaeuser’s counterclaim. 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. Leases 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 years. The Company also has finance leases for corporate office furniture. 83 Table of Contents 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. 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. 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. 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 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 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 . 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 recorded a gain related to this transaction in the amount of $ 1,928,671 . For the Years Ended December 31, Lease Cost Classification 2021 2020 2019 Operating lease cost (1) Selling, general and administrative expenses $ 6,402,483 $ 5,931,776 $ 3,690,165 Finance lease cost: Amortization of right of use assets Selling, general and administrative expenses 158,358 158,359 366,241 Interest on lease liabilities Interest expense 19,050 29,356 78,240 Total finance lease cost $ 177,408 $ 187,715 $ 444,481 Net lease cost $ 6,579,891 $ 6,119,491 $ 4,134,646 (1) Includes short-term leases and variable lease costs which are immaterial. The following table shows the maturities of our lease liabilities as of December 31, 2021: Maturity of Lease Liabilities Operating Leases (1) Finance Leases (1) Total (1) 2022 $ 4,271,598 $ 111,880 $ 4,383,478 2023 3,679,385 35,310 3,714,695 2024 3,049,009 - 3,049,009 2025 2,853,355 - 2,853,355 2026 2,617,537 - 2,617,537 Thereafter 8,648,723 - 8,648,723 Total lease payments $ 25,119,607 $ 147,190 $ 25,266,797 Less: Interest 5,293,374 7,609 Present value of lease liabilities $ 19,826,233 $ 139,581 (1) We use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. 84 Table of Contents During the year ended December 31, 2021, there have been no material changes in our lease liabilities for the next five years. As of December 31, 2021 2020 Weighted average remaining lease term Operating leases 8 years 10 years Financing leases 2 years 2 years Weighted average discount rate Operating leases 5.6 % 6.5 % Financing leases 7.5 % 6.8 % 9. 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. On 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 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. 85 Table of Contents 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. • Duration: 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). Subsequent 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. Shares 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. 86 Table of Contents 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. 10. Equity-Based Compensation Dream Finders Homes, Inc. On January 20, 2021, the Board of Directors approved and adopted the DFH, Inc. 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. 87 Table of Contents The Company’s restricted stock awards as of December 31, 2021 and changes during the year then ended are presented below: Shares Weighted Average Grant Date Fair Value Outstanding - December 31, 2020 - $ - Granted 762,945 17,647,585 Forfeited ( 41,347 ) ( 957,231 ) Vested - - Outstanding - December 31, 2021 721,598 $ 16,690,354 Dream Finders Holdings LLC 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. 11. 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 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. 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. 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 credit. 88 Table of Contents 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. 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. The table below displays the carrying amounts of the assets and liabilities related to the consolidated VIEs: As of December 31, Consolidated 2021 2020 Assets $ 30,830,222 $ 50,982,111 Liabilities 10,203,170 20,114,132 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 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: As of December 31, Unconsolidated 2021 2020 Jet Home Loans $ 6,133,399 $ 3,872,089 Other unconsolidated VIEs 9,833,977 673,260 Total investment in unconsolidated VIEs $ 15,967,376 $ 4,545,349 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’’ 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 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 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 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 VIEs. Therefore, the land bank entities with which we enter into lot option contracts are evaluated for possible consolidation by the Company. 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. 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. 89 Table of Contents 12. 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. 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. 13. Segment Reporting The Company operates in the homebuilding business and is organized and reported by division. 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. 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 December 31, Revenues: 2021 2020 2019 Jacksonville $ 452,890,488 $ 430,810,955 $ 333,687,948 Colorado 114,259,610 122,274,508 115,835,632 Orlando 244,142,831 124,768,549 109,710,225 DC Metro 93,593,242 126,240,188 39,043,345 The Carolinas 370,477,256 89,324,360 - Texas 361,138,232 - - Jet Home Loans 28,055,783 28,628,954 18,932,000 Other (1) 287,408,147 240,388,047 146,015,173 Total segment revenues 1,951,965,589 1,162,435,561 763,224,323 Reconciling items from equity method investments ( 28,055,783 ) ( 28,628,954 ) ( 18,932,000 ) Consolidated revenues $ 1,923,909,806 $ 1,133,806,607 $ 744,292,323 90 Table of Contents For the Years Ended December 31, Net and comprehensive income: 2021 2020 2019 Jacksonville $ 55,577,768 $ 41,380,258 $ 26,358,703 Colorado 3,970,961 14,051,978 10,424,803 Orlando 15,936,707 10,679,556 3,732,935 DC Metro 5,545,937 5,142,556 ( 2,709,651 ) The Carolinas 14,623,398 6,033,844 - Texas 21,797,018 - - Jet Home Loans 10,630,401 15,921,440 4,506,242 Other (1) 13,132,496 ( 766,529 ) 4,882,812 Total segment net and comprehensive income 141,214,686 92,443,103 47,195,844 Reconciling items from equity method investments ( 6,620,868 ) ( 7,929,676 ) ( 2,298,060 ) Consolidated net and comprehensive income $ 134,593,818 $ 84,513,427 $ 44,897,784 Assets: Goodwill: As of December 31, 2021 2020 2021 2020 Jacksonville $ 207,501,540 $ 162,668,740 $ - $ - Colorado 116,121,155 51,605,969 - - Orlando 131,882,130 77,299,028 1,794,765 - DC Metro 62,050,969 41,327,694 - - The Carolinas 247,250,074 177,599,834 16,853,013 16,357,450 Texas 743,306,444 - 141,070,731 - Jet Home Loans 77,073,645 38,696,793 - - Other (1) 379,859,445 219,306,886 12,208,782 12,208,782 Total segment 1,965,045,402 768,504,944 171,927,291 28,566,232 Reconciling items from equity method investments ( 70,797,779 ) ( 34,824,703 ) - - Consolidated $ 1,894,247,623 $ 733,680,241 $ 171,927,291 $ 28,566,232 (1) 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. 91 Table of Contents 14. Income Taxes 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: 2021 Current expense: Federal $ 26,336,096 State 5,087,506 Total current expense $ 31,423,602 Deferred expense: Federal $ ( 3,304,766 ) State ( 664,194 ) Total deferred (benefit) $ ( 3,968,960 ) Total income tax expense $ 27,454,642 The following table reconciles the statutory federal income tax rate to the effective income tax rate: 2021 Income taxes at federal statutory rate 21.0 % State and local income taxes, net of federal tax 2.4 Federal tax credits ( 5.9 ) Non-deductible executive compensation 0.8 Other 0.2 Effective rate 18.5 % The significant components of deferred income tax assets and liabilities as of December 31, 2021 consist of the following: 2021 Deferred tax assets: Property and equipment, net $ 238,283 Intangible assets 262,177 Contingent consideration valuation 1,804,773 Stock options 1,265,160 Warranty reserve 1,249,846 4,820,239 Deferred tax liabilities: Property and equipment, net $ ( 588,719 ) ( 588,719 ) Net deferred income tax asset $ 4,231,520 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. 92 Table of Contents As of December 31, 2021and 2020, we have no uncertain tax positions that qualify for inclusion in our consolidated financial statements. 15. Fair Value Disclosures 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 $ 23,157,524 Contingent consideration adjustments related to prior year acquisitions 4,161,737 Contingent consideration increase related to current year acquisition 96,737,018 Ending balance, December 31, 2021 $ 124,056,279 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. 16. 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 secure finished lots for homebuilding. In addition, the Company has built and sold homes for employees and members of their immediate families. Consolidated Joint Ventures 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 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. Details of each are included in Note 1. DF Residential I, LP 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. DF Capital Management, LLC (“DF Capital”) is the investment manager in Fund I. The Company owns a 49 % membership interest in DF Capital. DF Capital is controlled by unaffiliated parties. 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. 93 Table of Contents 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. 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 . 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. The 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. 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. 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. William H. 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. 94 Table of Contents Jet Home Loans Jet performs mortgage origination activities for the Company. Jet underwrites and originates home mortgages for Company customers and non-Company customers. 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, accounted for in its own segment (see Note 13). 17 . 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, 2021: For the Year Ended December 31, 2021 Numerator Net and comprehensive income attributable to Dream Finders Homes, Inc. $ 121,132,501 Less: Preferred dividends 4,844,913 Add: Loss prior to reorganization attributable to DFH LLC members ( 1,244,083 ) Net and comprehensive income available to common stockholders $ 117,531,671 Denominator Weighted-average number of common shares outstanding - basic 92,521,482 Add: Common stock equivalent shares 2,792,111 Weighted-average number of shares outstanding - diluted 95,313,593 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. Basic 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 period. 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. There were no anti-dilutive shares for the year ended December 31, 2021. 95 Table of Contents 18. Subsequent Events 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 defects. 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. Walton III, is on the DFH Board of Directors, its Audit Committee and its Compensation Committee, committed $ 100,000,000 to Fund II. On the same 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. 96 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None