As filed with the Securities and Exchange Commission on April 22, 2011

Registration No. 333-172293

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Amendment No. 1

FORM S-1

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

 

84 FINANCIAL L.P.

(Exact name of registrant as specified in its charter)

Delaware		6153		22-3889140
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

12627 San Jose Boulevard, Suite 305
Jacksonville, Florida 32223
(904) 260-0059

(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)

 

Thomas P. Spatola
President
12627 San Jose Boulevard, Suite 305
Jacksonville, Florida 32223
(904) 260-0059

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

 

Copy to:

Gary A. Miller, Esq.
Eckert Seamans Cherin & Mellott, LLC
Two Liberty Place
50 South 16^th Street, 22^nd Floor
Philadelphia, Pennsylvania 19102
(215) 851-8400

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer x (Do not check if a smaller reporting company)		Smaller reporting company o

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered		Amount to be Registered				Proposed Maximum Offering Price Per Unit				Proposed Maximum Aggregate Offering Price				Amount of Registration Fee(2)
Fixed Rate Subordinated Notes		$	1,000,000,000				(1)			$	1,000,000,000			$	116,100

 

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

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GLOSSARY OF TERMS

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the SEC and various states is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION — PRELIMINARY PROSPECTUS DATED April 22, 2011

84 FINANCIAL L.P.
$1,000,000,000 Fixed Rate Subordinated Notes

We are offering up to $1,000,000,000 in aggregate principal amount of our Fixed Rate Subordinated Notes (“Notes”) on a continuous basis. The initial minimum investment amount required is $500. From time to time, we may, however, change the minimum investment amount that is required. The maximum investment amount per investor is $1,000,000 aggregate principal amount, or $1,000,000 per Note, but a higher maximum investment amount may be approved by us on a case-by-case basis.

We will issue the Notes in varying purchase amounts and maturities that we will establish from time to time. For each purchase amount and maturity, we also will establish an interest rate. The maturity dates of our Notes may range from one year to four years.

We may market our Notes in many ways, including but not limited to, publishing the then current features (e.g., the maturities and interest rates currently offered by us) of the Notes in newspapers or on billboards, advertising on the internet and through direct mail campaigns. At any time, you also may obtain the then applicable features of the Notes from our web site at www.84financial.com or by calling (800) 252-0091 (toll free). However, the information on our website is not a part of this prospectus. Upon any change in the features of the Notes, we will file a Rule 424(b)(2) prospectus supplement setting forth the then applicable features.

We are offering the Notes directly, without an underwriter or placement agent and on a continuous basis. We do not have to sell any minimum amount of Notes to accept and use the proceeds of this offering. Therefore, once you purchase a Note, we may immediately use the proceeds of your investments and your investment will be returned only if we repay your Note. We cannot assure you that all or any portion of the Notes we are offering will be sold. We have not made any arrangement to place any of the proceeds from this offering in an escrow, trust or similar account. The Notes are not listed on any securities exchange and there will not be any public trading market for the Notes. We have the right to reject any investment, in whole or in part, for any reason.

Beginning 180 calendar days after issuance of a Note to you, we may redeem the Note, in whole or in part, at any time prior to maturity, upon not less than 30 and not more than 60 days written notice, for a redemption price equal to the principal amount plus any earned but unpaid interest thereon to the date of redemption. You also may request early redemption of a Note purchased by you at any time on or after 180 calendar days after issuance of a Note, but we reserve the right to decline your request for any reason. If we grant your redemption request, our processing agent will mail you, on our behalf, a payment equal to the principal amount plus any earned but unpaid interest to the date of redemption, minus a 180-day interest penalty.

The Notes mature between one and four years from the date of issuance. Thirty to sixty days prior to the maturity date, our processing agent will mail to you on our behalf a letter notifying you of the upcoming maturity date and, if we are offering you any renewal option(s), instructions to exercise the renewal option(s). If you do not respond, principal and any earned but unpaid interest will be paid to you.

You should read this prospectus and any applicable prospectus supplement carefully before you invest in the Notes. The Notes are our general unsecured obligations and are subordinated in right of payment to all of our present and future senior debt. As of the fiscal year ended January 2, 2011, we had $21,161,000 in debt outstanding that ranks equal or senior to the Notes offered pursuant to this prospectus. We expect to incur additional debt in the future, including without limitation, the Notes offered pursuant to this prospectus.

The Notes are not certificates of deposit or similar obligations guaranteed by any depository institution, are not obligations of our processing agent, The Bank of New York Mellon, and they are not insured by the Federal Deposit Insurance Corporation (FDIC) or any governmental or private insurance fund, or any other entity. We do not contribute funds to a separate account such as a sinking fund to repay the Notes upon maturity. Our obligations under the Notes are not guaranteed by any of our affiliates, including our parent company, 84 Lumber Company.

See “Risk Factors” beginning on page 13 for significant factors you should consider before buying the Notes.

These securities have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission, and neither the Securities and Exchange Commission nor any state securities commission has passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

		Price to Public				Underwriting Discount and Commission(1)				Proceeds to Company(2)
Per Note			100	%			None				100	%
Total		$	1,000,000,000				None			$	1,000,000,000

The date of this prospectus is [], 2011.

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GLOSSARY OF TERMS

84 FINANCIAL L.P.

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		Page
PROSPECTUS SUMMARY			7
OUR COMPANY			7
THE OFFERING			9
SUMMARY CONSOLIDATED FINANCIAL DATA			11
RISK FACTORS			13
RISKS RELATED TO OUR OFFERING			13
RISKS RELATED TO OUR BUSINESS			15
FORWARD-LOOKING STATEMENTS			23
USE OF PROCEEDS			24
RATIO OF EARNINGS TO FIXED CHARGES			25
SELECTED CONSOLIDATED FINANCIAL DATA			26
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			28
OVERVIEW			28
BUSINESS SEGMENTS			35
LIQUIDITY AND CAPITAL RESOURCES			45
RECENT ACCOUNTING PRONOUNCEMENTS			48
CRITICAL ACCOUNTING ESTIMATES			48
IMPACT OF INFLATION AND GENERAL ECONOMIC CONDITIONS			50
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			51
INTERNAL CONTROL OVER FINANCIAL REPORTING			52
BUSINESS			53
GENERAL			53
BUSINESS SEGMENTS			54
COMMERCIAL LENDING SEGMENT			54
ACQUISITION, DEVELOPMENT AND SALE OF RESIDENTIAL LOTS SEGMENT			61
COMMERCIAL PROPERTY LEASING SEGMENT			62
COMPANY MARKET AREA AND COMPETITION			62
ENVIRONMENTAL COMPLIANCE			62
EMPLOYEES			62
PROPERTIES			62
LEGAL PROCEEDINGS			62
REPORTS TO SECURITY HOLDERS			63
MANAGEMENT			64
DIRECTORS OF THE GENERAL PARTNER AND OFFICERS OF THE COMPANY			64
COMPENSATION DISCUSSION AND ANALYSIS			66
OBJECTIVES OF THE NAMED EXECUTIVE OFFICER COMPENSATION PROGRAM			66

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		Page
DETERMINING NAMED EXECUTIVE OFFICER COMPENSATION			67
2010 NAMED EXECUTIVE OFFICER COMPENSATION COMPONENTS			67
EMPLOYMENT AGREEMENTS			69
SUMMARY COMPENSATION TABLE			69
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION			69
PRINCIPAL SHAREHOLDERS			70
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			70
PRODUCTS AND SERVICES PROVIDED TO 84 LUMBER AND OTHER SUBSIDIARIES			70
SUPPORT SERVICES PROVIDED BY 84 LUMBER			71
CREDIT ARRANGEMENTS AND OTHER AMOUNTS DUE FROM OR OWED TO 84 LUMBER			71
TRANSACTIONS WITH OFFICERS			72
DESCRIPTION OF NOTES			73
ESTABLISHED FEATURES OF NOTES			73
SUBORDINATION			73
REDEMPTION BY US PRIOR TO MATURITY			74
REDEMPTION AT REQUEST OF HOLDER PRIOR TO MATURITY			74
REDEMPTION UPON YOUR DEATH			74
EXTENSION AFTER MATURITY			74
NO RESTRICTIONS ON ADDITIONAL DEBT OR BUSINESS			74
MODIFICATION OF INDENTURE			74
PLACE, METHOD AND TIME OF PAYMENT			75
EVENTS OF DEFAULT			75
SATISFACTION AND DISCHARGE OF INDENTURE			75
REPORTS			76
SERVICE CHARGES			76
BOOK ENTRY RECORD OF YOUR OWNERSHIP			76
CONCERNING THE PROCESSING AGENT			76
CONCERNING THE TRUSTEE			76
PLAN OF DISTRIBUTION			77
LEGAL MATTERS			78
EXPERTS			78
WHERE YOU CAN FIND MORE INFORMATION			78
GLOSSARY OF CERTAIN TERMS			79
INDEX TO FINANCIAL STATEMENTS			F-1

You should rely only upon the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell the Notes only in jurisdictions where offers and sales are permitted.

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QUESTIONS AND ANSWERS
  
(All dollar [$] amounts shown in thousands, except amounts describing proceeds from this offering)

Below we have provided some of the more frequently asked questions and answers relating to the offering of the Notes. Please see the “Prospectus Summary” and the remainder of the prospectus for more information about the offering of the Notes.

Q:  Who is 84 FINANCIAL L.P.?

A:  We are a finance company affiliated with and, directly and indirectly, owned by 84 Lumber Company (“84 Lumber”), a Pennsylvania limited partnership. 84 Lumber has been in business since 1956 and today is a leading supplier of building materials to homebuilders throughout the United States of America (“United States”). 84 Lumber, as limited partner, directly owns a 99% partnership interest in 84 FINANCIAL L.P. Our business and operations are managed by our general partner, 84 LADC, LLC, a Pennsylvania limited liability company which is a wholly owned subsidiary of 84 Lumber. 84 LADC, LLC owns the remaining 1% partnership interest in 84 FINANCIAL L.P. As such, we are, directly and indirectly, a wholly-owned subsidiary of 84 Lumber. We were originally organized in 1993 in the Commonwealth of Pennsylvania as a Pennsylvania business trust under the name Hardy Credit Co. In 2002, Hardy Credit Co. was reorganized as a Pennsylvania limited partnership. Prior to commencing this offering, we changed the state where Hardy Credit Co. was registered to Delaware by merging it with and into 84 FINANCIAL L.P., a Delaware limited partnership newly formed for that purpose. Jacksonville, Florida is home to our headquarters.

Q:  What are your primary business activities?

A:  In the past, our primary business consisted of extending, servicing and purchasing commercial construction loans and other types of commercial loans to small-to medium-size homebuilders and/or multi-family and commercial developers in the United States who were or are generally customers of 84 Lumber. In short, we originated commercial construction loans to homebuilders. Mostly, this was done through a program where institutional lenders extended loans to builders we referred. The institutional lenders also provided origination and administration servicing of these loans. We assisted the lenders in the origination of the loans and purchased problem loans from the lenders. We then serviced the loans we purchased. Due to economic factors in the housing industry, the volume of lending greatly declined after 2007. The institutional lending program was terminated in 2010 but we are still purchasing the problem loans remaining in this program. We also purchased and developed residential building lots to sell to our homebuilder customers (i.e., we bought land to develop and sell). Finally, we owned commercial property which we leased to our affiliates for use as retail centers and manufacturing facilities of 84 Lumber (i.e., we leased retail centers).

Our primary activity of providing construction loans to homebuilders will continue. The most significant change will be the source of funds for the loans; our source of funds for lending will change from the institutional program to the proceeds from sale of the Notes. We will also continue to own and lease retail centers and buy land to develop and sell.

Q:  What will you do with the proceeds raised from this offering?

A:  If all of the Notes offered by this prospectus are sold, we expect to receive approximately $999,150,400 in net proceeds (after deducting all costs and expenses associated with this offering). We intend to use substantially all of the cash proceeds from this offering as follows and in the following order of priority:

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In general and if possible, the proceeds (if sufficient) will be used to maintain an asset balance of between $200,000 and $300,000. If the cash inflows from those proceeds do not allow for that to occur, we will maintain a lower asset balance.

Q:  What kind of offering is this?

A:  We are offering up to $1,000,000,000 of Notes.

Q:  What is a Note?

A:  A Note is our promise to pay you a specified rate of interest for a specific period of time and to repay your principal investment upon maturity. The Notes are our general unsecured obligations and are subordinated in right of payment to all present and future senior debt. “Subordinated” means that if we are unable to pay our debts as they come due, all of the senior debt would be paid in full first. After the senior debt is paid in full, any remaining money would be used to repay the Notes and other subordinated debt which is equal to the Notes in priority. As of January 2, 2011, we had the following debt outstanding that ranks senior to or equal with the Notes:

Senior debt (higher priority than Notes)		$	11,734
Related party notes payable (equal priority to Notes)			7,927
Note payable (equal priority to Notes)			1,500
Total		$	21,161

We expect to incur additional debt in the future, including, without limitation, the Notes offered pursuant to this prospectus.

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Q:  What is an Indenture?

A:  As required by United States federal law, the Notes will be governed by a document called an “indenture.” An indenture is a contract between us and a trustee. The main role of the trustee is to enforce your rights against us if we are in default of our obligations under the Notes. Defaults are described in this prospectus under “Description of Notes — Events of Default”. There are some limitations on the extent to which the trustee acts on your behalf. These limitations are described in this prospectus under “Description of Notes — Events of Default”.

The Notes will be issued under an indenture dated [ ], 2011 between us and Law Debenture Trust Company of New York, as trustee. The indenture does not limit the principal amount of debt securities that we may issue under it. The indenture is governed by New York law and will be qualified under the Trust Indenture Act of 1939.

Q:  Is my investment in the Notes insured or guaranteed?

A:  No. The Notes are:

The Notes are backed only by the faith and credit of our Company and our operations. Our net loss in fiscal years 2010, 2009 and 2008 was $9,267, $32,962 and $20,157, respectively. You are dependent upon our ability to effectively manage our business to generate sufficient cash flow, including cash flow from our financing activities, for the repayment of principal at maturity and the ongoing payment of interest on the Notes.

Q:  How is the interest rate determined?

A:  From time to time, we will establish the interest rate(s) we are offering for various purchase amounts and maturities. By referring to the features (e.g., the maturities and interest rates) which are in effect at the time, you will see the interest rate(s) and maturity date(s) we are currently offering for your desired purchase amount. The interest rate offered on the Notes depends on which maturity date and purchase amount you select. The interest rate on a Note purchased by you is fixed and will not change over the term of the Note.

Q:  How is interest calculated and paid to me?

A:  Interest will be calculated based on the actual number of days your Note is outstanding. Interest is calculated monthly based on a 365-day year or, in the case of a leap year, a 366-day year. Interest will be earned daily, and we will pay interest to you monthly or at maturity, as you request. If you choose to be paid interest at maturity rather than monthly, the interest will be compounded monthly. If any day on which a payment is due with respect to a Note is not a business day, then you will not be entitled to payment of the amount due until the following business day, and no additional interest will be due as a result of such delay. If you elect to be paid interest monthly, interest on your Note will be paid on the first business day of every month (each an “Interest Payment Date”). Your first Interest Payment Date will be in the month following the month in which the Note is issued, except that if a new Note is issued within the last 10 days preceding an Interest Payment Date the first interest payment will be made on the next succeeding Interest Payment Date (i.e., approximately 40-45 days after issuance).

Q.  If I elect to have interest on the Note paid in one lump sum at maturity, can I change my election later?

A.  Yes, we will allow you to change your election so that you receive monthly payments of earned and unpaid interest instead. You should contact our processing agent at (877) 570-1640 to find out what you need to do to change your election.

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Q:  When do the Notes mature?

A:  All of our maturity dates will be at least one year from the date of issuance, but no longer than four years from the date of issuance. Not all maturity dates may be offered at all times. We will publish the maturity date(s) we are offering from time to time along with the other established features of the Notes we are then offering.

Q:  May I renew a Note purchased by me?

A:  Thirty to sixty days prior to the maturity date of the Note, you will receive a letter notifying you of the upcoming maturity date and, if we are offering you any renewal option(s), instructions to exercise the renewal option(s). We may, at our choosing, offer any one or more of the following renewal options (most likely at an interest rate different from your interest rate) at:

If you do not respond or if there are no options for renewal offered to you, then principal and any earned but unpaid interest will be paid to you.

Q:  May I redeem a Note prior to maturity?

A:  Beginning 180 calendar days after the issuance date, you may request, in writing to our Processing Agent, that we redeem the Note. However, your request is subject to our consent and we may decline your request at our choosing. If we agree to your redemption request, a 180-day interest penalty will be imposed. This means that you will not receive the last 180 days worth of interest and, if the accrued and unpaid interest is not sufficient to cover the amount of the penalty, then any remaining amount of the penalty shall be deducted from the principal amount of the Note (i.e., we will subtract the interest penalty from your original investment).

Q:  What happens if I die prior to the maturity date?

A:  At the written request of the executor or administrator of your estate (or if your Note is held jointly with another investor, the joint owner of your Note), we will redeem any Note at any time after death. The redemption price will be equal to the principal amount plus earned but unpaid interest payable on the Note, without any interest penalty. We will seek to honor any such request as soon as reasonably possible based on our cash position at the time and our then current cash needs, but generally within one business week of request. It is possible that the subordination provisions in the indenture may restrict our ability to honor your request.

Q:  Can you force me to redeem my Note?

A:  Yes, following the first 180 calendar days after issuance, we may call all or a portion of your Note for redemption at any time. We will give you 30 to 60 days notice of the mandatory redemption and repay your Note for a price equal to the principal amount plus earned but unpaid interest to the day we repay your Note.

Q:  How are the Notes sold by the Company?

A:  The Notes are offered directly by us without an underwriter or placement agent. We intend to market the Notes primarily by advertisements in local and/or national newspapers, roadway sign advertisements, advertisements on the internet or through direct mail campaigns and other miscellaneous media in states in which we have properly registered the offerings or qualified for an exemption from registration.

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Q:  What are some of the significant risks of my investment in the Notes?

A:  You should carefully read and consider all risk factors beginning on page 13 of this prospectus prior to investing. Below is a summary of some of the significant risks of an investment in the Notes:

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Q.  How do I purchase a Note?

A.  You may purchase a Note from us by visiting our website at www.84financial.com and following the instructions under the heading “How to Invest in 84 FINANCIAL Fixed-Rate Notes” or by calling (877) 252-0091 to request a copy of the prospectus along with an investment application. Upon receipt of your application and investment check and the posting of your investment, our processing agent will mail to you a confirmation letter containing all the terms of your investment for you to review for accuracy. We reserve the right to reject any investment. Among other reasons, we may reject an investment if the information in your investment application is incorrect or incomplete, or if the interest rate or maturity you have selected has not been offered by us in the past seven (7) calendar days for your desired purchase amount at the time our processing agent receives your investment documents.

Q:  Whom may I contact for more information?

A:  You can obtain additional copies of this prospectus by downloading it from www.84financial.com, or by calling (877) 252-0091 (toll free). The established features of the Notes are available at www.84financial.com or by calling (877) 252-0091 (toll free). However, the information contained on our website is not part of this prospectus. If you have questions about the suitability of an investment in the Notes for you, you should contact your own investment, tax and other professional financial advisors.

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PROSPECTUS SUMMARY
  
(All dollar [$] amounts shown in thousands, except amounts describing proceeds from this offering)

This summary highlights selected information most of which was not otherwise addressed in the “Questions and Answers” section of this prospectus. For more information about us, you should carefully read the entire prospectus, including the section entitled “Risk Factors,” the consolidated financial statements and other financial data, any related prospectus supplement and the documents we have referred you to in “Where You Can Find More Information” on page 78. There will be no trading market for the Notes, so you will not be able to use the money you invest until the maturity or other repayment of the Note. Your right to be repaid prior to maturity is at our sole discretion, except upon your death.

Our Company

We are a Delaware limited partnership and our business and operations are owned primarily by 84 Lumber Company and managed by 84 LADC, LLC, a Pennsylvania limited liability company. We originally commenced business in 1993 under the name Hardy Credit Co. Our principal corporate office is located at 12627 San Jose Boulevard, Suite 305, Jacksonville, Florida 32223. Our general telephone number is (904) 260-0059. Information about us can be found at www.84financial.com. The information contained on this website is not part of this prospectus. We are a commercial construction lender, a land developer and an investor in and landlord of commercial real estate. Historically to achieve our goals, we have not only extended loans to homebuilders and invested our funds, but we also have encouraged institutional lenders (primarily banks) to make loans to 84 Lumber’s customers. In 1993, we began a direct lending program to 84 Lumber customers. In 1997, we began teaming with institutional lenders through our institutional lending program. That program was amended in 2002 to include a put option, whereby we received a fee for origination in exchange for a duty to purchase problem loans from the institutional lenders.

On October 20, 2010, the institutional lending program ended, and as a result, the income we received from fees paid for the put option was also discontinued; however, our obligation to purchase troubled loans continues until all loans extended through that program are repaid. Due to the decline in the demand for new homes, which caused many of our (and the institutional lenders’) loans to default, the value of the collateral backing the loans has been reduced. At the end of fiscal 2007, the dollar amount outstanding under the institutional program (i.e. subject to purchase under the put option obligation) was $274,523; at February 27, 2011, that amount was $16,222.

Due to the obligation noted above, we have used substantial liquidity and net worth to weather the housing storm. Our unrestricted cash balance as of February 27, 2011 was $605, and our available borrowings under our line of credit with no additional collateral were $95 on the same date. Beginning in April 2008, due to economic factors in the housing industry and our limited liquidity, we greatly reduced the volume of loans we originated, until the fourth quarter of 2010 when we originated $2,482 in loan commitments.

At the peak of the institutional lending program, annual loan origination was $300,000 or approximately 1,500 loans. The institutional lenders maintained a staff of 26 individuals and we had a staff of 23 individuals at that time. The 26 individuals at the institutional lender provided internal support in origination and servicing loans while 19 of our individuals concentrated on outside selling of the program by conducting personal visits to builders throughout approximately 35 states. Today there are a total of 19 individuals involved in lending at 84 FINANCIAL. Of these individuals, 11 are designated to outside sales and 8 are designated to provide internal support. The 19 individuals are more than we need for current volume, but we have retained them since we are anticipating increased lending activity upon receipt of proceeds from the Notes. We expect that a volume of approximately $40,000 in annual loan originations or 275 loans per year can be supported by current staff. We will have to add staff accordingly as loan origination volume increases towards $300,000. Our goal is to reach $300,000 in annual loan originations or approximately 2,000 loans per year. Initial increases in staff will be in internal support functions and as our loan origination continues to increase toward our goal, additions to both internal support and external sales will occur.

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We believe the market values of homes have stabilized, and therefore, have initiated this offering to fund our new 84 FINANCIAL direct lending program (i.e. one excluding the institutional lending partners). Our new commercial construction lending business will be focused on homebuilders operating businesses near 84 Lumber store operations; 84 Lumber operates in approximately 33 states.

While we are currently almost entirely reliant on rental payments from 84 Lumber to offset our normal operating expenses, we believe the funds from this offering will create new monthly cash flows and income. We believe that our assets have been properly impaired to reflect today’s home values, and that our put option obligation (the amount of expected loss on the remaining $16,222 as of February 27, 2011 of institutional lender owned loans) is properly valued. Therefore, we believe that funds from this offering will not be needed to counteract losses on our existing assets, but rather be used to generate new performing assets.

Our new lending program is different from the institutional lending program we operated in 2002 – April 2008. In April 2008, we modified lending terms with the institutional lenders, and then again in the fourth quarter of 2010, when all new loans, created and serviced by us. At this point, the lending program of today differs from the 2002 – 2008 program in the following ways:

Construction Loan Program Differences Designed to Reduce Loan Losses		Institutional Lending Program		84 FINANCIAL New Loan Program
Market Grading		All markets were treated equally with no change in interest rate or loan-to-value (LTV) percentages.		We grade markets based on where they appear to be in that market’s housing cycle, and how volatile their housing market currently is.
				We use this grading to determine interest rates and loan to value percentages instead of treating every market the same.
Maximum LTV		75%		60% – 70%
Maximum Loan Amounts (in thousands)		$2,000		$750
Funds Required by Borrower at Closing for Standard Loans
Minimum % of the loan amount		0%		6% – 12%
Minimum % of the lot purchase/payoff		0%		0% – 50% (depending on location)

Construction Loan Program Differences to Increase Yield		Institutional Lending Program		84 FINANCIAL New Loan Program
Loan Fees		1.0% – 1.5% of loan amount		4.3% of loan amount
Interest Rate Index		Prime Rate		84 FINANCIAL L.P. Cost of Funds (cost of funds plus a margin to offset the risk changing interest rates)

All lending pricing, terms and conditions are subject of change without notice

We believe these changes will improve the lending business performance. We also expect results to improve because we believe the housing market is at a low point. We believe home values are likely to rise. The largest contributor to losses in the program in 2008 through 2010 was a reduction in housing values.

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The Offering

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Summary of Consolidated Financial Data

The following table summarizes selected consolidated financial data of our business. You should read this summary together with “Selected Consolidated Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes included elsewhere in this prospectus.

Our consolidated information may not be indicative of our future performance and our consolidated financial information does not reflect what our financial position, results of operations and cash flows would have been had we operated as a stand-alone entity.

The summary consolidated financial data as of and for the fiscal years ended January 2, 2011 (“fiscal 2010”) and January 3, 2010 (“fiscal 2009”), and for the fiscal year ended January 4, 2009 (“fiscal 2008”) is derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated financial data as of January 4, 2009 and for the fiscal year ended January 6, 2008 (“fiscal 2007”) is derived from audited consolidated financial statements not included in this prospectus. The summary consolidated financial information as of January 6, 2008 and as of and for the fiscal year ended December 31, 2006 (“fiscal 2006”) has been derived from unaudited consolidated financial information not included in this prospectus.

		As of, and for, the Fiscal Year
		2010				2009				2008				2007				2006
										(as restated)				(as restated)				(as restated)
																		(unaudited)
		(dollars in thousands)
Consolidated Operations Data
Rental income		$	3,675			$	2,732			$	1,801			$	1,762			$	2,723
Sales of developed properties			3,697				2,515				1,587				1,865				1,116
Interest and fee income			—				78				1,165				2,592				1,376
Operating revenues			7,372				5,325				4,553				6,219				5,215
Cost of sales – developed properties			4,040				2,372				1,252				1,464				888
Selling, general and administrative expenses, net of other income			3,572				4,203				2,231				158				(899	)
Depreciation			959				760				490				450				742
Loan and REO related losses and impairment			8,972				31,794				23,654				3,432				90
Interest expense			628				570				699				639				1,089
Total operating expenses			18,171				39,699				28,326				6,143				1,910
(Loss) Income from continuing operations			(10,799	)			(34,374	)			(23,773	)			76				3,305
Income (Loss) from discontinued operations			1,532				1,412				3,616				1,562				1,495
Net income (loss)		$	(9,267	)		$	(32,962	)		$	(20,157	)		$	1,638			$	4,800
Net income (loss) attributable to non-controlling interest			3				(26	)			(2	)			7				N/A
Net income (loss) attributable to partners of 84 FINANCIAL L.P.		$	(9,270	)		$	(32,936	)		$	(20,155	)		$	1,631			$	4,800
Ratio of earnings to fixed charges (unaudited)(1)			N/A				N/A				N/A				1.12:1				4.03:1
Deficiency		$	10,799			$	34,374			$	23,773				N/A				N/A

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		As of, and for, the Fiscal Year
		2010				2009				2008				2007				2006
														(as restated) (unaudited)				(as restated) (unaudited)
		(dollars in thousands)
Consolidated Balance Sheet Data
Cash		$	2,250			$	2,324			$	1,793			$	1,327			$	1,472
Restricted cash			1,704				2,537				2,401				6,851				6,130
Loan receivable, net of allowance			11,505				16,928				44,744				36,999				21,221
Related party receivable			—				—				5,007				364				227
Land inventories under development			10,826				12,577				19,002				20,933				15,708
Fixed assets, net of accumulated depreciation			17,001				17,945				9,470				11,213				16,638
Assets held for sale			1,200				1,521				1,521				—				736
Assets of discontinued operations			6,183				6,032				7,947				9,909				4,847
Other real estate owned			3,283				8,681				18,313				8,425				4,991
Total assets			54,017				68,629				110,815				97,505				72,023
Senior debt			11,734				19,603				17,677				13,949				7,998
Related party notes payable			7,927				5,000				3,630				—				16,350
Notes payable			1,500				—				—				—				—
Put option obligation(2)			3,359				5,687				6,858				3,319				2,448
Partners’ equity(3)		$	28,882			$	37,979			$	82,040			$	78,407			$	43,629
Partner contributions(3)		$	200			$	2,033			$	25,690			$	33,151			$	7,929
Partner distribution(3)		$	30			$	13,132			$	1,900			$	11			$	—

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RISK FACTORS
  
(All dollar [$] amounts shown in thousands, except amounts describing proceeds from this offering)

Our operations and your investment in the Notes are subject to a number of risks. You should carefully read and consider these risks, together with all other information in this prospectus, before you decide to buy the Notes. Some of the following risks have actually occurred and could occur again in the future. If any of these risks occur in the future, our business, financial condition or operating results and our ability to repay the Notes could be materially adversely affected.

Risks Related to Our Offering

The Notes are risky and speculative investments. Therefore, you should not invest in the Notes unless you are able to afford the loss of your entire investment.

The Notes may not be a suitable investment for you and we advise you to consult your investment, tax and other professional financial advisors prior to deciding whether to invest in the Notes. The characteristics of the Notes, including the maturity and interest rate, may not satisfy your investment objectives. The Notes may not be a suitable investment for you based on your ability to withstand a loss of interest or principal or other aspects of your financial situation, including your income, net worth, financial needs, investment risk profile, return objectives, investment experience and other factors. Before deciding whether to purchase Notes, you should consider your investment allocation with respect to the amount of your contemplated investment in the Notes in relation to your other investments and the diversity of those holdings. If you cannot afford to lose all of your investment, you should not invest in these Notes.

Our Notes are not insured or guaranteed by the FDIC, 84 Lumber or any third party, so repayment of your Note depends upon our ability to manage our business and generate adequate cash flows.

Our Notes are not certificates of deposit or similar obligations or guaranteed by any depository institution; are not obligations of our processing agent, The Bank of New York Mellon; are not insured by 84 Lumber Company; and are not insured by the FDIC or any governmental or private insurance fund, or any other entity. Therefore, you are dependent upon on our ability to manage our business and generate adequate cash flows.

The Notes are backed only by the faith, credit and operations of our Company. Our net loss in fiscal years 2010, 2009 and 2008 was $9,267, $32,962 and $20,157, respectively. You are dependent upon our ability to effectively manage our business to generate sufficient cash flow, including cash flow from our financing activities, for the repayment of principal at maturity and the ongoing payment of interest on the Notes. If these sources are inadequate, you could lose your entire investment.

There will not be any market for the Notes, so you should only purchase them if you do not have any need for your money prior to the maturity of the Note.

The Notes will not be listed on a national securities exchange or authorized for quotation on The NASDAQ Stock Market or any stock exchange. There will not be a CUSIP identification number for the Notes; there will not be any trading market for the Notes; and it is unlikely that the Notes will be able to be used as collateral for a loan. Except as described elsewhere in this prospectus, you have no right to require redemption of the Notes. You should only purchase these Notes if you do not have the need for your money prior to the maturity of the Note.

Payment on the Notes is subordinate to the payment of our outstanding present and future senior debt. Since there is no limit on the amount of senior debt we may incur, our present and future senior debt may make it difficult to repay the Notes.

As of January 2, 2011, we had $11,734 of senior debt outstanding. The Notes are subordinate and junior in priority to any and all of our senior debt and equal to any and all currently outstanding affiliate debt and other non-senior debt, including the $7,927 in related party notes and $1,500 in notes payable, which were outstanding as of January 2, 2011. There are no restrictions in the indenture regarding the amount of senior debt or other indebtedness that we may incur. Upon the maturity of our senior debt, by lapse of time, acceleration or otherwise, the holders of our senior debt have first right to receive payment, in full, prior to

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any payments being made to you as a Note holder or to holders of our affiliate debt which is equal in priority to the Notes. Therefore, you would only be repaid in full if the senior debt is satisfied first and, following satisfaction of the senior debt, there is an amount sufficient to fully satisfy all amounts owed under the Notes, the related party notes, and other non-senior debt.

There is no “early warning” on your Note if our Company performs poorly. Only interest and principal payment defaults on your Note or similar debt (other Notes) can trigger a default on your Note prior to a bankruptcy.

There are limited financial or performance covenants to be maintained under the Notes and/or the indenture. Therefore, no “early warning” of a possible default by us exists. Under the indenture, only (i) the non-payment of interest and/or principal on the Notes by us when payments are due, (ii) our bankruptcy or insolvency, or (iii) a failure to comply with provisions of the Notes or the indenture (if such failure is not cured or waived within 60 days after receipt of a specific notice) could cause a default to occur.

The indenture does not contain the type of covenants restricting our actions, such as restrictions on creating senior debt, paying distributions to our owner, merging, recapitalizing and/or entering into highly leveraged transactions. The indenture does not contain provisions requiring early payment of Notes in the event we suffer a material adverse change in our business or fail to meet certain financial standards. Therefore, the indenture provides very little protection of your investment.

The Notes do not have the benefit of extensive covenants. The covenants in the indenture are not designed to protect your investment if there is a material adverse change in our consolidated financial condition, results of operations or cash flows. For example, the indenture does not contain any restrictions on our ability to create or incur senior debt or other debt or to pay distributions. It also does not contain any financial covenants (such as a fixed charge coverage or minimum partners’ equity covenants) to help ensure our ability to pay interest and principal on the Notes. The indenture does not contain provisions that permit Note holders to require that we redeem the Notes if there is a takeover, recapitalization or similar restructuring. In addition, the indenture does not contain covenants specifically designed to protect you if we engage in a highly leveraged transaction. Therefore, the indenture provides very little protection of your investment.

Management has broad discretion over the use of proceeds from this offering; therefore, you have no assurance that the funds will be used effectively to generate cash for payment of principal and interest on the Notes.

We expect to use the proceeds from this offering for purposes detailed in this prospectus under “Q&A” and “Use of Proceeds” sections. Because no specific allocation of the proceeds is required in the indenture, our management will have broad discretion in determining how the proceeds of the offering will be used.

There is no sinking fund to ensure repayment of the Notes at maturity, so you are totally reliant upon our ability to generate adequate cash flows.

We do not contribute funds to a separate account, commonly known as a sinking fund, to repay the Notes upon maturity. Because funds are not set aside periodically for the repayment of the Notes over their respective terms, you must rely on our consolidated cash flows from operations, investing and financing activities and other sources of financing for repayment, such as funds from the sale of the Notes, loan repayments and other borrowings. To the extent cash flow from operations and other sources are not sufficient to repay the Notes, you may lose all or a part of your investment.

If a large number of our Note holders die, we may be unable to repay their investments.

Upon the death of an investor, if requested by the executor or administrator of the investor’s estate (or if the Note is held jointly by the surviving joint investor), we are obligated to redeem his or her Notes without any interest penalty. Such redemption requests are not subject to our consent but may be subject to restrictions in the indenture. If a large number of our investors or single investors holding a significant portion of the Notes die within a short period of time, we could be faced with a large number of redemption requests. If the amounts of those redemptions are too high, and we cannot offset them with loan repayments, secure new financing, or issue additional Notes, we may not have the liquidity to redeem the investments.

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We can provide no assurance that any Notes will be sold or that we will raise sufficient proceeds to carry out our business plans. If we do not raise sufficient funds for our business plan, we may not be able generate enough cash to repay the Notes that have been sold.

We are conducting this offering of Notes ourselves without any underwriter or placement agent. We have no experience in conducting a notes offering or any other securities offering. Although we intend to sell up to $1,000,000,000 in aggregate principal amount of the Notes, there is no minimum amount of proceeds that must be received from the sale of the Notes in order to accept proceeds from Notes actually sold. Accordingly, we can provide no assurance about the total principal amount of Notes that will be sold. Therefore, we cannot assure you that we will raise sufficient proceeds to carry out our business plans.

We have the right to pay your investment back to you before the stated maturity of your investment. If we do, you may not be able to reinvest the proceeds at comparable rates and you will stop earning interest on your investment.

Beginning 180 calendar days after the issuance date, we may redeem, at any time, all or a portion of the outstanding Notes purchased by you prior to their maturity. You also may elect to redeem any Note at any time following the first 180 calendar days after the date of issuance, but only if we agree, in our sole discretion. If you choose to do so and we agree, you will pay us a 180-day interest penalty. In the event we redeem any part or all of your Notes early, you would have the risk of reinvesting the proceeds at the then-current market rates, which may be higher or lower.

The portion of our business plan utilizing non-institutional sources of funds for lending purposes or real estate development as described in this prospectus is new to us. This may decrease the likelihood that we will be successful and able to pay principal and interest on the Notes.

We have no experience with managing a notes offering as a source of funds for our business activities. There can be no assurance that results of our new business plan will be similar to or better than the results we obtained under our prior business plan.

Risks Related to Our Business

We suffered significant losses during fiscal years 2010, 2009 and 2008. If such losses continue, it may be difficult for us to pay interest on the Notes and you could lose all or part of your investment.

During fiscal years 2010, 2009 and 2008, our net losses were $9,267, $32,962 and $20,157, respectively.

Our operations are not subject to the stringent banking regulatory requirements designed to protect investors, so repayment of your investment is completely dependent upon our successful operation of our business.

Our operations are not subject to the stringent regulatory requirements imposed upon the operations of commercial banks, savings banks and thrift institutions, and are not subject to periodic compliance examinations by federal or state banking regulators. For example, we are not well diversified in our product risk and we cannot benefit from government programs designed to protect regulated financial institutions. Therefore, an investment in our Notes does not have the regulatory protections that the holder of a demand account or a certificate of deposit at a bank does. The return on Notes purchased by you is completely dependent upon our successful operation of our business. To the extent that we do not successfully operate our business, our ability to pay interest and principal on the Notes will be impaired.

Our business is not industry diversified and is subject to downturns or devaluations in the housing market. The recent national downturn in the real estate market has had and may continue to have a negative impact on our business. These factors may decrease the likelihood we will be able to generate enough cash to repay the Notes.

We extend commercial loans in approximately 33 states to small-to medium-size homebuilders for the construction of new homes and for the acquisition and development of real estate. We do not extend loans to any other types of businesses or in any other industry. As a result, our business is dependent predominantly on the health of the U.S. real estate market. We are not diversified into any other segment of the economy. The homebuilding industry has been and is experiencing a significant downturn. Demand for newly constructed

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homes has been and can be affected by many different factors, including but not limited to, demographics, interest rates, overall economy, cost of building materials and labor, availability of financing for end users, inventory of homes available and governmental action or inaction. The tightening credit markets have made it more difficult for consumers to obtain financing to purchase homes. If housing prices continue to decline or sales in the housing market continue to decline, our homebuilder customers may have a hard time selling their homes at a profit. This can cause the amount of defaulted loans that we own, or are required to purchase, to increase. An increase in defaulted loans would reduce our income and could lead to losses on our loans. A decline in housing prices will further increase our losses on defaulted loans. If the amount of defaulted loans or the loss per defaulted loan continues to increase, we will operate at a loss and experience a decline in our partners’ equity. This could cause us to violate a debt covenant under our line of credit or to become insolvent and we will not be able to pay back your investment.

We depend on the availability of significant sources of credit to meet our liquidity needs and our failure to maintain these sources of credit could materially and adversely affect our liquidity in the future.

We plan to maintain a line of credit with a financial institution so that we may draw funds when necessary to meet our obligation to redeem maturing Notes, pay interest on the Notes or other general corporate purposes. Our current line of credit expires on April 14, 2012. If we fail to renew this line of credit or obtain a replacement line of credit, we will be more dependent on the proceeds from the Notes for our continued liquidity. If the sale of the Notes is significantly reduced or delayed for any reason and we fail to renew or replace our line of credit or we default under our line of credit, our ability to meet our obligations, including our obligations with respect to the Notes offered hereby, could be materially adversely affected and we may not have enough cash to payback your investment.

Our allowance for loan losses may be insufficient. Our losses on loans will reduce the cash available to repay Notes.

All borrowers carry the potential to default and our remedies to recover may not fully satisfy the amount loaned. We maintain an allowance for loan losses, which is a reserve that represents management’s best estimate of probable loan losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of our management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. Management updates its evaluations regularly and reflects changes in allowances and impairments in operations as such evaluations are revised. There can be no assurance that our management has correctly assessed the level of impairments taken and allowances reflected in our consolidated financial statements. Furthermore, additional impairments may need to be taken or allowances provided for in the future.

We are obligated to purchase non-performing loans under a put option obligation with financial institutions, which could reduce the cash available to repay the Notes and cause you to lose all or part of your investment.

Our prior commercial construction lending to homebuilders was through a program with institutional lenders. The institutional lenders extended the loans per our agreement with them. That agreement has a put option provision that allows the financial institutions to require us to purchase non-performing loans. This obligation does not terminate until all loans have been repaid. At the end of 2007, there was a total of $274,523 in loans outstanding with these institutional lenders and as of January 2, 2011, there was a total of $17,054 of loans outstanding. Therefore, we have an obligation to purchase a portion of the remaining total of these loans. Our estimated loss on these potential purchases is $3,359 and is recognized in our consolidated financial statements as a liability (“put option obligation”).

Although our management team has experience in the commercial lending and banking industry, they have not managed all of the related aspects of our anticipated operations as a stand-alone business at a level or capacity that we are anticipating. We plan to expand rapidly and managing our growth may be difficult.

Our management team has extensive experience in the commercial lending and banking industry; however, our management team does not have extensive experience with start-up non-regulated financial institutions. By commencing this Offering in the absence of our former institutional lending program partners,

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we believe we have effectively created a start-up financial institution. Most start-up financial institutions grow to the level that we are anticipating over a long period of time, typically measured in years. In contrast, we anticipate rapid expansion to our desired portfolio size.

We expect to grow our business rapidly in terms of the number of customers we serve and possibly the regions we serve. We cannot be sure that we will be successful in managing our growth. In order to successfully manage our growth we must:

The strains posed by these demands are magnified by the start-up nature of our operations. If we cannot manage our growth effectively, our results of operations could be adversely affected.

The collectability of our loan receivables has been affected by general economic conditions. If we are unable to collect under normal collection procedures or if the sale of collateral is required, we may not be able to recover the full amount of delinquent accounts, which could impact our ability to repay amounts owed to you.

Our liquidity is dependent on, among other things, the collection of our loan receivables. We continually monitor the delinquency status of our loan receivables and promptly institute collection efforts on delinquent accounts. Collections of our loan receivables have been affected severely and negatively by general economic conditions. Although we ordinarily require collateral for loans, when real estate values are negatively impacted by the economy we may not be able to recover the full amount of outstanding receivables by resorting to the sale of collateral given for those loans. When we recognize that our collateral’s market value will not be sufficient to pay our loan amount, we may choose to accept less than the full repayment of our loan, allowing the borrower to complete a short-sale.

Commercial construction loans to homebuilders and/or developers comprise a significant portion of our assets, are a higher than average credit risk, and could expose us to higher rates of loan defaults, which could impact our ability to repay amounts owed to you.

Our primary business is extending commercial construction loans to homebuilders, purchasing commercial construction loans from institutional lenders, investing in and leasing commercial real estate, while unwinding the institutional lending program. Commercial construction loans to homebuilders are considered higher risk because the ability to repay depends on the homebuilder’s ability to sell a newly built home. These homes typically are not sold by the homebuilder prior to commencement of construction. Therefore, we may have a higher risk of loan default among our customers than other lending companies. If we suffer increased loan defaults in any given period, our operations could be materially adversely affected, and we may have difficulty making our principal and interest payments on the Notes.

We also extend short-term commercial construction loans to developers of multi-family or commercial properties. Typically, developers borrow from us to fill the gap that is not provided by traditional financing sources. Loans to developers are typically repaid upon completion of the project with proceeds from a permanent loan (which is often provided after construction is complete and cash-flow has stabilized). The significant risk in these loans is non-performance by the developer in completing construction of the improvements and compliance with the conditions of the permanent lender’s loan commitment. These could result in the developers’ inability to obtain the permanent financing and repay our loan. This risk is increased, as often these short-term commercial construction loans to developers have a lien which is secondary to the lien of another lender.

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If we, our majority owner or affiliates suffer from severe negative publicity, we could be faced with significantly greater payments on Note redemption obligations than we have cash available for such payments or redemptions.

If we, our majority owner, or affiliates suffer from severe negative publicity, our rate of new Note issuances could be negatively impacted, and reduce the amount of cash available to make interest and principal payments on our debt including the Notes. In such event, we could be declared in default on the Notes and other debt instruments, and you could lose your entire investment.

We are substantially reliant upon the net offering proceeds we receive from the sale of our Notes to meet our liquidity needs.

We are substantially reliant upon the net offering proceeds we receive from the sale of our Notes in order to meet our liquidity needs. We intend to use these proceeds to fund redemption obligations, make interest payments and to fund our other working capital needs to the extent that other sources of liquidity from our operations (e.g., repayment of loans we previously extended to our customers) and our credit line are inadequate. However, these other sources of liquidity are subject to risks. Our operations alone may not produce a sufficient return on investment to repay interest and principal on your Notes. Our existing line of credit expires on April 14, 2012. We may not be able to attract new investors, have sufficient loan repayments, or have sufficient borrowing capacity when we need additional funds to repay principal and interest on your Notes or redeem your Notes. If any of these things occur, our liquidity and capital needs may be severely and negatively affected and we may be forced to sell off our loan receivables and other operating assets, or we might be forced to cease our operations.

We may be unable to meet our Note redemption obligations, which could force us to sell our loan receivables and other operating assets or cease our operations.

If our liquidity and capital needs are severely and negatively affected, as stated above, we may be forced to sell off our loan receivables and other operating assets, or we might be forced to cease our operations, and you could lose some or all of your investment.

If future housing prices or housing market sales continue to decline, our homebuilder customers may have a hard time selling their homes at a profit and may default in repaying our loans. Further housing price declines also may have the effect of increasing the losses making us unable to make payments on the Notes.

Both the percentage of loans that default and the amount of loss per defaulted loan increase as new home values decrease. New home values generally decrease as new housing starts and sales decrease. These decreases affect the price and frequency in which our homebuilder customers sell their homes. Any slow down in the housing market or decrease in values could have a negative impact on the homebuilders’ ability to repay the amounts we have loaned to them. Additionally, because our loan portfolio is almost entirely collateral dependent for valuation, a decrease in housing values results in our losses being larger.

Because we require a substantial amount of cash to service our debt, we may not be able to pay our obligations under the Notes.

To service our total indebtedness, we require a significant amount of cash. Our ability to generate cash depends on many factors, including our successful financial and operating performance. We cannot assure you that our business plans will succeed or that we will achieve our anticipated financial results.

If we do not achieve our anticipated results, we may not be able to generate sufficient consolidated cash flows from operations, investing and financing activities or to obtain sufficient funding to satisfy all of our obligations, including our obligations under the Notes.

If an unusually large amount of our construction loans default, we could suffer significant losses and may be unable to make payments on the Notes.

During 2010, 2009 and 2008, we were primarily engaged in buying non-performing loans. We experienced increasing losses from purchased loans as a result of the real estate market declining from 2007

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through 2010. During that period of time, we continued to increase our reserves for loan losses to reflect the declines in the housing market and values.

We anticipate that in the future, a substantial portion of our business will be extending commercial construction loans to homebuilders. If a large number of our current or future commercial construction loans default, we could experience significant losses. In addition to losing interest and fee income, we will be required to incur expenses on each loan that defaults, such as attorneys’ fees, local real estate property taxes, property preservation costs and, in some cases, the cost of completing construction of the home. If we experience a higher than expected number of loan defaults, we may be unable to repay your investment. Further declines in housing prices may increase the rate of loan defaults and increase the loss percentage of defaulted loans.

We are obligated to purchase non-performing loans per our agreement with institutional lenders. Estimated potential losses on these loans are accounted for in our consolidated financial statements as the “put option obligation”. The obligation has a negative impact on our liquidity reducing funds available for other obligations.

If we experience significant losses in the commercial construction loans and other investments we make and the other business activities we engage in, we may be unable to repay your Notes.

We also extend and purchase various other types of commercial loans and investments relating to the homebuilding industry. The loans we extend or purchase could include commercial real estate loans, loans to acquire and develop real estate and working capital loans to homebuilders. The other business activities we engage in include purchasing defaulted or troubled unsecured or secured debt at a discount, including debt from affiliates. If these loans default we could experience additional losses that may cause us to have insufficient funds to redeem your investment.

We are subject to risk of significant losses on our loans because we do not require our borrowers to insure their collateral for our loans.

It is customary for lenders extending loans secured by real estate to require the borrower to provide title insurance and hazard insurance with minimum coverage amounts set by the lender. We do not generally require our homebuilders to provide either title or hazard insurance on their collateral for our loans to them. This represents an additional risk to us as the lender. The homebuilder may have a fire or other property damage claim, which normally would be covered by insurance, but may result in a loss on the loan because insurance proceeds are not available. We do, however, require developers to provide title insurance and hazard insurance on the collateral for our loan with minimum coverage amounts set by us as the lender.

Additional competition may decrease our profitability, which would adversely affect our ability to repay the Notes.

We could experience increased competition for business from other companies and financial institutions that are willing to extend the same types of loans that we extend at lower interest rates and/or fees. These competitors also may have substantially greater resources, lower cost of funds, and a better established market presence. If these companies increase their marketing efforts to our market niche of borrowers or if additional competitors enter our markets, we may be forced to reduce our interest rates and fees in order to maintain or expand our market share. Any reduction in our interest rates, interest income or fees could have an adverse impact on our profitability and our ability to repay the Notes.

If the proceeds from the issuance of the Notes exceed the cash flow needed to fund the desirable business opportunities that are identified, we may not be able to invest all of the funds in a manner that generates sufficient income to pay the interest and principal on your investment.

Our ability to pay interest on our debt, including the Notes, pay our expenses, and cover loan losses comes from interest and fee income we receive from loans extended to our customers and rental income earned from our commercial property leasing operations. Because we anticipate a significant amount of our future income will be from interest and fee income, if we are not able to lend to a sufficient number of customers at high enough interest rates, we may not have enough interest and fee income to meet our obligations, which could impair our ability to pay interest and principal to you.

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We may not be able to extend enough commercial construction loans or acquire enough other income producing assets to generate sufficient income to pay interest and principal on your investment.

We rely on interest and fees from commercial construction loans and other assets in order to provide income. We are largely dependent upon demand for 84 Lumber’s products and its customers’ willingness to enter into commercial construction loans and other financing alternatives for their businesses. Our ability to extend loans can be affected by other lenders offering loans at lower interest rates and/or fees. If we extend more loans, assuming the borrowers do not default in their payment obligations, our interest and fee income increases. If we extend fewer loans or offer terms at lower interest rates or fees, our income will be reduced and we may be unable to repay your total investment.

If a large number of our borrowers are unable to repay their loans within a normal average number of months, we will experience a significant reduction in our income and/or liquidity, and may not be able to repay the Notes as they become due.

Loans that we extend are expected to be repaid in a normal average number of months, typically 10 months, depending on the size of the loan. If these loans are repaid over a longer period of time, the amount of income that we receive on these loans will be reduced. Any reduction in the amount of income or availability of funds can have a negative effect on how much money we have available to pay you interest on your investment and/or principal.

Additional competition may decrease our liquidity, which would adversely affect our ability to repay the Notes.

We could experience increased competition for investment dollars from other companies and financial institutions that are willing to offer higher interest rates. We may be forced to increase our interest rates in order to maintain or increase the issuance of Notes. Any increase in our interest rates could have an adverse impact on our liquidity and our ability to meet a debt covenant under our line of credit to repay the Notes.

We are exposed to risk of environmental liabilities with respect to properties that we own or to which we take title. Any resulting environmental remediation expense may reduce our ability to repay the Notes.

In the course of our business, we may own or foreclose and take title to real estate that could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, as the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity and results of operations could be materially and adversely affected.

We may be subject to changes in our business as a result of the Dodd-Frank Wall Street Reform and or Consumer Protection Act of 2010. These changes may restrict our ability or limit the feasibility to pursue our business plan.

The Dodd-Frank Wall Street Reform and or Consumer Protection Act of 2010 represents a comprehensive overhaul of the financial services industry within the United States and will require a number of federal agencies to implement numerous new rules, many of which may not be implemented for several months or years. At this time, it is difficult to predict the extent to which the Dodd-Frank Act or the resulting regulations will impact our business. However, compliance with these laws and regulations may result in additional cost and expenses, which may impact our results of operations, financial condition or liquidity.

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We will be required to devote resources to comply with various provisions of the Sarbanes-Oxley Act, including Section 404 relating to internal controls testing, and this may reduce the resources we have available to focus on our core business.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) and the related rules adopted by the SEC and the Public Company Accounting Oversight Board, beginning with our Annual Report on Form 10-K for the fiscal year 2011, our management will be required to report on the effectiveness of our internal controls over financial reporting. We may encounter problems or delays in completing any changes necessary to our internal controls over financial reporting. Among other things, we may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Any failure to comply with the various requirements of the Sarbanes-Oxley Act may require significant management time and expenses and divert attention or resources away from our core business. In addition, we may encounter problems or delays in completing the implementation of any requested improvements provided by our independent registered certified public accounting firm.

If we do not meet the requirements to maintain effective internal controls of our financial reporting, our ability to raise new capital will be harmed.

If we do not maintain effective internal controls of our financial reporting in accordance with Section 404, it could result in delaying future SEC filings or future offerings. If future SEC filings or future offerings are delayed, it could have an extreme negative impact on our cash flow causing us to default on our obligations.

We are located in Jacksonville, Florida, which is subject to hurricanes and other severe weather.

While we use an off-site backup system, a majority of our office employees live in Jacksonville, Florida and the surrounding areas. A highly destructive hurricane or other severe weather impacting Jacksonville, or the surrounding areas, could prevent our employees from working, which could adversely affect our operations and therefore our ability to pay timely the money due under the Notes.

Risks Related to Reliance on Other Parties

An adverse change in 84 Lumber’s creditworthiness could have a substantial impact on our income and financial condition.

As a subsidiary of 84 Lumber, we have entered into various operating and financing arrangements with 84 Lumber. For example, our primary source of operating cash is rental income we receive from 84 Lumber. As a result of these arrangements, our income and financial condition could be adversely affected if 84 Lumber experiences financial difficulties, becomes insolvent or cease operations.

We are currently almost entirely reliant on 84 Lumber to generate income — both directly (from rent) and indirectly (our customers are also customers of 84 Lumber) — for profitability and our financial condition. This concentration increases the risk of adverse business conditions.

Our income from 84 Lumber comes from rent paid to us for 84 Lumber facilities that we own. We currently receive an insignificant amount of income from our portfolio of commercial construction loans.

We are a captive finance company of 84 Lumber; in other words, our primary business is providing financing to customers who purchase products of 84 Lumber. Generally, our customers are customers of 84 Lumber. In addition, we are substantially reliant on 84 Lumber as a source of operating cash. Rental income we receive from 84 Lumber comprised approximately 60% of our revenue in fiscal year 2010, including rent classified as income from discontinued operations. As a result, various aspects of 84 Lumber’s business, including changes in the production or sales of its products, the use of marketing incentives, its customers’ willingness to enter into alternative financing arrangements, and other factors impacting 84 Lumber or its employees could significantly affect our profitability and financial condition.

We are controlled by the Hardy family and do not have any independent board members overseeing our operations.

We are 99% directly owned by 84 Lumber, which is controlled by Margaret H. Magerko and other members of the Hardy family. Our general partner, 84 LADC, LLC, which owns the remaining 1% interest in

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our Company, is a wholly-owned subsidiary of 84 Lumber. Therefore, the Hardy family will be able to exercise significant control over our affairs. In addition, decisions may be made with 84 Lumber in mind, which while overall would be intended to benefit 84 Lumber Company and all of its affiliates as a whole (including 84 FINANCIAL L.P.), may be detrimental to 84 FINANCIAL L.P. itself. 84 Lumber has the ability to dictate the following:

If we do not perform under the terms of our line of credit, the lender can call our loan due.

If our lender does not renew our loan or we cannot or do not make timely payments, maintain sufficient partners’ equity, among other covenants, our lender can call our line of credit due and demand full payment of the balance due. If this were to happen, we will lose our ability to borrow money from them and it could have a materially adverse impact on our liquidity. We may be forced to sell off our loan receivables and other operating assets, or we might be forced to cease our operations, and you could lose some or all of your investment.

If 84 Lumber defaults under its loan obligations, we could experience a change in control. The new entity in control may have less interest in supporting our business plan.

All of the partnership interests in our Company are pledged as collateral to the bank group which provides a revolving credit loan facility to 84 Lumber and its affiliates. The revolving credit loan facility had a maximum commitment from the bank group of $390,000 in 2008. The current commitment is $340,000 and the outstanding balance as of January 2, 2011 is $104,698.

A separate lender provided a term loan to an 84 Lumber affiliate. The balance on the term loan on February 27, 2011 was $20,000. All of the partnership interests in our Company are pledged as collateral for this loan as well.

We rely on 84 Lumber to perform significant back office functions for us, such as accounting, finance and marketing.

We have no employees who perform general and administrative functions for us, such as accounting and finance, marketing, human resources, and information technology. We rely solely on 84 Lumber to provide these services and share its employees with us pursuant to a Management Services Agreement. However, the Management Services Agreement was not negotiated on an arm’s length basis and may contain terms that are not as favorable as those that could have been obtained from a third party. Employees of 84 Lumber, including our Vice President of Finance, Paul Lentz, also provide services to other subsidiaries and affiliates of 84 Lumber. There is no assurance that the 84 Lumber employees we use through the Management Services Agreement will devote sufficient time or the same level of attention to our business.

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the federal securities laws. Words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “continue,” “predict,” or other similar words identify forward-looking statements. Forward-looking statements appear in a number of places in this prospectus, including, without limitation, “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” and include statements regarding our intent, belief or current expectation about, among other things, trends affecting the markets in which we operate, our business, financial condition and growth strategies. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those predicted in the forward-looking statements as a result of various factors, including but not limited to those set forth in the “Risk Factors” section of this prospectus.

If any of the events described in “Risk Factors” occur, they could have an adverse effect on our business, financial condition and results of operations. When considering forward-looking statements, you should keep these risk factors, as well as the other cautionary statements in this prospectus, in mind. You should not place undue reliance on any forward-looking statement. We are not obligated to update forward-looking statements.

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USE OF PROCEEDS
  
(All dollar [$] amounts shown in thousands, except amounts describing proceeds from this offering)

We expect to incur approximately $850 in initial expenses to offer the Notes pursuant to this prospectus. The net proceeds we receive from this offering will be equal to the amount of the Notes we sell, less our offering expenses. If we sell the maximum offering amount of the Notes, which is $1,000,000,000, we estimate that our net proceeds less our initial offering expenses will be approximately $999,150,400.

We will receive cash proceeds in varying amounts from time to time as the Notes are sold. Due to our inability to predict with any certainty whatsoever the amount and timing from inflows of (i) the sale of Notes, (ii) our customer loan repayments, and (iii) our line of credit borrowing capacity, we cannot provide any specific allocation of proceeds we will use for any particular purpose. However, we intend to use substantially all of the net offering proceeds as follows, in the following order of priority:

There is no minimum number or amount of the Notes that we must sell to receive and use the proceeds from the sale of the Notes, and we cannot assure you that all or any portion of the Notes will be sold. In the event that we do not raise sufficient proceeds from our offerings of Notes to adequately fund our operations, we could curtail the amount of funds we loan to our customers and focus on cash collections from our customers in order to increase cash flow. Please see “Risk Factors — Risks Related to Our Offering — We are substantially reliant upon the net offering proceeds we receive from the sale of our Notes to meet our liquidity needs,” “Risk Factors — Risks Related to Our Offering — There is no sinking fund to ensure repayment of the Notes at maturity, so you are totally reliant upon our ability to generate adequate cash flows” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

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RATIO OF EARNINGS TO FIXED CHARGES
  
(All dollar [$] amounts shown in thousands, except amounts describing proceeds from this offering)

The table below sets forth our ratio of earnings to fixed charges on a historical basis for the periods indicated. The ratios below show the extent to which our business generates enough earnings after the payment of all non-interest expenses to make required interest payments on our debt. For purposes of computing the ratio of earnings to fixed charges, earnings consist of income from continuing operations before taxes and fixed charges. Fixed charges consist of interest, whether expensed or capitalized and amortization of expenses related to indebtedness.

		For the Fiscal Year
		2010				2009				2008				2007				2006
										(as restated)				(as restated)				(as restated)
		(dollars in thousands)
Fixed charges (“FC”) interest expense		$	628			$	570			$	699			$	639			$	1,089
Earnings (Loss) from continuing operations		$	(10,799	)		$	(34,374	)		$	(23,773	)		$	76			$	3,305
Earnings (Loss) before FC prior two lines added together			(10,171	)			(33,804	)			(23,074	)			715				4,394
Earnings to fixed charges			N/A				N/A				N/A				1.12				4.03
Deficiency		$	10,799			$	34,374			$	23,773				N/A				N/A

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SELECTED CONSOLIDATED FINANCIAL DATA
  
(All dollar [$] amounts shown in thousands, except amounts describing proceeds from this offering)

The following selected consolidated financial data should be read together with our consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus. The selected consolidated financial data in this section is not intended to replace our consolidated financial statements and the accompanying notes. Our historical results are not necessarily indicative of our future results.

Our consolidated information may not be indicative of our future performance and our consolidated financial information does not reflect what our financial position, results of operations and cash flows would have been had we operated as a stand-alone entity.

The selected consolidated financial data as of and for the fiscal years ended January 2, 2011 (“fiscal 2010”) and January 3, 2010 (“fiscal 2009”) and for the fiscal year ended January 4, 2009 (“fiscal 2008”) is derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated financial information as of January 4, 2009 and for the fiscal year ended January 6, 2008 (“fiscal 2007”) is derived from audited consolidated financial statements not included in this prospectus. The selected consolidated financial data as of January 6, 2008 and as of and for the fiscal year ended December 31, 2006 (“fiscal 2006”) has been derived from unaudited consolidated financial information not included in this prospectus.

		As of, and for, the Fiscal Year
		2010				2009				2008				2007				2006
										(as restated)				(as restated)				(as restated) (unaudited)
		(dollars in thousands)
Consolidated Operations Data
Operating revenues		$	7,372			$	5,325			$	4,553			$	6,219			$	5,215
Total operating expenses			18,171				39,699				28,326				6,143				1,910
Net income (loss) from continuing operations			(10,799	)			(34,374	)			(23,773	)			76				3,305
Income (Loss) from discontinued operations			1,532				1,412				3,616				1,562				1,495
Net income (loss)		$	(9,267	)		$	(32,962	)		$	(20,157	)		$	1,638			$	4,800
Net income (loss) attributable to partners of 84 FINANCIAL L.P.		$	(9,270	)		$	(32,936	)		$	(20,155	)		$	1,631			$	4,800
Selected Consolidated Balance Sheet Data
Assets		$	54,017			$	68,629			$	110,815			$	97,505			$	72,023
Senior debt			11,734				19,603				17,677				13,949				7,998
Related party notes payable			7,927				5,000				3,630				—				16,350
Notes payable			1,500				—				—				—				—
Put option obligation			3,359				5,687				6,858				3,319				2,448
Partnership contributions			200				2,033				25,690				33,151				7,929
Partnership distributions			30				13,132				1,900				11				—
Total partners’ equity			28,882				37,979				82,040				78,407				43,629
Other Data
Principal balance of assets disposed(1)			28,751				42,390				32,330				27,017				17,913
Loans purchased through contractual obligations			7,516				13,895				50,393				28,557				13,857
Period end amount of loans subject to put option(2)		$	17,054			$	53,030			$	137,773			$	274,523			$	317,627

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SUPPLEMENTARY CONSOLIDATED QUARTERLY FINANCIAL INFORMATION

Summarized unaudited quarterly consolidated financial data for fiscal 2010, 2009 and 2008 are as follows (in thousands):

		Quarter 4 2010				Quarter 3 2010				Quarter 2 2010				Quarter 1 2010				Quarter 4 2009				Quarter 3 2009				Quarter 2 2009				Quarter 1 2009
Net revenue		$	2,157			$	1,048			$	2,560			$	1,607			$	1,417			$	1,130			$	1,671			$	1,107
Cost of sales, developed properties			(1,076	)			(835	)			(1,480	)			(649	)			(737	)			(573	)			(904	)			(158	)
Loan and lot losses			(660	)			(2,503	)			(2,136	)			(3,352	)			(6,646	)			(12,975	)			(6,137	)			(5,532	)
Other (expenses)/income			(1,244	)			(1,797	)			(1,613	)			(826	)			(1,917	)			(1,582	)			(1,469	)			(1,069	)
Income (loss) from continuing operations			(823	)			(4,087	)			(2,669	)			(3,220	)			(7,883	)			(14,000	)			(6,839	)			(5,652	)
Income (loss) from discontinued operations			410				1,287				(580	)			415				110				624				248				430
Net loss		$	(413	)		$	(2,800	)		$	(3,249	)		$	(2,805	)		$	(7,773	)		$	(13,376	)		$	(6,591	)		$	(5,222	)

		Quarter 4 2008				Quarter 3 2008				Quarter 2 2008				Quarter 1 2008
Net revenue		$	689			$	1,511			$	1,456			$	897
Cost of sales, developed properties			(590	)			(170	)			(436	)			(56	)
Loan and lot losses			(11,360	)			(6,241	)			(1,957	)			(3,948	)
Other (expenses)/income			(1,118	)			(894	)			(1,691	)			135
Income (loss) from continuing operations			(12,379	)			(5,794	)			(2,628	)			(2,972	)
Income (loss) from discontinued operations			1,296				372				1,554				394
Net loss		$	(11,083	)		$	(5,422	)		$	(1,074	)		$	(2,578	)

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
(All dollar [$] amounts shown in thousands, except amounts describing proceeds from this offering)

The following discussion should be read in conjunction with the information included in our audited annual consolidated financial statements and related notes and other financial data included in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

84 FINANCIAL L.P. (“84 FINANCIAL”, “we”, “our”, “us” or the “Company”) is a Delaware limited partnership. 84 Lumber Company (“84 Lumber”), as the sole limited partner, holds 99% of the partnership interests in 84 FINANCIAL. 84 Lumber also is the sole member of our general partner, 84 LADC, LLC, which holds 1% of the partnership interest in 84 FINANCIAL. 84 Lumber was founded in southwestern Pennsylvania in 1956 and today is a leading supplier of building materials to small-to medium-size homebuilders throughout the United States. Since our inception in 1993, we have operated as a commercial construction finance company for customers of 84 Lumber who are homebuilders. Our business is divided into three business segments:

1) Commercial lending;

2) Acquisition, development and sale of residential lots and homes (i.e., we buy land to develop and sell). We also purchased and developed residential building lots to sell to our homebuilder customers; and

3) Commercial property leasing (i.e., we lease retail centers). We own and have owned commercial property which we lease to our affiliates for use as retail centers and manufacturing facilities of 84 Lumber.

In the past, our primary business consisted of extending, servicing and purchasing commercial construction loans and other types of commercial loans to small-to medium-size homebuilders and/or multi-family and commercial developers in the United States who are generally customers of 84 Lumber. In short, we originated commercial construction loans to homebuilders. Mostly, this was done through a program where institutional lenders extended loans to builders we referred. The institutional lenders also provided origination and administration servicing of these loans. We assisted the lenders in the origination of the loans and purchased problem loans from the lenders. We then serviced the loans we purchased. Due to economic factors in the housing industry, the volume of lending greatly declined after 2007. The institutional lending program was terminated in 2010 but we are still purchasing the problem loans remaining in this program. We also purchased and developed residential building lots to sell to our homebuilder customers (i.e., we bought land to develop and sell). Finally, we owned commercial property which we leased to our affiliates for use as retail centers and manufacturing facilities of 84 Lumber (i.e., we leased retail centers).

Our primary activity of providing construction loans to homebuilders will continue. The most significant change will be the source of funds for the loans; our source of funds for lending will change from the institutional program to the proceeds from sale of the Notes. We will also continue to own and lease retail centers and buy land to develop and sell.

We believe that the origination of commercial construction loans to homebuilders will be our primary activity in the future (funded by our own 84 FINANCIAL lending program instead of the institutional lenders); however, we will also continue to own and lease retail centers and buy land to develop and sell.

Historically, because of our affiliation with regulated institutional lenders, we have operated our business in a manner to conform to their regulations and therefore, have had results similar to highly regulated entities. Many financial institutions, including ourselves, have incurred significant losses in their commercial construction portfolios. Due to these significant losses, regulators have focused on this portion of regulated banks’ portfolios and implemented more stringent guidelines or restrictions regarding this type of lending. For instance, in today’s environment, regulators are restricting many banks’ levels of investment in commercial loans to residential homebuilders or tightening underwriting guidelines.

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Since we are not a tightly regulated company, we feel that we have a competitive edge that allows us to make prudent, business-minded decisions. While regulators are restricting investments in commercial construction loans, our business plan will emphasize commercial construction lending as our main line of business. We believe this to be an opportunity as the regulatory environment and resulting contraction in commercial lending has resulted in this segment of the market having fewer lenders. We also believe the real estate market has reached historical lows and feel, based on recent data relating to housing starts and home values, that the market has stabilized. Finally, while we plan to institute many of the underwriting requirements and activities used by our partners in the institutional lending program, we believe being unregulated provides us with more flexibility in our underwriting process and procedures (see the chart on page 55 for difference between the institutional lending program and our new loan program).

Outside of differences in our lending policies, we believe the benefits to not being regulated include:

Conversely, our lack of regulation introduces us to other risks which may harm us. For example, we:

In addition, our Note holders will have greater risks than depositors in a regulated financial institution, since their investments will not be insured.

When used herein, “2010” refers to the 52-week period ended January 2, 2011, “2009” refers to the 52-week period ended January 3, 2010, “2008” refers to the 52-week period ended January 4, 2009, and “2007” refers to the 53-week period ended January 6, 2008.

Commercial Lending

Our primary business is extending commercial construction loans to homebuilders and developers who are customers of 84 Lumber and purchasing impaired commercial construction loans extended by institutional lenders under a national lending program to homebuilder customers of 84 Lumber.

From December 1997 through October 2010, in order to meet growing demand for commercial construction loans, we operated a lending program with institutional lenders. Under that program, 84 Lumber was able to refer its homebuilder customers to these institutional lenders for financing, and the institutional lenders were responsible for underwriting, closing, funding and servicing loans to 84 Lumber’s homebuilder customers. The institutional lenders extended the loans per our agreement with them. That agreement had a put option provision that allowed the financial institutions to require us to purchase non-performing loans. At the end of 2007, there was a total of $274,523 in loans outstanding with these institutional lenders; as of January 2, 2011, there was a total of $17,054 of loans outstanding. Therefore, we may have an obligation to purchase all or a portion of the $17,054 in loans subject to the performance of the borrowers. This obligation does not terminate until all loans extended under the institutional lending program have been repaid. The loans that we purchase are typically considered defaulted loans because the ability to collect these loans per the original terms of the loan is unclear and, as a result, investment in the loans is subject to loss. We analyze the projected amount of loans that we may have to purchase as well as potential losses on the expected purchases of loans. This analysis is based on recent historical amounts of loans purchased, our more recent loss experience on loans and expected losses on currently scheduled closings. This projected amount is accounted for as the Put Option Obligation on our consolidated balance sheet. We expect the obligation to decline due to the declining amount of loans in the institutional lending program.

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The last date on which new loans could be originated under our lending program with institutional lenders was October 20, 2010.

Finally, although not a significant portion of our business, we have, and may in the future, extend unsecured financing and purchase defaulted debt from an affiliate. Our loans to affiliates are described in the prospectus under “Certain Relationships and related Transactions”. These purchases will take place when management deems it prudent to do so from an investment and cash flow perspective.

Acquisition, Development and Sale of Residential Lots

On a limited basis, we also acquire and develop land for residential subdivisions; our developed lots are then sold to homebuilders who are customers of 84 Lumber. It is also our intent to complete our real estate developments as the real estate market warrants. We have constructed and may construct residential homes to promote additional sales activity within the development. We intend to do new projects in this Segment only in markets where we believe it will be profitable.

Commercial Property Leasing

We own, manage and lease commercial properties, mainly to 84 Lumber. The monthly rent we received from 84 Lumber in 2010 represents approximately 60% of our total income, including rent classified as income from discontinued operations. It is our intent to continue our commercial property leasing business as the real estate market warrants.

Revenue Sources

The principal components of our revenue are interest and fees on loans, proceeds from the sale of land and lots, and rents received on commercial properties. Our interest income on loans is affected by loan delinquency and the amount of loans that we own. Higher loan delinquency reduces our interest income. The loans that we intend to extend in the future will be floating rate loans that will call for interest rate changes based on our cost of funds plus a specific margin. This method of establishing rates on loans is intended to mitigate income variations due to fluctuating market interest rates. Fees are charged on loans when they are extended and are recognized over the contractual or expected life of the loan, as appropriate. Fee income generally increases when we extend more loans and decreases if we extend fewer loans. Sale of land and lots is mostly dependent on the new construction housing market. Our rental income consists primarily of rent charged to 84 Lumber. 84 Lumber leases property that we own for their retail operations.

The table below shows the recent history of these revenue sources:

		As of, and for, the Fiscal Year
		2010				2009				2008
										(as restated)
		(dollars in thousands)
Interest and fee income		$	—			$	78			$	1,165
Sale of land/lot revenue		$	3,697			$	2,515			$	1,587
Rental income		$	3,675			$	2,732			$	1,801
Total		$	7,372			$	5,325			$	4,553
Rental income from discontinued operations		$	1,838			$	1,812			$	2,000
Total		$	9,210			$	7,137			$	6,553

The table above depicts our revenue increasing over the period from 2008 to 2010. This primarily was a result of the increases in sales of land/lot revenue and rental income offset by a reduction in interest and fee income.

Interest and fee income dropped sharply in 2009, and further decreased in 2010, due to the rise in delinquent loans (and a decision to curtail loan originations). When loans become delinquent, borrowers do not make their payments and therefore, we do not receive interest income. In early 2008, we decided to reduce new loan originations in an effort to minimize our exposure to additional losses. We expect our interest and fee income to remain low until we extend new performing loans. We gradually increased new loan originations in the 4^th quarter of 2010 and expect to continue to gradually increase our new loan originations

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in 2011 (if proceeds from this offering or cash generated by our operations provide the liquidity needed). New residential homebuilder loans of $795 and $2,643 were extended in 4^th quarter of 2010 and in the first two months of 2011, respectively. New acquisition and development loans of $1,687 and $0 were extended in 4^th quarter of 2010 and in the first two months of 2011, respectively. In 2009, we sold one subdivision which resulted in an increase in land/lot sales as compared to 2008. Sales in 2010 increased primarily due to the sale of one subdivision and several individual lots. We expect revenue from this business line to remain consistent with the last two years.

Our rental income increased in 2009 and 2010 due to selling property at market value and purchasing property at significantly below market value. We expect our rental income to remain constant over the next several years. Future variations in the rental income will occur if we buy additional or sell existing commercial property.

Expenses

The expenses of our Company fall within the general categories shown in the following table:

		As of, and for, the Fiscal Year
		2010				2009				2008
		(dollars in thousands)
Cost of sales – developed properties		$	4,040			$	2,372			$	1,252
Selling, general and administrative expenses, net of other income:
Loan and lot expenses		$	1,059			$	2,499			$	1,517
Overhead		$	2,280			$	1,614			$	849
Other		$	233			$	90			$	(135	)
Total selling, general and administrative expenses, net of other income		$	3,572			$	4,203			$	2,231
Loan and REO related losses and impairment		$	8,972			$	31,794			$	23,654
Interest Expense		$	628			$	570			$	699

Cost of Sales — Developed Properties

The rise in cost of sales related to developed properties through 2010 is due to increased impairment charges due to declines in market values. The chart below provides details of properties sold in fiscal years 2010, 2009 and 2008.

		For the Fiscal Year Ended
		2010				2009				2008
		(dollars in thousands)
Individual properties sold			16				24				14
Subdivisions sold			1				1				—
Gross sales amount		$	3,697			$	2,515			$	1,587
Gross gains		$	185			$	207			$	335
Gross losses		$	528			$	64			$	—

Selling, General and Administrative Expenses, Net of Other Income

Our loan and lot expenses increased from $1,517 in 2008 to $2,499 in 2009 largely as a result of increased loan defaults. We incur additional expenses on each loan that defaults. These expenses include attorneys’ fees, local real estate property taxes and property preservation costs. These expenses decreased to $1,059 in 2010 due to a decrease in the number of loans that we own. We expect these expenses to further decrease as the number of problem loans and lots decreases through sales.

Overhead expense increased from $849 in 2008 to $1,614 in 2009 due to additions to staff to manage and perform the necessary tasks on each loan. Overhead expense increased to $2,280 in 2010, largely due to an increase in legal and audit fees during 2010. We expect these expenses to increase to meet the anticipated needs of our expanded operations as our new business plan is fully implemented.

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Additionally, other loan related expenses increased significantly in 2008 continuing through 2010 as a result of an increase in foreclosures and defaulted loans.

Loan and REO-related Losses and Impairment

The impairment and loan losses continued to increase as the real estate market property values continued to decline over the three year period through 2010 as discussed in Analysis of Allowance for Loan Losses, Real Estate Owned — Foreclosed Loan Properties and Put Option Obligation on page 39.

Offsetting these losses in impairments are put option fees ($58, $75, and $658 in fiscal years 2010, 2009, and 2008 respectively), which were generated through the origination of new loans under the institutional lender program. These fees substantially decreased in 2008 continuing through 2010 as a result of a decline in new loans. Given the discontinuance of the institutional lending program, we do not expect to receive any future put option obligation fees.

Interest Expense

Interest expense has remained fairly constant. Even though our interest rate floor has increased, this has been offset by changes in loan balance and modification to the loan terms. Since the interest rate on our loan fluctuates with the prime rate, as prime adjusts up or down so will our interest expense. We anticipate our interest expense to increase as we sell Notes through this offering.

Company Assets

Our assets largely consist of the following as of and for the fiscal years 2010 and 2009:

		As of, and for, the Fiscal Year
		2010				2009
		(dollars in thousands)
Unrestricted cash		$	2,250			$	2,324
Restricted cash		$	1,704			$	2,537
Loans, net of allowances		$	11,505			$	16,928
Real estate owned through foreclosure		$	3,283			$	8,681
Commercial properties owned (net of depreciation)		$	17,001			$	17,945
Assets held for sale		$	1,200			$	1,521
Assets of discontinued operations		$	6,183			$	6,032
Land inventories under development		$	10,826			$	12,577

Loans

Loans that we extended or purchased are accounted for net of allowance for losses (i.e., the amount on our financial statements is the amount due from the borrowers less our estimated losses on the loans). During fiscal 2009, we saw the net carrying value of loans owned decrease from $44,700 to $16,928 and a further decrease to $11,505 in 2010 as a result of:

Real Estate Owned through Foreclosure

Properties owned through foreclosure decreased from $18,300 in 2008 to $8,681 in 2009 and further decreased to $3,283 by the end of 2010. These decreases are a result of:

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Unsecured Commercial Builder Loans

We have extended unsecured commercial loans to homebuilders in need of financing to provide liquidity to their businesses. This enabled the homebuilder to meet their contractual obligations until they successfully sold homes they owned as inventory. We have extended these unsecured loans to builders in the institutional lending program to provide the borrower additional time to sell the property and repay the loan. We have fully reserved all of these loans in our consolidated financial statements.

We anticipate continuing these types of loans, although the amount of these loans will be significantly lower as there are fewer loans remaining in the institutional lending program. We expect the need for these types of loans to be eliminated once the institutional lending program has been completely unwound.

Secured Commercial Real Estate Loans used to Secure 84 Lumber Unsecured Debt

84 Lumber carries unsecured debt with homebuilder customers. We purchase selected amounts of this defaulted debt from 84 Lumber and secure it with real estate. We only purchase 84 Lumber defaulted debt when the debtor can pledge or assign collateral deemed to be sufficient to repay the debt over an acceptable period of time. In the future, we do not intend this to be a significant portion of our business. These investments are included in the proceeding chart and our financials in Loans, net of Allowances when collateral is pledged and in Land inventories under development when collateral is assigned.

The purchase of defaulted debt from any affiliate in the future is contemplated to be done 1) on a discounted basis; and 2) based on the value and marketability of the underlying collateral. The balance of these loans at the fiscal year end 2010 was $3,197.

Commercial Properties

The amount of commercial properties, including assets held for sale and assets of discontinued operations, net of depreciation, that we owned decreased from $25,498 in 2009 to $24,384 in 2010 primarily as a result of depreciation recorded during 2010 of $1,033. We purchased 2 and 8 additional commercial properties in 2010 and 2009, respectively to take advantage of the investment opportunity. In evaluating these opportunities, we primarily looked for the ability to generate stable monthly cash flow and income. Additionally, all of our commercial property owned serves as collateral for our line of credit. When properties are sold, we typically purchase additional properties from an affiliate to keep our total collateral values at an amount that generally allows us to be eligible to borrow the full amount of our line of credit providing our borrowing base is also large enough. As of February 27, 2011, our commercial properties would allow us to borrow $21,849 of our $22,500 line of credit, if our borrowing base was large enough. See “Business Segments — Leasing of Commercial Properties Segment” for discussion related to Assets held for sale and Assets of discontinued operations.

Land Inventories Under Development

The amount of our land inventories under development has been on the decline. Increases occur through adding projects and spending money on improvements in projects. Decreases occur through sales of lots/land and reduction of market value below cost (impairment). Over half of the reduction in the last two years has been from impairment. The amount of our land inventories under development has decreased from $12,577 in 2009 to $10,826 in 2010 as a result of $3,675 in property sales and $1,192 in impairment recorded due to declining real estate values and was offset by $3,116 in new property acquired and additional development of existing property. See “Business Segments — Acquisition, Development and Sale of Residential Lots” for detailed information related to these types of properties.

Liabilities

The significant liabilities of the Company are borrowings under a credit facility, the put option obligation, related party notes and account payables. Our credit facility provides us liquidity to meet our obligation to purchase loans from the institutional lenders. Our line of credit has been renewed through April 14, 2012. The put option obligation represents our estimate of future losses that may be incurred on loans we may have to purchase in the future. When needed, we have borrowed funds from related parties to fund our operations or obligations. This amount is reflected in our consolidated financial statements as Related party notes and Related party accounts payables.

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The following table summarizes these liabilities:

		As of, and for, the Fiscal Year
		2010				2009
		(dollars in thousands)
Current borrowings under credit facility		$	11,734			$	19,603
Put option obligation		$	3,359			$	5,687
Related party note and accounts payable		$	8,223			$	5,189
Note payable		$	1,500				—

Our borrowings are under a revolving credit facility secured by our pledge of loans and commercial real estate as collateral. Our borrowings under the credit facility were $19,603 at the end of 2009 decreasing to $11,734 at the end of 2010. The changes in our outstanding borrowings in 2009 occurred due to purchasing a higher amount of loans through the put option obligation. The balance decreased in 2010 due to selling a higher amount of real estate owned — foreclosed loan properties, and the repayment of loans. We expect the borrowings on our line of credit will remain in this historical range over the next several years.

The put option obligation decreased from 2008 to 2009 and further decreased to $3,359 in 2010. The amount of the put option obligation is the estimated loss on loans that we may be required to buy in the future. At the beginning of 2009, $137,773 of loans was subject to the put option obligation and at the end of 2010 $17,384 was subject to the put option obligation. The higher the amount of loans subject to this put option obligation, the higher expected loss that we could experience. Therefore, the dramatic reduction in the amount of loans subject to the put option obligation has contributed to a reduction in our put option obligation as recorded in our consolidated financial statements. Increases in the percentage of loss that we have experienced in loans from 2008 through 2010 have negatively affected our put option obligation. Therefore, the amount of the put option obligation has decreased in total but increased as a percentage of the total remaining loans in the loan program. We periodically review our data and methodology in calculating this amount to reflect the best estimate based on current market conditions. We expect the amount of our put option obligation to decline as the portfolio of loans that are subject to the put option continues to reduce and we believe that our loss percentage has stabilized.

When necessary, we may borrow additional funds from affiliates. However, they are under no obligation to lend us those funds on favorable terms or at all.

Prior to the end of fiscal 2010, we borrowed $1,500 from an unrelated third party for working capital purposes which matures in 2012.

Contractual Obligations

The following table of contractual obligations as of fiscal year end 2010 includes interest obligations.

		Payment Due by Period (dollars in thousands)
Contractual Obligations		Total				Less than One Year				1 – 3 Years				3 – 5 Years				More than 5 years
Long-term debt obligations		$	11,734			$	—			$	11,734			$	—			$	—
Capital expenditures			236				236				—				—				—
Notes payable			1,500				—				1,500
Related party notes			7,927				—				7,927				—				—
Other purchase obligations			1,738				216				731				791				—
Total		$	23,135			$	452			$	21,892			$	791			$	—

Our line of credit has been extended through April 14, 2012.

In our development of land/lots, we are frequently required to agree to make improvements to the real estate within agreed upon periods of time in order to obtain permits from the respective local municipalities. These required expenditures are considered in reviewing our impairment. However, they are not included on our consolidated financial statements as a liability or contractual obligation. The costs that we were under future obligation to incur represent two subdivisions which need final topcoats of roads, one subdivision which needs storm water management completion, and one subdivision which needs to complete a pool and

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clubhouse. At the end of fiscal year 2010, these remaining costs that we were under future obligation to incur were approximately $236, which is expected to be spent in 2011.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources that are considered material, other than “Contingencies and Commitments” included in Note 9 of the notes to consolidated financial statements and the loans subject to the put option obligation described below.

As described elsewhere in this document, we are under the obligation to purchase certain loans in accordance with the institutional lender program. As of fiscal year end 2010, we have recorded a put option obligation of $3,359 as a liability for the losses we expect to incur as a result of these purchases. However, the put option obligation recorded does not represent the total carrying amount of the loans ($17,054) that are still owned by institutional lenders. Our off-balance sheet exposure equals $13,695, the difference between the recorded put option obligation and the total amount of loans outstanding held by the institutional lenders.

Partners’ Equity

This amount is increased by profits from operations and additional capital contributed by the partners. It is decreased by distributions paid to partners and losses incurred from operations of the Company.

The following table is a recap of the activity affecting our partners’ equity:

		As of, and for, the Fiscal Year
		2010				2009				2008
		(dollars in thousands)
Beginning partners’ equity		$	37,979			$	82,040			$	78,407
Net income (loss)			(9,267	)			(32,962	)			(20,157	)
Additional capital contributed by partners			200				2,033				25,690
Distributions paid to partners			(30	)			(13,132	)			(1,900	)
Ending partners’ equity		$	28,882			$	37,979			$	82,040

The partners’ equity of the Company increased significantly in 2008 through cash capital contributions by partners totaling $25,690. Cash contributions by partners were reduced to $2,033 in 2009 and $200 in 2010. Partners’ equity from the end of 2008 through 2009 was reduced by $44,061, primarily due to losses incurred on loans, sales of foreclosed property, significant increases in allowances for loan losses and significant increases in our put option obligation. Distributions paid to partners grew from $1,900 in 2008, to $13,132 in 2009, and were $30 in 2010. Historically, 84 Lumber has made equity contributions and we have made equity distributions utilizing three guidelines: 1) maintenance of our financial covenants in our line of credit; 2) liquidity needs (mostly due to our responsibility to buy defaulted loans); and 3) maintenance of at most 4:1 or 5:1 ratio of non-affiliated debt-to-partners’ equity plus affiliate debt. In the future, we anticipate our distributions will follow those same guidelines. We do not anticipate significant capital contributions from 84 Lumber going forward.

Business Segments

We operate in three business segments: (1) commercial lending, (2) acquisition, development and sale of residential lots and (3) commercial property leasing. In addition to the information below relating to our business segments, information is contained in the Segments footnote in the notes to our consolidated financial statements.

Commercial Lending

This business segment reflects our activities related to extending commercial loans to residential homebuilders and developers of multi-family and commercial properties through two separate distribution methods. First, we operated a lending program to homebuilders in conjunction with institutional lenders (primarily banks) which ended October 20, 2010. Second, we directly extend loans to homebuilders and

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developers. Our loans are extended to homebuilders and developers located throughout the United States, closely coinciding with store locations of 84 Lumber (currently in 33 states). The homebuilders repay the loans through the sales of homes. Home sales typically take place after a home is fully constructed. In most cases, the homebuilder sells the home after the start of construction. Loans to developers are repaid with proceeds from a permanent loan from a lender.

Institutional Lenders

We had contractual agreements with various institutional lenders to extend commercial construction loans to homebuilders. Under those agreements, we referred homebuilders to the institutional lenders and they extended the loans to the homebuilders. The institutional lenders were and are responsible, with our participation, for overseeing the loans until they are repaid by the homebuilders.

We have been engaged in construction lending through institutional lenders since 1997 with total loans extended of approximately $2,000,000 since that time. The largest amount of our lending activity has taken place under this arrangement and presents a significant risk of loss to us. Over the last several years, these institutional lenders have elected to discontinue their participation in our lending program because of the onset of the economic recession and, in particular, its effect on the homebuilding industry. The effective date of the terminations of these lenders has varied. The last date on which new loans could be originated under our lending program with institutional lenders was October 20, 2010.

In the event a homebuilder does not perform to the terms of the loan, such as by not making payments, not completing construction of the home or not selling the home in a prescribed time frame, we are required to purchase the loan from the institutional lender per the put option obligation provision under our agreement. We are liable to purchase any non-performing loan owned by the institutional lenders. As part of our agreement with the institutional lenders, a cash loss reserve fund was established in 2002 and was initially funded with $1,000 from us and was then funded from fees charged on each loan extended thereafter. These funds are available to reimburse us for any loss that we may incur in the finalization of these loans. Some losses have been taken from this reserve to date. We are required to maintain the cash loss reserve fund at a computed minimum balance of $1,000, included in restricted cash in our accompanying consolidated financial statements. After all loans are repaid to institutional lenders, any remaining balance in the cash loss reserve fund will be released to us.

When we purchase a loan from an institutional lender, we pursue a solution with the homebuilder. That solution may involve a deferred payment plan for the homebuilder, agreeing to accept less than our payoff if the property is sold (also referred to as a “short sale”), accepting a deed to the property from the homebuilder (in lieu of legal action) or pursuing legal action against the homebuilder for non-payment (also referred to as “foreclosure”). Since the loans we purchase are considered less than performing loans, we are subject to incurring losses on these loans. During this process of seeking a solution, we continually evaluate an estimated amount of loss in the future that we may incur (also referred to as “reserves” or “impairment”). This evaluation is calculated and the appropriate adjustment is made in our consolidated financial statements to account for estimated losses.

Loans that are not repaid and proceed to foreclosure typically result in higher losses. Any early intervention that causes a loan to be repaid prior to that time typically results in a lower loss, as shown in the loss percentages for short-sales, repayments and sales of properties taken through foreclosure. To manage lower losses, our first course of action is to work with the homebuilder to cause a repayment of the loan as soon as possible. To accomplish this, we begin working with the homebuilder prior to our requirement to purchase a loan from the institutional lender through the use of short sales and/or providing the homebuilder with working capital loans. The difference between the funds received and the full payoff amount is the amount of loss that we incur on the transaction. The put option obligation includes our estimate of these future losses.

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Below is a summary of institutional lending activity:

		As of, and for, the Fiscal Year
		2010				2009				2008
		(dollars in thousands)
Committed balance, beginning of year		$	53,030			$	137,773			$	274,523
Total Committed Amount of New Loans Extended through Institutional Lenders		$	6,705			$	13,368			$	70,079
Committed balances repaid through normal payoffs			(17,277	)			(50,693	)			(137,542	)
Committed balances repaid by 84 FINANCIAL (via “put”)(1)			(8,020	)			(15,549	)			(57,367	)
Committed balances repaid by short sale(2)			(17,384	)			(31,869	)			(11,920	)
Total Committed Loans Outstanding through Institutional Lenders, end of year		$	17,054			$	53,030			$	137,773
Total Balance of Principal Disbursed on Loans Purchased from Institutional Lenders (via “put”)(3)		$	7,516			$	13,895			$	50,393
Cash Loss Reserve(4)		$	1,000			$	2,279			$	2,143

Institutional lenders extended $6,705, $13,368, and $70,079 in commercial construction loans in 2010, 2009 and 2008, respectively. This decrease was a result of a slowdown in the national economy and our decision to change to a more restrictive approval process instituted in 2008. As previously mentioned, we are potentially liable for all loans extended by the institutional lenders. The larger the amount of loans outstanding, the larger our exposure is to future losses. The total amount of loans outstanding to institutional lenders has dropped dramatically from $274,523 in 2007 to $17,054 in 2010, thus lowering our risk substantially.

As seen on the table above, the cash loss reserve fund balance was $1,000 as of January 2, 2011, which is included in restricted cash in our accompanying consolidated financial statements. The balance of the cash loss reserve fund at the end of 2010 is equal to the minimum required balance per our agreement. We are not charging any significant losses to the cash loss reserve fund so as to maintain the balance at the minimum.

Our purchases dropped from $57,367 in 2008 to $8,020 in 2010, due to the declining amount of loans in the institution lender program, an increase in short sales of properties in the institutional lending program, and two modifications to the events that trigger a purchase, as illustrated below.

Trigger Event		Original		October 2008		June 2009
110 days delinquent		Applicable		Applicable		Applicable
Real estate purchased through foreclosure		Applicable		Applicable		Applicable
Months since loan was originally funded		24, 30 for loans over $1,000		None		36 months unless the loan is modified by the borrower and Liberty
Construction not complete at 18 months		Applicable		Applicable		Applicable
Construction stops for 10 months		Applicable		Applicable		Applicable
Construction doesn’t start for 10 months		Applicable		Applicable		Applicable

We receive reports throughout the month from the servicer of the institutional lending program. These reports include items such as new loans closed, loan payoffs, loan delinquency and projected loan purchases. These reports enable us to monitor growth trends and performance of the loans in the program, and project several months in advance, potential purchases. The reports also indicate the type of trigger event that could

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cause us to purchase a loan. We then work with the borrower/homebuilder to seek a solution that will correct that trigger event. If a solution cannot be reached, the loan is purchased as agreed. We review loan files prior to the purchase for completeness and effectiveness. Historically, we have purchased all loans that have been put to us. The amount of annual loan purchases, based on unpaid loan balances, as a result of our put option obligation increased to a high of $57,367 in 2008 then decreased to $15,549 in 2009. A renegotiation of the put option obligation terms in October 2008 reduced the future number of loans required to be purchased monthly. During 2010, we purchased loans totaling $8,020. We began utilizing short sales to reduce the amount of purchased loans and mitigate losses in 2008. The amount of losses through short sales on loans owned by institutional lenders was $5,284, $5,307, and $1,067 in 2010, 2009 and 2008, respectively. The short sale activity created additional repayments of committed loan balances of $17,384, $31,869 and $11,920 during 2010, 2009 and 2008, respectively. By agreeing to these short sales during this three year period, we believe we avoided purchasing an additional $61,173 of loans, which reduced our need for liquidity. We expect both the amount of purchases and short sales to continue to decline as the amount of existing loans financed by institutional lenders is significantly lower at the end of 2010 ($17,054) compared to the end of 2007 ($274,523).

As mentioned previously, over the last several years, the institutional lenders have elected to discontinue their participation in our lending program. The effective date of the terminations of these lenders has varied. The last date on which new loans could be originated under our lending program with institutional lenders was October 20, 2010. Therefore, we have developed a new business plan that will utilize investor funds described in this prospectus along with our own capital to offer commercial construction financing in the future to homebuilders and developers and provide other types of financing described herein on a prudent basis. We intend to increase our commercial construction lending activity with the proceeds from this offering. In addition, we may participate in lending programs with other institutional lenders if the opportunity occurs.

Direct Lending

In addition to the institutional lending program, we provided financing to customers of 84 Lumber on a direct basis, outside of the institutional lending program. As the real estate market showed signs of declining values and we experienced increased loan defaults, we greatly reduced extending new construction loans in early 2008 on a direct basis.

Since most of the remaining commercial construction loans extended on a direct basis are older than twenty-four (24) months and/or delinquent, the majority of these loans are impaired and are therefore analyzed to project possible loss on a loan level basis. Potential losses have been analyzed and reflected in our consolidated financials through allowances for loan losses. We anticipate future direct lending will occur as the amount of our liquidity permits. New loans will be extended on a more restrictive basis with enhanced risk controls in loan underwriting.

During the period 2008 through 2010, we provided working capital loans on a direct basis to select homebuilders who had an existing loan in the institutional lending program. The sole purpose of these loans is to assist with the cash flow needs of their homebuilding business. During fiscal years 2010, 2009 and 2008 we extended working capital loans of approximately $540, $1,538 and $106, respectively, which are included in the chart below.

The following table shows a history of our direct lending activity (in thousands):

		As of, and for, the Fiscal Year
		2010				2009				2008
Balance at the beginning of the year		$	13,069			$	20,276			$	22,196
Add: draws			3,211				2,339				8,094
Less: repayments			(1,518	)			(5,700	)			(6,674	)
Less: transfers to REO			(706	)			(2,635	)			(3,340	)
Less: charge-offs			(1,000	)			(1,211	)			—
Balance, end of the year		$	13,056			$	13,069			$	20,276

We expect this lending activity to continue to increase as the amount of our liquidity is sufficient to fund this lending activity.

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The balance of existing loans that we currently own is expected to continue to decline through repayments and the collection of problem loans to include obtaining the collateral for the loan through foreclosure. We believe the percentage of losses on these loans has stabilized. We anticipate the proceeds from this offering to be used to make new loans on a direct basis.

Analysis of Allowance for Loan Losses, Other Real Estate Owned — Foreclosed Loan Properties and Put Option Obligation

At the end of each reporting period, management is required to compile relevant data for use in a systematic approach to assess and estimate the amount of probable losses inherent in our lending operations and to reflect that estimated risk in our allowance calculations. The risk in our lending operations is generated from three areas: loan losses, losses on other real estate owned — foreclosed loan properties, and the put obligation. We have provided below an overview of our loan loss and allowance process, along with specific accounting guidance related to these three areas.

Overview

Under our historical and current lending programs, we are required to absorb the loan losses generated by the institutional lending and direct lending programs. Our risk of loss from these operations generally arises from one or more of the following:

We retain all the risks related to our direct lending program.

We believe the relevant factors impacting our estimate of probable losses include collectability of the loan, residential real estate market values and trends (including, but not limited to, appraisals, housing starts and median home price fluctuations), our loss experience and other factors. Substantially all loans acquired from the institutional lenders and most loans provided through our direct lending program are impaired and considered collateral dependent. Our loans generally are secured by first mortgages on residential real estate, and as a practical expedient, impairments are measured as the difference between the principal loan amount and the fair value of the collateral of the loan. The estimated market value generally is obtained from third party sources including an appraisal performed by a state certified appraiser, a real estate broker price opinion or other validated method.

We select state certified appraisers by first attempting to utilize the appraiser who completed the original appraisal report. If they are unavailable, we select an appraiser from a list of certified appraisers in the geographic area of the property being valued with preference towards appraisers who have previously worked with the institutional lending program. Broker price opinions are obtained through several different means. First, we request a designated real estate agent, with whom we have established a business relationship, to select and solicit a broker’s price opinion from a licensed Real Estate Agent in the geographic area of the property being valued. Should we not be able to retain a local real estate agent through our designated real estate agent, we make direct contact with a local agent.

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As a general rule, an external evaluation is obtained at least once every six months and an external appraisal is obtained at least once every 12 months; adjustments to valuations are made on an as-needed basis based on these two snapshots obtained throughout the year. All property valuations are reviewed for completeness, timing of comparable sales and adjustments to determine the validity of the value conclusions contained in the reports. Our review process for both appraisals and broker price opinions includes validation of the following:

Valuations are generally ordered on an as-is and completed basis. We choose the valuation that more closely aligns with our planned method of disposal for the property. We periodically review our actual loss rate experience as part of our projections of future loss calculations. Due to the dramatic and recent declines in market values, we have utilized short sales while the borrower still owns the property as a method of mitigating our loss. Other than short sales, the remainder of our loss is realized through selling the property securing the loans, once we take title (after foreclosure of the loan).

After taking into account all of the information noted above, we generally discount the values obtained from the external valuations. We discount the values obtained by a factor which is derived from our proceeds from recent liquidation experiences divided by the valuations on those properties liquidated. These discounted values are then compared to the unpaid loan balance or other basis, and shortfalls become either loan loss reserve or other real estate owned impairment. The significant declines in both our portfolio and the national real estate market have caused our estimates of probable losses to increase from period to period.

On a quarterly basis, we perform an overall assessment of our loan loss and allowance process, including an evaluation of the relevant factors impacting our risk of loss, the inputs into our calculation and the trend and market information used in assessing that risk.

The following table shows the balance of allowances for loan losses, other real estate properties owned through foreclosure and put option obligation that are included in our year-end consolidated balance sheets:

		As of the Fiscal Year End
		2010				2009
		(dollars in thousands)
Allowance for loan losses (Defaulted & Performing Loans)		$	6,903			$	9,597
Other real estate properties owned through foreclosure		$	3,283			$	8,681
Put option obligation		$	3,359			$	5,687

Allowances for Loan Losses

The allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses inherent in the loan portfolio. Loans receivable are reviewed on an individual basis. The Company routinely evaluates the entire loan portfolio on a loan-by-loan basis for potential specific credit or collection issues that might indicate impairment. The relevant factors impacting the estimate of allowances for losses on loans are the expected collectability of loans outstanding, historical loss experienced and the real estate collateral value. Two particular estimates contribute to the allowance for loan losses;

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Any deficiency resulting from our analysis of performing and non-performing loans is reflected as an expense and therefore has a negative impact on our consolidated financial position and statements of operations. We believe our estimate of allowances for loan losses presented in our consolidated financial statements is sufficient to account for the losses that have been incurred on loans currently owned.

The amount of the allowance for loan losses decreased in 2010 to $6,903 from $9,597 in 2009.

The increase for the allowance for loan losses is directly related to the decline in real estate market values from 2006 through 2010. Overall, there has been approximately a 23% decrease in the 2006 median home price through 2010. Because our valuation method is dependent upon market conditions as evidenced by appraisals and broker opinions of value, predicting the future value of our portfolio is difficult, however, we believe that the net value of our portfolio is appropriately stated as of the end of fiscal 2010.

Impairment of Other Real Estate Owned — Foreclosed Loan Properties (REO)

REO properties are recorded at the estimated fair value less anticipated selling costs, not to exceed the initial carrying value of assets at the time of transfer. Required developmental costs associated with foreclosed property under construction are capitalized and considered in determining the fair value of the property. If the carrying value of the property exceeds the calculated fair value of the property, an impairment charge is recorded. The estimated fair values are determined using valuations, such as appraisals and broker price opinions in a similar manner as described above.

Real estate properties owned through foreclosure have declined significantly from 2008 through 2010 as a result of property sales and impairment losses. Impairment losses related to declines in the fair value of impaired properties acquired through foreclosure were $1,630, $8,265, and $5,761 during fiscal years 2010, 2009, and 2008, respectively. Proceeds from the sale of real estate owned through foreclosure were approximately $12,601, $26,666 and $9,657 in 2010, 2009 and 2008, respectively.

The increase for the losses related to real estate owned — foreclosed loan properties, is directly related to the decline in real estate market values from 2006 through 2010. Overall, there has been approximately a 23% decrease in the 2006 median home price through 2010. Because our valuation method is dependent upon market conditions as evidenced by appraisals and broker opinions of value, predicting the future value of our portfolio is difficult, however, we believe that the net value of our portfolio is appropriately stated as of the end of fiscal 2010.

Put Option Obligation

The institutional lending program was originated, funded and serviced by financial institutions through an agreement between us and the institutional lenders. That agreement has a put option provision that allows the financial institutions to require us to purchase non-performing loans. This obligation does not terminate until all loans have been repaid. The last loan committed under the institutional lending program was in October 2010. The average life of the commercial construction loans under the institutional lending program is typically ten months in duration and generally, absent modification, each individual loan’s life is not greater than three years. The Company has accounted for the put option obligation based on the guidance included in sections of ASC Topic 460, Guarantees, ASC Topic 450, Contingencies, and ASC Topic 605, Revenue Recognition.

The Company recognizes as a liability the fair value of the put option obligation as required by ASC 460-10-30. The liability is measured monthly based on ASC 450-20-30, which requires the Company to calculate a range of potential losses and recognize as a liability the most likely ultimate loss within that range. This calculation has two primary steps.

First, the total amount of loans that may result in a loss to the Company is estimated by considering outstanding loans under the institutional lender program and evaluating recent results of these loans by considering (a) the percentage of normal (full) payoffs, which the Company did not have to purchase, (b) the

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percentage of loans that paid off with a short sale (i.e., sale of collateral by the borrower for an amount less than full payoff to avoid foreclosure) prior to being purchased by the Company, but for which the Company is required to repay the institutional lender for any losses they incurred in the short sale and (c) the percentage of loans purchased by the Company. The amounts used in calculating these percentages are obtained from monthly payoff reports generated by the institutional lender servicer and reflect the percentage of loans that can be expected to result in short sale or be purchased by the Company.

After the total population of outstanding loans that are not expected to liquidate through normal payoffs (i.e. the amounts identified in (b) and (c) above) is estimated, the recent percentage of loss through short sales and liquidation of collateral on loans that have been purchased by the Company is computed. These percentages are applied to the populations calculated in the first step. The resulting put option obligation estimated by management was $3,359, $5,687, and $6,858 at the end of fiscal years 2010, 2009 and 2008, respectively.

Below is chart detailing changes in the put option obligation.

Put Option Rollforward

		2010				2009				2008
Balance, beginning of year		$	5,687			$	6,858			$	3,319
Increase due to new loan originations			1,171				1,137				2,526
Decrease due to reductions in loans outstanding:
Loan repayments (normal payoffs)			(1,861	)			(2,524	)			(1,663	)
Purchases by the Company			(864	)			(774	)			(694	)
Short sales			(1,872	)			(1,587	)			(144	)
Change in loss rate estimate			1,098				2,577				3,514
Balance, end of year		$	3,359			$	5,687			$	6,858

At the end of fiscal 2007, a total of $274,523 in loans were outstanding with the institutional lenders and at the fiscal year end 2010, a total of $17,054 of loans were outstanding and remain under the obligation to purchase for non-performance. This dramatic decrease (expected to continue) was a result of the following factors:

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Acquisition, Development and Sale of Residential Lots

84 Lumber Acquisition and Development Co., L.P. (“84 A&D”), an affiliate, was in the business of purchasing raw land and installing roads and utilities to create residential building lots that it would sell to homebuilder customers of 84 Lumber. On March 29, 2010, 84 A&D was merged into Hardy Credit Co., which was subsequently merged into 84 FINANCIAL. The result of the 84 A&D merger was an increase in the partners’ equity of our Company without increasing any debt or other significant liabilities. These development properties are reflected in our consolidated financial statements after impairment adjustments. All of the consolidated financial statements and amounts used in this prospectus include all acquisition and development activity including 84 A&D as though it was part of 84 FINANCIAL L.P. from its inception.

		As of, and for, the Fiscal Year
		2010				2009				2008
		(dollars in thousands)
Number of raw ground projects*			3				3				2
Raw ground owned at cost		$	830			$	830			$	781
Impairment on raw ground			(384	)			(246	)			—
Raw ground owned after impairment		$	446			$	584			$	781
Number of work in process projects*			1				1				2
Work in process		$	2,241			$	1,748			$	4,860
Impairment on work in process			—				(625	)			(517	)
Work in process after impairment		$	2,241			$	1,123			$	4,343
Number of finished lot projects*			11				11				11
Finished lots owned at cost		$	13,065			$	17,184			$	18,347
Impairment on finished lots			(4,926	)			(6,314	)			(4,469	)
Finished lots owned after impairment		$	8,139			$	10,870			$	13,878
Net income (loss) on acquisition and development		$	(1,787	)		$	(3,949	)		$	(3,591	)

These projects are/were located in the following states: Florida, Georgia, Louisiana, Maryland, Mississippi, Missouri, Ohio, Pennsylvania, Texas and West Virginia with no more than three projects in any one state.

Analysis for Impairment of Land/Lots

Periodically, we examine each subdivision we own. For unimproved land and improved lots, we compare the cost to the current value. If the cost is greater than the current value, we reduce our cost and record a loss in our consolidated statement of operations. For all work in process, we compare the current cost plus future costs to the value expected at completion. If applicable, any home to be built on a developed lot will involve comparing the current cost to the value expected at completion. The construction of homes may occur if our analysis reveals that it is financially beneficial. If the costs are greater than the expected value, we reduce our cost and record a loss. Our impairment history for land/lots is listed below:

		As of, and for, the Fiscal Year
		2010				2009				2008
		(dollars in thousands)
Cost of land/lots owned		$	16,136			$	19,762			$	23,988
Lower of current values or cost		$	10,826			$	12,577			$	19,002
Impairment of land inventories under development		$	5,310			$	7,185			$	4,986
Percentage of impairment to cost			33	%			36	%			21	%

		As of, and for, the Fiscal Year
		2010				2009				2008
		(dollars in thousands)
Beginning of year impairment		$	7,185			$	4,986			$	1,026
Amount reduced through sales		$	(3,067	)		$	(1,833	)		$	(150	)
Additional impairment		$	1,192			$	4,032			$	4,110
End of year impairment		$	5,310			$	7,185			$	4,986

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The percentage of impairment has changed due to increases in impairments caused by falling real estate market values. It has also decreased due to impaired properties being liquidated and new unimpaired projects beginning. Any additional decline in real estate values will have a negative effect causing additional losses.

Commercial Property Leasing

As of fiscal year end 2010, we own 22 commercial properties which are leased to 84 Lumber, pursuant to an Agreement of Master Lease, and in which 84 Lumber operates retail and manufacturing businesses. As of fiscal year end 2010, we also own 10 closed facilities as discussed below under “Assets Held for Sale and Discontinued Operations”. Our properties are located in Alabama, Colorado, Florida, Georgia, Kentucky, Ohio, Pennsylvania, South Carolina, Texas, and West Virginia. The properties range in size from three to twenty seven acres, and the improvements generally consist of a 20,000 square foot metal warehouse type structure with office space, several outdoor storage buildings and three to ten acres of gravel, concrete or pavement. Rent payments are made monthly in advance. In addition to rent, 84 Lumber is responsible for all taxes and maintenance expenses incurred on each property. 84 Lumber also assumes all tenant liabilities and indemnifies 84 FINANCIAL for the same. 84 Lumber has the option to renew our lease, which expires on May 31, 2013.

Following U.S. GAAP, we depreciate our real estate and write-down impaired values as required. The aggregate market value of these properties (operating properties) based on our most recent market appraisals dated between February 2008 and November 2009 is $44,375 and the individual properties range in market value from $370 to $4,700.

Operating Properties

		For the Fiscal Year
		2010				2009				2008
		(dollars in thousands)
Number of properties			22				21				15
Total cost of leased property		$	31,258			$	31,690			$	16,884
Accumulated depreciation			14,196				13,241				7,414
Impairment recorded			61				504				—
Net book value		$	17,001			$	17,945			$	9,470

We received lease payments of $3,675, $2,732, and $1,801, for the fiscal years ended 2010, 2009 and 2008 respectively. The amount of impairment on a go-forward basis is dependent on the real estate market. Any additional decline in real estate values will have a negative effect causing additional losses. We plan to maintain our level of investment in commercial property as reflected in recent periods.

Assets Held for Sale and Discontinued Operations

Assets held for sale and discontinued operations were determined in accordance with U.S. GAAP. The Company has $1,200 and $1,521 of raw ground as of January 2, 2011 and January 3, 2010, respectively, that is classified as held for sale in the consolidated financial statements. The land is available for immediate sale in its current condition and is actively marketed at a price that is believed to be reasonable based on its fair value. Due to decreased demand for commercial land and overall decline in the real estate markets, the land has been held for sale in excess of one year. Although these factors are beyond the Company’s control, management continues to actively market the land and to reduce the price as necessary in order to liquidate it.

Manufacturing and retail locations are considered components of the commercial property leasing segment. Locations for which management has committed to a plan to close and assets are available for immediate sale in their current condition are classified as assets of discontinued operations. Such assets are actively marketed at prices that are believed to be reasonable based on the fair value of the asset. Management expects that these assets will be sold within one year. However, due to decreased demand for commercial properties and overall decline in the real estate markets, the Company has assets that have been classified as assets of discontinued operations in excess of one year. Although these factors are beyond the Company’s control, management continues to actively market these properties and to reduce prices as

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necessary in order to liquidate such assets. Once a location is sold, the Company will have no more involvement in operations. For these locations classified as discontinued operations in fiscal 2010, the consolidated balance sheets, statements of operations and cash flows are reclassified from their historical presentation. The presentation of discontinued operations includes revenues and expenses of and gains and losses associated with the closed manufacturing and retail locations and are presented separately on the consolidated statements of operations and cash flows.

Each location is valued at the lower of its carrying amount or estimated fair value less cost to sell. During fiscal 2010, 2009, and 2008, the Company has sold assets classified as discontinued operations, with a carrying value of $359, $1,493, and $2,634, respectively. The sale of these assets resulted in gross gains of $873, $31, and $2,440 in fiscal years 2010, 2009, and 2008, respectively.

If 84 Lumber closes a retail or manufacturing facility which is leased from us, 84 Lumber remains obligated to make the monthly rental payments or they may substitute another retail property for the closed one. We use these properties for collateral for our current line of credit. There are currently ten closed facilities which are still leased by 84 Lumber as well as the one parcel of vacant land for which we do not receive rent from 84 Lumber but that is currently marketed for sale. At the end of fiscal year 2010, the net book value of these eleven properties marketed for sale and not being operated by 84 Lumber is $7,383. The amount of lease payments received from 84 Lumber related to closed stores was $1,838, $1,812 and $2,000 for the fiscal years ended 2010, 2009 and 2008 respectively.

The table below includes assets of 84 Lumber store properties owned by us that have been closed by 84 Lumber. Assets related to such stores include land, buildings, improvements, furniture and fixtures, and the related accumulated depreciation. Amounts below are also inclusive of $1,426, $286, and $483 in impairment recorded during fiscal years 2010, 2009, and 2008, respectively.

Closed Properties and Raw Ground

		As of, the Fiscal Year
		2010				2009				2008
		(dollars in thousands)
Number of properties(1)			11				8				7
Assets held for sale		$	1,200			$	1,521			$	1,521
Assets of discontinued operations(1)		$	6,183			$	6,032			$	7,947

Liquidity and Capital Resources

Historically, we have generated liquidity from:

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Our current liquidity needs are:

We expect our future needs for liquidity to include all of the above with the addition of:

We expect our future sources of liquidity to include the sources listed above as well as the addition of:

We have a limited operating history and our operations are subject to risks and uncertainties, particularly related to the evolution of the current economic environment and its impact on the United States real estate and housing markets, which directly or indirectly impacts our absorption of losses related to our investments and our access to and cost of adequate financing. The Company’s primary source of operating cash for 2010 was rental income paid to the Company by 84 Lumber. Therefore, the Company’s ability to fund its operations is dependent upon 84 Lumber’s ability to continue paying rent.

We incurred significant losses during fiscal years 2010, 2009 and 2008 of approximately $9,267, $32,962 and $20,157, respectively. We also had debt outstanding of approximately $21,161 and $24,603 at the end of fiscal 2010 and 2009, respectively. At the end of fiscal 2010 and 2009, we had cash on hand of approximately $2,250 and $2,324 respectively. During the fiscal years of 2010, 2009 and 2008, the Company raised net proceeds of approximately $200, $2,033 and $25,690, respectively from our partners’ capital contributions. We made capital distributions of $30, $13,132 and $1,900 during the same three periods. Proceeds from notes to related parties net of repayments were $2,927, $1,370 and $3,630 during 2010, 2009, and 2008 respectively. In addition, we have a revolving line of credit agreement which currently provides us with up to $22,500 to fund operations, of which we were utilizing $11,734 as of the end of fiscal 2010. As of January 2, 2011, this line of credit is set to expire in April 2012. Additionally, the Company has a letter of credit facility which is provided to ensure the minimum balance is maintained in the loss reserve account. Our revolving line of credit also requires us to maintain a total of net worth and affiliate subordinated debt of at least $31,800. Net worth and affiliate subordinated debt were $36,809 and $42,952 at the end of fiscal 2010 and 2009, respectively. We anticipate generating, through normal operations, the remaining cash flows necessary to meet our operating, investing and financing or refinancing requirements. If actual results differ materially from our current plan or if expected financing is not available, we have the ability and intent to liquidate assets or further reduce our discretionary costs in order to continue as a going concern. We do not anticipate significant capital contributions from 84 Lumber. We believe we have available and may request funding and/or additional net worth through additional equity infusions of cash and/or property, affiliate subordinated debt, or a combination thereof. However, our affiliates and owner are not under any contractual or other obligation to

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honor our request. There can be no assurance that we will be able to implement our strategies or obtain additional financing under favorable terms, if at all. In the past, 84 Lumber has made equity contributions and we have made equity distributions utilizing three guidelines: 1) maintenance of our financial covenants in our line of credit; 2) liquidity needs (mostly due to our responsibility to buy defaulted loans); and 3) maintenance of at least a 4:1 or 5:1 ratio of non-affiliated debt-to-partners’ equity plus affiliate debt. In the future, we anticipate our distributions will follow those same guidelines.

Liquidity Outlook:

During January 2011, the Company repaid $6,927 of the $7,927 related party note payable outstanding at fiscal year end 2010. Of the $6,927 repayment, $4,927 was funded internally through a combination of excess cash and available funds on the revolving line of credit. The remaining $2,000 was funded through an advance from another affiliate during January 2011 in the form of a subordinated note.

During January 2011, 84 Lumber closed one store owned by the Company. In March 2011, we sold two closed stores with a carrying value of $1,500, and the proceeds were used to pay down our line of credit.

Our available liquidity (our non-restricted cash and our availability under our line of credit without adding additional collateral), as of January 2, 2011, was approximately $5,645.

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Capital Resources

Other than our obligations to purchase loans and complete land and lot projects as stated above, we have no contractual obligations to make capital expenditures. The amount needed to purchase loans is not reserved in or otherwise reflected in our consolidated financial statements. However, the estimated loss on the loans we expect to buy is reserved in our consolidated financial statements. The amount required to complete land and lot projects does not appear in our consolidated financial statements and will only appear when that money is actually spent. Also, in order to execute our business plan, we will need to acquire several software systems and make and enter into contractual obligations. The estimated total of the capital expenditures and contractual obligations for this purpose over the next six years is $1,738.

Recent Accounting Pronouncements

In January 2011, FASB issued ASU No. 2011-01, Receivables (Topic 310):  Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings an Update No. 2010-20. The objective of this ASU is to defer the effective date of disclosures related to troubled debt restructurings required by ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, until interim and annual reporting periods ending after June 15, 2011. We are currently evaluating the impact, this guidance will have on our consolidated financial statements.

In July 2010, FASB issued ASU No. 2010-20, Receivables (Topic 310):  Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU 2010-20”). The objective of this ASU is to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. ASU 2010-20 requires entities to disclose the nature of credit risk inherent in their finance receivables, the procedure for analyzing and assessing credit risk, and the changes in both the receivables and the allowance for credit losses by portfolio segment and class. ASU 2010-20 is effective for interim and annual reporting periods ending on or after December 15, 2010. See Note 4 for disclosures required upon adoption of ASU 2010-20. As discussed above, the effective date for disclosures related to troubled debt restructurings have be deferred until interim and annual reporting periods ending after June 15, 2011.

In January 2010, FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). The ASU revised disclosure requirements concerning fair value measurements to require separate presentation of significant transfers between Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It will also require the presentation of purchases, sales, issuances and settlements within Level 3 on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and input and valuation techniques should be disclosed for both recurring and nonrecurring fair value measurements. This ASU is effective for annual and interim reporting periods beginning after December 15, 2009 and for periods beginning after December 15, 2010 for the new Level 3 disclosures. The adoption of ASU 2010-06 did not have a material impact on our consolidated financial statements. Management does not believe that the adoption of the new Level 3 disclosures will have a material impact on our consolidated financial statements.

Critical Accounting Estimates

Allowance for Loan Losses

We account for the credit risk associated with our lending activities through the allowance and provision for loan losses. The allowance represents management’s best estimate of probable losses that are inherent in our existing loan portfolio as of the consolidated balance sheet date. The provision is a periodic charge to earnings in an amount necessary to maintain the allowance at a level that is appropriate based on management’s assessment of probable estimated losses. On a periodic basis, at least quarterly, we review loans individually and determine whether that loan is “impaired,” which means that it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. When a loan is deemed to be impaired, we calculate the estimated fair value based on observable market data, generally the value of the underlying collateral. If the fair value of the underlying collateral is less than the current carrying amount of the loan, an allowance is recorded for the difference.

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There are many quantitative and qualitative factors affecting the allowance for loan losses and calculations of this amount require judgment and estimates on the part of management related to the amount and timing of expected future cash flows, estimated losses, estimated fair value of collateral and current economic conditions. All of these factors can change significantly and in a relatively short period of time. To the extent that actual outcomes differ from our estimates, additional provisions for loan losses could be required, which would negatively impact our consolidated earnings or financial position in future periods.

Fair Value Measurements

U.S. GAAP establishes a hierarchy for measuring fair value. We group assets and liabilities measured at fair value, on either a recurring or nonrecurring basis, in three levels based on the inputs used to determine fair value.

Level 1 valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level 2 valuations are based on observable market data for similar assets. Level 3 valuations are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on observable market transactions.

The Company has no assets measured at fair value on a recurring basis. Financial instruments measured at fair value at year end on a non-recurring basis include certain loans acquired through the institutional lending program with deteriorated credit quality and impaired loans reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. The Company has also determined that nonfinancial assets measured at fair value on a non-recurring basis subject to ASC 820 are other real estate owned, impaired land inventories under development, and impaired fixed assets, including assets held for sale and assets of discontinued operations.

The table below presents the balances of these assets, which are measured at fair value on a nonrecurring basis at January 2, 2011 (2010):

Asset		Level 1				Level 2				Level 3				Total
Impaired loans		$	—			$	—			$	13,104				13,104
Other real estate owned			—				—				3,283				3,283
Impaired land inventories under development			—				3,886				2,674				6,560
Impaired assets held for sale			—				—				1,200				1,200
Impaired assets of discontinued operations			—				—				5,065				5,065
Total		$	—			$	3,886			$	25,326			$	29,212

The table below presents the balances of these assets which are measured at fair value on a nonrecurring basis at January 3, 2010 (2009):

Asset		Level 1				Level 2				Level 3				Total
Impaired loans		$	—			$	—			$	21,587			$	21,587
Other real estate owned			—				—				8,555				8,555
Impaired land inventories under development			—				2,719				6,634				9,353
Impaired fixed assets			—				—				837				837
Impaired assets of discontinued operations			—				—				2,400				2,400
Total		$				$	2,719			$	40,013			$	42,732

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Impaired loans — Impaired loans are reported at fair value through a specific valuation allowance allocation of the allowance for possible loan losses. Collateral fair values are determined from sources such as an appraisal by a state certified appraiser, a real estate broker opinion of value or other validated method, discounted by a factor that accounts for the recent liquidation experience on lender sales and selling costs as and if appropriate. The determination of the discount of these valuations from an appraiser or broker requires judgment, and, therefore, these assets are classified as Level 3.

Other Real Estate Owned — Other real estate owned is comprised primarily of residential real estate obtained through foreclosure. The fair value is determined generally through the use of collateral values based on observable market data from sources such as appraisals, broker opinions or other validated methods discounted as noted above. A number of significant estimates and assumptions are involved in the application of these techniques, including the forecasting of real estate markets, costs and expenses, and multiple other factors; therefore, these assets are classified as Level 3.

Impaired Land Inventories Under Development — Certain inventories under development consist of similar lots in the same subdivision. Therefore, the fair value of these assets is determined based on recent sales of similar lots in the same subdivision, and are therefore classified as Level 2. However, fair values for certain inventories under development are determined from sources such as an appraisal by a state certified appraiser, a real estate broker opinion of value or indicative bids. A number of significant estimates and assumptions are involved in the application of these techniques, including the forecasting of real estate markets, costs and expenses, and multiple other factors; therefore, these assets are classified as Level 3.

Impaired Fixed Assets including impaired Assets Held for Sale and impaired Assets of Discontinued Operations — The fair values are estimated using appraisals by a state certified appraiser or real estate broker opinions of value. A number of significant estimates and assumptions are involved in the application of these techniques, including the forecasting of real estate markets, costs and expenses, and multiple other factors; therefore, these assets are classified as Level 3.

The Company considers experience and all available information at the time the estimates are made; however, the fair values that are ultimately realized upon the sale of the assets may differ from the estimated fair values reflected in the consolidated financial statements, and the difference could be material.

Put Option Obligation

In accordance with the institutional lending program, we have a put option obligation to purchase commercial construction loans financed by the institutional lender upon the occurrence of a triggering event, as defined in the institutional lender agreement. These commercial construction loans are serviced entirely by the institutional lender until either the loan is repaid by the customer or the occurrence of a triggering event. We record the fair value of the put option obligation as a liability. The fair value is estimated using a cash flow model. The inputs to the cash flow model include both quantitative and qualitative factors and require judgment and estimates on the part of management related to the expected future cash outflows, loss percentage estimates, and current economic conditions. All of these factors can change significantly and in a relatively short period of time. To the extent that actual outcomes differ from our estimates, additional provisions could be required, which would negatively impact our consolidated earnings or financial position in future periods.

Impact of Inflation and General Economic Conditions

We believe the success of our business is based on assessing the pertinent risks involved in the lending process and the economic health of the national and local real estate markets in which we operate. We believe our management team has the appropriate experience in managing these risks. Negative inflation (deflation) in housing prices can reduce our income as our customers will struggle to make money and thus increase our default rate. When these events happen, our allowances for loan losses can increase and our put option obligation could also increase, therefore, causing us to experience losses on individual loans. If this activity becomes significant, it could erode all of our income and cause us to record operating losses. Gains and losses from lot and land sales are dependent on the inflation/deflation of these assets.

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Quantitative and Qualitative Disclosures About Market Risk

Our profitability is somewhat dependent upon inflation/deflation of housing prices. Every drop in housing prices of 10% is likely to cause an approximate $3,300 loss for us based on the assets held and liabilities owed at the end of fiscal 2010. An increase in housing prices is likely to increase our profitability although not to the same extent that decreases respectively impact our profitability. While the new loans we propose to extend will have interest rates based on our cost of funds and thereby will eliminate most of our interest rate risk, the non-performing portion of our portfolio, which is funded with debt does have interest rate risk. Based on a $20,000 senior debt balance, we estimate that every increase of the prime rate by 1.0% will cost us approximately $200 annually.

The demand for single family new homes also affects our profitability. January 2009 saw a historic low point in sales of new homes according to information recorded in the mass news media. Since then, single family new housing market data have stabilized but, we believe are still about half of what should be “normal.” Increases in demand for housing will reduce our loan losses and will likely cause inflation in housing prices. It will also increase the rate at which loans turn-over, which results in a higher percentage profit for our Company. Any further decreases in housing starts will have the opposite effect. We believe that the housing market has stabilized and will progress in a slow recovery fashion over the next several years.

The following chart shows the trend line for housing starts in the United States from 1959 through 2010. The data is based on information obtained from the U.S. Census Bureau:

New Privately Owned Housing Units Started
Annual Data from 1959 to 2010

(Source: http://www.census.gov/const/startsan.pdf)

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The following chart shows the trend line for median home sales prices of new homes sold in the United States from 2005 through 2010. The data is based on information obtained from the U.S. Census Bureau:

New & Existing Homes Median Selling Price From 2005-2010

(Source: US Census & National Association of Realtors)

Internal Controls Over Financial Reporting

Our management and independent registered certified public accounting firm did not perform an evaluation of our internal controls over financial reporting as of January 2, 2011, as would have been required in accordance with the provisions of the Sarbanes-Oxley Act of 2002 had we previously been subject to the reporting requirements of the Securities Exchange Act of 1934. Had we and our independent registered public accounting firm performed an evaluation of our internal controls over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act of 2002, additional control deficiencies may have been identified by management or our independent registered certified public accounting firm and those control deficiencies also could have represented one or more material weaknesses.

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BUSINESS
  
(All dollar [$] amounts shown in thousands, except amounts describing proceeds from this offering)
  
General

84 FINANCIAL L.P. (“84 FINANCIAL”, “we”, “us”, “our” or the “Company”) is a Delaware limited partnership. 84 Lumber Company (“84 Lumber”), as the sole limited partner, holds 99% of the partnership interests in 84 FINANCIAL. 84 Lumber also is the sole member of our general partner, 84 LADC, LLC, which holds 1% of the partnership interest in 84 FINANCIAL. 84 Lumber was founded in southwestern Pennsylvania in 1956 and today is a leading supplier of building materials to small-to medium-size homebuilders throughout the United States. Since our inception in 1993, we have operated as a finance company for customers of 84 Lumber who are builders.

We operate our business to generate a stand-alone profit through our three segments: (1) commercial lending to residential homebuilders and/or multi-family or commercial developers; (2) acquisition, development and sale of residential lots and homes; and (3) commercial property leasing, in order to create and retain enough equity to: 1) maintain our financial covenants in our line of credit; 2) meet liquidity needs; and 3) maintain at most a 4:1 or 5:1 ratio of non-affiliated debt-to-partners’ equity plus affiliate debt. These segments provide different sources of income to contribute to the success of our business plan. Our commercial lending provides interest and fee income. Acquisition, development and sale of residential lots and homes provide income from the sale of developed properties, and our commercial properties leasing contributes steady lease income to our operation. Most new business plans have the need to develop a customer base to be successful in selling their products. Since we provide commercial financing to customers of 84 Lumber, we are able to take advantage of exposure to 84 Lumber’s builder/developer customer base for lead generation and credit information. Conversely, 84 Lumber has the potential of generating material sales for the properties that we finance. This combination provides our customers with a more complete service level that should allow us and 84 Lumber to attract and retain more builder/developer customers. While we benefit by having access to 84 Lumber’s customer base, and 84 Lumber benefits from having a ready source of funding for its customers, our goal is to enhance the profitability and financial condition of 84 FINANCIAL.

Our future business plan will continue to emphasize commercial construction lending as our main line of business. Having seen the real estate market reach historical lows, we feel that the market has reached a stabilization point. Given this, we are preparing our Company to, once again, become an active lender by providing commercial construction financing. We have redesigned our lending program to manage overall lending risks as well as specific real estate market risks. We employ a detailed process of evaluating each commercial construction loan application using individual credit and industry reference information, such as payment history and credit reports. Our loan programs are designed to control loan exposure related to value and dollar exposure concentration by utilizing maximum loan amounts, maximum number of loans to a single builder, analysis of housing starts by Metropolitan Statistical Areas and risk-based pricing variances.

We have assembled a management staff with over 100 years of combined experience in commercial, residential and construction lending, loan collection, loss mitigation and funds management. Our President has 37 years of experience in banking that includes starting a de novo bank, new lending divisions within a bank, new nationwide construction lending within a bank, start-up mortgage banking operations within banks and independently, this includes starting the institutional lending program for the bank that is the institutional lending servicer. Our staff has served in various management positions with our Company and affiliates, the banking profession and finance companies. Therefore, we are accustomed to analyzing housing start trends and home pricing fluctuations as well as monitoring housing markets and trends. Our management team, however, does not have extensive experience with start-up non-regulated financial institutions. By commencing this Offering in the absence of our former institutional lending program partners, we believe we have effectively created a start-up financial institution. Most start-up financial institutions grow to the level that we are anticipating over a long period of time, typically measured in years. In contrast, we anticipate rapid expansion to our desired portfolio size.

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Competitively, the commercial construction lending segment of the market has fewer lenders due to the contraction in banking and the regulatory environment that banks are currently facing. This presents a unique opportunity for us to be one of a smaller group of lenders willing to provide this type of lending. Since we are not a tightly regulated company, we feel we have a competitive edge that allows us to make decisions based on prudent business. We are able to stay focused on one main product line and devote most of our internal resources to commercial construction lending. There is, of course, an inherent risk in being focused on one segment of the economy. Our business will have more fluctuations in revenues and profit than more diversified businesses.

The field representatives we employ are located in various parts of the country and have loan origination and loss mitigation experience in commercial construction lending. Our field staff selects our customers based on initial market reputation and standing within the builder community. In addition to using local state certified appraisers, our field staff performs property inspections in evaluating the property to be financed. Our field staff also maintains face-to-face interaction with our customer, the homebuilder or developer, to monitor their success in completing and selling the property. Additionally, we maintain a high equity and affiliate debt to non-affiliate debt ratio as compared to other lenders in the market. At the end of fiscal 2010, our ratio was 278%, and was 13% for Bank of America and 11% for Citibank. We anticipate maintaining our direct investment in acquiring and developing residential building lots and maintaining our level of activity in owning, managing and leasing commercial properties mainly to 84 Lumber who pays monthly rental payments to us.

Other activities, such as providing other secured and unsecured financing to builders, acquiring loans to finance the acquisition and development of residential building lots and purchasing defaulted or troubled unsecured or secured debt at a discount will be considered if and when we deem the investments to be prudent.

Business Segments

As noted above, we operate in three business segments: (1) commercial construction lending to residential homebuilders and/or multi-family or commercial developers; (2) acquisition, development and sale of residential lots and homes; and (3) commercial property leasing. In addition to the information below, information relating to our business segments is contained in the Segments footnote in the notes to consolidated financial statements.

Commercial Lending

We extend our commercial construction loans to homebuilders and developers who are citizens or companies of the United States of America (U.S.) and who build homes located throughout the U.S. Generally, our homebuilder customers repay their loans through the sale of the homes they build. In most cases, the homebuilder sells the home after completion of construction. Typically, developers borrow from us to fill the gap that is not provided by traditional financing sources. They repay their construction loan with proceeds from a permanent loan, which is not closed and funded until the project is complete.

Originally, we extended all commercial construction loans to homebuilders on a direct basis. In late 1997, the demand for our loans exceeded the amount of funds we were willing to lend. We entered into an agreement with a single institutional lender who was willing to work with us in extending loans to our homebuilder customers. This initial agreement became the basis for the lending program with institutional lenders. Under this lending program, the institutional lender extended loans directly to homebuilders referred to it by our parent company, 84 Lumber. The institutional lender used its own funds to extend the loans without any funding requirement on our part. The institutional lender was responsible for administering the loans, and received all financial compensation and losses derived from these loans. This version of our construction lending program continued from January 1998 through December 2002.

The demand for loans continued to grow and our commercial construction lending program outgrew the funding capability of the single institutional lender. In late 2002, we modified the institutional lending program to attract additional institutional lenders. Among the more significant changes, we established a reserve fund for loan losses and agreed to give our participating institutional lenders the option to “put” back to us (i.e., require us to purchase from them) any non-performing loan. This put obligation applied to all

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outstanding loans that had been originated by an institutional lender as of December 31, 2002 and all loans originated by an institutional lender thereafter. In the event of a default by a homebuilder under a loan (failing to make payments of principal and/or interest; failure to complete construction of the home; foreclosure; construction stopping; construction not starting; or failure to sell the home within a prescribed time frame), we are required to purchase the loan from the institutional lender and assume responsibility for the losses derived from that loan. We received a portion of the fee charged to the customer at the time the loan was extended as compensation for the loss responsibility of these loans

Over the last several years, because of the onset of the economic recession and, in particular, its effect on the homebuilding industry, home prices and default rates, the institutional lenders have decided to discontinue their participation in the institutional lending program. The last date on which new loans could be originated under the institutional lending program was October 20, 2010. Therefore, we have revised our business plan. Starting on October 21, 2010 we began extending a limited amount of new loans on a direct basis using our new lending program. Going forward, we will increase the amount of new loans to homebuilders and developers using funds received by this offering, our own capital, repayment from loans that we own and borrowed funds.

These loans will be originated throughout the country through approximately 10 field construction financing representatives who travel throughout the states where 84 Lumber operates. These representatives are currently employees of 84 Lumber and are expected to be transferred to our employment in 2011. We do not maintain branch offices in our business.

Our loans will typically average approximately $200 for homebuilders and $1,500 for developers. All loans are extended on a demand basis and repayment is generally anticipated within 24 months of the initial date of the loan. Under our new business plan, over a period of time, our goal is to reach annual loan originations of up to $300,000. Once this goal is sustained we expect to maintain a rolling amount of disbursed loan balances of $225,000.

Our new lending program is different from the institutional lending program we operated in 2002 – April 2008. In April 2008, we modified lending terms with the institutional lenders, and then again in the fourth quarter of 2010. At this point, the lending program of today differs from the institutional lending program in the following ways:

Construction Loan Program Differences Designed to Reduce Loan Losses		Institutional Lending Program		84 FINANCIAL New Loan Program
Market Grading		All markets were treated equally with no change in interest rate or loan-to-value (LTV) percentages.		We grade markets based on where they appear to be in that market’s housing cycle, and how volatile their housing market currently is. We use this grading to determine interest rates and loan to value percentages instead of treating every market the same.
Maximum LTV		75%		60% – 70%
Maximum Loan Amounts (in thousands)		$2,000		$750
Funds Required by Borrower at Closing for Standard Loans
Minimum % of the loan amount		0%		6.0% – 12%
Minimum % of the lot purchase/payoff		0%		0% – 50% (depending on location)

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Construction Loan Program Differences to Increase Yield		Institutional Lending Program		84 FINANCIAL New Loan Program
Loan Fees		1.0% – 1.5% of loan amount		4.3% of loan amount
Interest Rate Index		Prime Rate		84 FINANCIAL L.P. Cost of Funds (cost of funds plus a margin to offset the risk changing interest rates)

All lending pricing, terms and conditions are subject of change without notice

Since 1998, there have been approximately over $2,000,000 in loans originated through the institutional lending programs, with the total loss (including the projected losses on loans still to be liquidated) expected to be 2.5%. The vast majority of the losses occurred between fiscal 2008 and 2010; we believe the primary cause of the losses relates to the decline in home values during that period of time. Periods of flat to rising home prices generally have a positive effect on the results of construction lending, where periods of falling prices generally have a negative effect. We also expect results to be different because we believe the housing market is at a low point, therefore, we believe values are likely to rise.

Set forth below is a general outline of some typical features of commercial construction loans to homebuilders we are originating today through the 84 FINANCIAL lending program (deviation from this outline is considered on a case by case basis):

Purpose of Loans:		Construction of 1 to 4 family residential homes
Borrower/Homebuilder Profile:		Small-to medium-size homebuilders
Creditworthiness of Borrower/Homebuilder:		Prior to extending loans, we review the experience and creditworthiness of a homebuilder and the location and value of the property. We place importance on both the homebuilder’s history of repaying obligations and the potential resale value of the property. Loans are extended for the acquisition of real estate and the construction of improvements on that real estate.
Security:		First lien mortgage or deed of trust on real estate and improvements on the real estate
Loan to Value (in thousands)		Maximum 70% for loans up to $500
		Maximum 60% for loans up to $750
Required Equity:		0 – 50% down on lot/land
		6 – 12% of the loan amount in the form of a deposit, generally returned to the borrower upon substantial completion and recertification of value
Term:		The loans are written as demand loans with specific loan performances contained in the documentation. The historical average life of the loans has been approximately 10 months or less.
Rate:		Charged at a margin over 84 FINANCIAL L.P. cost of funds, Prime or other index
Draw Method:		Construction funds drawn are disbursed based on Percentage of Completion verified by inspection. Generally, up to seven draws per project are allowed with each inspection being performed by a representative of 84 Lumber. Typically, two quality control inspections are completed by the certified appraiser who originally performed the appraisal for the project. The appraiser is paid a market fee for this service. Neither the 84 Lumber representative nor 84 Lumber receive a fee for the inspections performed, as their costs are nominal
Appraisal Techniques:		Single family residential appraisal reports completed by state certified appraisers

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Loan Closing Documentation:		Standard state specific commercial real estate construction loan documentation including a personal guarantee (if specified in the loan approval)
Collection Methods:		We utilize various efforts in collecting on the loans that we extend. These efforts include frequent telephone contact, mailings of notices and information, and personal visits by our field construction financing representatives. During the course of construction, numerous inspections of the property are performed. Generally, we do not disburse funds on a loan without receipt of a current inspection report. Additionally, we monitor the homebuilder’s payments to his subcontractors and suppliers of materials.
Required Insurances:		Builder General Liability and Workman’s Compensation
		NO Title Insurance*
		NO Hazard Insurance*
Locations:		Loans are or may be extended with respect to new homes to be built in states in or near where 84 Lumber operates. 84 Lumber currently operates in approximately 33 states within the United States.

Purpose of Loans:		Secondary commercial construction financing that funds an amount sufficient to cover the difference between the primary construction loan from a lender and the cost of construction.**
Loan Amount:(in thousands)		Loan amounts typically range from $250 to $4,000
Borrower/Homebuilder Profile:		Developers of multi-family and commercial projects
Creditworthiness of Borrower/Homebuilder:		Prior to extending loans, we review the experience and creditworthiness of a developer, the feasibility of the project and the location of the property. We place greatest importance on the developer’s history of repaying obligations and the strength of the permanent loan commitment rather than the potential value of the property. Loans are extended for the acquisition of real estate and the construction of improvements on that real estate.
Security:		First or second lien mortgage or deed of trust on real estate and improvements on the real estate**
Term:		The loans are written as demand loans or term loans, generally not to exceed two years, with specific loan performances contained in the documentation.
Rate:		Charged at a margin over 84 FINANCIAL L.P. cost of funds, Prime or other index.
Draw Method:		Construction funds drawn are disbursed based on Percentage of Completion or AIA draw schedule verified by third party inspection
Appraisal Techniques:		Appraisal reports completed by qualified appraisers
Loan Closing Documentation:		Standard state specific commercial real estate construction loan documentation 57     TABLE OF CONTENTS GLOSSARY OF TERMS
Collection Methods:		We utilize various efforts in collecting the loans that we extend. These efforts include frequent telephone contact, mailings of notices and information, and personal visits by our field construction financing representatives. During the course of construction, numerous inspections of the property are performed. Generally, we do not disburse funds on a loan without receipt of a current inspection report. Additionally, we monitor the developer’s payments to his subcontractors and suppliers of materials.
Required Insurances:		Builder General Liability and Workman’s Compensation
		Title Insurance Hazard Insurance
Locations:		Loans are or may be extended for projects in the United States

Our commercial construction lending activities do not present the risks typically associated with:

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This is a result of having lending guidelines that restrict the maximum number of loans and dollar amount of loans to each homebuilder and developer. Furthermore, we are actively lending in approximately 33 states where 84 Lumber operates, which we believe mitigates the risks associated with specific state or regional risk concentration. The following is a map that shows each current 84 Lumber location:

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We also believe geographic diversification decreases seasonality swings in the amount of loans extended. We periodically review our portfolios to make sure that our geographic, homebuilder and developer exposures are maintained within acceptable risk tolerance levels. Below is a current chart that displays the geographic make-up of our loan and other real estate owned portfolios:

84 Financial & Institutional Lender Loans and REO
by State as of Year End 2010
$14,787,608 (Net of reserve and impairment)

The geographic diversity of the new loan program may not necessarily match the institutional lending programs, which mostly comprises the chart above.

We anticipate that all customers of our new lending program will be customers of 84 Lumber Company, as has been our practice in the past. Our employees will use the 84 Lumber credit information related to prospective lending customers to prescreen them for acceptance and loan parameters. Our employees then will approach the eligible 84 Lumber customers and offer lending services. Prior to entering into our loan agreement or commitment letter with a customer, we are under no obligation to lend any customer money. At the peak of the institutional lending program, between us and the institutional lender servicer, there were approximately 45 individuals, originating and servicing $300,000 in loans. Today there are 19 individuals for the same functions. This represents an overstaffed situation which exists because we are anticipating increased lending activity upon receipt of proceeds from the Notes. We will have to add staff accordingly as loan origination volume increases towards $300,000. At $300,000 we would anticipate having 40 – 50 employees.

We anticipate that if no proceeds are received from the issuance of these Notes, our business will continue at a very low new commercial construction loan origination rate. The proceeds from this offering will allow us to increase our new commercial construction loan originations which we believe will increase our net earnings. For example, assuming the following:

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By the end of that three year period, we believe we would have:

We have extended unsecured commercial loans to homebuilders in need of financing to provide liquidity to their business. This enabled the homebuilder to meet their contractual obligations until they successfully sold homes they owned as inventory. We have extended these unsecured loans to builders in the institutional lending program to pay delinquent interest to a current status providing the borrower additional time to sell the property and repay the loan. We have fully reserved all of these loans in our consolidated financial statements.

We anticipate continuing these types of loans, although the amount of these loans will be significantly lower as there are fewer and fewer homebuilders participating in the institutional lending program. We expect the need for these types of loans to be eliminated once the institutional lending program has been completely unwound.

84 Lumber carries unsecured debt with homebuilder customers. We purchase selected amounts of this defaulted debt from 84 Lumber and secure it with real estate. We only purchase 84 Lumber defaulted debts when the debtor can pledge or assign collateral deemed to be sufficient to repay the debt over an acceptable period of time. In the future, we do not intend this to be a significant portion of our business. These investments are included in the proceeding chart and our financials in Loans, net of Allowances when collateral is pledged and in Land inventories under development when collateral is assigned.

The purchase of defaulted debt from any affiliate in the future is contemplated to be done 1) on a discounted basis; and 2) based on the value and marketability of the underlying collateral. The balance of these loans at the fiscal year end 2010 was $3,197.

Acquisition, Development and Sale of Residential Lots

As of January 2, 2011, we owned nine residential developments in various parts of the country. We acquired seven of these developments as a result of our merger with our affiliate, 84 A&D. 84 A&D was formed in Delaware on June 23, 2004 with the same ownership structure as our Company. The business plan of 84 A&D was to buy raw land, install roads and utilities to create residential building lots that it would then sell to homebuilder customers of 84 Lumber. Because of the substantial decline in the market value of the lots it owned, 84 A&D stopped acquiring land and selling its lots over time. Effective March 29, 2010, 84 A&D was merged into Hardy Credit Co., which in turn was later merged into our Company. All of the consolidated financial statements and amounts used in this prospectus include 84 A&D as though it had been part of our Company since its inception.

We continue to oversee all of the developments we own and endeavor to sell the lots. This portion of our business frequently requires us to agree to make improvements to the real estate within agreed upon periods of time in order to obtain permits from the local municipalities. As of fiscal year end 2010, the costs that we are under future obligation to incur are approximately $236. These costs relate to the following: two subdivisions which need final topcoats for roads; one subdivision which needs storm water management completion; and one subdivision which needs to purchase a piece of property and build a pool and clubhouse. We have constructed and may construct residential homes to promote additional sales activity within the development.

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