UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): July 1, 2015
AV Homes, Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware
 
001-07395
 
23-1739078
(State or Other Jurisdiction
 
(Commission
 
(IRS Employer
of Incorporation)
 
File Number)
 
Identification No.)

8601 N. Scottsdale Rd. Suite 225
 
 
Scottsdale, Arizona
 
85253
(Address of Principal Executive Offices)
 
(Zip Code)

(480) 214-7400
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
o
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





EXPLANATORY NOTE

On July 1, 2015, AV Homes, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Original Form 8-K”) reporting that, on July 1, 2015, the Company closed its acquisition of substantially all of the assets and certain liabilities of Bonterra Builders, LLC (“Bonterra”). This Form 8-K/A amends the Original Form 8-K to include the historical audited and unaudited financial statements of Bonterra and the pro forma condensed consolidated financial information required by Items 9.01(a) and 9.01(b) of Form 8-K that were excluded from the Original Form 8-K in reliance on the instructions to such items.

Item 9.01. Financial Statements and Exhibits.

(a) Financial statements of businesses acquired. The audited financial statements of Bonterra for the years ended December 31, 2014, 2013 and 2012, are filed herewith as Exhibit 99.1. The unaudited financial statements of Bonterra for the six months ended June 30, 2015, are filed herewith as Exhibit 99.2. The consent of Derek K. Atwell, CPA, LLC, Bonterra’s independent auditor, is attached as Exhibit 23.1 to this Form 8-K/A.

(b) Pro forma financial information. The unaudited pro forma condensed consolidated financial information of the Company and Bonterra for the year ended December 31, 2014 and as of and for the six months ended June 30, 2015 are filed herewith as Exhibit 99.3.

(c) Exhibits
Exhibit No.
 
Description
23.1
 
Consent of Derek K. Atwell, CPA, LLC, Independent Auditor of Bonterra
99.1
 
Audited financial statements of Bonterra for the years ended December 31, 2014, 2013 and 2012
99.2
 
Unaudited financial statements of Bonterra for the six months ended June 30, 2015
99.3
 
Unaudited pro forma condensed consolidated financial information of the Company and Bonterra for the year ended December 31, 2014 and as of and for the six months ended June 30, 2015















2



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 hereunto duly authorized.

 
 
AV HOMES, INC.
Date:
September 10, 2015
By:
/s/ Roger A. Cregg
 
 
 
Name: Roger A. Cregg
 
 
 
Title: President and Chief Executive Officer
 
 
 
(Principal Executive Officer)





























3



EXHIBIT INDEX


Exhibit No.
 
Description
23.1
 
Consent of Derek K. Atwell, CPA, LLC, Independent Auditor of Bonterra
99.1
 
Audited financial statements of Bonterra for the years ended December 31, 2014, 2013 and 2012
99.2
 
Unaudited financial statements of Bonterra for the six months ended June 30, 2015
99.3
 
Unaudited pro forma condensed consolidated financial information of the Company and Bonterra for the year ended December 31, 2014 and as of and for the six months ended June 30, 2015























4




Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the following Registration Statements:
(1)
Registration Statements (Form S-8 No. 333-63278, Form S-8 No. 333-125555, Form S-8 No. 333-147263, and Form S-8 No. 333-175066) pertaining to the Amended and Restated 1997 Incentive and Capital Accumulation Plan of Avatar Holdings Inc.;
(2)
Registration Statement (Form S-8 No. 333-206011) pertaining to the AV Homes, Inc. 2015 Incentive Compensation Plan; and
(3)
Registration Statement (Form S-3 No. 333-187763) of AV Homes, Inc. and related Prospectus for the registration of $200,000,000 in common stock, preferred stock, and debt securities;

of our reports dated April 28, 2014 and March 27, 2015, with respect to the financial statements of Bonterra Builders, LLC, included in the accompanying Current Report (Form 8-K/A) of AV Homes, Inc. dated September 10, 2015.

/s/ Derek K. Atwell, CPA, LLC

Monroe, North Carolina
September 10, 2015


































Exhibit 99.1














           FINANCIAL STATEMENTS
          with Supplemental Data
 
             BONTERRA BUILDERS, LLC
 
             DECEMBER 31, 2013








































BONTERRA BUILDERS, LLC
 
 
 
 
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
PAGE
 
 
 
 
 
INDEPENDENT AUDITOR'S REPORT
 
 
1
 
 
 
 
 
FINANCIAL STATEMENTS
 
 
 
 
 
 
 
 
 
BALANCE SHEETS
 
 
 
2
 
 
 
 
 
STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY
3
 
 
 
 
 
STATEMENTS OF CASH FLOWS
 
 
4
 
 
 
 
 
NOTES TO FINANCIAL STATEMENTS
 
 
5







































Derek K Atwell, CPA, PLLC




Independent Auditor’s Report

To the Members
Bonterra Builders, LLC
Matthews, North Carolina

I have audited the accompanying balance sheets of Bonterra Builders, LLC as of December 31, 2013 and 2012, and the related statements of income, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audits.

I conducted my audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.

In my opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of Bonterra Builders, LLC as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.


Derek K Atwell, CPA, PLLC

Monroe, North Carolina
April 28, 2014















PO Box 3335                                    Monroe, North Carolina 28111
Phone: 980-322-6864                                     Fax: 704-288-4058
Derek@datwellcpa.com






BONTERRA BUILDERS, LLC
BALANCE SHEETS
December 31,
 
 
 
 
 
 
 
 
 
2013
 
2012
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
Cash and cash equivalents
 
 
 $ 1,981,501
 
 $ 924,162
Accounts receivable - trade
 
 
          1,091,775
 
        487,792
Accounts receivable - employees
 
 
               32,149
 
          16,250
Lot inventories
 
 
        43,402,531
 
   22,952,071
 
 
 
 
 
 
Total current assets
 
 
        46,507,956
 
   24,380,275
 
 
 
 
 
 
PROPERTY AND EQUIPMENT
 
 
          1,459,896
 
     1,146,800
Less accumulated depreciation
 
 
            (584,724)
 
       (503,519)
Total net property and equipment
 
 
             875,172
 
        643,281
 
 
 
 
 
 
OTHER ASSETS
 
 
 
 
 
Affiliate receivables
 
 
          2,494,844
 
     2,208,000
Deposits
 
 
          1,192,500
 
        519,000
Total other assets
 
 
          3,687,344
 
     2,727,000
 
 
 
 
 
 
Total Assets
 
 
 $ 51,070,472
 
 $27,750,556
 
 
 
 
 
 
LIABILITIES AND MEMBERS' EQUITY
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
Construction loans
 
 
 $ 26,761,344
 
 $15,833,739
Accounts payable
 
 
          7,646,374
 
     3,237,617
Accrued expenses
 
 
             279,103
 
        144,051
Accrued payroll and payroll taxes
 
 
0
 
            6,026
Deposits
 
 
          1,247,156
 
        534,684
 
 
 
 
 
 
Total current liabilities
 
 
        35,933,977
 
   19,756,117
 
 
 
 
 
 
AFFILATE PAYABLES
 
 
             347,099
 
        535,834
 
 
 
 
 
 
NOTES PAYABLE - AUTO
 
 
             119,799
 
          81,536
 
 
 
 
 
 
MEMBERS' EQUITY
 
 
        14,669,597
 
     7,377,069
 
 
 
        14,669,597
 
     7,377,069
 
 
 
 
 
 
Total Liabilities and Members' Equity
 
 
 $ 51,070,472
 
 $27,750,556

See independent auditor's report.






BONTERRA BUILDERS, LLC
STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY
For the Years Ended December 31,
 
 
 
 
 
 
 
 
 
2013
 
2012
 
 
 
 
 
 
SALES
 
 
 $ 98,676,605

 
 $ 43,610,490
COST OF HOMES SOLD
 
 
        79,504,596

 
    35,554,401
 
 
 
 
 
 
GROSS PROFIT
 
 
        19,172,009

 
      8,056,089
 
 
 
 
 
 
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
 
 
          9,146,550

 
      4,523,167
 
 
 
 
 
 
NET OPERATING INCOME
 
 
        10,025,459

 
      3,532,922
 
 
 
 
 
 
OTHER INCOME AND (EXPENSE)
 
 
 
 
 
Rebate income
 
 
             290,763

 
         143,242
Rental income
 
 
               32,957

 
           39,887
Other income
 
 
             103,034

 
           65,687
Interest expense
 
 
         (1,939,685)

 
       (533,155)
 
 
 
         (1,512,931)

 
       (284,339)
 
 
 
 
 
 
NET INCOME BEFORE EXTRAORDINARY ITEMS
 
 
          8,512,528

 
      3,248,583
 
 
 
 
 
 
EXTRAORDINARY ITEMS (SEE NOTE G)
 
 

 
       (571,454)
 
 
 
 
 
 
NET INCOME
 
 
          8,512,528

 
      2,677,129
 
 
 
 
 
 
BEGINNING MEMBERS' EQUITY
 
 
          7,377,069

 
      5,179,940
Distributions
 
 
         (1,220,000)

 
       (480,000)
 
 
 
 
 
 
ENDING MEMBERS' EQUITY
 
 
 $ 14,669,597

 
 $ 7,377,069

See independent auditor's report.





















BONTERRA BUILDERS, LLC
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
 
 
 
 
 
 
 
 
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
Net income
 
 
 $ 8,512,528
 
 $ 2,677,129
Adjustments to reconcile net income to net cash
 
 
 
 
 
provided by (used in ) operating activities:
 
 
 
 
 
Depreciation
 
 
               77,278
 
            73,915
(Increase) decrease in:
 
 
 
 
 
Accounts receivable - trade
 
 
            (603,983)
 
         (281,466)
Accounts receivable - affiliates
 
 
            (286,844)
 
0
Accounts receivable - employees
 
 
              (15,899)
 
           (16,250)
Inventories
 
 
       (20,450,460)
 
    (10,097,549)
Lot deposits
 
 
            (673,500)
 
          224,424
Increase (decrease) in:
 
 
 
 
 
Accounts payable
 
 
          4,408,757
 
       1,449,106
Accounts payable - affiliates
 
 
            (188,735)
 
         (358,793)
Accrued expenses
 
 
             129,026
 
          110,792
Builder deposits
 
 
             712,472
 
          407,209
 
 
 
 
 
 
Net cash provided by (used in) operating expenses
 
 
         (8,379,360)
 
      (5,811,483)
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
Purchases of property and equipment
 
 
            (309,169)
 
         (254,514)
 
 
 
 
 
 
Net cash provided by (used in) investing activities
 
 
            (309,169)
 
         (254,514)
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
Net borrowings (payments) on construction loans
 
 
        10,927,605
 
       6,777,979
Net borrowings on auto loans
 
 
               38,263
 
            81,536
Dividends paid
 
 
         (1,220,000)
 
         (480,000)
 
 
 
 
 
 
Net cash provided by (used in) financing activities
 
 
          9,745,868
 
       6,379,515
 
 
 
 
 
 
NET INCREASE (DECREASE) IN CASH
 
 
          1,057,339
 
          313,518
 
 
 
 
 
 
CASH AT BEGINNING OF YEAR
 
 
             924,162
 
          610,644
 
 
 
 
 
 
CASH AT END OF YEAR
 
 
 $ 1,981,501
 
 $ 924,162
 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
Cash paid for interest
 
 
 $ 1,974,188
 
 $ 597,075

See independent auditor's report.










BONTERRA BUILDERS, LLC

NOTES TO FINANCIAL STATEMENTS

December 31, 2013 and 2012

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations
Bonterra Builders, LLC (“The Company”), a North Carolina limited liability company, was formed on October 19, 2001. The company builds townhomes and single family residential homes in the greater Charlotte area of North and South Carolina.

Method of Accounting
For financial reporting purposes, assets and liabilities are recorded and income and expenses are recognized on the accrual basis of accounting.

Revenue Recognition
The Company recognizes revenue from all homebuilding activities at the closing of the sale using the deposit method. During construction, all direct material and labor costs and those indirect costs related to acquisition and construction are capitalized, and all customer deposits are treated as liabilities. Capitalized costs are charged to earnings upon closing. Costs incurred in connection with completed homes and selling, general, and administrative costs are charged to expense as incurred.

Accounts Receivable
Accounts receivable are presented at face value. Management considers receivables to be fully collectible; accordingly, no allowance for doubtful accounts has been provided. Bad debts on accounts receivable are expensed in the period in which management determines the amount to be uncollectible.

Inventory
Housing assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If the assets are considered to be impaired, they are then written down to the fair value less estimated selling costs. The ultimate fair value for the Company’s inventory is dependent upon future market and economic conditions. $0 and $571,454, respectively for 2013 and 2012 of costs were written off to expense through this analysis.

Capitalized Costs
Capitalized costs include the costs of acquiring land, construction costs, interest, property taxes, and overhead related to the construction of the units. Direct costs are capitalized to individual homes and other costs are allocated to each lot based on lot size.

Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Property and Equipment
Cost of property and equipment as of December 31, 2013 and 2012, is as follows:
 
2013
 
2012
 
 
 
 
Buildings, land and leasehold improvements
 $ 404,929
 
 $ 404,929
Office furniture and fixtures
         66,496
 
         66,496
Autos and trucks
        387,567
 
        327,455
Construction equipment
        276,146
 
         23,162
Model furniture and fixtures
        324,758
 
        324,758
 
 
 
 
 
 $ 1,459,896
 
 $ 1,146,800






Depreciation
Depreciation is computed principally using straight-line methods at rates intended to distribute the cost of properties over their estimated service lives varying from five (5) to forty (40) years.

Income Taxes
Upon inception of the LLC, the Company’s members made an election to be taxed as a Corporation. Subsequently, the Company, with the consent of the owners, elected “S” status under Section 1361 of the Internal Revenue Code and North Carolina state tax code on October 19, 2001, which provides that, in lieu of corporation income taxes, the shareholder is taxed on his proportionate share of the Company’s taxable income. Therefore, no provision or liability for federal or state income tax is included in these financial statements.

Compensated Absences
Compensated absences have not been accrued because the amount cannot be reasonably estimated and is considered immaterial to the overall statement presentation.

Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Fair Value of Financial Instruments
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of certain financial instruments. For purposes of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. Cash, receivables, trade payables, and accrued expenses are carried at cost, which approximates fair value due to the short-time maturity of these instruments.

NOTE B - WORK IN PROCESS INVENTORY

The Company classifies any homes under construction as inventory on the balance sheet. At present, the Company has the following projects under construction and the following amounts listed in work in process inventory as of December 31:





 
2013
 
2012
Bonterra Village
2,155,882

 
1,852,385

Bonterra L/W units
936,855

 
929,113

Barber Rock single family
6,227,907

 
4,810,401

Millbridge
4,107,572

 
1,457,654

Quintessa
3,144,143

 
2,360,009

Skybrook
2,700,084

 
2,699,565

St James Place
321,976

 
276,844

Willow Farms
785,223

 
761,999

Steel Gardens
1,771,876

 
494,375

Longbrook
57,072

 

Telfair
4,094,699

 
780,964

Verdict Ridge
1,668,350

 

Whitby Pond
588,020

 
242,528

Woodlands Creek
394,576

 
87,004

Oxforshire single family
767,696

 
321,771

Potters Creek single family
401,504

 
483,788

Gardens on Providence
459,869

 
185,449

Crismark single family
6,866,849

 
2,465,005

Farrington single family
1,624,155

 
576,619

Fairway Row townhomes
168,103

 
164,498

Deerstyne single family
1,635,350

 
966,378

Cureton
74,860

 
74,860

Cedarvale Farm
1,287,972

 
959,548

McAdenville
540,683

 

Mia Manor
621,255

 
1,314

 
 
 
 
 
43,402,531

 
22,952,071


The estimated costs and revenues of homes under construction at each development as of December 31, 2013, are as follows:






 
Estimated Costs
 
 Estimated Revenues
Bonterra Village
4,435,000

 
4,948,000

Barber Rock single family
7,500,000

 
8,625,000

Verdict Ridge
2,575,000

 
2,896,875

McAdenville
1,225,000

 
1,396,500

St James Place
965,000

 
1,100,100

Willow Farms
1,355,000

 
1,547,410

Millbridge
5,500,000

 
6,600,000

Quintessa
4,350,000

 
4,785,000

Skybrook
4,250,000

 
4,802,500

Steel Gardens
3,250,000

 
4,000,000

Woodlands Creek
755,000

 
853,150

Potters Creek
855,000

 
970,425

Oxfordshire
1,075,000

 
1,225,500

Fairway Row townhomes
550,000

 
624,250

Gardens on Providence
925,000

 
1,036,000

Farrington
2,225,000

 
2,547,625

Deerstyne
2,425,000

 
2,825,125

Whitby Pond
945,000

 
1,067,850

Crismark
9,038,500

 
10,665,430

Telfair
6,088,000

 
6,849,000

Cureton
300,000

 
330,000

Cedarvale Farm
1,500,000

 
1,650,000

 
 
 
 
 
62,086,500

 
71,345,740


NOTE C - OTHER ASSETS

The Company has paid deposits on lots in the following subdivisions: Barber Rock, Bonterra, Farrington, Millbridge, Oakstone townhomes, Skybrook, Steel Gardens, and Walnut Creek, which are classified as assets on the balance sheet. These deposits were required to ensure the company has purchase rights on each lot as they become ready for construction. The balance of the deposits held for purchase rights on December 31, 2013 and 2012 are $1,192,500 and $519,000, respectively.

NOTE D - RELATED PARTY TRANSACTIONS

Affiliate Receivables/Payables
The Company loaned a total of $2,494,844 and $2,208,000 during 2013 and 2012, respectively, to companies with common ownership. There is no stated interest rate on the receivables and no scheduled repayment terms. The receivables are due upon demand. The Company borrowed a total of $347,099 and $535,834 during 2013 and 2012, respectively, from companies with common ownership. There is no stated interest rate on the payables and no scheduled repayment terms.

Inventory
The Company buys lots and builds homes in developments that are partially owned by one of its members. According to management, the lots are purchased at comparable prices, as compared to the prices that other local and national builders pay for lots in these developments.

NOTE E - CONSTRUCTION LOANS

Construction loans consist of the following at December 31:





 
2013
 
2012
Construction loans collateralized by inventories and
 
 
 
  payable as the projects are sold, bearing interest
 
 
 
  at rates of Prime plus one half percent per annum
$
17,016,067

 
$
10,913,762

 
 
 
 
Construction loans collateralized by inventories and
 
 
 
  payable as the projects are sold, bearing interest
 
 
 
  at the bank's prime rate
9,745,277

 
4,919,977

 
 
 
 
 
$
26,761,344

 
$
15,833,739



All construction loans are classified as current liabilities on December 31, 2013. Interest expense of $236,068 and $133,646 was capitalized as an additional cost of inventories during 2013 and 2012, respectively.

The Company’s main construction loan has additional related borrowers included. The development companies included that are related by common ownership (Bonterra Village, Poplin Development Group) are listed as borrowers on the line and any assets of these companies have been cross-collateralized with the loan. The amount borrowed on this construction line as of December 31, 2013 is $13,286,839.

NOTE F - CONCENTRATIONS OF CREDIT RISK

The Company maintains cash balances at one bank. Accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. Balances at this institution often exceed the insured limits. At December 31, 2013, the balances in the bank exceeded FDIC limits by approximately $1,625,000.

The construction industry is highly competitive and lacks firms with dominant market power. The volume and profitability of the company’s construction work depends to a significant extent upon the general state of the economies and the volume of work available to contractors. The adverse conditions currently in the housing market along with the inherit risk of construction projects are of major concern across the industry along with inherent financing risks. The Company’s construction operation could be adversely affected by labor stoppages or shortages, adverse weather conditions, or shortages of supplies.

NOTE G - EXTRAORDINARY ITEMS

After a thorough review of all lots, homes under constructions, and finished homes inventory, Bonterra Builders, LLC has taken a one-time write down of its properties to fair market value of $571,454 during 2012. The management of Bonterra Builders, LLC considers appraisal value to be the best approximation of fair market value and has written any pertinent properties down to the lower of cost or market amount where necessary. The management of Bonterra Builders, LLC believes this to be a one-time write down and does not anticipate any future write downs of costs to value on these properties based on the current market conditions.






























           FINANCIAL STATEMENTS
          with Supplemental Data
 
             BONTERRA BUILDERS, LLC
 
             DECEMBER 31, 2014























BONTERRA BUILDERS, LLC
 
 
 
 
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
PAGE
 
 
 
 
 
INDEPENDENT AUDITOR'S REPORT
 
 
1
 
 
 
 
 
FINANCIAL STATEMENTS
 
 
 
 
 
 
 
 
 
BALANCE SHEETS
 
 
 
2
 
 
 
 
 
STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY
3
 
 
 
 
 
STATEMENTS OF CASH FLOWS
 
 
4
 
 
 
 
 
NOTES TO FINANCIAL STATEMENTS
 
 
5
 
 
 
 
 



























Derek K Atwell, CPA, PLLC



Independent Auditor’s Report

To the Members
Bonterra Builders, LLC
Matthews, North Carolina

I have audited the accompanying balance sheets of Bonterra Builders, LLC as of December 31, 2014 and 2013, and the related statements of income, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audits.

I conducted my audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.

In my opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of Bonterra Builders, LLC as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.


Derek K Atwell, CPA, PLLC

Monroe, North Carolina
March 27, 2015















PO Box 3335                                    Monroe, North Carolina 28111
Phone: 980-322-6864                                     Fax: 704-288-4058
Derek@datwellcpa.com





BONTERRA BUILDERS, LLC
BALANCE SHEETS
December 31,
 
 
 
 
 
 
 
 
 
2014
 
2013
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
Cash and cash equivalents
 
 
5,421,480

 
1,981,501

Accounts receivable - trade
 
 
1,162,444

 
1,091,775

Accounts receivable - employees
 
 
48,789

 
32,149

Lot inventories
 
 
67,164,491

 
43,402,531

 
 
 
 
 
 
Total current assets
 
 
73,797,204

 
46,507,956

 
 
 
 
 
 
PROPERTY AND EQUIPMENT
 
 
2,410,233

 
1,459,896

Less accumulated depreciation
 
 
(743,148
)
 
(584,724
)
Total net property and equipment
 
 
1,667,085

 
875,172

 
 
 
 
 
 
OTHER ASSETS
 
 
 
 
 
Affiliate receivables
 
 
102,720

 
2,494,844

Investments in partnerships (lot development)
 
 
301,900

 

Deposits
 
 
2,098,054

 
1,192,500

Total other assets
 
 
2,502,674

 
3,687,344

 
 
 
 
 
 
Total Assets
 
 
$
77,966,963

 
$
51,070,472

 
 
 
 
 
 
LIABILITIES AND MEMBERS' EQUITY
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
Construction loans
 
 
48,105,060

 
26,761,344

Accounts payable
 
 
7,982,542

 
7,646,374

Accrued expenses
 
 
549,531

 
279,103

Accrued payroll and payroll taxes
 
 

 

Deposits
 
 
1,150,926

 
1,247,156

 
 
 
 
 
 
Total current liabilities
 
 
57,788,059

 
35,933,977

 
 
 
 
 
 
AFFILATE PAYABLES
 
 

 
347,099

 
 
 
 
 
 
NOTES PAYABLE - AUTO
 
 
91,231

 
119,799

 
 
 
 
 
 
MEMBERS' EQUITY
 
 
20,087,673

 
14,669,597

 
 
 
20,087,673

 
14,669,597

 
 
 
 
 
 
Total Liabilities and Members' Equity
 
 
77,966,963

 
51,070,472


See independent auditor's report.





BONTERRA BUILDERS, LLC
STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY
For the Years Ended December 31,
 
 
 
 
 
 
 
 
 
2014
 
2013
 
 
 
 
 
 
SALES
 
 
 $ 111,781,538
 
 $ 98,676,605
COST OF HOMES SOLD
 
 
        90,819,122
 
    79,504,596
 
 
 
 
 
 
GROSS PROFIT
 
 
        20,962,416
 
    19,172,009
 
 
 
 
 
 
SELLING, GENERAL, AND ADMINISTRATIVE
 
 
 
 
 
   EXPENSES
 
 
        11,220,698
 
      9,146,550
 
 
 
 
 
 
NET OPERATING INCOME
 
 
          9,741,718
 
    10,025,459
 
 
 
 
 
 
OTHER INCOME AND (EXPENSE)
 
 
 
 
 
Rebate income
 
 
             784,132
 
         290,763
Rental income
 
 
               39,195
 
           32,957
Other income
 
 
             101,904
 
         103,034
Interest expense
 
 
         (2,589,983)
 
    (1,939,685)
 
 
 
         (1,664,752)
 
    (1,512,931)
 
 
 
 
 
 
 
 
 
 
 
 
NET INCOME
 
 
          8,076,966
 
      8,512,528
 
 
 
 
 
 
BEGINNING MEMBERS' EQUITY
 
 
        14,669,597
 
      7,377,069
Distributions
 
 
         (2,658,890)
 
    (1,220,000)
 
 
 
 
 
 
ENDING MEMBERS' EQUITY
 
 
 $ 20,087,673
 
 $ 14,669,597













See independent auditor's report.






BONTERRA BUILDERS, LLC
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
 
 
 
 
 
 
 
 
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
Net income
 
 
$
8,076,966

 
$
8,512,528

Adjustments to reconcile net income to net cash
 
 
 
 
 
provided by (used in ) operating activities:
 
 
 
 
 
Depreciation
 
 
159,566

 
77,278

(Increase) decrease in:
 
 
 
 
 
Accounts receivable - trade
 
 
(70,669
)
 
(603,983
)
Accounts receivable - affiliates
 
 
2,392,124

 
(286,844
)
Accounts receivable - employees
 
 
(16,640
)
 
(15,899
)
Inventories
 
 
(23,761,960
)
 
(20,450,460
)
Lot deposits
 
 
(905,554
)
 
(673,500
)
Increase (decrease) in:
 
 
 
 
 
Accounts payable
 
 
336,168

 
4,408,757

Accounts payable - affiliates
 
 
(347,099
)
 
(188,735
)
Accrued expenses
 
 
270,428

 
129,026

Builder deposits
 
 
(96,230
)
 
712,472

 
 
 
 
 
 
Net cash provided by (used in) operating expenses
 
 
(13,962,900
)
 
(8,379,360
)
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
Investments in partnerships
 
 
(301,900
)
 

Purchases of property and equipment
 
 
(951,479
)
 
(309,169
)
 
 
 
 
 
 
Net cash provided by (used in) investing activities
 
 
(1,253,379
)
 
(309,169
)
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
Net borrowings (payments) on construction loans
 
 
21,343,716

 
10,927,605

Net borrowings (payments) on auto loans
 
 
(28,568
)
 
38,263

Dividends paid
 
 
(2,658,890
)
 
(1,220,000
)
 
 
 
 
 
 
Net cash provided by (used in) financing activities
 
 
18,656,258

 
9,745,868

 
 
 
 
 
 
NET INCREASE (DECREASE) IN CASH
 
 
3,439,979

 
1,057,339

 
 
 
 
 
 
CASH AT BEGINNING OF YEAR
 
 
1,981,501

 
924,162

 
 
 
 
 
 
CASH AT END OF YEAR
 
 
$
5,421,480

 
$
1,981,501

 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
Cash paid for interest
 
 
$
2,558,738

 
$
1,974,188


See independent auditor's report.






BONTERRA BUILDERS, LLC

NOTES TO FINANCIAL STATEMENTS

December 31, 2014 and 2013

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations
Bonterra Builders, LLC (“The Company”), a North Carolina limited liability company, was formed on October 19, 2001. The company builds townhomes and single family residential homes in the greater Charlotte area of North and South Carolina.

Method of Accounting
For financial reporting purposes, assets and liabilities are recorded and income and expenses are recognized on the accrual basis of accounting.

Revenue Recognition
The Company recognizes revenue from all homebuilding activities at the closing of the sale using the deposit method. During construction, all direct material and labor costs and those indirect costs related to acquisition and construction are capitalized, and all customer deposits are treated as liabilities. Capitalized costs are charged to earnings upon closing. Costs incurred in connection with completed homes and selling, general, and administrative costs are charged to expense as incurred.

Accounts Receivable
Accounts receivable are presented at face value. Management considers receivables to be fully collectible; accordingly, no allowance for doubtful accounts has been provided. Bad debts on accounts receivable are expensed in the period in which management determines the amount to be uncollectible.

Inventory
Housing assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If the assets are considered to be impaired, they are then written down to the fair value less estimated selling costs. The ultimate fair value for the Company’s inventory is dependent upon future market and economic conditions.

Capitalized Costs
Capitalized costs include the costs of acquiring land, construction costs, interest, property taxes, and overhead related to the construction of the units. Direct costs are capitalized to individual homes and other costs are allocated to each lot based on lot size.

Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Property and Equipment
Cost of property and equipment as of December 31, 2014 and 2013, is as follows:
 
2014
 
2013
 
 
 
 
Buildings, land and leasehold improvements
 $ 1,238,046
 
 $ 404,929
Office furniture and fixtures
        70,023
 
         66,496
Autos and trucks
      387,567
 
        387,567
Construction equipment
        36,146
 
        276,146
Model furniture and fixtures
      678,451
 
        324,758
 
 
 
 
 
 $ 2,410,233
 
 $ 1,459,896






Depreciation
Depreciation is computed principally using straight-line methods at rates intended to distribute the cost of properties over their estimated service lives varying from five (5) to forty (40) years.

Income Taxes
Upon inception of the LLC, the Company’s members made an election to be taxed as a Corporation. Subsequently, the Company, with the consent of the owners, elected “S” status under Section 1361 of the Internal Revenue Code and North Carolina state tax code on October 19, 2001, which provides that, in lieu of corporation income taxes, the shareholder is taxed on his proportionate share of the Company’s taxable income. Therefore, no provision or liability for federal or state income tax is included in these financial statements.

Compensated Absences
Compensated absences have not been accrued because the amount cannot be reasonably estimated and is considered immaterial to the overall statement presentation.

Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Fair Value of Financial Instruments
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of certain financial instruments. For purposes of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. Cash, receivables, trade payables, and accrued expenses are carried at cost, which approximates fair value due to the short-time maturity of these instruments.

NOTE B - WORK IN PROCESS INVENTORY

The Company classifies any homes under construction as inventory on the balance sheet. At present, the Company has the following projects under construction and the following amounts listed in work in process inventory as of December 31:






 
2014
 
2013
Bonterra Village
 $ 4,573,484
 
$
3,092,737

Barber Rock
       4,540,489
 
6,227,907

Beulah Church Rd
       1,264,253
 

Channing Hall
       1,694,135
 

Millbridge
       5,443,626
 
4,107,572

Quintessa
       2,997,638
 
3,144,143

Skybrook
       1,442,321
 
2,700,084

Willow Farms
          887,367
 
785,223

Steel Gardens
       2,819,208
 
1,771,876

Telfair
       5,396,902
 
4,094,699

Verdict Ridge
       3,877,515
 
1,668,350

Woodlands Creek
          851,028
 
394,576

Potter Road Vickery
       2,027,387
 

Potters Road South
       2,526,100
 
401,504

The Haven
       1,228,762
 

Heron Cove
       1,885,572
 

Harper's Pointe
       1,187,287
 

Walnut Creek
       3,449,439
 

Crismark single family
       7,218,399
 
6,866,849

Farrington single family
          735,821
 
1,624,155

Fairway Row townhomes
       1,105,904
 
168,103

Deerstyne single family
          975,048
 
1,635,350

Cedarvale Farm
       2,623,207
 
1,287,972

Mia Manor
       1,825,815
 
621,255

McAdenville
       1,585,784
 
540,683

Other
       3,002,000
 
2,269,493

 
 
 
 
 
 $ 67,164,491
 
43,402,531


The estimated costs and revenues of homes under construction at each development as of December 31, 2014, are as follows:





 
 Estimated
 
 Estimated
 
 Costs
 
 Revenues
Bonterra Village
6,100,000

 
7,015,000

Barber Rock single family
7,500,000

 
8,625,000

Verdict Ridge
5,250,000

 
6,037,500

McAdenville
2,500,000

 
2,875,000

Willow Farms
1,800,000

 
2,070,000

Millbridge
6,750,000

 
7,762,500

Quintessa
4,650,000

 
5,347,500

Skybrook
2,700,000

 
3,105,000

Mia Manor
3,425,000

 
4,041,500

Steel Gardens
3,500,000

 
4,000,000

Woodlands Creek
1,500,000

 
1,695,000

Potters Road
7,000,000

 
8,120,000

Oxfordshire
1,050,000

 
1,225,500

Fairway Row townhomes
2,080,000

 
2,350,400

Channing Hall
3,500,000

 
3,937,500

Farrington
1,050,000

 
1,202,250

Deerstyne
1,845,000

 
2,116,215

Walnut Creek
5,200,000

 
5,865,600

Crismark
10,450,000

 
12,749,000

Telfair
6,850,000

 
7,795,300

Cureton
1,825,000

 
2,044,000

Cedarvale Farm
4,725,000

 
5,594,400

 
 
 
 
 
91,250,000

 
105,574,165


NOTE C - OTHER ASSETS

The Company has paid deposits on lots in the following subdivisions: Barber Rock, Bonterra, Farrington, Millbridge, Oakstone townhomes, Skybrook, Steel Gardens, Heron Cove, Blanchard Farms, and Walnut Creek, which are classified as assets on the balance sheet. These deposits were required to ensure the company has purchase rights on each lot as they become ready for construction. The balance of the deposits held for purchase rights on December 31, 2014 and 2013 are $2,098,054 and $1,192,500, respectively.

NOTE D - RELATED PARTY TRANSACTIONS

Affiliate Receivables/Payables
The Company loaned a total of $102,720 and $2,494,844 during 2014 and 2013, respectively, to companies with common ownership. There is no stated interest rate on the receivables and no scheduled repayment terms. The receivables are due upon demand. The Company borrowed a total of $0 and $347,099 during 2014 and 2013, respectively, from companies with common ownership. There is no stated interest rate on the payables and no scheduled repayment terms.

Inventory
The Company buys lots and builds homes in developments that are partially owned by one of its members. According to management, the lots are purchased at comparable prices, as compared to the prices that other local and national builders pay for lots in these developments.

NOTE E - CONSTRUCTION LOANS

Construction loans consist of the following at December 31:





 
2014
 
2013
Construction loans collateralized by inventories and
 
 
 
  payable as the projects are sold, bearing interest
 
 
 
  at rates of Prime plus one half percent per annum
 $ 34,754,186
 
 $ 17,016,067
 
 
 
 
Construction loans collateralized by inventories and
 
 
 
  payable as the projects are sold, bearing interest
 
 
 
  at the bank's prime rate
     13,350,874
 
          9,745,277
 
 
 
 
 
 $ 48,105,060
 
 $ 26,761,344

All construction loans are classified as current liabilities on December 31, 2014. Interest expense of $424,108 and $236,068 was capitalized as an additional cost of inventories during 2014 and 2013, respectively.

The Company’s main construction loan has additional related borrowers included. The development companies included that are related by common ownership (Bonterra Village, Poplin Development Group) are listed as borrowers on the line and any assets of these companies have been cross-collateralized with the loan. The amount borrowed on this construction line as of December 31, 2014 is $21,094,268.

NOTE F - CONCENTRATIONS OF CREDIT RISK

The Company maintains cash balances at one bank. Accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. Balances at this institution often exceed the insured limits. At December 31, 2014, the balances in the bank exceeded FDIC limits by approximately $4,500,000.

The construction industry is highly competitive and lacks firms with dominant market power. The volume and profitability of the company’s construction work depends to a significant extent upon the general state of the economies and the volume of work available to contractors. The adverse conditions currently in the housing market along with the inherit risk of construction projects are of major concern across the industry along with inherent financing risks. The Company’s construction operation could be adversely affected by labor stoppages or shortages, adverse weather conditions, or shortages of supplies.
























Exhibit 99.2












           FINANCIAL STATEMENTS
(unaudited)
 
             BONTERRA BUILDERS, LLC
 
             JUNE 30, 2015

























BONTERRA BUILDERS, LLC
 
 
 
 
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
PAGE
 
 
 
 
 
INDEPENDENT ACCOUNTANT'S REPORT
 
 
1
 
 
 
 
 
FINANCIAL STATEMENTS
 
 
 
 
 
 
 
 
 
BALANCE SHEET
 
 
 
2
 
 
 
 
 
STATEMENT OF OPERATIONS AND MEMBERS' EQUITY
3
 
 
 
 
 
STATEMENT OF CASH FLOWS
 
 
4
 
 
 
 
 
NOTES TO FINANCIAL STATEMENTS
 
 
5


























BONTERRA BUILDERS, LLC
BALANCE SHEET
June 30, 2015
 
 
 
 
ASSETS
 
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
 
 
$
211,050

Accounts receivable - trade
 
 
2,065,774

Lot inventories
 
 
74,762,022

 
 
 
 
Total current assets
 
 
77,038,846

 
 
 
 
PROPERTY AND EQUIPMENT
 
 
894,619

Less accumulated depreciation
 
 
(459,212
)
Total net property and equipment
 
 
435,407

 
 
 
 
OTHER ASSETS
 
 
 
Deposits
 
 
1,998,254

Total other assets
 
 
1,998,254

 
 
 
 
Total Assets
 
 
$
79,472,507

 
 
 
 
 
 
 
 
LIABILITIES AND MEMBERS' EQUITY
 
 
 
 
CURRENT LIABILITIES
 
 
 
Construction loans
 
 
$
52,940,863

Accounts payable
 
 
5,372,555

Accrued expenses
 
 
219,210

Deposits
 
 
1,849,926

 
 
 
 
Total current liabilities
 
 
60,382,554

 
 
 
 
 
 
 
 
MEMBERS' EQUITY
 
 
19,089,953

 
 
 
19,089,953

 
 
 
 
Total Liabilities and Members' Equity
 
 
$
79,472,507


See independent accountant's report.










BONTERRA BUILDERS, LLC
STATEMENT OF OPERATIONS AND MEMBERS' EQUITY
For the Six Months Ended June 30, 2015
 
 
 
 
SALES
 
 
$
70,766,661

COST OF HOMES SOLD
 
 
57,149,297

 
 
 
 
GROSS PROFIT
 
 
13,617,364

 
 
 
 
SELLING, GENERAL, AND ADMINISTRATIVE
 
 
 
   EXPENSES
 
 
6,205,429

 
 
 
 
NET OPERATING INCOME
 
 
7,411,935

 
 
 
 
OTHER INCOME AND (EXPENSE)
 
 
 
Rebate income
 
 
293,185

Rental income
 
 
24,530

Other income
 
 
419,334

Interest expense
 
 
(1,074,270
)
 
 
 
(337,221
)
 
 
 
 
 
 
 
 
NET INCOME
 
 
7,074,714

 
 
 
 
BEGINNING MEMBERS' EQUITY
 
 
20,087,673

Distributions
 
 
(8,072,434
)
 
 
 
 
ENDING MEMBERS' EQUITY
 
 
$
19,089,953


See independent accountant's report.



















BONTERRA BUILDERS, LLC
STATEMENT OF CASH FLOWS
For the Six Months Ended, June 30, 2015
 
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
 
 
$
7,074,714

 
Adjustments to reconcile net income to net cash
 
 
 
 
provided by (used in ) operating activities:
 
 
 
 
Depreciation
 
 
               90,012

 
(Increase) decrease in:
 
 
 
 
Accounts receivable - trade
 
 
            (751,821)

 
Inventories
 
 
         (7,597,531)

 
Lot deposits
 
 
               99,800

 
Increase (decrease) in:
 
 
 
 
Accounts payable
 
 
         (2,609,987)

 
Accrued expenses
 
 
            (330,321)

 
Builder deposits
 
 
             699,000

 
 
 
 
 
 
Net cash provided by (used in) operating expenses
 
 
         (3,326,134)

 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Investments in partnerships
 
 
             301,900

 
Purchases of property and equipment
 
 
            (366,678)

 
 
 
 
 
 
Net cash provided by (used in) investing activities
 
 
              (64,778)

 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Net borrowings (payments) on construction loans
 
 
          4,835,803

 
Net borrowings (payments) on auto loans
 
 
              (91,231)

 
Sale of property and equipment
 
 
          1,508,344

 
Dividends paid
 
 
         (8,072,434)

 
 
 
 
 
 
Net cash provided by (used in) financing activities
 
 
         (1,819,518)

 
 
 
 
 
 
NET INCREASE (DECREASE) IN CASH
 
 
         (5,210,430)

 
 
 
 
 
 
CASH AT BEGINNING OF YEAR
 
 
          5,421,480

 
 
 
 
 
 
CASH AT END OF YEAR
 
 
$
211,050

 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid for interest
 
 
$
1,075,344

 

See independent accountant's report.











BONTERRA BUILDERS, LLC
NOTES TO FINANCIAL STATEMENTS
(unaudited)
June 30, 2015

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations
Bonterra Builders, LLC (“The Company”), a North Carolina limited liability company, was formed on October 19, 2001. The company builds townhomes and single family residential homes in the greater Charlotte area of North and South Carolina. Bonterra Builders, LLC sold its assets and operations to AV Homes, Inc. as of July 1, 2015.

Method of Accounting
For financial reporting purposes, assets and liabilities are recorded and income and expenses are recognized on the accrual basis of accounting.

Revenue Recognition
The Company recognizes revenue from all homebuilding activities at the closing of the sale using the deposit method. During construction, all direct material and labor costs and those indirect costs related to acquisition and construction are capitalized, and all customer deposits are treated as liabilities. Capitalized costs are charged to earnings upon closing. Costs incurred in connection with completed homes and selling, general, and administrative costs are charged to expense as incurred.

Accounts Receivable
Accounts receivable are presented at face value. Management considers receivables to be fully collectible; accordingly, no allowance for doubtful accounts has been provided. Bad debts on accounts receivable are expensed in the period in which management determines the amount to be uncollectible.

Inventory
Housing assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If the assets are considered to be impaired, they are then written down to the fair value less estimated selling costs. The ultimate fair value for the Company’s inventory is dependent upon future market and economic conditions.

Capitalized Costs
Capitalized costs include the costs of acquiring land, construction costs, interest, property taxes, and overhead related to the construction of the units. Direct costs are capitalized to individual homes and other costs are allocated to each lot based on lot size.

Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Property and Equipment
Cost of property and equipment as of June 30, 2015, is as follows:
 
2015
 
 
Office furniture and fixtures
 $ 27,722
Computer equipment
            42,301
Construction equipment
            36,146
Model furniture and fixtures
           788,450
 
 
 
 $ 894,619






Depreciation
Depreciation is computed principally using straight-line methods at rates intended to distribute the cost of properties over their estimated service lives varying from five (5) to forty (40) years.

Income Taxes
Upon inception of the LLC, the Company’s members made an election to be taxed as a Corporation. Subsequently, the Company, with the consent of the owners, elected “S” status under Section 1361 of the Internal Revenue Code and North Carolina state tax code on October 19, 2001, which provides that, in lieu of corporation income taxes, the shareholder is taxed on his proportionate share of the Company’s taxable income. Therefore, no provision or liability for federal or state income tax is included in these financial statements.

Compensated Absences
Compensated absences have not been accrued because the amount cannot be reasonably estimated and is considered immaterial to the overall statement presentation.

Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Fair Value of Financial Instruments
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of certain financial instruments. For purposes of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. Cash, receivables, trade payables, and accrued expenses are carried at cost, which approximates fair value due to the short-time maturity of these instruments.

NOTE B - WORK IN PROCESS INVENTORY

The Company classifies any homes under construction as inventory on the balance sheet. Work in process as of June 30, 2015 consists of the following:
 
2015
Land held for development
 $ 7,798,008
Land under development
    10,414,562
Work in process invesntory
    56,549,452
 
 
 
 $ 74,762,022

NOTE C - OTHER ASSETS

The Company has paid deposits on lots in the following subdivisions: Bonterra, Millbridge, Cedarvale Farm, Steel Gardens, Heron Cove, Blanchard Farms, and Walnut Creek, which are classified as assets on the balance sheet. These deposits were required to ensure the company has purchase rights on each lot as they become ready for construction. The balance of the deposits held for purchase rights on June 30, 2015 are $1,998,254.

NOTE D - RELATED PARTY TRANSACTIONS

Inventory
The Company buys lots and builds homes in developments that are partially owned by one of its members. According to management, the lots are purchased at comparable prices, as compared to the prices that other local and national builders pay for lots in these developments.

NOTE E - CONSTRUCTION LOANS

Construction loans consist of the following at June 30:





 
2015
Construction loans collateralized by inventories and
 
  payable as the projects are sold, bearing interest
 
  at rates of Prime plus one half percent per annum
$
37,922,593

 
 
Construction loans collateralized by inventories and
 
  payable as the projects are sold, bearing interest
 
  at the bank's prime rate
15,018,270

 
 
 
$
52,940,863


All construction loans are classified as current liabilities on June 30, 2015. Interest expense of $251,549 was capitalized as an additional cost of inventories during the period ended June 30, 2015.

The Company’s main construction loan has additional related borrowers included. The development companies included that are related by common ownership (Bonterra Village, Poplin Development Group) are listed as borrowers on the line and any assets of these companies have been cross-collateralized with the loan. The amount borrowed on this construction line as of June 30, 2015 is $15,837,324.

NOTE F - CONCENTRATIONS OF CREDIT RISK

The Company maintains cash balances at one bank. Accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. Balances at this institution often exceed the insured limits. At June 30, 2015, the balances in the bank exceeded FDIC limits by approximately $500,000.

The construction industry is highly competitive and lacks firms with dominant market power. The volume and profitability of the company’s construction work depends to a significant extent upon the general state of the economies and the volume of work available to contractors. The adverse conditions currently in the housing market along with the inherit risk of construction projects are of major concern across the industry along with inherent financing risks. The Company’s construction operation could be adversely affected by labor stoppages or shortages, adverse weather conditions, or shortages of supplies.























Exhibit 99.3
AV Homes, Inc.
Unaudited Pro Forma Condensed Consolidated Financial Statements
For the Year Ended December 31, 2014 and for the Six Months Ended June 30, 2015
On July 1, 2015, AV Homes, Inc. ("the Company" or "we") acquired substantially all of the assets and certain liabilities of Bonterra Builders, LLC (“Bonterra”) for approximately $101.5 million, including an estimated earn-out, subject to customary post-closing adjustments. The actual amount of the earn-out may be more or less than the $6.0 million target amount based on the performance of the Bonterra business through the end of 2016. A portion of the aggregate consideration equal to $0.8 million was held back by us at the closing as security for Bonterra's indemnification and other obligations under the purchase agreement. Bonterra acquires raw and developed land, develops raw land and constructs homes in the Charlotte, North Carolina area. With approximately 1,700 lots owned or controlled at the time of acquisition, the Bonterra acquisition significantly enhances our position in a key growth market.

The transaction was accounted for as a business combination in accordance with the Company’s accounting policies with the acquired assets and assumed liabilities recorded at their estimated fair values as of July 1, 2015. The following unaudited pro forma condensed financial information and explanatory notes, presents the pro forma impact of the Bonterra acquisition on the Company’s results of operations for the year ended December 31, 2014 and the six months ended June 30, 2015 as if it had been completed on January 1, 2014. The unaudited pro forma balance sheet as of June 30, 2015 presented herein also includes the effects of the Bonterra acquisition as if it had been completed on June 30, 2015.

We derived the unaudited pro forma condensed consolidated financial information set forth below by the application of pro forma adjustments to the audited and unaudited consolidated financial statements for the Company and Bonterra. The Company’s and Bonterra's historical consolidated financial information has been adjusted in the unaudited pro forma condensed consolidated financial statements to give effect to pro forma events that are (1) directly attributable to the acquisition; (2) factually supportable; and (3) with respect to the pro forma statement of operations, expected to have a continuing impact on the combined results.
 
The unaudited pro forma condensed financial information reflects pro forma adjustments that are described in the accompanying explanatory notes and are based on available information, and certain assumptions we believe are reasonable, but are subject to change. We have made, in our opinion, all adjustments that are necessary to present fairly the unaudited pro forma condensed consolidated financial information.

The unaudited pro forma condensed financial information is presented for informational purposes only and should not be considered indicative of actual results of operations that would have been achieved had the acquisition of Bonterra been consummated on the dates indicated, and does not purport to be indicative of the financial condition or results of operations as of any future date or for any future period. You should read our unaudited pro forma condensed consolidated financial information and the accompanying explanatory notes in conjunction with the consolidated historical financial statements and related notes included elsewhere in this Form 8-K/A. Certain amounts in the historical consolidated financial statements of Bonterra have been reclassified to conform to the Company’s presentation.






 
AV Homes, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2014
(in thousands, except share and per share amounts)
 
 
 
 
 
 
 
 
 
Historical AV Homes, Inc. (1)
 
Historical Bonterra Builders, LLC (2)
 
Pro Forma Adjustments (2)
 
AV Homes, Inc. Pro Forma
Revenues
 
 
 
 
 
 
 
Real estate revenues
 
 
 
 
 
 
 
Homebuilding
$
243,171

 
$
111,782

 
$

 
$
354,953

Amenity and other
10,146

 

 

 
10,146

Land sales
32,596

 

 

 
32,596

Total real estate revenues
285,913

 
111,782

 

 
397,695

 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
Real estate expenses
 
 
 
 
 
 
 
Homebuilding
233,250

 
102,809

 
5,928

(3), (4)
341,987

Amenity and other
10,948

 

 

 
10,948

Land sales
22,003

 

 

 
22,003

Total real estate expenses
266,201

 
102,809

 
5,928

 
374,938

 
 
 
 
 
 
 
 
General and administrative expenses
15,941

 

 
466

 
16,407

Interest income and other
(447
)
 

 

 
(447
)
Interest expense
5,805

 
896

 
(1,923
)
(4)
4,778

Total expenses
287,500

 
103,705

 
4,471

 
395,676

Equity in earnings (loss) from unconsolidated entities
(16
)
 

 

 
(16
)
Income (Loss) before income taxes
(1,603
)
 
8,077

 
(4,471
)
 
2,003

Income tax (expense)

 

 

(5)

Net income (loss) and comprehensive income (loss)
(1,603
)
 
8,077

 
(4,471
)
 
2,003

Net income attributable to non-controlling interests in consolidated entities
329

 

 

 
329

Net income (loss) and comprehensive income (loss) attributable to stockholders
$
(1,932
)
 
$
8,077

 
$
(4,471
)
 
$
1,674

 
 
 
 
 
 
 
 
Basic and Diluted Earnings (Loss) Per Share
$
(0.09
)
 
 
 
 
(6)
$
0.08

Basic Weighted Average Common Shares
21,945,491

 
 
 
 
 
21,945,491

Diluted Weighted Average Common Shares
21,945,491

 
 
 
 
 
22,007,007

















AV Homes, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Six Months Ended June 30, 2015
(in thousands, except share and per share amounts)
 
 
 
 
 
 
 
 
 
Historical AV Homes, Inc.
 
Historical Bonterra Builders, LLC (2)
 
Pro Forma Adjustments (2)
 
AV Homes, Inc. Pro Forma
Revenues
 
 
 
 
 
 
 
Real estate revenues
 
 
 
 
 
 
 
Homebuilding
$
129,251

 
$
70,767

 
$

 
$
200,018

Amenity and other
5,504

 

 

 
5,504

Land sales
3,464

 

 

 
3,464

Total real estate revenues
138,219

 
70,767

 

 
208,986

 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
Real estate expenses
 
 
 
 
 
 
 
Homebuilding
129,187

 
62,992

 
4,100

(3), (4)
196,279

Amenity and other
4,813

 

 

 
4,813

Land sales
383

 

 

 
383

Total real estate expenses
134,383

 
62,992

 
4,100

 
201,475

 
 
 
 
 
 
 
 
General and administrative expenses
7,936

 

 

 
7,936

Interest income and other
(124
)
 

 

 
(124
)
Interest expense
5,663

 
700

 
(2,371
)
(4)
3,992

Total expenses
147,858

 
63,692

 
1,729

 
213,279

Equity in earnings (loss) from unconsolidated entities
165

 

 

 
165

Income (Loss) before income taxes
(9,474
)
 
7,075

 
(1,729
)
 
(4,128
)
Income tax (expense)

 

 

 

Net income (loss) and comprehensive income (loss)
$
(9,474
)
 
$
7,075

 
$
(1,729
)
 
$
(4,128
)
 
 
 
 
 
 
 
 
Basic and Diluted Earnings (Loss) Per Share
$
(0.43
)
 
 
 
 
(6)
$
(0.19
)
Basic and Diluted Weighted Average Common Shares
22,000,367

 
 
 
 
 
22,000,367























AV Homes, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 2015
(in thousands)
 
 
 
 
 
 
 
 
 
 
Historical AV Homes, Inc.
 
Historical Bonterra Builders, LLC
 
Pro Forma Adjustments
 
 
AV Homes, Inc. Pro Forma
Assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
113,274

 
$
211

 
$
(95,859
)
(7)
 
$
17,626

Restricted cash
25,175

 

 

 
 
25,175

Land and other inventories
496,910

 
76,760

 
11,470

(8)
 
585,140

Receivables
3,256

 
2,066

 

 
 
5,322

Property and equipment, net
36,140

 
436

 

 
 
36,576

Investments in unconsolidated entities
1,179

 

 

 
 
1,179

Prepaid expenses and other assets
22,547

 

 
1,800

(9)
 
24,347

Goodwill
6,071

 

 
17,122

(10)
 
23,193

Total Assets
$
704,552

 
$
79,473

 
$
(65,467
)
 
 
$
718,558

 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Accounts payable
$
29,370

 
$
5,373

 
$

 
 
$
34,743

Accrued and other liabilities
17,257

 
219

 
7,030

(11)
 
24,506

Customer deposits
10,882

 
1,850

 

 
 
12,732

Estimated development liability
32,908

 

 

 
 
32,908

Notes payable
335,211

 
52,941

 
(52,941
)
(12)
 
335,211

Total Liabilities
425,628

 
60,383

 
(45,911
)
 
 
440,100

 
 
 
 
 
 
 
 
 
Stockholders' Equity
278,924

 
19,090

 
(19,556
)
(13)
 
278,458

Total Liabilities and Stockholders' Equity
$
704,552

 
$
79,473

 
$
(65,467
)
 
 
$
718,558

























AV Homes, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

(a) Description of Transaction
On July 1, 2015, we acquired substantially all of the assets and certain liabilities of Bonterra Builders, LLC (“Bonterra”) for approximately $101.5 million, including an estimated earn-out, subject to customary post-closing
adjustments. The actual amount of the earn-out may be more or less than the $6.0 million target amount based on the
performance of the Bonterra business through the end of 2016. A portion of the aggregate consideration equal to $0.8 million
was held back by us at the closing as security for Bonterra's indemnification and other obligations under the purchase agreement. Bonterra acquires raw and developed land, develops raw land and constructs single-family homes in the Charlotte,
North Carolina area. With approximately 1,700 lots owned or controlled at the time of the transaction, the Bonterra acquisition significantly enhances our position in a key growth market.

The following is a summary of the assets acquired and the liabilities assumed in the Bonterra acquisition. We have made an estimate of the fair value of the acquired assets and assumed liabilities based on information currently available to us. We also acquired certain intangible assets, including a trade name and non-compete agreements. Once we finalize our valuation analysis, assumptions utilized to estimate fair value may change, and accordingly, our estimated allocation may change.

The following table summarizes our preliminary estimates of the fair value of the assets acquired and liabilities assumed as of the acquisition date (in thousands):
Assets acquired and liabilities assumed
  
 
Assets
 
 
Accounts receivable
 
$
2,066

Land and other inventories
  
88,230

Property, plant and equipment
  
436

Trade name
 
1,400

Non-compete agreements
 
400

Goodwill
  
17,122

 
  
 
Total assets acquired
  
109,654

 
 
 
Liabilities
 
 
Accounts payable
  
5,373

Accrued and other liabilities
  
949

Customer deposits
 
1,850

 
  
 
Total liabilities assumed
  
8,172

 
  
 
Total net assets acquired
  
$
101,482

 
  
 

We are determining the preliminary estimate of fair value for acquired land and other inventories with the assistance of a third-party appraiser primarily using a forecasted cash flow approach for the development, marketing, and sale of each community acquired. Significant assumptions included in our estimate include future per lot development costs, construction and overhead costs, mix of products sold in each community as well as average sales price and absorption rates.

We are determining the preliminary estimate of fair value for amortizable intangible assets, which includes the trade name and non-compete agreements, with the assistance of a third-party valuation firm based primarily on a relief from royalty and income approach. Our preliminary estimates of the fair value of the trade name and non-compete agreements were $1.4 million and $0.4 million, respectively, which will be amortized over 5 years and 3 years, respectively.






We determined that Bonterra’s carrying costs approximated fair value for all other acquired assets and assumed liabilities. Goodwill includes the anticipated economic value of the acquired workforce.

(b) Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(1) Presentation of Condensed Consolidated Statement of Operations for AV Homes, Inc.
Certain revenue and expense balances were reclassified from "Homebuilding and amenity," as well as "Other real estate" into the line item "Amenity and other" to enhance the visibility to our core homebuilding operations.

(2) Historical Bonterra Builders, LLC and Pro Forma Adjustments
As the acquisition of Bonterra occurred on July 1, 2015, the historical Bonterra Builders, LLC and pro forma adjustments columns of the unaudited pro forma consolidated statement of operations for the year ended December 31, 2014 and for the six months ended June 30, 2015 include the results of Bonterra’s operations and related pro forma adjustments for the period from January 1, 2014 through June 30, 2015.

(3) Homebuilding Expenses
As noted above, the land and other inventories purchased in the Bonterra acquisition were recognized at their estimated fair value as of the acquisition date. As a result, the historical homebuilding expenses for Bonterra also requires a pro forma adjustment to reflect this increase in pro forma inventory cost. The pro forma adjustment to homebuilding expenses is estimated to be additional expense of $4.0 million for the year ended December 31, 2014 and $2.6 million for the six months ended June 30, 2015.

The pro forma adjustments were determined for all the lots owned or controlled as of January 1, 2014, including the 303 and 195 lots that were delivered by Bonterra during the year ended December 31, 2014 and the six months ended June 30, 2015, respectively, in accordance with ASC 820-10-55-21(f). Accordingly, we applied pro forma adjustments to Bonterra’s historical costs based upon an average of the estimated fair value adjustment per owned lot as of January 1, 2014, such that the pro forma increase to inventory and homebuilding expenses results in an expected gross margin that we believe a market participant would require to complete the remaining development and requisite selling efforts. We estimated a market participant would require a gross margin ranging from 5% to 20% based upon the stage of production of the individual lot.

As noted above, certain intangible assets were acquired in the Bonterra acquisiton and will be amortized over their respective lives. As a result, we have made a pro forma adjustment to homebuilding expenses in the pro forma statement of operations for the year ended December 31, 2014 and the six months ended June 30, 2015 totaling $0.4 million and $0.2 million, respectively, for the amortization of the intangibles.

(4) Interest expense
The inventories purchased in the Bonterra acquisition have increased the amount of the assets eligible for the capitalization of interest. Accordingly, we have recorded pro forma adjustments to decrease interest expense by $1.9 million for the year ended December 31, 2014 and by $2.4 million for the six months ended June 30, 2015. In addition, we have recorded pro forma adjustments to increase capitalized interest included in homebuilding expenses by $1.5 million for the year ended December 31, 2014 and $1.3 million for the six months ended June 30, 2015. These adjustments are based upon applying our average interest rate to an estimate of the incremental inventory balance that was eligible for interest capitalization.

(5) Income Tax Expense
We have not recorded a pro forma adjustment to increase current income tax expense for the year ended December 31, 2014 as we have a full valuation allowance against our deferred tax asset.

(6) Earnings Per Share





Pro forma basic and diluted net income per share for the six months ended June 30, 2014 and the year ended December 31, 2014 give effect to pro forma adjustments discussed above.

(7) Cash and Cash Equivalents
This pro forma adjustment reflects the cash consideration paid at the closing of the transaction, transaction costs, and the cash that the owners of Bonterra were entitled to retain.

(8) Land and other inventories
This pro forma adjustment reflects the fair value adjustment to inventory discussed in (a) above.

(9) Prepaid expenses and other assets
This pro forma adjustment reflects the addition of intangible assets obtained in the Bonterra acquisition.

(10) Goodwill
This pro forma adjustment reflects the addition of goodwill obtained in the Bonterra acquisition. The goodwill amount represents the excess of the purchase price allocated to identified assets and liabilities.

(11) Accrued and other liabilities
This pro forma adjustment reflects the fair value assigned to the contingent consideration (earn-out) that was accrued for in connection with the Bonterra acquisition, as well as an increase to accrued warranty liability to conform our warranty policy.

(12) Notes payable
As part of the consideration transferred in acquisition of Bonterra, the Company paid off all existing notes payable at the close of the transaction.

(13) Stockholders' equity
Purchase accounting requires the elimination of the acquired company's stockholders' equity. This adjustment also reflects transaction costs that were expensed at the close of the acquisition.



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