DREAM FINDERS HOMES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Nature of Business and Significant Accounting Policies

Nature of Business

Dream Finders Homes, Inc. (the “Company” or, “DFH, Inc.” or “we”) 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 ~~the~~its 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 a direct, ~~wholly owned~~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 ~~60,266,153~~60,226,153 shares of Class B common stock of DFH, Inc. and all of the outstanding Series B Preferred Units and Series C Preferred Units of DFH LLC remained ~~outstanding as Series B Preferred Units and Series C Preferred Units of DFH LLC, as the surviving entity in the Merger.~~outstanding. We refer to this and certain other related events and transactions, as the “Corporate Reorganization”.Following the Corporate Reorganization, the Company owns all of the voting membership interest of DFH LLC.

~~DFH, Inc.~~

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. On January 27, 2021, the Company redeemed all of the outstanding Series C Preferred Units for $26.0 million, including $0.5 million of discounted costs, plus accrued unpaid preferred distributions of $0.2 million.

Principles of Presentation and Consolidation

The ~~Company is~~accompanying unaudited, condensed consolidated financial statements include the ~~sole manager~~accounts of DFH ~~LLC~~Inc, its wholly-owned subsidiaries and ~~owns 100% of the voting membership interest in DFH LLC.~~

its investments that qualify for consolidation treatment (see Note 7). The accompanying statements have been prepared in accordance with generally accepted accounting principles ~~generally accepted~~ in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for a complete set of financial statements. As such, the accompanying ~~condensed consolidated financial~~ statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020 filed with the Securities and Exchange Commission on March 30,~~ 2021.

~~Principles of Consolidation~~

The accompanying ~~condensed consolidated financial~~ statements include all adjustments that are of a normal recurring nature and necessary for the ~~accounts~~fair presentation of ~~DFH LLC, its wholly owned subsidiaries and~~our results for the ~~Company’s investments that qualify~~interim periods presented, which are not necessarily indicative of results to be expected for ~~consolidation treatment (see Note 9).~~the full year. 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 Condensed Consolidated Statements of Comprehensive Income.

~~Basis~~

As a result of ~~Presentation~~

~~The accompanying unaudited condensed consolidated financial statements include all adjustments that are~~the reorganization transactions in connection with the IPO, for accounting purposes, our historical results included herein present the combined assets, liabilities and results of ~~a normal recurring nature~~operations of DFH, Inc. and ~~necessary~~DFH LLC and its direct and indirect subsidiaries for the ~~fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results~~period January 1 to ~~be expected for the full year.~~January 21, 2021.

Use of Estimates

The preparation of financial statements in conformity with 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 remeasurement of contingent consideration, valuation and impairment of goodwill, impairment of inventories and business combination estimates. Actual results could differ materially from those estimates.

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~~Other Assets~~

Other assets are included on the Condensed Consolidated Balance Sheets, and primarily consist of prepaid expenses, debt issuance costs, contract assets and accounts receivable. The majority of the Company’s accounts receivable balance consists of proceeds not received from home closings. The accounts receivable balance is typically relieved in the first week of the subsequent month.

Contingent Consideration

In connection with applicable acquisitions, the Company records the fair value of contingent consideration as a liability on the acquisition ~~of Village Park Homes, LLC (“VPH”) in May 2019, the Company recorded contingent consideration~~date, based on estimated pre-tax net income of the ~~acquired entity~~acquiree for ~~fiscal years 2019, 2020, 2021 and 2022. In connection with~~future periods prescribed by the acquisition H&H Constructors of Fayetteville (“H&H”) in October 2020 (Note 2), the Company recorded contingent consideration based on estimated pre-tax income of the acquired entity for fiscal years 2020, 2021, 2022, 2023 and the first quarter of 2024.underlying agreement. The initial measurement of contingent consideration ~~was~~is based on projected cash flows such as revenues, gross margin, overhead expenses and pre-tax income and is discounted ~~back~~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~~remaining estimated earn-out payments are subsequently remeasured to fair value at each reporting date based on the estimated future earnings of the acquired ~~entities. The contingent consideration for each acquisition is scheduled to be paid out each year subsequent to~~entities and the ~~anniversary~~re-assessment of ~~the respective acquisition closing date.~~

As of March 31, 2021 and December 31, 2020, the Company remeasured contingent consideration related to the acquisition of VPH and adjusted the liability to $7,231,832 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 $384,308 and $0 of income for the three months ended March 31, 2021 and 2020, respectively. These adjustments are included in selling, general and administrative expenses on the Condensed Consolidated Statements of Comprehensive Income.

The Company measured contingent consideration related to the acquisition of H&H on October 5, 2020, which approximated the value at December 31, 2020. As of March 31, 2021 and December 31, 2020, the Company recorded contingent consideration for the H&H acquisition of $17,108,437 and $16,310,000, respectively. The Company recorded contingent consideration adjustments resulting in $798,437 and $0 of income for the three months ended March 31, 2021 and 2020, respectively. Total contingent consideration on the Consolidated Balance Sheets is $24,340,269. The Company’s contingent consideration related to acquisition earn-out payments is based on a percentage of pre-tax net and comprehensive income achieved by the acquired entity, and as such, is revised accordingly. The payment of the H&H earn-out is subject to certain minimal earnings thresholds which must be met by H&H before an earn-out payment occurs.

risk-adjusted discount rates that reflect current market conditions. 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 net income.

As of March 31, 2022, and December 31, 2021, the Company remeasured contingent consideration related to the acquisition of Village Park Homes, LLC and adjusted the liability to $7.9 million and $7.6 million respectively. The Company recorded contingent consideration adjustments resulting in $0.3 million of expense and $0.4 million of income for the three months ended March 31, 2022, and 2021, respectively.

As of March 31, 2022, and December 31, 2021, the Company remeasured contingent consideration related to the acquisition of H&H Constructors of Fayetteville, LLC (“H&H”) and adjusted the liability to $21.6 million and $19.7 million, respectively. The Company recorded contingent consideration adjustments resulting in $1.9 million and $0.8 million of expense for the three months ended March 31, 2022, and 2021, respectively.

The Company measured contingent consideration related to the acquisition of MHI on October 1, 2021 (see Note 2), and recorded a liability in the opening balance sheet of $94.6 million. As of March 31, 2022 and December 31, 2021, the Company remeasured contingent consideration related to the MHI acquisition and adjusted the liability to $98.8 million and $96.7 million, respectively. The Company recorded contingent consideration adjustments resulting in $2.0 million of expense for the three months ended March 31, 2022.

The contingent consideration re-measurement adjustments are included in contingent consideration revaluation on the Condensed Consolidated Statements of Comprehensive Income. The payment of the H&H and MHI earn-outs are also subject to certain minimum earnings thresholds which must be met by H&H and MHI, respectively, before an earn-out payment occurs. In April 2022 and 2021, the Company made contingent consideration payments of $10.6 million and $1.2 million, respectively. There were no0 other payments of contingent consideration for the three months ended March 31, 2022 and 2021, respectively. See Note 10, Fair Value Disclosures, for additional discussion on fair value measurement inputs related to contingent consideration.

Change in Accounting Principle – Cash and cash equivalents

On December 31, 2021, the Company elected to change its accounting policy for the presentation of cash proceeds that are in transit from or held within title company escrow accounts for the benefit of the Company, typically for less than five days. Under the new principle, these proceeds are included in cash and cash equivalents, whereas previously, they were considered accounts receivable and included in other assets. The Company believes this reclassification to be preferable because it is a more accurate reflection of its liquidity at period end and the predominant method used in the industry. This change in accounting principle has been applied retrospectively. This reclassification had no impact on the Condensed Consolidated Statements of Comprehensive Income or Condensed Consolidated Statements of Equity.

The impact of the retrospective presentation change on the Condensed Consolidated Statement of Cash Flows for the three month period ended March 31, 2021, is shown below (in thousands):

		As previously reported				As adjusted				Effect of change
Net cash used in operating activities		$	(47,482	)		$	(22,423	)		$	25,059

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Reclassifications

Certain other reclassifications have been made in the 2021 condensed consolidated financial statements to conform to the classifications used in 2022.

Recent Accounting Pronouncements

In March 2020, ~~respectively.~~the FASB issued ASU 2020-04, Reference Rate Reform, 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 relationships 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.

~~Variable Interest Entities~~

2.	Business Acquisitions

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 $35.6 million. The acquisition was accounted for as a business combination under FASB Topic 805, Business Combinations (“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 0 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 final purchase price allocation as of January 31, 2022 was as follows (in thousands):

Cash acquired	$	3,993
Other assets		754
Goodwill		1,795
Inventories		34,324
Property and equipment, net		549
Liabilities		(5,831	)
Total purchase price	$	35,584

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.

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Total cash paid at closing of approximately $471.0 million included $463.0 million in purchase price based on preliminary value of purchased net assets and a 10.0% deposit on a separate land bank facility. On December 3, 2021, the Company paid an additional $25.2 million 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 25.0% of pre-tax net income for up to 5 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 $94.6 million as of the acquisition date.

The total purchase price was as follows (in thousands):

Cash consideration	$	488,178
Contingent consideration based on future earnings		94,573
Total consideration	$	582,751

The Company ~~participates~~used $20.0 million of cash on hand and proceeds from the sale of the Convertible Preferred Stock (see Note 6) and from unsecured debt incurred under the Credit Agreement, to fund the MHI acquisition. On October 1, 2021, the Company borrowed approximately $300.0 million under the Credit Agreement and paid off MHI’s vertical lines of credit in ~~joint ventures~~connection with the closing of the acquisition (see Note 3).

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 March 31, 2022, 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 March 31, 2022, was as follows (in thousands):

Cash acquired	$	297
Inventories		473,037
Lot deposits		40,452
Other assets		14,722
Property and equipment, net		3,163
Equity method investments		6,192
Intangible assets, net of amortization		8,840
Goodwill		141,071
Operating lease right-of-use assets		1,508
Accounts payable		(41,466	)
Accrued expenses		(25,801	)
Customer deposits		(37,756	)
Operating lease liabilities		(1,508	)
Total purchase price	$	582,751

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On January 31, 2022, the Company made a cash payment of $34.9 million for model homes from MHI Models, Ltd., a Texas limited partnership (“the MHI Model Homes”). The post-close consideration payment completed the asset purchase transaction, which was considered to be economically separate from the acquisition of MHI and related purchase price allocation above.

On March 24, 2022, the Company sold 93 completed model homes for $55.4 million, including the MHI Model Homes. The Company simultaneously entered into 93 individual lease agreements. The Company is responsible for paying the operating expenses associated with the homes while under lease. The Company considered the terms of the sale and leaseback arrangement and based on applicable GAAP guidance, concluded the transaction qualifies for sale treatment and that the leases should be classified as operating leases.

3.	Construction Lines of Credit

On January 25, 2021, the Company entered into a $450.0 million syndicated senior credit facility with Bank of America, N.A. (the “Credit Agreement”), and subsequently repaid $340.0 million in outstanding debt 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.).

Through subsequent amendments in September 2021 (“the Amendments”), additional lenders were added as well as provisions for any existing lender, at the Company’s request, to 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 $1.1 billion. In addition, the Amendments clarified and modified certain definitions and covenants as more fully set forth therein, including modifications of certain financial covenants. On October 1, 2021, we borrowed $300.0 million in revolving loans under the Credit Agreement and paid off vertical lines of credit in connection with the MHI acquisition. Certain of our subsidiaries guaranteed the Company’s obligations under the Credit Agreement. As of March 31, 2022, the Credit Agreement has an aggregate commitment of up to $817.5 million and matures on January 25, 2024.

As of March 31, 2022 and December 31, 2021, the outstanding balance under the Credit Agreement was $770.0 million and $760.0 million, respectively, and the effective interest rate was 3.5% and 3.8% respectively. Under the Credit Agreement, the funds available are unsecured and availability under the borrowing base is calculated based on finished lots, construction in process, and finished homes inventory on the Condensed Consolidated Balance Sheets.

The Company capitalized $5.7 million and $7.5 million as of March 31, 2022 and December 31, 2021, respectively, and amortized $0.7 million and $0.9 million of debt issuance costs for the three months ended March 31, 2022 and 2021, respectively. Debt issuance costs related to the Company’s line of credit and notes payable, net of amortization, were $5.0 million and $5.5 million as of March 31, 2022 and December 31, 2021, respectively, which were included in other assets on the Condensed Consolidated Balance Sheets.

The Credit Agreement contains restrictive covenants and financial covenants. The Company was in compliance with all debt covenants as of March 31, 2022 and December 31, 2021. The Company expects to remain in compliance with all debt covenants over the next twelve months.

4.	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.

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Interest is capitalized and included within each inventory category above. Capitalized interest activity is summarized in the table below for the three months ended March 31, 2022 and 2021 (in thousands):

	For the Three Months Ended March 31,
	2022			2021
Capitalized interest at the beginning of the period	$	33,266		$	21,091
Interest incurred		24,986			6,669
Interest expensed		(13	)		(642	)
Interest charged to homebuilding cost of sales		(8,847	)		(8,276	)
Capitalized interest at the end of the period	$	49,392		$	18,842

5.	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 potentially 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 $3.0 million in damages and DFH Mandarin, LLC $11.7 million 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 0 gain on the damages awarded to us by the District Court.

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 $12.0 million subject to the execution of a mutually acceptable settlement agreement, including a denial of any admission of liability on behalf of DFH. DFH’s insurance carrier agreed to pay the policy limit of $4.0 million toward the settlement. In April 2022, the parties executed a mutually acceptable settlement agreement and DFH paid the settlement amount, net of the insurance proceeds received. In April 2022, DFH also commenced the formal legal process to seek contribution toward DFH’s portion of the settlement amount from responsible subcontractors and vendors who performed work on the project.

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Equity

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 1 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 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 $150.0 million. The Company used the proceeds from the sale of the Convertible Preferred Stock to fund a portion of the MHI acquisition (See Note 2).

All of the Company’s outstanding preferred shares are classified in mezzanine equity as they can be redeemed in a deemed liquidation of the Company outside of the Company’s control.

7.	Variable Interest 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 ~~the Company’s~~our homebuilding operations are ~~located.~~located, which are considered variable interests. The Company also has an interest in Jet Home Loans LLC (“Jet Home Loans” or “Jet LLC”), where the primary activities include underwriting, originating and selling home mortgages. 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 option contracts with third parties and unconsolidated entities for the ability to acquire rights to land for the construction of homes. Under these contracts, the Company typically makes a specified ~~payment or~~ earnest money deposit in consideration for the right to purchase land in the future, usually at a predetermined price. ~~Consideration paid for~~

The VIEs are funded by initial capital contributions from the Company, as well as its other partners and generally do not have significant debt. 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. The primary risk of loss associated with the Company’s involvement in these ~~contracts~~VIEs is ~~recorded~~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 ~~lot deposits on the Consolidated Balance Sheets.~~

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~~Pursuant~~remote. The maximum exposure to ~~Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 810 and subtopics~~loss related to the ~~consolidation of variable interest entities,~~VIEs is disclosed below for both consolidated and unconsolidated VIEs, which equals the ~~Company~~Company’s capital investment in each entity.

Management analyzes ~~its joint ventures~~the Company’s investments first under the variable interest model to determine if ~~such~~they are ~~required to be consolidated in~~VIEs and, if so, whether the ~~Company’s condensed consolidated financial statements. The accounting standard requires a VIE to be consolidated by a company if that company~~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 9 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.~~if changes to the Company’s involvement arise. To make this determination, management considers factors such as whether the Company ~~should~~could direct finance, determine or limit the scope of the entity, sell or transfer property, direct development or direct other operating decisions. 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.

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Joint ventures for which the Company is not identified as the primary beneficiary are typically accounted for as equity method ~~investments.~~investments based on the voting interest model. 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~~option to make capital contributions ~~are~~is 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 Condensed 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 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 and DFC Grand Landings LLC have been reflected as non-controlling interests in the Consolidated Balance Sheets. Income attributable to these non-controlling interests are presented in the Condensed Consolidated Statements of Comprehensive Income as net income attributable to non-controlling interests.

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~~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 condensed 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. We have no uncertain tax positions that qualify for inclusion in our condensed consolidated financial statements. See “Note 10—Income Taxes.”

~~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 stock awarded to employees in return for employee service. The cost is measured at the grant-date fair value of the award and recognized as compensation expense over the employee service period, which is normally the vesting period. The Company does not estimate forfeitures. In the event of forfeitures, the compensation expense recognized would be adjusted.

~~Recent Accounting Pronouncements~~

~~In March 2020, the FASB issued ASU 2020-04,~~ ~~Reference Rate Report (Topic 848)~~, which provides practical expedients and exceptions for applying GAAP when modifying contracts and hedging relationships that use LIBOR as a reference rate. In addition, these amendments are not applicable to contract modifications made and hedging relationship entered into or evaluated after December 31, 2022. We do not anticipate a material increase in interest rates from our creditors as a result of the shift away from LIBOR as a reference rate, and we are currently evaluating the impact of the shift and this guidance on our financial statements and disclosures.

2.	~~Business Acquisition~~

On October 5, 2020, the Company acquired 100% of the issued and outstanding membership interests in H&H, an operative homebuilder, for a purchase price of $44,096,448, net of $1,710,275 in purchase price reduction related to customary closing adjustments. To fund the acquisition, the Company obtained a $20,000,000 bridge loan from Boston Omaha Corporation, LLC, with an interest rate of 14% per annum maturing on May 1, 2021, paid cash of $9,496,723 and agreed to pay contingent consideration in the amount of $16,310,000 if H&H met certain financial metrics.

Accordingly, the Company recognized the excess purchase price over the fair value of the net assets acquired as goodwill of $16,357,450. The goodwill arising from the acquisition consists largely of synergies and economies of scale from H&H’s operating footprint, which includes owned properties, increased future revenue and earnings from organic growth, new business opportunities and strategic initiatives. Transaction costs were not material and were expensed as incurred.

The business combination was accounted for under the acquisition method, and the acquisition has been included in the Company’s consolidated results of operations since the date of acquisition. The fair value of assets acquired includes cash of $10,956,359, other assets of $8,253,966, tradename of $2,660,000, inventories of $143,817,075 and liabilities assumed of $137,949,737, including $116,894,907 of construction lines of credit.

On January 31, 2021, the Company completed the acquisition of Century Homes from Tavistock Development Company. The Company paid $35.5 million to acquire 134 units under construction and 229 finished lots on which the Company expects to begin construction during 2021 and 2022. The Company evaluated the Century Homes acquisition for significance under SEC Rule 3-05, and determined the acquisition did not meet the significance threshold.

~~Table of Contents~~

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 and Century Homes 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 Three Months Ended
March 31,

Unaudited Pro Forma 2021 2020
Total revenue
$
350,142,959

$
247,201,240

Net and comprehensive income attributable to Dream Finders Homes, Inc.
$
16,442,614

$
7,278,689

3.	~~Construction Lines of Credit~~

On January 25, 2021, the Company entered into a $450,000,000 syndicated 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.).

As of March 31, 2021, the cumulative maximum availability under the Credit Agreement was $442,468,578, and an aggregate outstanding balance of $320,000,000. 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.

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 under the borrowing base is calculated based on work-in-progress inventory.

~~Table of Contents~~

~~The Credit Agreement and the Company’s construction lines of credit consist of the following:~~

As of
March 31,

As of
December 31,

Renewal Date Payment Terms 2021
2021
Effective Rate
2020
2020
Effective Rate

January 25, 2024
Interest is payable based on the Applicable Rate per the Credit Agreement

320,000,000

3.50
%

-

-

November 30, 2019
Interest is payable monthly, at the greater of Prime rate or 4.25%

-

-

545,350

4.25
%
November 30, 2019
Interest is payable monthly at the greater of the Prime rate plus 1.00% or 5.50%

-

-

540,565

5.50
%
February 9, 2021
Interest is payable monthly at 3.40% plus 30-day LIBOR

-

-

390,000

4.06
%
March 31, 2021
Interest is payable monthly at 9.50%

-

-

269,030

10.33
%
April 30, 2021
Interest is payable monthly at the greater of the Prime rate plus 0.50% or 3.75%

-

-

11,923,342

6.53
%
April 30, 2021
Interest is payable monthly at the Prime rate plus 0.50%

-

-

3,521,203

3.93
%
May 10, 2021
Interest is payable monthly at the greater of Prime rate plus 0.50% or 4.25%

-

-

7,391,080

6.39
%
June 12, 2021
Interest is payable monthly at 3.00% plus 3-month LIBOR

-

-

14,457,573

3.96
%
June 30, 2021
Interest is payable monthly at the greater of 3.50% plus 30-day LIBOR or 4.50%

-

-

17,290,107

4.80
%
June 30, 2021
Interest is payable monthly at 3.75% + 1-month LIBOR

-

-

13,318,374

4.37
%
August 25, 2021
Interest is payable monthly at the Prime rate plus 0.75%

-

-

1,486,800

3.81
%
September 30, 2021
Interest is payable monthly at 3.00% plus 3-month LIBOR.

(50
)

-

62,127,292

3.91
%
October 1, 2021
Interest is payable monthly at the greater of 4.50% or 3.90% plus 1-month LIBOR.

-

-

11,863,043

6.42
%
October 2, 2021
Interest is payable monthly at the greater of 4.00% or 3.75% plus 1-month LIBOR

-

-

4,361,201

7.75
%
October 2, 2021
Interest is payable monthly at the greater of the Prime rate plus 1.00% or 5.00%

-

-

14,525,422

5.00
%
October 5, 2021
Interest is payable monthly at 4.50% plus 1-month LIBOR

-

-

11,227,212

5.03
%
October 25, 2021
Interest is payable monthly at the Prime rate plus 0.50%

-

-

861,909

4.77
%
November 2, 2021
Interest is payable monthly at the greater of the Prime rate plus 0.75% or 4.50%

-

-

8,034,458

6.01
%
December 15, 2021
Interest is payable monthly at the greater of the Prime rate plus 0.50% or 5.00%

-

-

2,205,715

4.24
%
December 18, 2021
Interest is payable monthly at 3.00% plus 30-day LIBOR

-

-

8,468,565

4.17
%
December 18, 2021
Interest is payable monthly at 3.95% plus 1-month LIBOR

-

-

9,558,836

6.00
%
December 31, 2021
Interest is payable monthly at 9.00%

-

-

1,821,515

10.33
%
December 31, 2021
Interest is payable monthly at 9.50%

-

-

259,157

10.33
%
April 1, 2022
Interest is payable monthly at 9.50%.

-

-

2,925,686

10.33
%
April 20, 2022
Interest is payable monthly at 9.50%

-

-

639,437

10.33
%
April 30, 2022
Interest is payable monthly at 9.50%.

-

-

1,028,131

10.33
%
October 5, 2022
Interest is payable monthly at the greater of the Prime rate plus 0.50% or 4.00%

-

-

5,828,931

4.00
%
October 20, 2022
Interest is payable monthly at the greater of 4.00% or 2.75% plus 3-month LIBOR

-

-

11,289,202

4.51
%
October 20, 2022
Interest is payable monthly at the greater of 4.50% or 3.90% plus 3-month LIBOR

-

-

13,408,970

6.62
%
June 19, 2023
Interest is payable monthly at the greater of 4.00% or 2.75% plus 3-month LIBOR.

-

-

8,790,640

4.15
%
June 19, 2023
Interest is payable monthly at the greater of 4.00% or the Prime rate plus 0.50%.

-

-

23,737,991

4.92
%
November 6, 2023
Interest is payable monthly at the greater of the Prime rate plus 0.38% or 3.65%

-

-

4,043,089

4.64
%
December 31, 2023
Interest is payable monthly at the greater of the Prime rate plus 0.50% or 4.00%

-

-

894,300

4.00
%
Various
Interest is payable monthly at the greater of the Prime rate or 5.00%.

-

-

11,351,056

5.02
%
Total lines of credit outstanding $ 319,999,950 $ 290,385,182
Less: Debt issuance costs from lines of credit

(4,263,768
)

(506,466
)

Lines of credit, net
$ 315,736,182 $ 289,878,716

~~Table of Contents~~

The vertical lines of credit that 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 vertical lines of credit were payable upon the delivery of the collateralized individual homes to end-home buyers.

The Company capitalized $4,651,383 and $2,249,683 as of March 31, 2021 and December 31, 2020, respectively, and amortized $910,747 and $543,305 of debt issuance costs for the three months ended March 31, 2021 and 2020, respectively. Debt issuance costs related to the Company’s lines of credit and notes payable, net of amortization, were $4,263,768 and $506,466 as of March 31, 2021 and December 31, 2020, respectively, included in other assets on the Condensed Consolidated Balance Sheets.

The Credit Agreement contains restrictive covenants and financial covenants. The Company was in compliance with all debt covenants as of March 31, 2021 and December 31, 2020. The Company expects to remain in compliance with all debt covenants over the next twelve months.

4.	~~Notes Payable~~

~~Notes payable consisted of the following as of March 31, 2021 and December 31, 2020:~~

As of
March 31,

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%

$
-

14.00
%

$
20,000,000

14.00
%
February 28, 2022
(1
)
Non-interest bearing

992,000

0.00
%

832,000

0.00
%
April 1, 2022
(1
)
Interest is payable monthly at 12.50%

717,642

12.50
%

1,735,161

12.50
%
July 31, 2022
(1
)
Interest is payable monthly at 9.25%

2,170,708

9.25
%

3,984,174

9.25
%
March 25, 2023
(1
)
Interest is payable monthly at 5.00%

-

5.00
%

3,101,947

5.00
%
Total notes payable    $ 3,880,350 $ 29,653,282
Less: Debt issuance costs from notes payable
-

(15,444
)

Notes payable, net of discount    $ 3,880,350 $ 29,637,838

~~(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 in January 2021.

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.

~~During the three months ended March 31, 2021 and 2020, there were no material changes in the contractual maturities of our notes payable.~~

5.	~~Inventories~~

Inventories consist of raw entitled land, finished lots, and construction in process (“CIP”), including capitalized interest. Raw land is purchased with the intent to develop such land into finished lots. Finished lots are held with the intent of building and selling a home. The asset is owned by the Company either as a result of developing purchased raw land or purchasing developed lots. CIP represents the homebuilding activity associated with both homes to be sold and speculative homes. CIP includes the cost of the developed lot as well as all of the direct costs incurred to build the home. The cost of the home is expensed on a specific identification basis when the home is closed to the end customer.

~~Table of Contents~~

As mentioned in Note 9, 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
March 31,

As of
December 31,

2021 2020
Construction in process
$
477,052,901

$
396,630,945

Finished lots and land
53,541,065

46,839,616

Inventories owned by the Company
530,593,966

443,470,561

Inventories owned by consolidated joint ventures
19,781,033

40,900,552

Total inventories
$
550,374,999

$
484,371,113

Percentage of inventories owned by the Company
Construction in process
90
%

89
%
Finished lots and land
10
%

11
%

~~Interest is capitalized and included within each inventory category above. Capitalized interest activity is summarized in the table below for the three months ended March 31, 2021 and 2020.~~

For the Three Months Ended
March 31,

2021 2020
Capitalized interest at the beginning of the period
$
21,091,297

$
25,335,924

Interest incurred
6,667,990

7,040,706

Interest expensed
(641,861
)

(35,705
)
Interest charged to cost of contract revenues earned
(8,275,683
)

(5,992,186
)
Capitalized interest at the end of the period
$
18,841,743

$
26,348,739

6.	~~Commitments and Contingencies~~

In April 2020, the Company received proceeds from the Paycheck Protection Program (“PPP”) in the amount $7,220,207, which is classified in accrued expenses on the Consolidated Balance Sheets and accounted for as an in-substance grant. The Company utilized all of the PPP proceeds to pay payroll and permissible operating expenses, and believes the full amount of the proceeds will be forgiven. No income has been recognized for the three months ended March 31, 2021, related to the PPP proceeds.

7.	~~Members’ Equity, Mezzanine Equity and Shareholders’ Equity~~

~~Redeemable Common Units, Redeemable Preferred Units and Common Units~~

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”).

~~Table of Contents~~

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, all of the outstanding common units of DFH LLC converted into 60,266,153 shares of the Company’s Class B common stock and all of the outstanding Series B Preferred Units and Series C Preferred Units of DFH LLC remained outstanding as Series B Preferred Units and Series C Preferred Units of DFH LLC, as the surviving entity in the Merger.

~~Redeemable Series A Preferred Units~~

~~As a result of the Corporate Reorganization, all of the outstanding Series A Preferred Units of DFH LLC were converted into a total of 21,255,329 shares of the Company’s Class A common stock.~~

~~Redeemable Series B Preferred Units~~

As of March 31, 2021 and December 31, 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 $6,515,415 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 March 31, 2021 and December 31, 2020, these units have an aggregate unpaid amount of cumulative preferred distributions of $2,139,473 and $2,102,692, respectively, which is $299.52 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.

~~Redeemable Convertible Series C Preferred Units~~

In April 2020, the Company redeemed 1,000 Series C Preferred Units for $1,000,000 plus accrued unpaid preferred distributions of $62,500. On January 27, 2021, the Company redeemed all of the outstanding Series C Preferred Units for $26.0 million, including $0.5 million of discounted costs, plus accrued unpaid preferred distributions of $0.2 million.

8.	~~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 quarter 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 this plan was $1,108,238 and $0 for the three months ended March 31, 2021 and 2020. As of March 31, 2021 and December 31, 2020, the total unrecognized compensation expense under the 2021 Plan was $16,495,086 and $0, which will be recognized over a weighted-average period of 2.8 years.

~~Table of Contents~~

~~Dream Finders Holdings LLC~~

In January 2021, certain common non-voting units in DFH LLC were converted into shares of the Company’s Class A common stock and Class B common stock. As a result, DFH LLC expensed the remaining unrecognized stock compensation expense associated with these units in the amount of $1,240,309 for the three months ended March 31, 2021. Expense related to equity-based compensation was $223,750 for the three months ended March 31, 2020.

As of December 31, 2020, the Company had 3,532 non-vesting, non-common 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.

9.	~~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. The Company also has an interest in one unconsolidated VIE, Jet Home Loans LLC, where the primary activities include underwriting, originating and selling home mortgages. The Company’s VIEs are funded by initial capital contributions from the Company, as well as its other partners and generally do not have significant debt. The primary risk of loss associated with the Company’s involvement in these VIEs is limited to the Company’s initial capital contributions due to bankruptcy or insolvency of the VIE; however, management has deemed the likelihood of this to be 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.~~consolidated. 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.

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. ~~Certain joint ventures were deconsolidated during the three months ended March 31, 2021 and did not have a material impact to the Company’s financial statements.~~ There were ~~no entities that were deconsolidated during the three months ended March 31, 2020. There were no~~0 new consolidated VIEs during the three months ended March 31, ~~2021~~2022 or ~~2020.~~

2021.The table below displays the carrying amounts of the assets and liabilities related to the consolidated ~~VIEs:~~VIEs (in thousands):

As of
March 31,

As of
December 31,

Consolidated 2021 2020
Assets
$
28,288,648

$
50,982,111

Liabilities
$
11,469,575

$
20,114,132

	As of		As of
	March 31,		December 31,
Consolidated	2022		2021
Assets	$	24,909	$	30,830
Liabilities	$	7,616	$	10,203

~~Table of Contents~~

Unconsolidated VIEs ~~and Other Equity Method Investments~~

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. 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:~~VIEs (in thousands):

					As of		As of
	As of March 31,		As of December 31,		March 31,		December 31,
Unconsolidated	2021		2020		2022		2021
Jet Home Loans		5,604,482		3,872,089	$	6,003	$	6,133
Other unconsolidated VIEs						8,477		9,834
Total investment in unconsolidated VIEs	$	5,604,482	$	3,872,089	$	14,480	$	15,967
Other equity method investments		592,565		673,260
Total equity method investments	$	6,197,047	$	4,545,349

Table of Contents

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 at predetermined market prices from various land bank entities. We typically execute this strategy through the purchase of finished lot option and land bank option contracts, which require deposits in the form of cash or letters of credit.

We primarily employ two variations of our asset-light land financing strategy, finished lot option contracts and land bank option contracts, pursuant to which we secure the right to purchase finished lots at market prices from various land sellers and land bank partners, by paying deposits based on the aggregate purchase price of the finished lots (typically 10% or less in the case of finished lot option contracts and 15% or less in the case of land bank option contracts). These option contracts generally allow us, at our option, to forfeit our right to purchase the lots controlled for any reason, and our sole legal obligation and economic loss as a result of such forfeitures is limited to the amount of the deposits paid pursuant to such option contracts and, in the case of land bank option contracts, any related fees paid to the land bank partner.

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%~~100.0% of the operating activities of the land bank entity. We have no0 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~~bankers’ 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. These option contracts generally allow us, at our option, to forfeit our right to purchase the lots controlled by these option contracts 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 including accrued interest, any related fees paid to the land bank partner, management of the development to completion and any cost overruns related to the project. The Company’s ~~total~~ risk of loss related to finished lot option ~~contracts~~and land bank option contract deposits and related fees and interest was ~~$91,690,711~~$331.3 million and ~~$66,272,347~~$274.9 million as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Any potential cost overruns relative to the project cannot be quantified as the Company has not experienced any historically.

Table of Contents

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise indicated or the context requires, “DFH,” “Dream Finders,” the “Company,” “we,” “our” and “us” refer collectively to Dream Finders Homes, Inc. and its subsidiaries. On January 25, 2021, we completed an initial public offering (the “IPO”) of 11,040,000 shares of our Class A common stock. 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.

Business Overview

We design, build and sell homes in ~~high growth~~high-growth markets, including Charlotte, Raleigh, Jacksonville, Orlando, Denver, the Washington D.C. metropolitan area, Austin, Dallas and ~~Austin.~~Houston. We employ an asset-light lot acquisition strategy with a focus on the design, construction and sale of single-family entry-level, first-time move-up and second-time move-up homes. To fully serve our homebuyer customers and capture ancillary business opportunities, we also offer title insurance and mortgage banking solutions ~~(our Jet Home Loans segment)~~ through our mortgage banking joint venture, Jet Home Loans, LLC (“Jet LLC”)., which comprises our Jet Home Loans segment.

Our asset-light lot acquisition strategy enables us to generally purchase land in a “just-in-time” manner with reduced up-front capital commitments, which in turn has increased our inventory turnover rate, enhanced our ~~strong~~ returns on equity and contributed to our ~~impressive~~ growth.

We are currently engaged in the design, construction and sale of new homes in the following markets:

Jacksonville, FL

Denver, CO

Orlando, FL

Washington D.C. metropolitan area (“DC Metro”)

Charlotte, NC, Fayetteville, NC, Raleigh, NC, Greensboro, NC, High Point, NC and Winston-Salem, NC (“The Carolinas” ~~or “H&H Homes”~~)

Texas

~~Jacksonville, FL~~

~~Orlando, FL~~

~~Denver, CO~~

~~Washington D.C. metropolitan area (“DC Metro”)~~

Austin, TX (legacy operations excluding MHI operations comprising Texas above), Savannah, GA and ~~Village Park~~Bluffton and Hilton Head, SC, and Active Adult and Custom Homes in Jacksonville, FL (“Other”)

Since breaking ground on our first home on January 1, 2009 ~~during an unprecedented downturn in the U.S. homebuilding industry,~~ we have closed over ~~11,000~~16,700 home sales through March 31, ~~2021~~2022 and have been profitable every year since inception. During the three months ended March 31, ~~2021,~~2022, we received ~~2,010~~2,402 net new orders, an increase of ~~1,162,~~392, or ~~137.0%~~20.0%, as compared to the ~~848~~2,010 net new orders received for the three months ended March 31, ~~2020.~~2021. For the three months ended March 31, ~~2021,~~2022, we closed ~~1,002~~1,371 homes, an increase of ~~487,~~369, or ~~94.6%~~36.8%, as compared to the ~~515~~1,002 homes closed for the three months ended March 31, ~~2020.~~2021. As of March 31, ~~2021,~~2022, our backlog of sold homes was ~~3,612.~~7,413 valued at $3.4 billion. In addition, as of March 31, ~~2021,~~2022, we owned and controlled over ~~26,000~~39,400 lots. Our owned and controlled lot supply is a critical input to the future revenue of our business. We sell homes under the Dream Finders Homes, DF Luxury, H&H Homes, Village Park Homes, ~~and~~ Century Homes ~~brands.~~

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~~COVID-19 Impact~~

~~The ongoing coronavirus (COVID-19) outbreak may significantly worsen in the United States, which may cause federal, state~~ and local governments to reconsider restrictions on business and social activities. In the event governments increase restrictions, the re-opening of the economy may be further curtailed. We have experienced some resulting disruptions to our business operations, as these restrictions have significantly impacted, and may continue to impact, many sectors of the economy, with various businesses curtailing or ceasing normal operations and subsequently attempting to resume operations.

Our primary focus remains on doing everything we can to ensure the safety and well-being of our employees, customers and trade partners. While COVID-19 infection rates, hospitalizations and deaths declined in certain parts of the country since the initial surge in April and May 2020, infection rates increased significantly in other parts of the country, including in Florida and Texas during June and July 2020, two states that account for a significant portion of our homebuilding business. Residential construction has been deemed an essential business in each of our markets throughout the COVID-19 pandemic. In addition, state and/or local governments in each of our markets have instituted social distancing measures and other restrictions, which have resulted in significant changes to the way we conduct business. In all markets where we are permitted to operate, we are operating in accordance with the guidelines issued by the Centers for Disease Control and Prevention, as well as state and local guidelines.

Despite the encouraging rebound in our net new orders since April 2020 and the continued trend of elevated sales per community through the end of April 2021, we cannot be certain that these positive trends will continue if COVID-19 infections and related hospitalizations and deaths continue to grow in our core markets or that we will be able to convert net new orders into home closings. There is uncertainty regarding the extent and timing of the disruption to our business that may result from the COVID-19 pandemic and any related governmental actions. There is also uncertainty as to the effects of the COVID-19 pandemic and related economic relief efforts on the U.S. economy, unemployment, consumer confidence, demand for our homes and the mortgage market, including lending standards, interest rates and secondary mortgage markets. We are unable to predict the extent to which this will impact our operational and financial performance, including the impact of future developments such as the duration and spread of the COVID-19 virus, corresponding governmental actions (including as a result of the change in the U.S. presidential administration) and the impact of such on our employees, customers and trade partners.

~~For more information, see~~ ~~Item 1A. Risk Factors~~ ~~in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.~~Coventry Homes brands.

Recent Developments

~~Initial Public Offering~~MHI Acquisition

On ~~January 25,~~October 1, 2021, we completed the ~~IPO~~acquisition of ~~11,040,000 shares~~the homebuilding, mortgage banking and title insurance assets of ~~our Class A common stock at~~privately held Texas homebuilder, McGuyer Homebuilders, Inc. and related affiliates (“MHI”), for a total purchase price of $582.8 million. The purchase price consisted of $488.2 million in cash based on the final value of net assets acquired as of September 30, 2021. Additionally, the Company agreed to the ~~public~~future payment of ~~$13.00 per share,~~additional consideration of up to 25% of pre-tax net income for up to five periods, the last of which ~~was conducted pursuant~~ends 48 months after closing, subject to certain minimum pre-tax income thresholds and certain overhead expenses, estimated at approximately $94.6 million.

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The acquisition significantly increases our ~~Registration Statement on Form S-1 (File No. 333-251612), as amended, that was declared effective on January 20, 2021. The IPO provided~~geographic operations in the Austin, Texas metro area, and allowed us ~~with net proceeds~~to expand into the Texas markets of ~~$133.5 million. On January 25, 2021,~~Houston, Dallas and San Antonio. To fund the MHI acquisition, we used ~~the net~~$20.0 million of cash on hand, $150.0 million of proceeds from the ~~IPO, cash on hand~~sale of 150,000 shares of newly-created Convertible Preferred Stock and ~~borrowings under our~~$300.0 million from the Credit Agreement, which allowed the Company to ~~repay (i) all borrowings under our then-existing 34 separate secured~~terminate MHI’s vertical ~~construction~~ lines of ~~credit facilities totaling $320.0 million and upon such repayment terminated such facilities and (ii)~~credit. See Note 2 to our condensed consolidated financial statements for information on the ~~bridge loan from Boston Omaha Investments LLC (the “BOMN Bridge Loan”) that was used to finance the acquisition of H&H Homes, totaling $20.0 million, plus contractual interest of $0.6 million.~~

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~~Corporate Reorganization~~

In connection with the IPO and pursuant to the terms of the Agreement and Plan of Merger by and among the Company, DFH LLC and DFH Merger Sub LLC, a Delaware limited liability company and direct, wholly owned subsidiary of the Company, 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 the Company, all of the outstanding common units of DFH LLC converted into 60,226,153 shares of Class B common stock of the Company and all of the outstanding Series B preferred units and Series C preferred units of DFH LLC remained outstanding as Series B preferred units and Series C preferred units of DFH LLC, as the surviving entity in the Merger. We refer to this and certain other related events and transactions, as the “Corporate Reorganization”. In connection with the Corporate Reorganization, we made distributions to the members of DFH LLC for estimated federal income taxes of approximately $28.0 million on earnings of our predecessor, DFH LLC (which was a pass-through entity for tax purposes), for the period from January 1, 2020 through January 21, 2021 (the date of the Corporate Reorganization).

Immediately following the Corporate Reorganization, (1) the Company became a holding company and the sole manager of DFH LLC, with no material assets other than 100% of the voting membership interests in DFH LLC, (2) the holders of common units, non-voting common units and Series A preferred units of DFH LLC became stockholders of the Company, (3) the holders of the Series B preferred units of DFH LLC outstanding immediately prior to the Corporate Reorganization continued to hold all 7,143 of the outstanding Series B Preferred Units of DFH LLC, and (4) the holders of the Series C preferred units of DFH LLC outstanding immediately prior to the Corporate Reorganization continued to hold all 26,000 of the outstanding Series C preferred units of DFH LLC.

~~On January 27, 2021, we redeemed all 26,000 outstanding Series C preferred units of DFH LLC at a redemption price of $26.0 million, plus accrued distributions and fees of $0.2 million.~~

~~Century Acquisition~~

During the three months ended March 31, 2021, we increased our market presence in the Orlando, Florida market with our acquisition (the “Century Acquisition”) of Century Homes Florida, LLC (“Century Homes”). Effective as of January 31, 2021, we consummated the first phase of the Century Acquisition of Orlando-based homebuilder Century Homes from Tavistock Development Company (“Tavistock”). We paid $35.5 million to acquire 134 units under construction and 229 finished lots on which we expect to begin construction during 2021 and 2022. The Company funded the entirefinal purchase price, ~~of the Century Acquisition with cash on hand~~including post-closing adjustments and ~~borrowings under~~ our ~~Credit Agreement.~~preliminary purchase price allocation.

Key Results

Key financial results as of and for the three months ended March 31, ~~2021,~~2022, as compared to the three months ended March 31, ~~2020,~~2021, were as follows:

Revenues increased ~~82.0%~~93.3% to ~~$343.6~~$664.1 million from ~~$188.7~~$343.6 million.

Net new orders increased ~~137.0%~~19.5% to ~~2,010~~2,402 net new orders from ~~848~~2,010 net new orders.

Homes closed increased ~~94.6%~~36.8% to ~~1,002~~1,371 homes from ~~515~~1,002 homes.

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Backlog of sold homes increased ~~212.7%~~105.2% to ~~3,612~~7,413 homes from ~~1,155~~3,612 homes.

Average sales price of homes closed ~~decreased 7.3%~~increased 40.0% to ~~$335,986~~$470,218 from ~~$362,591.~~

$335,986.

Gross margin as a percentage of ~~home sales~~homebuilding revenues increased to ~~14.9%~~18.7% from ~~12.8%~~14.9%.

Adjusted gross margin (non-GAAP) as a percentage of ~~home sales~~homebuilding revenues increased to ~~22.2%~~24.4% from ~~20.8%~~22.2%.

Net and comprehensive income increased ~~126.4%~~163.0% to ~~$17.6~~$46.3 million from ~~$7.8~~$17.6 million.

Net and comprehensive income attributable to Dream Finders Homes, Inc. increased ~~145.0%~~171.4% to ~~$16.1~~$43.7 million from ~~$6.6~~$16.1 million.

EBITDA (non-GAAP) as a percentage of ~~home sales~~total revenues increased to ~~9.4%~~11.4% from ~~7.5%~~9.4%.

Active communities at March 31, ~~2021~~2022 increased to ~~120~~206 from 83120 at March 31, ~~2020.~~

2021.

~~Total owned and controlled lots increased 18.0% to 26,438 lots at March 31, 2021 from 22,407 lots at December 31, 2020.~~

Return on participating equity was ~~37.4%~~40.9% for the trailing twelve months ended March 31, ~~2021,~~2022, compared to ~~36.7% for the same period in the prior year.~~37.4%.

Basic earnings per share was $0.43 and diluted earnings per share was $0.42 compared to $0.18 and $0.18, respectively.

For reconciliations of the non-GAAP financial measures, including adjusted gross margin, EBITDA and adjusted EBITDA, to the most directly comparable GAAP financial measures, ~~please~~ see “—Non-GAAP Financial Measures.”

2721

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Results of Operations

Three Months Ended March 31, ~~2021~~2022 Compared to Three Months Ended March 31, ~~2020~~2021

The following table sets forth our results of operations for the periods indicated:

	For the Three Months Ended March 31, (unaudited)
	2022			2021			Amount Change			% Change
Revenues:
Homebuilding	$	662,473		$	342,167		$	320,306			94	%
Other		1,593			1,393			200			14	%
Total revenues		664,066			343,560			320,506			93	%
Homebuilding cost of sales		538,868			291,037			247,831			85	%
Selling, general and administrative expense		61,710			29,315			32,395			111	%
Income from equity in earnings of unconsolidated entities		(2,960	)		(1,732	)		(1,228	)		71	%
Contingent consideration revaluation		4,192			1,183			3,009			254	%
Other (income) expense, net		(969	)		703			(1,672	)		-238	%
Interest expense		13			642			(629	)		-98	%
Income before taxes		63,212			22,412			40,800			182	%
Income tax expense		(16,878	)		(4,816	)		(12,062	)		250	%
Net and comprehensive income		46,334			17,596			28,738			163	%
Net and comprehensive income attributable to non-controlling interests		(2,618	)		(1,475	)		(1,143	)		77	%
Net and comprehensive income attributable to Dream Finders Homes, Inc.	$	43,716		$	16,121		$	27,595			171	%

Earnings per share⁽¹⁾
Basic	$	0.43		$	0.18		$	0.25			139	%
Diluted	$	0.42		$	0.18		$	0.24			133	%
Weighted-average number of shares
Basic		92,758,939			92,521,482			237,457			0	%
Diluted		102,496,876			92,596,960			9,899,916			11	%
Consolidated Balance Sheets Data (at period end):
Cash and cash equivalents		100,140			42,303			57,837			137	%
Total assets		1,992,466			866,722			1,125,744			130	%
Long-term debt		771,725			763,291			8,434			1	%
Preferred mezzanine equity		155,417			6,515			148,902			2286	%
Common stock - Class A		323			323			-			100	%
Common stock - Class B		602			602			-			100	%
Additional paid-in capital		259,328			253,838			5,490			100	%
Retained earnings		595,792			17,225			578,567			100	%
Non-controlling interests		21,511			21,696			(185	)		-1	%

Other Financial and Operating Data
Active communities at end of period⁽²⁾		206			120			86			72	%
Home closings		1,371			1,002			369			37	%
Average sales price of homes closed⁽³⁾	$	470,218		$	335,986		$	134,232			40	%
Net new orders		2,402			2,010			392			20	%
Cancellation rate		13.4	%		8.1	%		5.3	%		65	%
Backlog (at period end) - homes		7,413			3,612			3,801			105	%
Backlog (at period end, in thousands) - value	$	3,443,709		$	1,356,436		$	2,087,273			154	%
Gross margin (in thousands)⁽⁴⁾	$	123,605		$	51,130		$	72,475			142	%
Gross margin %⁽⁵⁾		18.7	%		14.9	%		3.8	%		25	%
Net profit margin %		6.6	%		4.7	%		1.9	%		40	%
Adjusted gross margin (in thousands)⁽⁶⁾	$	161,556		$	75,855		$	85,701			113	%
Adjusted gross margin %⁽⁷⁾		24.4	%		22.2	%		2.2	%		10	%
EBITDA (in thousands)⁽⁶⁾	$	75,867		$	32,329		$	43,538			135	%
EBITDA margin %⁽⁷⁾		11.4	%		9.4	%		2.0	%		21	%
Adjusted EBITDA (in thousands)⁽⁶⁾	$	77,232		$	34,678		$	42,554			123	%
Adjusted EBITDA margin %⁽⁷⁾		11.6	%		10.1	%		1.5	%		15	%

For the Three Months Ended
March 31,
(unaudited)

2021 2020 Amount Change % Change
Revenues
$
343,560,365

$
188,738,433

$
154,821,932

82.0
%
Cost of sales
291,036,761

163,745,683

127,291,078

77.7
%
Selling, general and administrative expense
28,148,956

17,518,785

10,630,171

60.7
%
Income from equity in earnings of unconsolidated entities
(1,732,393
)

(1,359,388
)

(373,005
)

27.4
%
Gain on sale of assets
(65,517
)

(34,095
)

(31,422
)

92.2
%
Loss on extinguishment of debt
697,423

-

697,423

100.0
%
Other Income
(482,219
)

(134,061
)

(348,159
)

259.7
%
Other expense
2,903,048

1,195,311

1,707,738

142.9
%
Interest expense
641,861

35,705

606,156

1697.7
%
Income before taxes
$
22,412,445

$
7,770,493

$
14,641,952

188.4
%
Income tax expense
4,816,482

-

4,816,482

100.0
%
Net and comprehensive income
$
17,595,963

$
7,770,493

$
9,825,470

126.4
%

Net and comprehensive income attributable to non-controlling interests

(1,475,318
)

(1,190,459
)

(284,859
)

23.9
%
Net and comprehensive income attributable to Dream Finders Homes, Inc.
16,120,645

6,580,034

9,540,611

145.0
%

Earnings per share⁽⁶⁾

Basic
$
0.18

$
-

$
0.18

100.0
%
Diluted
$
0.18

$
-

$
0.18

100.0
%
Weighted-average number of shares
Basic
92,521,482

-

92,521,482

100.0
%
Diluted
92,596,960

-

92,596,960

100.0
%
Consolidated Balance Sheets Data (at period end):
Cash and cash equivalents
$
42,303,231

$
11,503,283

$
30,799,948

267.7
%
Total assets
$
866,722,489

$
489,938,177

$
376,784,312

76.9
%
Long-term debt

$
323,880,300

$
225,050,866

$
94,565,666

42.0
%
Finance lease liabilities
$
305,987

$
466,312

$
(160,325
)

-34.4
%
Preferred mezzanine equity
$
6,515,415

$
53,435,881

$
(46,920,466
)

-87.8
%
Common mezzanine equity
$
-

$
16,701,797

$
(16,701,797
)

-100.0
%
Common members' equity
$
-

$
61,476,244

$
(61,476,244
)

-100.0
%
Common stock - Class A
$
322,953

$
-

$
322,953

100.0
%
Common stock - Class B
$
602,262

$
-

$
602,262

100.0
%
Additional paid-in capital
$
253,837,981

$
-

$
253,837,981

100.0
%
Retained earnings
$
17,224,902

$
-

$
17,224,902

100.0
%
Non-controlling interests
$
21,696,487

$
30,091,204

$
(8,394,717
)

-27.9
%

Other Financial and Operating Data
Active communities at end of period⁽¹⁾

120

83

37

44.6
%
Home closings
1,002

515

487

94.6
%
Average sales price of homes closed⁽⁷⁾

$
335,986

$
362,591

$
(26,604
)

-7.3
%
Net new orders
2,010

848

1,162

137.0
%
Cancellation rate
8.1
%

11.8
%

-3.7
%

-31.4
%
Backlog (at period end) - homes
3,612

1,155

2,457

212.7
%
Backlog (at period end, in thousands) - value
$
1,356,436

$
441,903

$
914,533

207.0
%
Gross margin⁽²⁾

$
51,130,202

$
24,028,118

$
27,102,084

112.8
%
Gross margin %⁽³⁾

14.9
%

12.8
%

2.1
%

16.6
%
Net profit margin
4.7
%

3.5
%

1.2
%

34.6
%
Adjusted gross margin⁽²⁾

$
75,854,588

$
39,005,221

$
36,849,367

94.5
%
Adjusted gross margin %⁽³⁾

22.2
%

20.8
%

1.4
%

6.6
%
EBITDA⁽³⁾

$
32,333,020

$
19,054,453

$
13,278,566

69.7
%
EBITDA margin %⁽³⁾

9.4
%

7.5
%

1.9
%

25.5
%

(1)	~~A community becomes active once the model is completed or the community has its fifth sale. A community becomes inactive when it has fewer than five units remaining to sell.~~

~~(2)~~

~~Gross margin is home sales revenue less cost of sales.~~

~~(3)~~

~~Calculated as a percentage of home sales revenue.~~

~~(4)~~

Adjusted gross margin and EBITDA are non-GAAP financial measures. For definitions of adjusted gross margin and EBITDA and a reconciliation to our most directly comparable financial measures calculated and presented in accordance with GAAP, see “—Non-GAAP Financial Measures.”

~~(5)~~

~~Calculated as a percentage of revenues.~~

~~(6)~~

~~For the first quarter of 2021, the~~The Company calculated earnings per share (“EPS”) based on net income attributable to common stockholders for the period January 21, 2021 through March 31, 2021 over the weighted average diluted shares outstanding for the same period. EPS was calculated prospectively for the period subsequent to the ~~IPO~~Company’s initial public offering and ~~Corporate Reorganization~~corporate reorganization as described in Note 1 –to our condensed consolidated financial statements, Nature of Business and Significant Accounting Policies, resulting in 92,521,482 shares of common stock outstanding as of the closing of the ~~IPO.~~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. ~~As of March 31, 2021,~~Diluted shares were calculated by using the ~~diluted shares of common~~treasury stock ~~outstanding were 92,596,960.~~

method for stock grants and the if-converted method for the convertible preferred stock and the associated preferred dividends.

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~~(7)~~(2)

A community becomes active once the model is completed or the community has its fifth sale. A community becomes inactive when it has fewer than five units remaining to sell.

(3)	Average ~~selling~~sales price of homes closed is calculated based on ~~home sales revenue,~~homebuilding revenues, excluding the impact of deposit forfeitures, ~~and~~ percentage of completion revenues and land sales, over homes closed.

(4)	Gross margin is homebuilding revenues less homebuilding cost of sales.

(5)	Calculated as a percentage of homebuilding revenues.

(6)	Adjusted gross margin, EBITDA and adjusted EBITDA are non-GAAP financial measures. For definitions of these non-GAAP financial measures and a reconciliation to our most directly comparable financial measures calculated and presented in accordance with GAAP, see “—Non-GAAP Financial Measures.”

(7)	Calculated as a percentage of total revenues.

~~Table of Contents~~

Revenues. Revenues for the three months ended March 31, ~~2021~~2022 were ~~$343.6~~$664.1 million, an increase of ~~$154.8~~$320.5 million, or ~~82.0%~~93%, from ~~$188.7~~$343.6 million for the three months ended March 31, ~~2020.~~2021. The increase in revenues was primarily attributable to an increase in home closings of ~~487~~369 homes, or ~~94.6%~~37%, during the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020. The increase in home closings was attributable to a 44.6% increase in active communities to 120 at March 31,~~2021. Our October 2021 from 83 at March 31, 2020 and an increase in the average monthly sales per community. The average monthly sales per community for the three months ended March 31, 2021 were 5.3, an increase of 1.8, or 52.9%, from 3.4 average monthly sales per community during the three months ended March 31, 2020. In addition, our October 2020 acquisition of the homebuilding business of ~~H&H Constructors of Fayetteville, LLC~~McGuyer Homebuilders, Inc. (“~~H&H Homes”~~MHI”), a ~~North Carolina limited liability~~Texas company, contributed ~~343~~483 home closings and ~~$98.5~~$275.4 million in homebuilding revenues for the three months ended March 31, ~~2021.~~2022. The average sales price of homes closed for the three months ended March 31, ~~2021~~2022 was ~~$335,986, a decreased~~$470,218, an increase of ~~$26,604~~$134,232 or ~~7.3%~~40%, over an average sales price of homes closed ~~$362,591~~$335,986 for the three months ended March 31, ~~2020,~~2021. The increase was due to ~~the lower~~a higher average ~~selling~~sales price of homes closed within the ~~H&H Homes segment.~~MHI segment, as well as overall price appreciation ahead of cost inflation.

Homebuilding Cost of Sales and Gross Margin. ~~Cost~~Homebuilding cost of sales for the three months ended March 31, ~~2021~~2022 was ~~$291.0~~$538.9 million, an increase of ~~$127.3~~$247.9 million, or ~~77.7%~~85%, from ~~$163.7~~$291.0 million for the three months ended March 31, ~~2020.~~2021. The increase in ~~the~~homebuilding cost of sales iswas primarily due to the increase in home closings for the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020. Gross~~2021. Homebuilding gross margin for the three months ended March 31, ~~2021~~2022 was ~~$51.1~~$123.6 million, an increase of ~~$27.1~~$72.5 million, or ~~112.8%~~142%, from ~~$24.0~~$51.1 million for the three months ended March 31, ~~2020. Gross~~2021. Homebuilding gross margin as a percentage of ~~home sales revenue~~homebuilding revenues was 18.7% for the three months ended March 31, 2022, an increase of 380 basis points, or 25%, from 14.9% for the three months ended March 31, ~~2021, an increase of 210 basis points, or 16.6%, from 12.8% for the three months ended March 31, 2020.~~2021. The increase ~~in gross margin percentage is attributable~~was due to a higher average sales price ~~increases on comparable~~of homes closed ~~during~~within the ~~current period and lower~~MHI segment as well as overall price appreciation ahead of cost ~~of funds on our construction financing.~~inflation.

Adjusted Gross Margin. Adjusted gross margin for the three months ended March 31, ~~2021~~2022 was ~~$75.9~~$161.6 million, an increase of ~~$36.9~~$85.7 million, or ~~94.5%~~113%, from ~~$39.0~~$75.9 million for the three months ended March 31, ~~2020.~~2021. Adjusted gross margin as a percentage of ~~home sales revenue~~homebuilding revenues for the three months ended March 31, ~~2021~~2022 was ~~22.2%~~24.4%, an increase of ~~140~~220 basis points, or ~~6.6%~~9%, as compared to ~~20.8%~~22.2% for the three months ended March 31, ~~2020.~~2021. The ~~increases~~increase in adjusted gross margin ~~and adjusted gross margin percentage were driven by average sales price increases~~is attributable to a higher number of closings, including 483 closings from MHI in ~~excess~~the first quarter of ~~cost of sales increases.~~2022. Adjusted gross margin is a non-GAAP financial measure. For the definition of adjusted gross margin and a reconciliation to our most directly comparable financial measure calculated and presented in accordance with GAAP, see “—Non-GAAP Financial Measures.”

Selling, General and Administrative Expense. Selling, general and administrative expense for the three months ended March 31, ~~2021~~2022 was ~~$28.1~~$61.7 million, an increase of ~~$10.6~~$32.4 million, or ~~60.7%~~111%, from ~~$17.5~~$29.3 million for the three months ended March 31, ~~2020.~~2021. The increase in selling, general and administrative expense was primarily due to higher closing volume and the inclusion of ~~$7.4~~$25.0 million in expenses ~~for the operations~~ of ~~H&H Homes~~MHI for the first quarter of 2021, and $1.2 million in expenses related to the operations of Century Homes. Also contributing to the increase in selling, general and administrative expenses was $1.2 million in expense related to the remeasurement of the contingent consideration liability.2022.

~~Table of Contents~~

Income from Equity in Earnings ofand Unconsolidated ~~Entities~~. Entities. Income from equity in earnings of unconsolidated entities for the three months ended March 31, ~~2021~~2022 was ~~$1.7~~$3.0 million, an increase of ~~$0.3~~$1.3 million, or ~~27.4%~~71%, as compared to ~~$1.4~~$1.7 million for the three months ended March 31, ~~2020.~~2021. The increase in income from equity in earnings of unconsolidated entities was largely attributable to an increase in the average of loan balance funded by Jet Home Loans for the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020.~~2021.

~~Other Expense. Other~~Contingent Consideration Revaluation. Contingent consideration expense for the three months ended March 31, ~~2021~~2022 was ~~$2.9~~$4.2 million, an increase of ~~$1.7~~$3.0 million or ~~142.9%~~254%, as compared to $1.2 million for the three months ended March 31, ~~2020.~~2021. The increase in contingent consideration expense is primarily due to fair value adjustments of future expected earnout payments from the acquisition of MHI, which contributed one quarter of contingent consideration adjustment, not included in the previous period ended March 31, 2021.

Table of Contents

Other (Income) Expense, Net. Other income for the three months ended March 31, 2022 was $1.0 million, as compared to $0.7 million in other expense, an increase of $1.7 million or 238% for the three months ended March 31, 2021. The increase in other ~~expenses~~income, net is primarily ~~attributable~~due to a loss on extinguishment of debt in the first quarter of 2021 due to the ~~acceleration~~Corporate Reorganization, compared to income from the management fee revenue for MHI included in the first quarter of ~~stock compensation expense as a result of the Corporate Reorganization.~~2022.

Net and Comprehensive Income. Net and comprehensive income for the three months ended March 31, ~~2021~~2022 was ~~$17.6~~$46.3 million, an increase of ~~$9.8~~$28.7 million, or ~~126.4%~~163.1%, from ~~$7.8~~$17.6 million for the three months ended March 31, ~~2020.~~2021. The increase in net and comprehensive income was primarily attributable to an increase in gross margin on homes closed of ~~$27.1~~$72.5 million, or ~~112.8%~~142%, ~~for~~during the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020.~~2021.

Net and Comprehensive Income Attributable to Dream Finders Homes, Inc. Net and comprehensive income attributable to Dream Finders for the three months ended March 31, ~~2021~~2022 was ~~$16.1~~$43.7 million, an increase of ~~$9.5~~$27.6 million, or ~~145.0%~~171.4%, from ~~$6.6~~$16.1 million for the three months ended March 31, ~~2020.~~2021. The increase was primarily attributable to ~~a significant~~the increase in home closings and gross margin. ~~The change in net and comprehensive income attributable to Dream Finders Homes, Inc. is reduced by $4.8 million in income tax expense (utilizing an effective tax rate of 23%)~~We closed 1,371 homes for the three months ended March 31, ~~2021, which was not applicable to DFH LLC.~~

~~Backlog. Backlog at March 31, 2021 was 3,612 homes valued at approximately $1,356.4 million,~~2022, an increase of ~~2,457~~369 units, or 37%, from the 1,002 homes and $914.5 million, respectively, or 212.7% and 207.0%, respectively, as compared to 1,155 homes valued at approximately $441.9 million at March 31, 2020. The increase in backlog was primarily attributable to an increase in active communities to 120closed for the three months ended March 31, ~~2021, an increase of 37 communities or 44.6%, as compared to 83~~2021. Gross margin for the three months ended March 31, ~~2020.~~2022 was $123.6 million, an increase of $72.5 million, or 142%, from $51.1 million for the three months ended March 31, 2021.

Non-GAAP Financial Measures

Adjusted Gross Margin

Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted gross margin as gross margin excluding the effects of capitalized interest, amortization included in the homebuilding cost of sales (including adjustments resulting from the application of purchase accounting in connection with acquisitions) and commission expense. Our management believes this information is meaningful because it isolates the impact that capitalized interest, amortization (including purchase accounting adjustments) and commission expense have on gross margin. However, because adjusted gross margin information excludes capitalized interest, amortization (including purchase accounting adjustments) and commission expense, which have real economic effects and could impact our results of operations, the utility of adjusted gross margin information as a measure of our operating performance may be limited. We include commission expense in homebuilding cost of sales, not selling, general and administrative expense, and therefore commission expense is taken into account in gross margin. As a result, in order to provide a meaningful comparison to the public company homebuilders that include commission expense below the gross margin line in selling, general and administrative expense, we have excluded commission expense from adjusted gross margin. In addition, other companies may not calculate adjusted gross margin information in the same manner that we do. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance.

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The following table presents a reconciliation of adjusted gross margin to the GAAP financial measure of gross margin for each of the periods indicated (unaudited and in thousands, except percentages).:

	For the Three Months Ended March 31,
	2022		2021
Gross margin⁽¹⁾	$	123,605	$	51,130
Interest expense in homebuilding cost of sales		8,847		8,276
Amortization in homebuilding cost of sales⁽³⁾		3,830		1,175
Commission expense		25,274		15,274
Adjusted gross margin	$	161,556	$	75,855
Gross margin %⁽²⁾		18.7%		14.9%
Adjusted gross margin %⁽²⁾		24.4%		22.2%

For the Three Months Ended
March 31,

2021
As a % of Home
Sales Revenue
2020
As a % of Home
Sales Revenue .

Revenues
$
343,560

$
188,738

Other revenue
1,393

965

Home sales revenue
342,167

187,773

Cost of sales
291,037

85.1
%

163,746

87.2
%
Gross Margin⁽¹⁾

51,130

14.9
%

24,027

12.8
%
Interest expense in cost of sales
8,276

2.4
%

5,992

3.2
%
Amortization in cost of sales⁽³⁾

1,175

0.3
%

593

0.3
%
Commission expense
15,274

4.5
%

8,392

4.5
%
Adjusted gross margin
75,855

22.2
%

39,004

20.8
%
Gross margin %⁽²⁾

14.9
%

12.8
%

Adjusted gross margin %⁽²⁾

22.2
%

20.8
%

(1)	Gross margin is ~~home sales revenue~~homebuilding revenues less homebuilding cost of sales.

(2)	Calculated as a percentage of ~~home sales~~homebuilding revenues.

(3)	Includes purchase accounting ~~adjustment,~~adjustments, as applicable.

EBITDA and Adjusted EBITDA

EBITDA and adjusted EBITDA are not measures of net income as determined by GAAP. EBITDA and adjusted EBITDA are supplemental non-GAAP financial measures used by management and external users of our condensed consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. We define EBITDA as net income before (i) interest income, (ii) capitalized interest expensed in homebuilding cost of sales, (iii) interest expense, (iv) income tax expense and (v) depreciation and amortization. We define adjusted EBITDA as EBITDA before stock-based compensation expense.

Management believes EBITDA and adjusted EBITDA are useful because they allow management to more effectively evaluate our operating performance and compare our results of operations from period to period without regard to our financing methods or capital structure or other items that impact comparability of financial results from period to period. EBITDA and adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income or any other measure as determined in accordance with GAAP. Our computations of EBITDA and adjusted EBITDA may not be comparable to EBITDA or adjusted EBITDA of other companies. We present EBITDA and adjusted EBITDA because we believe they provide useful information regarding the factors and trends affecting our business.

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The following table presents a reconciliation of EBITDA and adjusted EBITDA to the GAAP financial measure of net income for each of the periods indicated (unaudited and in thousands, except percentages).:

	For the Three Months Ended March 31,
	2022			2021
Net income	$	43,716		$	16,121
Interest income		(41	)		(4	)
Interest expensed in cost of sales		8,847			8,276
Interest expense		13			642
Income tax expense		16,878			4,816
Depreciation and amortization		6,454			2,478
EBITDA	$	75,867		$	32,329
Stock-based compensation expense		1,365			2,349
Adjusted EBITDA	$	77,232		$	34,678
EBITDA margin %⁽¹⁾		11.4%			9.4%
Adjusted EBITDA margin %⁽¹⁾		11.6%			10.1%

For the Three Months Ended
March 31,

2021 2020
Net income
$
16,121

$
6,580

Interest income
(4
)

(32
)
Interest expensed in cost of sales
8,276

5,992

Interest expense
642

36

Income tax expense
4,816

-

Depreciation and amortization
2,478

1,547

EBITDA
$
32,329

$
14,123

Stock-based compensation expense
2,349

224

Adjusted EBITDA
$
34,678

$
14,347

EBITDA margin %⁽¹⁾

9.4
%

7.5
%
Adjusted EBITDA margin %⁽¹⁾

10.1
%

7.6
%

(1)	Calculated as a percentage of total revenues.

Backlog, Sales and Closings

A new order (or new sale) is reported when a customer has received preliminary mortgage approval and the sales contract has been signed by the customer, approved by us and secured by a deposit, typically approximately ~~1-3%~~3.0-6.0% of the purchase price of the home. These deposits are typically not refundable, but each customer situation is evaluated individually.

Net new orders are new orders or sales (gross) for the purchase of homes during the period, less cancellations of existing purchase contracts during the period. Sales to investors that intend to lease the homes are recognized when the Company has received a nonrefundable deposit. Our cancellation rate for a given period is calculated as the total number of new (gross) sales purchase contracts canceled during the period divided by the total number of new (gross) sales contracts entered into during the period. Our cancellation rate for the three months ended March 31, ~~2021~~2022 was ~~8.1% a decrease~~13.4%, an increase of ~~370~~530 basis points when compared to the ~~11.8%~~8.1% cancellation rate for the three months ended March 31, ~~2020.~~2021.

The following ~~table presents~~tables present information concerning our new home sales (net), starts and closings in each of our markets for the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021:

			For the Three Months Ended March 31,										Period Over Period									For the Three Months Ended March 31,												Period Over Period Percent Change
	2021⁽¹⁾						2020						Percent Change									2022⁽¹⁾						2021						Period Over Period Percent Change
Market	Sales		Starts		Closings		Sales		Starts		Closings		Sales			Starts			Closings
The Carolinas (H&H Homes)		647		413		343		-		-		-		-			-			-
Segment																						Sales		Starts		Closings		Sales		Starts		Closings		Sales			Starts			Closings
Jacksonville		560		407		295		401		257		257		40	%		58	%		15	%		632		447		269		560		407		295		13	%		10	%		-9	%
Colorado																							86		96		70		139		74		34		-38	%		30	%		106	%
Orlando		281		173		161		127		97		26		121	%		78	%		519	%		129		234		106		281		173		161		-54	%		35	%		-34	%
Colorado		139		74		34		94		73		47		48	%		1	%		-28	%
DC Metro		52		32		24		67		48		51		-22	%		-33	%		-53	%		63		58		15		52		32		24		21	%		81	%		-38	%
The Carolinas																							153		288		252		647		413		343		-76	%		-30	%		-27	%
Texas ⁽¹⁾																							817		717		483		-		-		-		-			-			-
Other⁽²⁾		331		289		145		159		166		134		108	%		74	%		8	%		522		179		176		331		289		145		58	%		-38	%		21	%
Grand Total		2,010		1,388		1,002		848		641		515		137	%		117	%		95	%		2,402		2,019		1,371		2,010		1,388		1,002		20	%		45	%		37	%

(1)	~~Includes~~Results for Texas only include sales, starts and closings ~~for Century Homes~~ from the MHI acquisition date of ~~January 31,~~October 1, 2021.

(2)	Austin, Savannah, Village Park Homes, Active Adult and Custom Homes. Austin refers to legacy DFH operations exclusive of MHI. See Note 9, Segment Reporting, to our condensed consolidated financial statements for further explanation of our reportable segments.

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Our “backlog” consists of homes under a purchase contract that are signed by homebuyers who have met the preliminary criteria to obtain mortgage financing but such home sales to end buyers have not yet closed. Ending backlog represents the number of homes in backlog from the previous period plus the number of net new orders generated during the current period minus the number of homes closed during the current period. Our backlog at any given time will be affected by cancellations and the number of our active communities. Homes in backlog are generally closed within one to six months, although we may experience cancellations of purchase contracts at any time prior to such home closings. Certain sales to investors that intend to lease the homes may be delivered over a longer duration. It is important to note that net new orders, backlog and cancellation metrics are operational, rather than accounting, data and should be used only as a general gauge to evaluate performance. Backlog may be impacted by customer cancellations for various reasons that are beyond our control, and, in light of our minimal required deposit, there is little negative impact to the potential homebuyer from the cancellation of the purchase contract.

The following ~~table presents~~tables present information concerning our new orders, cancellation rate and ending backlog for the periods ~~(and at the end~~and as of ~~the period)~~dates set forth ~~below.~~below:

	For the Three Months Ended March 31,						For the Three Months Ended March 31,
	2021			2020			2022		2021
Net New Orders		2,010			848			2,402		2,010
Cancellation Rate		8.1	%		11.8	%		13.4%		8.1%

	For the Three Months Ended March 31,				As of March 31,
	2021		2020			2022		2021
Ending Backlog - Homes		3,612		1,155		7,413		3,612
Ending Backlog - Value (in thousands)	$	1,356,436	$	441,903	$	3,443,709	$	1,356,436

Land Acquisition Strategy and Development Process

We operate an asset-light and ~~capital efficient~~capital-efficient lot acquisition strategy and ~~in contrast to many other homebuilders,~~ generally seek to avoid engaging in land development, which requires significant capital expenditures and can take several years to realize returns on the investment. Our strategy is intended to avoid the financial commitments and risks associated with direct land ownership and land development by allowing us to control a significant number of lots for a relatively low capital cost. We primarily employ two variations of our asset-light land financing strategy, finished lot option contracts and land bank option contracts, pursuant to which we secure the right to purchase finished lots at market prices, by paying deposits based on the aggregate purchase price of the finished lots (typically ~~10%~~10.0% or less in the case of finished lot option contracts and ~~15%~~15.0% or less in the case of land bank option contracts) and, in the case of land bank option contracts, any related fees paid to the land bank partner.

As of March 31, ~~2021,~~2022, our lot deposits ~~and investments~~ in finished lot option and land bank option contracts were ~~$92.1 million, of which $3.6 million was refundable at our option.~~$275.4 million. As of March 31, ~~2021,~~2022, we controlled ~~22,591~~39,474 lots under lot option and land bank option contracts.

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Owned and Controlled Lots

The following table presents our owned orfinished lots purchased just in time for production and controlled lots by ~~market and active adult and custom home divisions~~homebuilding segment as of March 31, ~~2021~~2022 and December 31, ~~2020.~~2021:

	As of March 31,						As of December 31,									As of March 31,						As of December 31,
	2021						2020						% Change of			2022						2021						% Change of
Division	Owned		Controlled		Total		Owned		Controlled		Total		Total
The Carolinas (H&H Homes)		1,281		4,395		5,676		1,348		4,107		5,455		4.1	%
Segment																Owned		Controlled		Total		Owned		Controlled		Total		Total
Jacksonville		971		5,810		6,781		715		4,445		5,160		31.4	%		833		9,967		10,800		774		10,311		11,085		-3	%
Colorado																	207		5,680		5,887		152		4,883		5,035		17	%
Orlando		585		2,735		3,320		256		2,504		2,760		20.3	%		655		5,355		6,010		537		5,487		6,024		0	%
Colorado		174		4,856		5,030		106		4,145		4,251		18.3	%
DC Metro		65		815		880		77		566		643		36.9	%		158		1,604		1,762		97		1,680		1,777		-1	%
The Carolinas																	1,465		5,568		7,033		1,452		5,196		6,648		6	%
Texas																	1,718		6,787		8,505		1,569		6,304		7,873		8	%
Other⁽¹⁾		771		3,980		4,751		629		3,509		4,138		14.8	%		765		4,513		5,278		764		4,634		5,398		-2	%
Grand Total		3,847		22,591		26,438		3,131		19,276		22,407		18.0	%		5,801		39,474		45,275		5,345		38,495		43,840		3	%

(1)

~~Includes owned and controlled lots for Century Homes from the acquisition date of January 31, 2021.~~

~~(2)~~

Austin, Savannah, Village Park Homes, Active Adult and Custom Homes.

Austin refers to legacy DFH operations exclusive of MHI. See Note 9, Segment Reporting, to our condensed consolidated financial statements for further explanation of our reportable segments.

Owned Real Estate Inventory Status

The following table presents our owned real estate inventory status as of March 31, ~~2021~~2022 and ~~2020.~~December 31, 2021:

As of
March 31, 2021

As of
December 31, 2020

Owned Real Estate Inventory Status ⁽¹⁾
% of Owned Real Estate Inventory % of Owned Real Estate Inventory
Construction in progress and finished homes
89.8
%

88.8
%
Finished lots and land under development
10.2
%

11.2
%
Total 100 % 100 %

	As of March 31, 2022			As of December 31, 2021
	% of Owned Real Estate Inventory			% of Owned Real Estate Inventory
Construction in process and finished homes ⁽¹⁾		91.4	%		92.0	%
Company owned land and lots ⁽²⁾		8.6	%		8.0	%
Total		100	%		100	%

(1)	Represents our owned homes that are completed or under construction, including sold, spec and model homes.

(2)	Represents finished lots purchased just-in-time for production and capitalized costs related to land under ~~development.~~development held by third-party land bank partners, including lot option fees, property taxes and due diligence. Land and lots from consolidated joint ventures are excluded.

Our Active Communities

We define an active community as a community where we have recorded five net new orders or a model home is currently open to customers. A community is no longer active when we have less than five home sites to sell to customers. Active community count is an important metric to forecast future net new orders for our business. As of March 31, ~~2021,~~2022, we had ~~120~~206 active communities, an increase of 3786 communities, or ~~44.6%~~71.7%, when compared to our 83120 active communities at March 31, ~~2020.~~2021. Our active community count excludes communities under the Company’s built-for-rent contracts, as all sales to investors occur at one point in time and these communities would have no home sites remaining to sell. As of March 31, 2022, the Company had 14 active communities for built-for-rent contracts and built-for-rent homes comprised approximately 19.1% of the homes in the Company’s backlog.

Our Mortgage Banking Business

For the three months ended March 31, ~~2021,~~2022, our mortgage banking joint venture, Jet LLC, originated and funded 527 home loans with an aggregate principal amount of approximately $187.8 million as compared to 417 home loans with an aggregate principal amount of approximately $146.3 million ~~as compared to 430 home loans with an aggregate principal amount of approximately $122.7 million~~ for the three months ended March 31, ~~2020.~~2021. For the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, Jet LLC had net income of approximately ~~$3.5~~$3.1 million and ~~$2.8~~$3.5 million. Our interest in Jet LLC is accounted for under the equity investment method and is not consolidated in our condensed consolidated financial statements, as we do not control, and are not deemed the primary beneficiary of, the variable interest ~~entities~~entity (“VIE”). See “Note 9.7, Variable Interest Entities and Investments in Other Entities,” to our condensed consolidated financial ~~statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020~~Statements for a description of our joint ventures, including those that were determined to be VIEs, and the related accounting treatment.

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Costs of Building Materials and Labor

Our cost of sales includes the acquisition and finance costs of ~~home sites~~homesites or lots, municipality fees, the costs associated with obtaining building permits, materials and labor to construct the home, interest rates for construction loans, internal and external realtor commissions and other miscellaneous closing costs. ~~Home site~~Homesite costs range from ~~20-25%~~20.0-25.0% of the average cost of a home. Building materials range from ~~40-50%~~40.0-50.0% of the average cost to build the home, labor ranges from ~~30-40%~~30.0-40.0% of the average cost to build the home and interest, commissions and closing costs range from ~~4-10%~~4.0-10.0% of the average cost to build the home.

In general, the cost of building materials fluctuates with overall trends in the underlying prices of raw materials. The cost of certain of our building materials, such as lumber and oil-based products, fluctuates with market-based pricing curves. We often obtain volume discounts and/or rebates with certain suppliers of our building materials, which in turn reduces our cost of sales.

However, increases in the cost of building materials may reduce gross margin to the extent that market conditions prevent the recovery of increased costs through higher home sales prices. The price changes that most significantly influence our operations are price increases in commodities, including lumber. Significant price increases of these materials may negatively impact our cost of sales and, in turn, our net income. For example, in the last 18 months, the cost of lumber has steadily increased due to supply-chain disruptions caused by the closing of lumber mills in response to the COVID-19 pandemic. The recent increases in lumber commodity prices may result in the renewal of our lumber contracts at more expensive rates, which may significantly impact the cost to construct our homes and our business. If the current lumber shortage, and related pricing impacts, continue, our cost of sales and, in turn, our net income could be negatively impacted.

Seasonality

In all of our markets, we have historically experienced similar variability in our results of operations and capital requirements from quarter to quarter due to the seasonal nature of the homebuilding industry. We generally sell more homes in the first and second quarters and close more homes in our third and fourth quarters. As a result, our revenue may fluctuate on a quarterly basis and we may have higher capital requirements in our second, third and fourth quarters in order to maintain our inventory levels. As a result of seasonal activity, our quarterly results of operations and financial position at the end of a particular quarter, especially our first quarter, are not necessarily representative of the results we expect at ~~year end.~~year-end. We expect this seasonal pattern to continue in the long term.,

Liquidity and Capital Resources

Overview

As of March 31, ~~2021,~~2022, we had ~~$42.3~~$100.1 million in cash and cash equivalents ~~(excluding $49.4~~excluding $60.9 million of restricted ~~cash), an increase~~cash. Additionally, the Company had $47.5 million of ~~$6.8~~availability under the Credit Agreement for a total of $147.6 million ~~or 19.2%, from $35.5 million as of December 31, 2020.~~ in total liquidity.

We generate cash from the sale of our inventory and we intend to re-deploy the net cash generated from the sale of inventory to acquire and control land and further grow our operations year over year. We believe that our sources of liquidity are sufficient to satisfy our current commitments.

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~~Immediately following the closing of our IPO, we replaced all of our secured vertical construction lines of credit facilities with our~~ We also maintain a credit agreement (the “Credit Agreement”) with a syndicate of lenders ~~and Bank of America, N.A, as administrative agent,~~ providing for a senior unsecured revolving credit facility, which currently has an ~~initial~~ aggregate commitment of up to ~~$450.0 million and an accordion feature that allows the facility to expand to a borrowing base of up to $750.0~~$817.5 million (our “Credit Facility”). ~~We believe that~~On October 1, 2021, we borrowed $300.0 million in revolving loans under the ~~consolidation~~Credit Agreement and paid off vertical lines of credit in connection with the MHI acquisition. Certain of our ~~indebtedness into~~subsidiaries guaranteed the Company’s obligations under the Credit Agreement. The Credit Agreement matures on January 25, 2024 and the outstanding balance was $770.0 million as of March 31, 2022.

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On September 29, 2021, we sold 150,000 shares of newly-created Series A Convertible Preferred Stock with an initial liquidation preference of $1,000 per share and a ~~single credit facility will reduce our financing costs, create operating efficiencies and enhance returns.~~par value $0.01 per share (the “Convertible Preferred Stock”), for an aggregate purchase price of $150.0 million. We used the proceeds from the sale of the Convertible Preferred Stock to fund the MHI acquisition.

Our principal uses of capital are lot deposits and purchases, vertical home construction, operating expenses and the payment of routine liabilities. ~~During the three months ended March 31, 2021, we also used cash in hand to make non-recurring payments in relation to the IPO.~~

Cash flows generated by our projects can differ materially from our results of operations, as these depend upon the stage in the life cycle of each project. The majority of our projects begin at the land acquisition stage when we enter into finished lot option contracts by placing a deposit with a land seller or developer. Our lot deposits are an asset on our balance sheets and these cash outflows are not recognized in our results of operations. Early stages in our communities require material cash outflows relating to finished rolling option lot purchases, entitlements and permitting, construction and furnishing of model homes, roads, utilities, general landscaping and other amenities, as well as ongoing association fees and property taxes. These costs are capitalized within our real estate inventory and are not recognized in our operating income until a home sale closes. As such, we incur significant cash outflows prior to the recognition of earnings. In later stages of the life cycle of a community, cash inflows could significantly exceed our results of operations, as the cash outflows associated with land purchase and home construction and other expenses were previously incurred.

We actively enter into finished lot option contracts by placing deposits with land sellers of typically ~~10%~~10.0% or less of the aggregate purchase price of the finished lots. When entering into these contracts, we also agree to purchase finished lots at pre-determined time frames and quantities that match our expected selling pace in the community. ~~For the three months ended March 31, 2021, the majority of these future lot purchases were financed by the Credit Agreement.~~

From time to time, we also enter into land development arrangements with land sellers, land developers and land bankers. We typically provide a lot deposit of ~~10%~~10.0% or less, or ~~15%~~15.0% or less in the case of land bank option contracts, of the total investment required to develop lots that we will have the option to acquire in the future. In these transactions, we also incur lot option fees that have historically been ~~15%~~15.0% or less of the outstanding capital balance held by the land banker. The initial investment and lot option fees require our ability to allocate liquidity resources to projects that will be not materialize into cash inflows or operating income in the near term. The above cash strategies are designed to allow us to maintain adequate lot supply in our existing markets and support ongoing growth and profitability. As we continue to operate in ~~a low interest rate~~an environment with consistent increase in the demand for new homes and constrained lot supply compared to population and job growth trends, we intend to continue to ~~re-invest~~reinvest our earnings into our business and focus on expanding our operations. In addition, as the opportunity to purchase finished lots in desired locations becomes increasingly more limited and competitive, we are committed to allocating additional liquidity to ~~land-bank~~land bank deposits on land development projects, as this strategy mitigates the risks associated with holding undeveloped land on our balance sheet, while allowing us to control adequate lot supply in our key markets to support forecasted growth. As of March 31, ~~2021,~~2022, our lot deposits and investments related to finished lot option contracts and land bank option contracts were ~~$92.1 million, including $3.6 million of refundable lot deposits. For the three months ended March 31, 2021, we closed 1,002 homes, acquired 1,444 lots and started construction on 1,388 homes.~~$275.3 million.

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Cash Flows

The following table summarizes our cash flows for the periods indicated:

For the Three Months Ended
March 31,

2021 2020
Net cash provided by (used in) operating activities
$
(47,481,723
)

$
(21,305,692
)
Net cash provided by (used in) investing activities
(22,915,714
)

(1,123,974
)
Net cash provided by (used in) financing activities
76,922,404

(15,318,649
)

	For the Three Months Ended March 31,
	2022			2021
Net cash used in operating activities	$	(122,498	)	$	(22,423	)
Net cash used in investing activities		(930	)		(22,916	)
Net cash provided by financing activities		3,121			76,922

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Net cash used in operating activities was ~~$47.5~~$122.5 million for the three months ended March 31, ~~2021,~~2022, anincrease of ~~$26.2~~$100.1 million, as compared to ~~$21.3~~$22.4 million of net cash used in operating activities for the three months ended March 31, ~~2020.~~2021. The increase in net cash used in operating activities was driven by an increase ~~of $36.7 million~~ in inventories of $165.4 million and ~~an increase in~~ lot deposits of ~~$25.0~~$33.9 million as the Company ~~deploys~~continues to deploy its available cash ~~from~~to secure finished lots in the ~~Credit Agreement into~~ future ~~growth,~~and in building its backlog of homes. The increase was partially offset by higher customer deposits of ~~$13.1~~$28.4 million ~~received from customers~~ and the increase in net income generated on home ~~closings.~~closings for the three months ended March 31, 2022.

Net cash used in investing activities was ~~$22.9~~$0.9 million for the three months ended March 31, ~~2021, an increase~~2022, a decrease of ~~$21.8~~$22.0 million, as compared to ~~$1.1~~$22.9 million of cash used in investing activities for the three months ended March 31, ~~2020.~~2021. The ~~increase~~decrease in net cash used in investing activities was primarily attributable to the acquisition of Century Homes during the first quarter of ~~2021.~~2021 compared to no acquisitions in the first quarter of 2022.

Net cash provided by financing activities was ~~$76.9~~$3.1 million for the three months ended March 31, ~~2021, an increase~~2022, a decrease of ~~$92.2~~$73.8 million, as compared to ~~$15.3~~$76.9 million of cash ~~used in~~provided by financing activities for the three months ended March 31, ~~2020.~~2021. The ~~increase~~decrease in net cash ~~used in~~provided by financing activities was primarily attributable to the following activities in the first quarter of 2021 which did not recur in the first quarter of 2022: the Corporate Reorganization, which ~~was~~included IPO net proceeds of $130.0 million, partially offset by the redemption of the Series C preferred units of DFH LLC of ~~$26.2~~$26.0 million and ~~payments to terminate the Company’s historical vertical construction lines of credit and notes payable, including~~ the $20.0 million bridge loan, ~~utilized in funding the H&H Acquisition,~~ in connection with the new unsecured Credit Agreement.

Credit Facilities, Letters of Credit, Surety Bonds and Financial Guarantees

As of March 31, ~~2021,~~2022, under our Credit Facility we had a maximum availability of ~~$442.5~~$817.5 million, ~~and~~ an outstanding balance of ~~$320.0 million.~~$770.0 million and we could borrow an additional $47.5 million under the agreement. As of December 31, ~~2020,~~2021, we had ~~34 vertical construction lines~~total outstanding borrowings of $760.0 million under our Credit Agreement and an additional $8.1 million in letters of credit ~~facilities~~ with ~~a cumulative maximum availability~~the lenders from the Credit Agreement such that we could borrow an additional $49.4 million under the agreement. As of ~~$763.0~~March 31, 2022, we were in compliance with the covenants set forth in our Credit Agreement.

We enter into surety bonds and letter of credit arrangements with local municipalities, government agencies and land developers. These arrangements relate to certain performance-related obligations and serve as security for certain land option agreements. At March 31, 2022, we had outstanding letters of credit and surety bonds totaling $8.0 million and ~~an aggregate outstanding balance~~$64.8 million, respectively.

Series B Preferred Units

Following the Corporate Reorganization and upon completion of ~~$289.9 million. Historically, our vertical construction lines~~the IPO, MOF II DF Home LLC and MCC Investment Holdings LLC (both controlled by Medley Capital Corporation) continue to hold the Series B preferred units of ~~credit facilities were fully collateralized by finished lots~~DFH LLC. As such, they have certain rights and ~~homes under construction and were personally guaranteed by Patrick Zalupski, our founder, President, Chief Executive Officer and Chairman~~preferences with regard to DFH LLC that holders of our ~~Board~~Class A common stock do not have.

At any time on or prior to September 30, 2022, DFH LLC has the right to redeem some or all of ~~Directors.~~the outstanding Series B preferred units at a price equal to the sum of (i) the difference of (A) $1,000 and (B) the amount of previous distributions having already been paid towards each such unit and (ii) unreturned capital contributions for such unit plus the Series B Preferred Return (the “Series B Redemption Price”).

In the event of a liquidation or dissolution of DFH LLC, the holders of Series B preferred units shall have preference over our membership interest in DFH LLC. Further, in the event of (i) a sale of substantially all of DFH LLC’s assets or (ii) a merger or reorganization resulting in the members of DFH LLC immediately prior to such transaction no longer beneficially owning at least 50% of the voting power of DFH LLC, the holders of the Series B preferred units may demand redemption of their Series B preferred units at a price equal to the Series B Redemption Price.

Series C Preferred Units

On January 27, 2021, we redeemed all 26,000 outstanding Series C preferred units of DFH LLC at a redemption price of $26.0 million, including $0.5 million of discounted costs, plus accrued unpaid preferred distributions ~~and fees~~ of $0.2 million.

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Convertible Preferred Stock

On September 29, 2021, we sold 150,000 shares of newly-created Convertible Preferred Stock with an initial liquidation preference of $1,000 per share and a par value $0.01 per share, for an aggregate purchase price of $150.0 million. We used the proceeds from the sale of the Convertible Preferred Stock to fund the MHI acquisition and for general corporate purposes. Pursuant to the Certificate of Designations, the Convertible Preferred Stock ranks senior to the 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 is entitled to receive the initial liquidation preference of $1,000 per share, subject to adjustment, plus all accrued and unpaid dividends thereon. Refer to Note 6 to the condensed consolidated financial statements herein and Note 9 to the consolidated financial statements within our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for further details on the terms.

Off-Balance Sheet Arrangements

Asset-Light Lot Acquisition Strategy

We operate an asset-light and ~~capital efficient~~capital-efficient lot acquisition strategy and generally seek to avoid engaging in land development. We primarily employ two variations of our asset-light land financing strategy, finished lot option contracts and land bank option contracts, pursuant to which we secure the right to purchase finished lots at market prices from various land sellers and land bank partners, by paying deposits based on the aggregate purchase price of the finished lots. The deposits required are typically ~~10%~~10.0% or less in the case of finished lot option contracts and 15% or less in the case of land bank option contracts.

Our asset-light and capital efficient lot acquisition strategy is intended to avoid the financial commitments and risks associated with direct land ownership and land development by allowing us to control a significant number of lots for a relatively low capital cost. These option contracts generally allow us, at our option, to forfeit our right to purchase the lots controlled by these option contracts 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. We do not have any financial guarantees or completion obligations, and we do not guarantee lot purchases on a specific performance basis under these agreements.

As of March 31, ~~2021,~~2022, we ~~owned and~~ controlled ~~26,438~~39,474 lots through finished lot option contracts and land bank option contracts. Our entire risk of loss pertaining to the aggregate purchase price of contractual commitments resulting from our non-performance under our finished lot option contracts and land bank option contracts is limited to approximately ~~$92.1~~$275.3 million in lot deposits ~~and investments made~~ as of March 31, ~~2021—$91.7~~2022. In addition, we have capitalized costs of $55.9 million ~~of lot deposits, including $3.6 million of refundable lot deposits pertaining~~relating to ~~deals that are still in the~~our off-balance sheet arrangements and land development due ~~diligence inspection period.~~diligence.

Surety Bonds and Letters of Credit

We enter into letter of credit and surety bond arrangements with local municipalities, government agencies and land developers. These arrangements relate to certain performance-related obligations and serve as security for certain land option agreements. At March 31, ~~2021,~~2022, we had outstanding letters of credit and surety bonds totaling ~~$2.1~~$8.0 million and ~~$31.9~~$64.8 million, respectively. We believe we will fulfill our obligations under the related arrangements and do not anticipate any material losses under these letters of credit or surety bonds.

Contractual Obligations

As of March 31, ~~2021,~~2022, there have been no material changes to our contractual obligations appearing in the “Contractual Obligations, Commitments and Contingencies” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021.

Critical Accounting Policies

We prepare our condensed consolidated financial statements in accordance with GAAP. Our critical accounting policies are those that we believe have the most significant impact to the presentation of our financial position and results of operations and that require the most difficult, subjective or complex judgments. In many cases, the accounting treatment of a transaction is specifically dictated by GAAP without the need for the application of judgment.

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In certain circumstances, however, the preparation of condensed consolidated financial statements in conformity with GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period.

We believe that there have been no significant changes to our critical accounting policies during the three months ended March 31, ~~2021~~2022 as compared to those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021.

Cautionary Statement about Forward-Looking Statements

The information in this Quarterly Report on Form 10-Q includes “forward-looking statements.” Many statements included in this Quarterly Report on Form 10-Q are not statements of historical fact, including statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “projection,” “should” or “will” or the negative thereof or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

our market opportunity and the potential growth of that market;

the expected impact of the COVID-19 pandemic;

our strategy, expected outcomes and growth prospects;

trends in our operations, industry and markets;

our future profitability, indebtedness, liquidity, access to capital and financial condition; and

our integration of ~~H&H Homes’ and Century Homes’~~companies that we have acquired into our operations.

We have based these forward-looking statements on our current expectations and assumptions about future events based on information available to our management at the time the statements were made. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements. ~~The following factors, among others, may cause actual results to differ materially from those expressed or implied in our forward-looking statements:~~

~~adverse effects of the COVID-19 pandemic on our business, financial conditions and results of operations and our suppliers and trade partners;~~

adverse effects of the COVID-19 pandemic and other economic changes either nationally or in the markets in which we operate, including, among other things, increases in unemployment, volatility of mortgage interest rates and inflation and decreases in housing prices;

~~a slowdown in the homebuilding industry or changes in population growth rates in our markets;~~

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~~volatility and uncertainty in the credit markets and broader financial markets;~~

~~the cyclical and seasonal nature of our business;~~

~~our future operating results and financial condition;~~

~~our business operations;~~

~~changes in our business and investment strategy;~~

~~the success of our operations in recently opened new markets and our ability to expand into additional new markets;~~

~~our ability to continue to leverage our asset-light and capital efficient lot acquisition strategy;~~

~~our ability to develop our projects successfully or within expected timeframes;~~

~~our ability to identify potential acquisition targets and close such acquisitions;~~

~~our ability to successfully integrate H&H Homes, Century Homes and any future acquired businesses with our existing operations;~~

~~availability of land to acquire and our ability to acquire such land on favorable terms, or at all;~~

~~availability, terms and deployment of capital and ability to meet our ongoing liquidity needs;~~

~~restrictions in our debt agreements that limit our flexibility in operating our business;~~

~~disruption in the terms or availability of mortgage financing or an increase in the number of foreclosures in our markets;~~

~~decline in the market value of our inventory or controlled lot positions;~~

~~shortages of, or increased prices for, labor, land or raw materials used in land development and housing construction, including due to changes in trade policies;~~

~~delays in land development or home construction resulting from natural disasters, adverse weather conditions or other events outside our control;~~

~~uninsured losses in excess of insurance limits;~~

~~the cost and availability of insurance and surety bonds;~~

changes in (including as a result of the change in the U.S. presidential administration), liabilities under, or the failure or inability to comply with, governmental laws and regulations, including environmental laws and regulations;

~~the timing of receipt of regulatory approvals and the opening of projects;~~

~~the degree and nature of our competition;~~

~~decline in the financial performance of our joint ventures, our lack of sole decision-making authority thereof and maintenance of relationships with our joint venture partners;~~

~~negative publicity or poor relations with the residents of our projects;~~

~~existing and future warranty and liability claims;~~

~~existing and future litigation, arbitration or other claims;~~

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~~availability of qualified personnel and third-party contractors and subcontractors;~~

~~information system failures, cyber incidents or breaches in security;~~

~~our ability to retain our key personnel;~~

~~our ability to maintain an effective system of internal control and produce timely and accurate financial statements or comply with applicable regulations;~~

~~our leverage and future debt service obligations;~~

~~the impact on our business of any future government shutdown;~~

~~the impact on our business of acts of war or terrorism;~~

~~our reliance on dividends, distributions and other payments from our subsidiaries to meet our obligations;~~

~~other risks and uncertainties inherent in our business;~~

~~other factors we discuss under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” and~~

~~the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.~~

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the operation of our business. These risks include, but are not limited to, the risks described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021 and in this Quarterly Report on Form 10-Q. Should one or more of ~~the~~such risks or uncertainties ~~described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020~~ occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

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Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

COVID-19 Impact

There remains uncertainty regarding the extent and timing of the disruption to our business that may result from the COVID-19 pandemic and any future related governmental actions. There is also uncertainty as to the effects of the COVID-19 pandemic and related economic relief efforts on the U.S. economy, unemployment, consumer confidence, demand for our homes and the mortgage market, including lending standards, interest rates and secondary mortgage markets. We are unable to predict the extent to which this will impact our operational and financial performance, including the impact of future developments such as the duration and spread of the COVID-19 virus or variants thereof, corresponding governmental actions and the impact of such developments and actions on our employees, customers and trade partners and the supply chain in general.

Our primary focus remains on doing everything we can to ensure the safety and well-being of our employees, customers and trade partners. In all markets where we are permitted to operate, we are operating in accordance with the guidelines issued by the Centers for Disease Control and Prevention, as well as state and local guidelines.

For more information, see Item 1A. Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

ITEM 3.3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our operations are ~~interest rate~~interest-rate sensitive. As overall housing demand is adversely affected by increases in interest rates, a significant increase in interest rates may negatively affect the ability of homebuyers to secure adequate financing. Higher interest rates could adversely affect our revenues, gross margins and net income. We do not enter into, nor do we intend to enter into in the future, derivative financial instruments for trading or speculative purposes to hedge against interest rate fluctuations.

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Quantitative and Qualitative Disclosures About Interest Rate Risk

Market risk is the risk of loss arising from adverse changes in market prices and interest rates. Our market risk arises from interest rate risk inherent in our financial instruments and debt obligations. Interest rate risk results from the possibility that changes in interest rates will cause unfavorable changes in net income or in the value of interest ~~rate-sensitive~~rate sensitive assets, liabilities and commitments. Lower interest rates tend to increase demand for mortgage loans for home purchasers, while higher interest rates make it more difficult for potential borrowers to purchase residential properties and to qualify for mortgage loans. We have no market ~~rate sensitive~~rate-sensitive instruments held for speculative or trading purposes.

On January 25, 2021, we entered into the Credit Agreement, providing for a senior unsecured revolving credit facility, which has an initial aggregate commitment of up to $450.0 million. As of March 31, 2021, we had $320.0 million of indebtedness outstanding under our Credit Facility. 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 $300.0 million.

The Credit Agreement provides for interest rate options on advances at rates equal to either: (a) in the case of base rate advances, the highest of (1) Bank of America, N.A.’s announced “prime rate”, (2) the federal funds rate plus 0.5%, and (3) the one-month LIBOR plus 1.0%, in each case not to be less than 1.5%; or (b) in the case of Eurodollar rate advances, the reserve adjusted LIBOR, not to be less than 0.5%. Borrowings under the Credit Agreement bear interest at the interest rate option plus an applicable margin ranging from (i) 2.00% to 2.75% per annum for base rate advances and (ii) 3.00% to 3.75% per annum for Eurodollar rate advances. The applicable margin will vary depending on the Company’s net debt to net capitalization ratio.

Interest on base rate advances borrowed under the Credit Agreement is payable in arrears on a monthly basis. Interest on each Eurodollar rate advance borrowed under the Credit Agreement is payable in arrears at the end of the interest period applicable to such advance, or, if less than such interest period, three months after the beginning of such interest period. The Company pays the lenders a commitment fee on the amount of the unused commitments on a quarterly basis at a rate per annum that will vary from 0.20% to 0.30% depending on the Company’s net debt to net capitalization ratio.

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Outstanding borrowings under the Credit Agreement are subject to, among other things, a borrowing base. The borrowing base includes, among other things, (a) 90% of the net book value of presold housing units, (b) 85% of the net book value of model housing units, (c) 85% of the net book value of speculative housing units and (d) 70% of the net book value of finished lots, in each case subject to certain exceptions and limitations set forth in the Credit Agreement.

Our mortgage banking joint venture, Jet LLC, is exposed to interest rate risk as it relates to its lending activities. Jet LLC underwrites and originates mortgage loans, which are sold through either optional or mandatory forward delivery contracts into the secondary markets. All of the mortgage banking segment’s loan portfolio is held for sale and subject to forward sale commitments. Jet LLC also sells all of its mortgages held for sale on a servicing released basis.

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ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management ~~has~~ evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) as of ~~December~~March 31, ~~2020.~~2022. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer identified three material weaknesses in our internal control over financial reporting. We did not document the design or operation of an effective control environment commensurate with the financial reporting requirements of an SEC registrant. Specifically, we did not design and maintain adequate formal documentation of certain policies and procedures, controls over the segregation ~~and~~of duties within our financial reporting function and the preparation and review of journal entries. In addition, we did not design or maintain effective control activities that contributed to the following additional material weaknesses; we did not design control activities to adequately address identified risks, evidence of performance, or operate at a sufficient level of precision that would identify material misstatements to our financial statements and we did not design and maintain effective controls over certain IT general controls for information systems that are relevant to the preparation of our financial statements. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. ~~See “~~Risk Factors—We have identified material weaknesses in our internal control over financial reporting. If our remediation of these material weaknesses is not effective, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal control, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our Class A common stock~~” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.~~

Each of the material weaknesses described above involve control deficiencies that could result in a misstatement of one or more account balances or disclosures that would result in a material misstatement to our annual or interim condensed consolidated financial statements that would not be prevented or detected, and, accordingly, we determined that these control deficiencies constitute material weaknesses.

~~We are currently~~Remediation Plan for Material Weaknesses

Since identifying these material weaknesses and reporting them in ~~the process of~~our 2020 Annual Report on 10-K, we have developed a remediation plan and begun implementing measures ~~and taking steps~~ to address the underlying causes of ~~these~~each material ~~weaknesses.~~weakness. Our efforts to date have included the following:

~~Formalization of our remediation plan~~Developed formal policies specific to corporate governance and ~~timelines to fully address the individual control deficiencies~~accounting.

Developed formal policies for IT general controls; executed IT controls focused training; and designed and implemented controls within user access, program change management, and computer operations domains.

Designed and implemented segregation of duties ~~issues.~~controls over financial reporting and review of journal entries.

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Performed a financial statement risk assessment and designed and implemented or identified existing controls designed to prevent or detect a material misstatement in our financial statements.

~~Development~~Began implementing a formal testing program to evaluate the design and operating effectiveness of ~~formal policies around general computer controls,~~key internal controls.

Further augmented leadership and staff responsible for internal control over financial reporting, including ~~scheduled formal trainings prior~~adding a Vice President of Internal Audit to ~~implementation of an IT general controls framework that addresses risks associated with user access~~assess and ~~security~~report on the Company’s processes and ~~application change management and IT operations to help sustain effective control operations and comprehensive remediation efforts relating to segregation of duties to strengthen user access~~internal controls and ~~security.~~

a Director of SEC Reporting to address SEC reporting and technical accounting matters.

While we believe these efforts will improve our internal control over financial reporting and address the underlying causes of the material weaknesses, such material weaknesses will not be remediated until our remediation plan has been fully implemented, and we have concluded that our controls are operating effectively for a sufficient period of time. ~~As of March 31, 2021, disclosure controls and procedures were not effective.~~

We cannot be certain that the steps we are taking will be sufficient to remediate the control deficiencies that led to our material weaknesses in our internal control over financial reporting or prevent future material weaknesses or control deficiencies from occurring. In addition, we cannot be certain that we have identified all material weaknesses in our internal control over financial reporting or that in the future we will not have additional material weaknesses in our internal control over financial reporting.

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Changes in Internal Controls

~~There~~Except as set forth above, there was no change in our internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f) occurred during the three months ended March 31, ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

~~There have been no~~See Note 5, Commitments and Contingencies, in our unaudited financial statements included herein for a description of material ~~changes to the Company’s~~ legal proceedings. ~~You should carefully read and consider the~~From time to time, we are a party to ongoing legal proceedings ~~set forth~~ in the ordinary course of business. We do not believe the results of currently pending proceedings, individually or in the aggregate, will have a material adverse effect on our ~~Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which contains descriptions~~business, financial condition, results of ~~significant legal proceedings that may affect our business.~~operations or liquidity.

ITEM 1A.

RISK FACTORS

There are numerous factors that affect our business and results of operations, many of which are beyond our control. ~~You should carefully read and consider the risk factors set forth~~Refer to Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, which contains descriptions of significant risks that have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. Except as presented below, there have been no material changes to risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.

Global economic and political instability and conflicts, such as the conflict between Russia and Ukraine, could adversely affect our business, financial condition or results of operations.

Our business could be adversely affected by unstable economic and political conditions within the United States and foreign jurisdictions and geopolitical conflicts, such as the conflict between Russia and Ukraine. While we do not have any customer or direct supplier relationships in either country, the current military conflict, and related sanctions, as well as export controls or actions that may be initiated by nations (e.g., potential cyberattacks, disruption of energy flows, etc.) and other potential uncertainties could adversely affect our supply chain by causing shortages or increases in costs for materials necessary to construct homes and/or increases to the price of gasoline and other fuels. In addition, such events could cause higher interest rates, inflation or general economic uncertainty, which could negatively impact our business partners, employees or customers or otherwise adversely impact our business.

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ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 25, 2021, we completed the IPO of 11,040,000 shares of our Class A common stock at a price to the public of $13.00 per share, which was conducted pursuant to our Registration Statement on Form S-1 (File No. 333-251612), as amended, that was declared effective on January 20, 2021. The IPO provided us with net proceeds of $133.5 million. On January 25, 2021, we used the net proceeds from the IPO, cash on hand and borrowings under our Credit Agreement to repay (i) all borrowings under our then-existing 34 separate secured vertical construction lines of credit facilities totaling $319.0 million and upon such repayment terminated such facilities and (ii) the BOMN Bridge Loan was used to finance the acquisition of H&H Homes, totaling $20.0 million, plus contractual interest of $0.6 million. The representatives of the underwriters of the IPO were BofA Securities, Inc., RBC Capital Markets, LLC and BTIG, LLC.None.

ITEM 6.

EXHIBITS

Exhibit No.		Description
~~2.1~~		Agreement and Plan of Merger, dated as of January 20, 2021, by and among Dream Finders Homes, Inc., Dream Finders Holdings LLC and DFH Merger Sub LLC (incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on January 25, 2021).

~~2.2+~~		Membership Interest Purchase Agreement, effective as of January 31, 2021, by and between Dream Finders Holdings LLC and Four Seventeen, LLC (incorporated herein by reference to Exhibit 2.11 to the Annual Report on Form 10-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on March 30, 2021).

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~~3.1~~		Amended and Restated Certificate of Incorporation of Dream Finders Homes, Inc. (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on January 25, 2021).

~~3.2~~		Amended and Restated Bylaws of Dream Finders Homes, Inc. (incorporated herein by reference to Exhibit 3.2 to the Current Report on Form 8-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on January 25, 2021).

~~4.1~~		Registration Rights Agreement, dated January 25, 2021, by and among Dream Finders Homes, Inc. and certain stockholders party thereto (incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on January 25, 2021).

~~10.1+~~		Credit Agreement, dated as of January 25, 2021, among Dream Finders Homes, Inc., Bank of America, N.A., as administrative agent, collateral agent and issuing bank, and the lenders named therein as parties thereto (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on January 25, 2021).

~~10.2†~~		Dream Finders Homes, Inc. 2021 Equity Incentive Plan. (incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on January 25, 2021).

~~10.3†~~		Form of Restricted Stock Grant Notice and Restricted Stock Agreement under the 2021 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.6 to the Registration Statement on Form S-1 (File No. 333-251612) of Dream Finders Homes, Inc. filed with the SEC on January 11, 2021).

~~10.4†~~		Form of Stock Option Grant Notice and Stock Option Agreement under the 2021 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.7 to the Registration Statement on Form S-1 (File No. 333-251612) of Dream Finders Homes, Inc. filed with the SEC on January 14, 2021).

~~10.5†~~		Form of Director and Employee Indemnification Agreement (incorporated herein by reference to Exhibit 10.8 to the Registration Statement on Form S-1 (File No. 333-251612) of Dream Finders Homes, Inc. filed with the SEC on January 11, 2021).

~~10.6†~~		Employment Agreement, effective as of January 25, 2021, by and between Dream Finders Homes, Inc. and Patrick Zalupski (incorporated herein by reference to Exhibit 10.6 to the Annual Report on Form 10-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on March 30, 2021).

~~10.7†~~		Employment Agreement, effective as of January 25, 2021, by and between Dream Finders Homes, Inc. and Rick Moyer (incorporated herein by reference to Exhibit 10.7 to the Annual Report on Form 10-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on March 30, 2021).

~~10.8†~~		Employment Agreement, effective as of January 25, 2021, by and between Dream Finders Homes, Inc. and Douglas Moran (incorporated herein by reference to Exhibit 10.8 to the Annual Report on Form 10-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on March 30, 2021).

~~10.9†~~		Form of Restricted Stock Grant Notice and Restricted Stock Agreement, by and between Dream Finders Homes, Inc. and Patrick Zalupski (incorporated herein by reference to Exhibit 10.12 to the Registration Statement on Form S-1 (File No. 333-251612) of Dream Finders Homes, Inc. filed with the SEC on January 14, 2021).

31.1*		CEO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		CFO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
~~101.INS∞~~ 101.SCH		~~XBRL Instance Document.~~

~~101.SCH∞~~		Inline XBRL Taxonomy Extension Schema Document.
101.CAL
~~101.CAL∞~~		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
~~101.DEF∞~~		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
~~101.LAB∞~~		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
~~101.PRE∞~~		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

*	Filed herewith.

†	~~Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K.~~

+	Certain schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC.

∞

XBRL information is deemed not filed or a part of a registration statement or Annual Report for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under such sections.

4537

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SIGNATURES~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Dream Finders Homes, Inc.

Date:	May ~~17, 2021~~10, 2022	/s/ Patrick O. Zalupski
		Patrick O. Zalupski
	President, Chief Executive Officer and Chairman of the Board of Directors
	(Principal Executive Officer)

~~May 17, 2021~~	~~/s/ Rick A. Moyer~~
	~~Rick A. Moyer~~
	May 10, 2022	/s/ L. Anabel Fernandez
		L. Anabel Fernandez Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

Delaware		85-2983036
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

14701 Philips Highway, Suite 300, Jacksonville, FL		32256
(Address of principal executive offices)		(Zip code)

Title of each class	Trading symbol(s)	Name of each exchange on which registered

Class A Common Stock, par value $0.01 per share	DFH	NASDAQ Global Select Market

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

PART I. FINANCIAL INFORMATION		3

ITEM ~~1.DREAM~~1. DREAM FINDERS HOMES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		3

	CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)	3

	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)	4

	CONDENSED CONSOLIDATED STATEMENTS OF ~~MEMBERS’ EQUITY, MEZZANINE EQUITY AND STOCKHOLDERS’~~ EQUITY (unaudited)	5

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)	6

	NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)	7

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		24 20

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		4134

ITEM ~~4 .~~4. CONTROLS AND PROCEDURES		43 35

PART II. OTHER INFORMATION		4436

ITEM 1. LEGAL PROCEEDINGS		44 36

ITEM 1A. RISK FACTORS		4436

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		4437

ITEM 6. EXHIBITS		4437

	SIGNATURES	4638

	March 31, 2021		December 31, 2020

Assets
Cash and cash equivalents	$	42,303,231	$	35,495,595
Restricted cash (VIE amounts of $7,798,669 and $8,793,201)		49,432,884		49,715,553
Inventories:
Construction in process and finished homes		477,052,901		396,630,945
Joint venture owned land and lots (VIE amounts of $19,781,033 and $40,900,552)		19,781,033		40,900,552
Company owned land and lots		53,541,065		46,839,616
Lot deposits		91,690,711		66,272,347
Equity method investments		6,197,047		4,545,349
Property and equipment, net		4,662,184		4,309,071
Operating lease right-of-use assets		13,459,344		14,219,248
Finance lease right-of-use assets		304,099		335,791
Intangible assets, net of amortization		2,327,500		2,660,003
Goodwill		30,360,997		28,566,232
Deferred tax asset		571,277		-
Other assets (VIE amounts of $708,946 and $1,288,359)		75,038,216		43,189,939
Total assets	$	866,722,489	$	733,680,241
Liabilities
Accounts payable (VIE amounts of $61,619 and $1,315,582)	$	53,383,908	$	37,418,693
Accrued expenses (VIE amounts of $8,519,606 and $9,977,268)		73,525,827		67,401,055
Customer deposits		77,405,314		59,392,135
Construction lines of credit		319,999,950		289,878,716
Notes payable (VIE amounts of $2,888,350 and $8,821,282)		3,880,350		29,653,282
Operating lease liabilities		13,680,884		14,410,560
Finance lease liabilities		305,987		345,062
Contingent consideration		24,340,269		23,157,524
Total liabilities	$	566,522,489	$	521,657,027
Commitments and contingencies (Note 6)
Mezzanine Equity
Preferred mezzanine equity		6,515,415		55,638,450
Common mezzanine equity		-		20,593,001
Total mezzanine equity	$	6,515,415	$	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		253,837,980		-
Retained earnings		17,224,903		-
Non-controlling interests		21,696,487		31,939,117
Total stockholders' and members' equity		300,200,000		212,023,214
Total liabilities, mezzanine equity, members' equity and stockholders' equity	$	866,722,489	$	733,680,241

	Three Months Ended March 31,						Three Months Ended March 31,
	2021			2020			2022			2021

Revenues	$	343,560,365		$	188,738,433
Cost of sales		291,036,761			163,745,683
Revenues:
Homebuilding							$	662,473		$	342,167
Other								1,593			1,393
Total revenues								664,066			343,560
Homebuilding cost of sales								538,868			291,037
Selling, general and administrative expense		28,148,956			17,518,785			61,710			29,315
Income from equity in earnings of unconsolidated entities		(1,732,393	)		(1,359,388	)		(2,960	)		(1,732	)
Gain on sale of assets		(65,517	)		(34,095	)
Loss on extinguishment of debt		697,423			-
Other income		(482,219	)		(134,061	)
Other expense		2,903,048			1,195,311
Contingent consideration revaluation								4,192			1,183
Other (income) expense, net								(969	)		703
Interest expense		641,861			35,705			13			642
Income before taxes		22,412,445			7,770,493			63,212			22,412
Income tax benefit (expense)		(4,816,482	)		-
Income tax expense								(16,878	)		(4,816	)
Net and comprehensive income	$	17,595,963		$	7,770,493			46,334			17,596
Net and comprehensive income attributable to non-controlling interests		(1,475,318	)		(1,190,459	)		(2,618	)		(1,475	)
Net and comprehensive income attributable to Dream Finders Homes, Inc.	$	16,120,645		$	6,580,034		$	43,716		$	16,121
Earnings per share⁽¹⁾
Basic	$	0.18		$	-		$	0.43		$	0.18
Diluted	$	0.18		$	-		$	0.42		$	0.18
Weighted-average number of share
Weighted-average number of shares
Basic		92,521,482			-			92,758,939			92,521,482
Diluted		92,596,960			-			102,496,876			92,596,960

	Redeemable Preferred Units Mezzanine						Redeemable Common Units Mezzanine				Common Units Members'					Total Non-Controlling Interests			Total Equity
	Units			Amount			Units		Amount		Units		Amount
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		-			-			-		-		-		223,750			-			223,750
Contributions		-			-			1,236		-		-		-			-			-
Contributions from non-controlling interests		-			-			-		-		-		-			1,768,846			1,768,846
Conversion of units		-			-			-		-		-		-			-			-
Redemptions		(6	)		(6,000,000	)		-		-		-		-			-			(6,000,000	)
Distributions		-			-			-		-		-		(209,737	)		(3,339,472	)		(3,549,209	)
Net income (loss)		-			1,166,715			-		453,552		-		4,959,767			1,190,459			7,770,493
Balance at March 31, 2020		49,549		$	53,435,881			7,010	$	16,701,798		76,655	$	61,476,244		$	30,091,204		$	161,705,127

	Redeemable Preferred Units 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, 2020		48,543		$	55,638			7,010		$	20,593			76,655		$	103,853			0		0		0		0		0		0	$	31,939		$	212,023
Distributions		-			(3,617	)		-			(1,275	)		-			(18,384	)		-		0		-		0		0		0		(3,476	)		(26,752	)
Net income (loss)		-			(157	)		-			(91	)		-			(996	)		-		0		-		0		0		0		210			(1,034	)
Balance at January 20, 2021, pre-IPO/Reorganization		48,543		$	51,864			7,010		$	19,227			76,655		$	84,473			0		0		0		0		0		0	$	28,673		$	184,237
Reorganization transactions		(15,400	)		(19,958	)		(7,010	)		(19,227	)		(76,655	)		(84,473	)		21,255,329		213		60,226,153		602		122,843		0		0			0
Issuance of common stock in IPO, net		-			-			-			-			0			0			11,040,000		110		0		0		129,887		0		0			129,997
Equity-based compensation		-			-			-			-			-			0			-		0		-		0		1,108		0		0			1,108
Redemptions		(26,000	)		(25,531	)		0			0			0			0			0		0		0		0		0		0		0			(25,531	)
Distributions		-			0			-			0			-			0			-		0		-		0		0		0		(8,242	)		(8,242	)
Net income		-			140			-			0			-			0			-		0		-		0		0		17,225		1,265			18,630
Balance at March 31, 2021		7,143		$	6,515			0			0			0			0			32,295,329	$	323		60,226,153	$	602	$	253,838	$	17,225	$	21,696		$	300,199

	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/Shares		Amount		Units		Amount		Units		Amount		Shares		Amount		Shares		Amount
Balance at December 31, 2021		157,143	$	155,220		0		0		0		0		32,295,329	$	323		60,226,153	$	602	$	257,963	$	118,194		$	24,081		$	556,383
Equity-based compensation		-		-		-		-		-		0		-		0		-		0		1,365		0			0			1,365
Distributions		-		0		-		0		-		0		-		0		-		0		0		0			(5,188	)		(5,188	)
Preferred dividends declared		-		0		-		0		-		0		-		0		-		0		0		(3,102	)		0			(3,102	)
Net income		-		197		-		0		-		0		-		0		-		0		0		43,519			2,618			46,334
Balance at March 31, 2022		157,143	$	155,417		0		0		0		0		32,295,329	$	323		60,226,153	$	602	$	259,328	$	158,611		$	21,511		$	595,792

	Three Months Ended March 31,						Three Months Ended March 31,
	2021			2020			2022			2021
Cash Flows from Operating Activities
Net income (loss)	$	17,595,963		$	7,770,493
Adjustments to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities
Depreciation		973,006			801,441
Gain (Loss) on sale of property and equipment		(65,517	)		(34,095	)
Net income							$	46,334		$	17,596
Adjustments to Reconcile Net Income to Net cash used in operating activities
Depreciation and amortization								2,144			973
Gain on sale of property and equipment								(9	)		(66	)
Amortization of debt issuance costs		910,747			543,305			724			911
Amortization of ROU operating lease		759,904			447,421
Amortization of ROU financing lease		31,691			34,291
Amortization of right-of-use operating lease								947			760
Stock compensation expense		1,108,238			223,750			1,364			1,108
Income tax expense (benefit)		4,816,482			-
Income from equity method investments, net distributions received		(1,732,393	)		(1,359,388	)
Deferred tax expense								16,878			4,245
Income from equity method investments, net of distributions received								1,482			(1,732	)
Remeasurement of contingent consideration		1,182,745			-			4,192			1,183
Changes in Operating Assets and Liabilities
Inventories		(36,695,361	)		(12,932,333	)		(165,394	)		(36,695	)
Lot deposits		(24,975,040	)		(1,229,085	)		(33,948	)		(24,975	)
Deferred tax asset		(571,277	)		-
Other assets		(31,575,067	)		2,628,678			(14,091	)		(6,484	)
Accounts payable and accrued expenses		8,412,371			(21,181,229	)		(10,570	)		8,412
Customer deposits		13,071,461			3,374,859			28,380			13,071
Operating lease ROU assets								(8,170	)		0
Operating lease liabilities		(729,676	)		(393,800	)		7,239			(730	)
Net cash provided by (used in) operating activities		(47,481,723	)		(21,305,692	)
Net cash used in operating activities								(122,498	)		(22,423	)

Cash Flows from Investing Activities
Purchase of property and equipment		(709,764	)		(1,074,158	)		(950	)		(710	)
Proceeds from disposal of property and equipment		330,216			34,295			15			330
Investments in equity method investments		-			(1,464,197	)
Return of investments from equity method investments		80,696			1,380,086
Returns on investment from equity method investments								5			81
Business combinations, net of cash acquired		(22,616,862	)		-			0			(22,617	)
Net cash provided by (used in) investing activities		(22,915,714	)		(1,123,974	)
Net cash used in investing activities								(930	)		(22,916	)

Cash Flows from Financing Activities
Proceeds from construction lines of credit		976,317,315			136,511,246			50,000			976,317
Principal payments on construction lines of credit		(946,702,546	)		(138,856,023	)		(40,000	)		(946,703	)
Proceeds from notes payable		1,158,642			1,140,676			320			1,159
Principal payments on notes payable		(23,284,519	)		(6,033,237	)		(1,886	)		(23,285	)
Payment of debt issue costs		-			(268,570	)
Payments of equity issuance costs		(12,571,671	)
Payment of debt issuance costs								(125	)		0
Payment of equity issuance costs								0			(12,572	)
Payments on financing leases		(39,075	)		(32,377	)		0			(38	)
Contributions to non-controlling interests		-			1,768,846
Distributions to non-controlling interests		(11,717,948	)		(3,339,472	)		(5,188	)		(11,718	)
Proceeds from stock issuance		142,569,035			-			0			142,569
Distributions		(23,276,323	)		(209,738	)		0			(23,276	)
Redemptions		(25,530,506	)		(6,000,000	)		0			(25,531	)
Contribution from conversion of converted LLC units		123,657,596			-			0			123,658
Conversion of LLC units		(123,657,596	)		-			0			(123,658	)
Net cash provided by (used in) financing activities		76,922,404			(15,318,649	)
Net cash provided by financing activities								3,121			76,922

Net increase (decrease) in cash, cash equivalents and restricted cash		6,524,967			(37,748,315	)		(120,307	)		31,583
Cash, cash equivalents and restricted cash at beginning of year		85,211,148			68,728,414
Cash, cash equivalents and restricted cash at end of year		91,736,115			30,980,099
Cash, cash equivalents and restricted cash at beginning of period								281,322			87,414
Cash, cash equivalents and restricted cash at end of period							$	161,015		$	118,997

Non-cash Financing Activities
Financed land payments to seller		8,916,211			-		$	0		$	8,916
Leased assets obtained in exchange for new operating lease liabilities		-			-			8,170			0
Leased assets obtained in exchange for new financing lease liabilities		-			-
Preferred issuance		-			-
Equity issuance costs incurred								0			906
Accrued distributions		-			-			(3,102	)		0
Equity issuance costs incurred		905,965			-
Non-cash Investing Activities
Investment capital reallocation		(3,468,731	)		-			0			(3,468	)
Total non-cash financing and investing activities		6,353,445			-		$	5,068		$	6,354

Reconciliation of Cash, Cash Equivalents and Restricted Cash
Reconciliation of Cash, cash equivalents and Restricted cash
Cash and cash equivalents		42,303,231			11,503,283		$	100,140		$	69,565
Restricted cash		49,432,884			19,476,816			60,875			49,432

Total cash, cash equivalents and restriced cash shown on the Consolidated Statements of Cash Flows	$	91,736,115		$	30,980,099
Total Cash, cash equivalents and Restricted cash shown on the Consolidated Statements of Cash Flows							$	161,015		$	118,997

	For the Three Months Ended March 31,
Unaudited Pro Forma	2021		2020
Total revenue	$	350,142,959	$	247,201,240
Net and comprehensive income attributable to Dream Finders Homes, Inc.	$	16,442,614	$	7,278,689

		As of March 31,						As of December 31,
Renewal Date	Payment Terms	2021			2021 Effective Rate			2020			2020 Effective Rate
January 25, 2024	Interest is payable based on the Applicable Rate per the Credit Agreement		320,000,000			3.50	%		-			-
November 30, 2019	Interest is payable monthly, at the greater of Prime rate or 4.25%		-			-			545,350			4.25	%
November 30, 2019	Interest is payable monthly at the greater of the Prime rate plus 1.00% or 5.50%		-			-			540,565			5.50	%
February 9, 2021	Interest is payable monthly at 3.40% plus 30-day LIBOR		-			-			390,000			4.06	%
March 31, 2021	Interest is payable monthly at 9.50%		-			-			269,030			10.33	%
April 30, 2021	Interest is payable monthly at the greater of the Prime rate plus 0.50% or 3.75%		-			-			11,923,342			6.53	%
April 30, 2021	Interest is payable monthly at the Prime rate plus 0.50%		-			-			3,521,203			3.93	%
May 10, 2021	Interest is payable monthly at the greater of Prime rate plus 0.50% or 4.25%		-			-			7,391,080			6.39	%
June 12, 2021	Interest is payable monthly at 3.00% plus 3-month LIBOR		-			-			14,457,573			3.96	%
June 30, 2021	Interest is payable monthly at the greater of 3.50% plus 30-day LIBOR or 4.50%		-			-			17,290,107			4.80	%
June 30, 2021	Interest is payable monthly at 3.75% + 1-month LIBOR		-			-			13,318,374			4.37	%
August 25, 2021	Interest is payable monthly at the Prime rate plus 0.75%		-			-			1,486,800			3.81	%
September 30, 2021	Interest is payable monthly at 3.00% plus 3-month LIBOR.		(50	)		-			62,127,292			3.91	%
October 1, 2021	Interest is payable monthly at the greater of 4.50% or 3.90% plus 1-month LIBOR.		-			-			11,863,043			6.42	%
October 2, 2021	Interest is payable monthly at the greater of 4.00% or 3.75% plus 1-month LIBOR		-			-			4,361,201			7.75	%
October 2, 2021	Interest is payable monthly at the greater of the Prime rate plus 1.00% or 5.00%		-			-			14,525,422			5.00	%
October 5, 2021	Interest is payable monthly at 4.50% plus 1-month LIBOR		-			-			11,227,212			5.03	%
October 25, 2021	Interest is payable monthly at the Prime rate plus 0.50%		-			-			861,909			4.77	%
November 2, 2021	Interest is payable monthly at the greater of the Prime rate plus 0.75% or 4.50%		-			-			8,034,458			6.01	%
December 15, 2021	Interest is payable monthly at the greater of the Prime rate plus 0.50% or 5.00%		-			-			2,205,715			4.24	%
December 18, 2021	Interest is payable monthly at 3.00% plus 30-day LIBOR		-			-			8,468,565			4.17	%
December 18, 2021	Interest is payable monthly at 3.95% plus 1-month LIBOR		-			-			9,558,836			6.00	%
December 31, 2021	Interest is payable monthly at 9.00%		-			-			1,821,515			10.33	%
December 31, 2021	Interest is payable monthly at 9.50%		-			-			259,157			10.33	%
April 1, 2022	Interest is payable monthly at 9.50%.		-			-			2,925,686			10.33	%
April 20, 2022	Interest is payable monthly at 9.50%		-			-			639,437			10.33	%
April 30, 2022	Interest is payable monthly at 9.50%.		-			-			1,028,131			10.33	%
October 5, 2022	Interest is payable monthly at the greater of the Prime rate plus 0.50% or 4.00%		-			-			5,828,931			4.00	%
October 20, 2022	Interest is payable monthly at the greater of 4.00% or 2.75% plus 3-month LIBOR		-			-			11,289,202			4.51	%
October 20, 2022	Interest is payable monthly at the greater of 4.50% or 3.90% plus 3-month LIBOR		-			-			13,408,970			6.62	%
June 19, 2023	Interest is payable monthly at the greater of 4.00% or 2.75% plus 3-month LIBOR.		-			-			8,790,640			4.15	%
June 19, 2023	Interest is payable monthly at the greater of 4.00% or the Prime rate plus 0.50%.		-			-			23,737,991			4.92	%
November 6, 2023	Interest is payable monthly at the greater of the Prime rate plus 0.38% or 3.65%		-			-			4,043,089			4.64	%
December 31, 2023	Interest is payable monthly at the greater of the Prime rate plus 0.50% or 4.00%		-			-			894,300			4.00	%
Various	Interest is payable monthly at the greater of the Prime rate or 5.00%.		-			-			11,351,056			5.02	%
Total lines of credit outstanding		$	319,999,950					$	290,385,182
Less: Debt issuance costs from lines of credit			(4,263,768	)					(506,466	)
Lines of credit, net		$	315,736,182					$	289,878,716

				As of March 31,					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%	$	-		14.00	%	$	20,000,000			14.00	%
February 28, 2022	(1	)	Non-interest bearing		992,000		0.00	%		832,000			0.00	%
April 1, 2022	(1	)	Interest is payable monthly at 12.50%		717,642		12.50	%		1,735,161			12.50	%
July 31, 2022	(1	)	Interest is payable monthly at 9.25%		2,170,708		9.25	%		3,984,174			9.25	%
March 25, 2023	(1	)	Interest is payable monthly at 5.00%		-		5.00	%		3,101,947			5.00	%
Total notes payable				$	3,880,350				$	29,653,282
Less: Debt issuance costs from notes payable					-					(15,444	)
Notes payable, net of discount				$	3,880,350				$	29,637,838

	Three Months Ended March 31,
	2021
Current:
Federal	$	3,514,733
State		1,347,719
Deferred:
Federal		(14,861	)
State		(31,109	)
Income tax expense	$	4,816,482

	Three Months Ended March 31,
	2021
Deferred tax assets:
Accrued warranty	$	980,897
Property and equipment		257,608
Total deferred tax assets		1,238,505
Less: Deferred tax liabilities		(667,228	)
Net deferred tax asset	$	571,277

	Three Months Ended March 31,
	2021			Effective Rate
Income taxes computed at the federal statutory rate	$	4,396,797			21	%
State income taxes, net of federal income tax benefit⁽¹⁾		1,040,122			5	%
Permanent difference		962,723			5	%
Estimate of federal tax credits⁽¹⁾		(1,583,160	)		-8	%
Income tax expense	$	4,816,482			23	%

	For the Three Months Ended March 31,
Net and comprehensive income:	2021			2020
The Carolinas (H&H)		4,150,391			-
Jacksonville		8,208,925			6,372,571
Orlando		5,328,486			(626,648	)
Colorado		454,831			1,991,039
DC Metro		389,479			64,059
Jet Home Loans		2,832,285			2,774,128
Other		(1,965,329	)		(1,389,916	)
Total segment net and comprehensive income	$	19,399,068		$	9,185,233

Reconciling items from equity method investments		(3,278,423	)		(2,605,199	)

Consolidated net and comprehensive income	$	16,120,645		$	6,580,034

	As of March 31,			As of December 31,
Assets:	2021			2020
The Carolinas (H&H)		180,395,236			161,242,384
Jacksonville		71,189,207			162,668,740
Orlando		115,056,816			77,299,028
Colorado		47,026,053			51,605,969
DC Metro		59,695,352			41,327,694
Jet Home Loans		180,591,753			38,696,793
Other ⁽¹⁾		266,775,535			235,664,336
Total segment assets	$	920,729,952		$	768,504,944

Reconciling items from equity method investments		(54,007,463	)		(34,824,703	)

Consolidated assets	$	866,722,489		$	733,680,241

	Assets:						Goodwill:
	As of March 31,			As of December 31,			As of March 31,		As of December 31,
	2022			2021			2022		2021
Jacksonville	$	242,624		$	207,502		$	0	$	0
Colorado		139,557			116,121			0		0
Orlando		161,920			131,882			1,795		1,795
DC Metro		79,928			62,051			0		0
The Carolinas		269,050			247,250			16,853		16,853
Texas		761,620			743,306			141,071		141,071
Jet Home Loans		73,992			77,074			0		0
Other ⁽¹⁾		331,567			379,859			12,209		12,209
Total segments		2,060,258			1,965,045			171,927		171,927

Reconciling items from equity method investments		(67,792	)		(70,798	)		0		0

Consolidated	$	1,992,466		$	1,894,248		$	171,927	$	171,927

Beginning balance, December 31, 2021	$	124,056
Contingent consideration adjustments related to prior year acquisitions		4,192
Ending balance, March 31, 2022	$	128,248

	(1)	For the ~~Three Months Ended~~ ~~March 31,~~
		~~2021~~
~~Net and comprehensive income attributable~~diluted earnings per share calculation, $3.4 million in preferred dividends associated with convertible preferred stock that are assumed to ~~Dream Finders Homes, Inc.~~			~~16,120,645~~
~~Less: Preferred distributions~~			~~855,704~~
~~Add: Loss prior~~be converted has been added back to ~~reorganization attributable to DFH LLC members~~			~~(1,244,083~~	)
~~Net and comprehensive income attributable to common stockholders~~			~~16,509,024~~

~~Weighted-average number of shares outstanding used to calculate basic EPS~~			~~92,521,482~~
~~Dilutive securities:~~
~~Restricted stock~~			~~75,478~~
~~Weighted-average number of shares and share equivalents outstanding used to calculate diluted EPS~~			~~92,596,960~~	the numerator.

	For the Three Months Ended March 31,
	2021			As a % of Home Sales Revenue			2020			As a % of Home Sales Revenue .
Revenues	$	343,560					$	188,738
Other revenue		1,393						965
Home sales revenue		342,167						187,773
Cost of sales		291,037			85.1	%		163,746			87.2	%
Gross Margin⁽¹⁾		51,130			14.9	%		24,027			12.8	%
Interest expense in cost of sales		8,276			2.4	%		5,992			3.2	%
Amortization in cost of sales⁽³⁾		1,175			0.3	%		593			0.3	%
Commission expense		15,274			4.5	%		8,392			4.5	%
Adjusted gross margin		75,855			22.2	%		39,004			20.8	%
Gross margin %⁽²⁾		14.9	%					12.8	%
Adjusted gross margin %⁽²⁾		22.2	%					20.8	%

	As of March 31, 2021			As of December 31, 2020
Owned Real Estate Inventory Status ⁽¹⁾	% of Owned Real Estate Inventory			% of Owned Real Estate Inventory
Construction in progress and finished homes		89.8	%		88.8	%
Finished lots and land under development		10.2	%		11.2	%
Total		100	%		100	%