Attached files
| file | filename |
|---|---|
| 8-K/A - BONTERRA FINANCIAL STATEMENTS 8-K/A - AV Homes, Inc. | bonterraacquisitionfinanci.htm |
| EX-99.2 - EXHIBIT 99.2 - AV Homes, Inc. | exhibit992.htm |
| EX-99.3 - EXHIBIT 99.3 - AV Homes, Inc. | exhibit993.htm |
| EX-23.1 - EXHIBIT 23.1 - AV Homes, Inc. | exhibit231.htm |
Exhibit 99.1
FINANCIAL STATEMENTS |
with Supplemental Data |
BONTERRA BUILDERS, LLC |
DECEMBER 31, 2013 |
BONTERRA BUILDERS, LLC | ||||
TABLE OF CONTENTS | ||||
PAGE | ||||
INDEPENDENT AUDITOR'S REPORT | 1 | |||
FINANCIAL STATEMENTS | ||||
BALANCE SHEETS | 2 | |||
STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY | 3 | |||
STATEMENTS OF CASH FLOWS | 4 | |||
NOTES TO FINANCIAL STATEMENTS | 5 | |||
Derek K Atwell, CPA, PLLC
Independent Auditor’s Report
To the Members
Bonterra Builders, LLC
Matthews, North Carolina
I have audited the accompanying balance sheets of Bonterra Builders, LLC as of December 31, 2013 and 2012, and the related statements of income, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of Bonterra Builders, LLC as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Derek K Atwell, CPA, PLLC
Monroe, North Carolina
April 28, 2014
PO Box 3335 Monroe, North Carolina 28111
Phone: 980-322-6864 Fax: 704-288-4058
Derek@datwellcpa.com
BONTERRA BUILDERS, LLC | |||||
BALANCE SHEETS | |||||
December 31, | |||||
2013 | 2012 | ||||
ASSETS | |||||
CURRENT ASSETS | |||||
Cash and cash equivalents | $ 1,981,501 | $ 924,162 | |||
Accounts receivable - trade | 1,091,775 | 487,792 | |||
Accounts receivable - employees | 32,149 | 16,250 | |||
Lot inventories | 43,402,531 | 22,952,071 | |||
Total current assets | 46,507,956 | 24,380,275 | |||
PROPERTY AND EQUIPMENT | 1,459,896 | 1,146,800 | |||
Less accumulated depreciation | (584,724) | (503,519) | |||
Total net property and equipment | 875,172 | 643,281 | |||
OTHER ASSETS | |||||
Affiliate receivables | 2,494,844 | 2,208,000 | |||
Deposits | 1,192,500 | 519,000 | |||
Total other assets | 3,687,344 | 2,727,000 | |||
Total Assets | $ 51,070,472 | $27,750,556 | |||
LIABILITIES AND MEMBERS' EQUITY | |||||
CURRENT LIABILITIES | |||||
Construction loans | $ 26,761,344 | $15,833,739 | |||
Accounts payable | 7,646,374 | 3,237,617 | |||
Accrued expenses | 279,103 | 144,051 | |||
Accrued payroll and payroll taxes | 0 | 6,026 | |||
Deposits | 1,247,156 | 534,684 | |||
Total current liabilities | 35,933,977 | 19,756,117 | |||
AFFILATE PAYABLES | 347,099 | 535,834 | |||
NOTES PAYABLE - AUTO | 119,799 | 81,536 | |||
MEMBERS' EQUITY | 14,669,597 | 7,377,069 | |||
14,669,597 | 7,377,069 | ||||
Total Liabilities and Members' Equity | $ 51,070,472 | $27,750,556 | |||
See independent auditor's report.
BONTERRA BUILDERS, LLC | ||||||
STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY | ||||||
For the Years Ended December 31, | ||||||
2013 | 2012 | |||||
SALES | $ 98,676,605 | $ 43,610,490 | ||||
COST OF HOMES SOLD | 79,504,596 | 35,554,401 | ||||
GROSS PROFIT | 19,172,009 | 8,056,089 | ||||
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES | 9,146,550 | 4,523,167 | ||||
NET OPERATING INCOME | 10,025,459 | 3,532,922 | ||||
OTHER INCOME AND (EXPENSE) | ||||||
Rebate income | 290,763 | 143,242 | ||||
Rental income | 32,957 | 39,887 | ||||
Other income | 103,034 | 65,687 | ||||
Interest expense | (1,939,685) | (533,155) | ||||
(1,512,931) | (284,339) | |||||
NET INCOME BEFORE EXTRAORDINARY ITEMS | 8,512,528 | 3,248,583 | ||||
EXTRAORDINARY ITEMS (SEE NOTE G) | — | (571,454) | ||||
NET INCOME | 8,512,528 | 2,677,129 | ||||
BEGINNING MEMBERS' EQUITY | 7,377,069 | 5,179,940 | ||||
Distributions | (1,220,000) | (480,000) | ||||
ENDING MEMBERS' EQUITY | $ 14,669,597 | $ 7,377,069 | ||||
See independent auditor's report.
BONTERRA BUILDERS, LLC | |||||
STATEMENTS OF CASH FLOWS | |||||
For the Years Ended December 31, | |||||
2013 | 2012 | ||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||
Net income | $ 8,512,528 | $ 2,677,129 | |||
Adjustments to reconcile net income to net cash | |||||
provided by (used in ) operating activities: | |||||
Depreciation | 77,278 | 73,915 | |||
(Increase) decrease in: | |||||
Accounts receivable - trade | (603,983) | (281,466) | |||
Accounts receivable - affiliates | (286,844) | 0 | |||
Accounts receivable - employees | (15,899) | (16,250) | |||
Inventories | (20,450,460) | (10,097,549) | |||
Lot deposits | (673,500) | 224,424 | |||
Increase (decrease) in: | |||||
Accounts payable | 4,408,757 | 1,449,106 | |||
Accounts payable - affiliates | (188,735) | (358,793) | |||
Accrued expenses | 129,026 | 110,792 | |||
Builder deposits | 712,472 | 407,209 | |||
Net cash provided by (used in) operating expenses | (8,379,360) | (5,811,483) | |||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||
Purchases of property and equipment | (309,169) | (254,514) | |||
Net cash provided by (used in) investing activities | (309,169) | (254,514) | |||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||
Net borrowings (payments) on construction loans | 10,927,605 | 6,777,979 | |||
Net borrowings on auto loans | 38,263 | 81,536 | |||
Dividends paid | (1,220,000) | (480,000) | |||
Net cash provided by (used in) financing activities | 9,745,868 | 6,379,515 | |||
NET INCREASE (DECREASE) IN CASH | 1,057,339 | 313,518 | |||
CASH AT BEGINNING OF YEAR | 924,162 | 610,644 | |||
CASH AT END OF YEAR | $ 1,981,501 | $ 924,162 | |||
Supplemental disclosure of cash flow information: | |||||
Cash paid for interest | $ 1,974,188 | $ 597,075 | |||
See independent auditor's report.
BONTERRA BUILDERS, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Bonterra Builders, LLC (“The Company”), a North Carolina limited liability company, was formed on October 19, 2001. The company builds townhomes and single family residential homes in the greater Charlotte area of North and South Carolina.
Method of Accounting
For financial reporting purposes, assets and liabilities are recorded and income and expenses are recognized on the accrual basis of accounting.
Revenue Recognition
The Company recognizes revenue from all homebuilding activities at the closing of the sale using the deposit method. During construction, all direct material and labor costs and those indirect costs related to acquisition and construction are capitalized, and all customer deposits are treated as liabilities. Capitalized costs are charged to earnings upon closing. Costs incurred in connection with completed homes and selling, general, and administrative costs are charged to expense as incurred.
Accounts Receivable
Accounts receivable are presented at face value. Management considers receivables to be fully collectible; accordingly, no allowance for doubtful accounts has been provided. Bad debts on accounts receivable are expensed in the period in which management determines the amount to be uncollectible.
Inventory
Housing assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If the assets are considered to be impaired, they are then written down to the fair value less estimated selling costs. The ultimate fair value for the Company’s inventory is dependent upon future market and economic conditions. $0 and $571,454, respectively for 2013 and 2012 of costs were written off to expense through this analysis.
Capitalized Costs
Capitalized costs include the costs of acquiring land, construction costs, interest, property taxes, and overhead related to the construction of the units. Direct costs are capitalized to individual homes and other costs are allocated to each lot based on lot size.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Property and Equipment
Cost of property and equipment as of December 31, 2013 and 2012, is as follows:
2013 | 2012 | ||
Buildings, land and leasehold improvements | $ 404,929 | $ 404,929 | |
Office furniture and fixtures | 66,496 | 66,496 | |
Autos and trucks | 387,567 | 327,455 | |
Construction equipment | 276,146 | 23,162 | |
Model furniture and fixtures | 324,758 | 324,758 | |
$ 1,459,896 | $ 1,146,800 | ||
Depreciation
Depreciation is computed principally using straight-line methods at rates intended to distribute the cost of properties over their estimated service lives varying from five (5) to forty (40) years.
Income Taxes
Upon inception of the LLC, the Company’s members made an election to be taxed as a Corporation. Subsequently, the Company, with the consent of the owners, elected “S” status under Section 1361 of the Internal Revenue Code and North Carolina state tax code on October 19, 2001, which provides that, in lieu of corporation income taxes, the shareholder is taxed on his proportionate share of the Company’s taxable income. Therefore, no provision or liability for federal or state income tax is included in these financial statements.
Compensated Absences
Compensated absences have not been accrued because the amount cannot be reasonably estimated and is considered immaterial to the overall statement presentation.
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of certain financial instruments. For purposes of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. Cash, receivables, trade payables, and accrued expenses are carried at cost, which approximates fair value due to the short-time maturity of these instruments.
NOTE B - WORK IN PROCESS INVENTORY
The Company classifies any homes under construction as inventory on the balance sheet. At present, the Company has the following projects under construction and the following amounts listed in work in process inventory as of December 31:
2013 | 2012 | ||||
Bonterra Village | 2,155,882 | 1,852,385 | |||
Bonterra L/W units | 936,855 | 929,113 | |||
Barber Rock single family | 6,227,907 | 4,810,401 | |||
Millbridge | 4,107,572 | 1,457,654 | |||
Quintessa | 3,144,143 | 2,360,009 | |||
Skybrook | 2,700,084 | 2,699,565 | |||
St James Place | 321,976 | 276,844 | |||
Willow Farms | 785,223 | 761,999 | |||
Steel Gardens | 1,771,876 | 494,375 | |||
Longbrook | 57,072 | — | |||
Telfair | 4,094,699 | 780,964 | |||
Verdict Ridge | 1,668,350 | — | |||
Whitby Pond | 588,020 | 242,528 | |||
Woodlands Creek | 394,576 | 87,004 | |||
Oxforshire single family | 767,696 | 321,771 | |||
Potters Creek single family | 401,504 | 483,788 | |||
Gardens on Providence | 459,869 | 185,449 | |||
Crismark single family | 6,866,849 | 2,465,005 | |||
Farrington single family | 1,624,155 | 576,619 | |||
Fairway Row townhomes | 168,103 | 164,498 | |||
Deerstyne single family | 1,635,350 | 966,378 | |||
Cureton | 74,860 | 74,860 | |||
Cedarvale Farm | 1,287,972 | 959,548 | |||
McAdenville | 540,683 | — | |||
Mia Manor | 621,255 | 1,314 | |||
43,402,531 | 22,952,071 | ||||
The estimated costs and revenues of homes under construction at each development as of December 31, 2013, are as follows:
Estimated Costs | Estimated Revenues | ||||
Bonterra Village | 4,435,000 | 4,948,000 | |||
Barber Rock single family | 7,500,000 | 8,625,000 | |||
Verdict Ridge | 2,575,000 | 2,896,875 | |||
McAdenville | 1,225,000 | 1,396,500 | |||
St James Place | 965,000 | 1,100,100 | |||
Willow Farms | 1,355,000 | 1,547,410 | |||
Millbridge | 5,500,000 | 6,600,000 | |||
Quintessa | 4,350,000 | 4,785,000 | |||
Skybrook | 4,250,000 | 4,802,500 | |||
Steel Gardens | 3,250,000 | 4,000,000 | |||
Woodlands Creek | 755,000 | 853,150 | |||
Potters Creek | 855,000 | 970,425 | |||
Oxfordshire | 1,075,000 | 1,225,500 | |||
Fairway Row townhomes | 550,000 | 624,250 | |||
Gardens on Providence | 925,000 | 1,036,000 | |||
Farrington | 2,225,000 | 2,547,625 | |||
Deerstyne | 2,425,000 | 2,825,125 | |||
Whitby Pond | 945,000 | 1,067,850 | |||
Crismark | 9,038,500 | 10,665,430 | |||
Telfair | 6,088,000 | 6,849,000 | |||
Cureton | 300,000 | 330,000 | |||
Cedarvale Farm | 1,500,000 | 1,650,000 | |||
62,086,500 | 71,345,740 | ||||
NOTE C - OTHER ASSETS
The Company has paid deposits on lots in the following subdivisions: Barber Rock, Bonterra, Farrington, Millbridge, Oakstone townhomes, Skybrook, Steel Gardens, and Walnut Creek, which are classified as assets on the balance sheet. These deposits were required to ensure the company has purchase rights on each lot as they become ready for construction. The balance of the deposits held for purchase rights on December 31, 2013 and 2012 are $1,192,500 and $519,000, respectively.
NOTE D - RELATED PARTY TRANSACTIONS
Affiliate Receivables/Payables
The Company loaned a total of $2,494,844 and $2,208,000 during 2013 and 2012, respectively, to companies with common ownership. There is no stated interest rate on the receivables and no scheduled repayment terms. The receivables are due upon demand. The Company borrowed a total of $347,099 and $535,834 during 2013 and 2012, respectively, from companies with common ownership. There is no stated interest rate on the payables and no scheduled repayment terms.
Inventory
The Company buys lots and builds homes in developments that are partially owned by one of its members. According to management, the lots are purchased at comparable prices, as compared to the prices that other local and national builders pay for lots in these developments.
NOTE E - CONSTRUCTION LOANS
Construction loans consist of the following at December 31:
2013 | 2012 | ||||||
Construction loans collateralized by inventories and | |||||||
payable as the projects are sold, bearing interest | |||||||
at rates of Prime plus one half percent per annum | $ | 17,016,067 | $ | 10,913,762 | |||
Construction loans collateralized by inventories and | |||||||
payable as the projects are sold, bearing interest | |||||||
at the bank's prime rate | 9,745,277 | 4,919,977 | |||||
$ | 26,761,344 | $ | 15,833,739 | ||||
All construction loans are classified as current liabilities on December 31, 2013. Interest expense of $236,068 and $133,646 was capitalized as an additional cost of inventories during 2013 and 2012, respectively.
The Company’s main construction loan has additional related borrowers included. The development companies included that are related by common ownership (Bonterra Village, Poplin Development Group) are listed as borrowers on the line and any assets of these companies have been cross-collateralized with the loan. The amount borrowed on this construction line as of December 31, 2013 is $13,286,839.
NOTE F - CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances at one bank. Accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. Balances at this institution often exceed the insured limits. At December 31, 2013, the balances in the bank exceeded FDIC limits by approximately $1,625,000.
The construction industry is highly competitive and lacks firms with dominant market power. The volume and profitability of the company’s construction work depends to a significant extent upon the general state of the economies and the volume of work available to contractors. The adverse conditions currently in the housing market along with the inherit risk of construction projects are of major concern across the industry along with inherent financing risks. The Company’s construction operation could be adversely affected by labor stoppages or shortages, adverse weather conditions, or shortages of supplies.
NOTE G - EXTRAORDINARY ITEMS
After a thorough review of all lots, homes under constructions, and finished homes inventory, Bonterra Builders, LLC has taken a one-time write down of its properties to fair market value of $571,454 during 2012. The management of Bonterra Builders, LLC considers appraisal value to be the best approximation of fair market value and has written any pertinent properties down to the lower of cost or market amount where necessary. The management of Bonterra Builders, LLC believes this to be a one-time write down and does not anticipate any future write downs of costs to value on these properties based on the current market conditions.
FINANCIAL STATEMENTS |
with Supplemental Data |
BONTERRA BUILDERS, LLC |
DECEMBER 31, 2014 |
BONTERRA BUILDERS, LLC | ||||
TABLE OF CONTENTS | ||||
PAGE | ||||
INDEPENDENT AUDITOR'S REPORT | 1 | |||
FINANCIAL STATEMENTS | ||||
BALANCE SHEETS | 2 | |||
STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY | 3 | |||
STATEMENTS OF CASH FLOWS | 4 | |||
NOTES TO FINANCIAL STATEMENTS | 5 | |||
Derek K Atwell, CPA, PLLC
Independent Auditor’s Report
To the Members
Bonterra Builders, LLC
Matthews, North Carolina
I have audited the accompanying balance sheets of Bonterra Builders, LLC as of December 31, 2014 and 2013, and the related statements of income, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of Bonterra Builders, LLC as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Derek K Atwell, CPA, PLLC
Monroe, North Carolina
March 27, 2015
PO Box 3335 Monroe, North Carolina 28111
Phone: 980-322-6864 Fax: 704-288-4058
Derek@datwellcpa.com
BONTERRA BUILDERS, LLC | |||||||||
BALANCE SHEETS | |||||||||
December 31, | |||||||||
2014 | 2013 | ||||||||
ASSETS | |||||||||
CURRENT ASSETS | |||||||||
Cash and cash equivalents | 5,421,480 | 1,981,501 | |||||||
Accounts receivable - trade | 1,162,444 | 1,091,775 | |||||||
Accounts receivable - employees | 48,789 | 32,149 | |||||||
Lot inventories | 67,164,491 | 43,402,531 | |||||||
Total current assets | 73,797,204 | 46,507,956 | |||||||
PROPERTY AND EQUIPMENT | 2,410,233 | 1,459,896 | |||||||
Less accumulated depreciation | (743,148 | ) | (584,724 | ) | |||||
Total net property and equipment | 1,667,085 | 875,172 | |||||||
OTHER ASSETS | |||||||||
Affiliate receivables | 102,720 | 2,494,844 | |||||||
Investments in partnerships (lot development) | 301,900 | — | |||||||
Deposits | 2,098,054 | 1,192,500 | |||||||
Total other assets | 2,502,674 | 3,687,344 | |||||||
Total Assets | $ | 77,966,963 | $ | 51,070,472 | |||||
LIABILITIES AND MEMBERS' EQUITY | |||||||||
CURRENT LIABILITIES | |||||||||
Construction loans | 48,105,060 | 26,761,344 | |||||||
Accounts payable | 7,982,542 | 7,646,374 | |||||||
Accrued expenses | 549,531 | 279,103 | |||||||
Accrued payroll and payroll taxes | — | — | |||||||
Deposits | 1,150,926 | 1,247,156 | |||||||
Total current liabilities | 57,788,059 | 35,933,977 | |||||||
AFFILATE PAYABLES | — | 347,099 | |||||||
NOTES PAYABLE - AUTO | 91,231 | 119,799 | |||||||
MEMBERS' EQUITY | 20,087,673 | 14,669,597 | |||||||
20,087,673 | 14,669,597 | ||||||||
Total Liabilities and Members' Equity | 77,966,963 | 51,070,472 | |||||||
See independent auditor's report.
BONTERRA BUILDERS, LLC | |||||
STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY | |||||
For the Years Ended December 31, | |||||
2014 | 2013 | ||||
SALES | $ 111,781,538 | $ 98,676,605 | |||
COST OF HOMES SOLD | 90,819,122 | 79,504,596 | |||
GROSS PROFIT | 20,962,416 | 19,172,009 | |||
SELLING, GENERAL, AND ADMINISTRATIVE | |||||
EXPENSES | 11,220,698 | 9,146,550 | |||
NET OPERATING INCOME | 9,741,718 | 10,025,459 | |||
OTHER INCOME AND (EXPENSE) | |||||
Rebate income | 784,132 | 290,763 | |||
Rental income | 39,195 | 32,957 | |||
Other income | 101,904 | 103,034 | |||
Interest expense | (2,589,983) | (1,939,685) | |||
(1,664,752) | (1,512,931) | ||||
NET INCOME | 8,076,966 | 8,512,528 | |||
BEGINNING MEMBERS' EQUITY | 14,669,597 | 7,377,069 | |||
Distributions | (2,658,890) | (1,220,000) | |||
ENDING MEMBERS' EQUITY | $ 20,087,673 | $ 14,669,597 | |||
See independent auditor's report.
BONTERRA BUILDERS, LLC | |||||||||
STATEMENTS OF CASH FLOWS | |||||||||
For the Years Ended December 31, | |||||||||
2014 | 2013 | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||
Net income | $ | 8,076,966 | $ | 8,512,528 | |||||
Adjustments to reconcile net income to net cash | |||||||||
provided by (used in ) operating activities: | |||||||||
Depreciation | 159,566 | 77,278 | |||||||
(Increase) decrease in: | |||||||||
Accounts receivable - trade | (70,669 | ) | (603,983 | ) | |||||
Accounts receivable - affiliates | 2,392,124 | (286,844 | ) | ||||||
Accounts receivable - employees | (16,640 | ) | (15,899 | ) | |||||
Inventories | (23,761,960 | ) | (20,450,460 | ) | |||||
Lot deposits | (905,554 | ) | (673,500 | ) | |||||
Increase (decrease) in: | |||||||||
Accounts payable | 336,168 | 4,408,757 | |||||||
Accounts payable - affiliates | (347,099 | ) | (188,735 | ) | |||||
Accrued expenses | 270,428 | 129,026 | |||||||
Builder deposits | (96,230 | ) | 712,472 | ||||||
Net cash provided by (used in) operating expenses | (13,962,900 | ) | (8,379,360 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||
Investments in partnerships | (301,900 | ) | — | ||||||
Purchases of property and equipment | (951,479 | ) | (309,169 | ) | |||||
Net cash provided by (used in) investing activities | (1,253,379 | ) | (309,169 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||
Net borrowings (payments) on construction loans | 21,343,716 | 10,927,605 | |||||||
Net borrowings (payments) on auto loans | (28,568 | ) | 38,263 | ||||||
Dividends paid | (2,658,890 | ) | (1,220,000 | ) | |||||
Net cash provided by (used in) financing activities | 18,656,258 | 9,745,868 | |||||||
NET INCREASE (DECREASE) IN CASH | 3,439,979 | 1,057,339 | |||||||
CASH AT BEGINNING OF YEAR | 1,981,501 | 924,162 | |||||||
CASH AT END OF YEAR | $ | 5,421,480 | $ | 1,981,501 | |||||
Supplemental disclosure of cash flow information: | |||||||||
Cash paid for interest | $ | 2,558,738 | $ | 1,974,188 | |||||
See independent auditor's report.
BONTERRA BUILDERS, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Bonterra Builders, LLC (“The Company”), a North Carolina limited liability company, was formed on October 19, 2001. The company builds townhomes and single family residential homes in the greater Charlotte area of North and South Carolina.
Method of Accounting
For financial reporting purposes, assets and liabilities are recorded and income and expenses are recognized on the accrual basis of accounting.
Revenue Recognition
The Company recognizes revenue from all homebuilding activities at the closing of the sale using the deposit method. During construction, all direct material and labor costs and those indirect costs related to acquisition and construction are capitalized, and all customer deposits are treated as liabilities. Capitalized costs are charged to earnings upon closing. Costs incurred in connection with completed homes and selling, general, and administrative costs are charged to expense as incurred.
Accounts Receivable
Accounts receivable are presented at face value. Management considers receivables to be fully collectible; accordingly, no allowance for doubtful accounts has been provided. Bad debts on accounts receivable are expensed in the period in which management determines the amount to be uncollectible.
Inventory
Housing assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If the assets are considered to be impaired, they are then written down to the fair value less estimated selling costs. The ultimate fair value for the Company’s inventory is dependent upon future market and economic conditions.
Capitalized Costs
Capitalized costs include the costs of acquiring land, construction costs, interest, property taxes, and overhead related to the construction of the units. Direct costs are capitalized to individual homes and other costs are allocated to each lot based on lot size.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Property and Equipment
Cost of property and equipment as of December 31, 2014 and 2013, is as follows:
2014 | 2013 | ||
Buildings, land and leasehold improvements | $ 1,238,046 | $ 404,929 | |
Office furniture and fixtures | 70,023 | 66,496 | |
Autos and trucks | 387,567 | 387,567 | |
Construction equipment | 36,146 | 276,146 | |
Model furniture and fixtures | 678,451 | 324,758 | |
$ 2,410,233 | $ 1,459,896 | ||
Depreciation
Depreciation is computed principally using straight-line methods at rates intended to distribute the cost of properties over their estimated service lives varying from five (5) to forty (40) years.
Income Taxes
Upon inception of the LLC, the Company’s members made an election to be taxed as a Corporation. Subsequently, the Company, with the consent of the owners, elected “S” status under Section 1361 of the Internal Revenue Code and North Carolina state tax code on October 19, 2001, which provides that, in lieu of corporation income taxes, the shareholder is taxed on his proportionate share of the Company’s taxable income. Therefore, no provision or liability for federal or state income tax is included in these financial statements.
Compensated Absences
Compensated absences have not been accrued because the amount cannot be reasonably estimated and is considered immaterial to the overall statement presentation.
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of certain financial instruments. For purposes of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. Cash, receivables, trade payables, and accrued expenses are carried at cost, which approximates fair value due to the short-time maturity of these instruments.
NOTE B - WORK IN PROCESS INVENTORY
The Company classifies any homes under construction as inventory on the balance sheet. At present, the Company has the following projects under construction and the following amounts listed in work in process inventory as of December 31:
2014 | 2013 | ||||
Bonterra Village | $ 4,573,484 | $ | 3,092,737 | ||
Barber Rock | 4,540,489 | 6,227,907 | |||
Beulah Church Rd | 1,264,253 | — | |||
Channing Hall | 1,694,135 | — | |||
Millbridge | 5,443,626 | 4,107,572 | |||
Quintessa | 2,997,638 | 3,144,143 | |||
Skybrook | 1,442,321 | 2,700,084 | |||
Willow Farms | 887,367 | 785,223 | |||
Steel Gardens | 2,819,208 | 1,771,876 | |||
Telfair | 5,396,902 | 4,094,699 | |||
Verdict Ridge | 3,877,515 | 1,668,350 | |||
Woodlands Creek | 851,028 | 394,576 | |||
Potter Road Vickery | 2,027,387 | — | |||
Potters Road South | 2,526,100 | 401,504 | |||
The Haven | 1,228,762 | — | |||
Heron Cove | 1,885,572 | — | |||
Harper's Pointe | 1,187,287 | — | |||
Walnut Creek | 3,449,439 | — | |||
Crismark single family | 7,218,399 | 6,866,849 | |||
Farrington single family | 735,821 | 1,624,155 | |||
Fairway Row townhomes | 1,105,904 | 168,103 | |||
Deerstyne single family | 975,048 | 1,635,350 | |||
Cedarvale Farm | 2,623,207 | 1,287,972 | |||
Mia Manor | 1,825,815 | 621,255 | |||
McAdenville | 1,585,784 | 540,683 | |||
Other | 3,002,000 | 2,269,493 | |||
$ 67,164,491 | 43,402,531 | ||||
The estimated costs and revenues of homes under construction at each development as of December 31, 2014, are as follows:
Estimated | Estimated | ||||
Costs | Revenues | ||||
Bonterra Village | 6,100,000 | 7,015,000 | |||
Barber Rock single family | 7,500,000 | 8,625,000 | |||
Verdict Ridge | 5,250,000 | 6,037,500 | |||
McAdenville | 2,500,000 | 2,875,000 | |||
Willow Farms | 1,800,000 | 2,070,000 | |||
Millbridge | 6,750,000 | 7,762,500 | |||
Quintessa | 4,650,000 | 5,347,500 | |||
Skybrook | 2,700,000 | 3,105,000 | |||
Mia Manor | 3,425,000 | 4,041,500 | |||
Steel Gardens | 3,500,000 | 4,000,000 | |||
Woodlands Creek | 1,500,000 | 1,695,000 | |||
Potters Road | 7,000,000 | 8,120,000 | |||
Oxfordshire | 1,050,000 | 1,225,500 | |||
Fairway Row townhomes | 2,080,000 | 2,350,400 | |||
Channing Hall | 3,500,000 | 3,937,500 | |||
Farrington | 1,050,000 | 1,202,250 | |||
Deerstyne | 1,845,000 | 2,116,215 | |||
Walnut Creek | 5,200,000 | 5,865,600 | |||
Crismark | 10,450,000 | 12,749,000 | |||
Telfair | 6,850,000 | 7,795,300 | |||
Cureton | 1,825,000 | 2,044,000 | |||
Cedarvale Farm | 4,725,000 | 5,594,400 | |||
91,250,000 | 105,574,165 | ||||
NOTE C - OTHER ASSETS
The Company has paid deposits on lots in the following subdivisions: Barber Rock, Bonterra, Farrington, Millbridge, Oakstone townhomes, Skybrook, Steel Gardens, Heron Cove, Blanchard Farms, and Walnut Creek, which are classified as assets on the balance sheet. These deposits were required to ensure the company has purchase rights on each lot as they become ready for construction. The balance of the deposits held for purchase rights on December 31, 2014 and 2013 are $2,098,054 and $1,192,500, respectively.
NOTE D - RELATED PARTY TRANSACTIONS
Affiliate Receivables/Payables
The Company loaned a total of $102,720 and $2,494,844 during 2014 and 2013, respectively, to companies with common ownership. There is no stated interest rate on the receivables and no scheduled repayment terms. The receivables are due upon demand. The Company borrowed a total of $0 and $347,099 during 2014 and 2013, respectively, from companies with common ownership. There is no stated interest rate on the payables and no scheduled repayment terms.
Inventory
The Company buys lots and builds homes in developments that are partially owned by one of its members. According to management, the lots are purchased at comparable prices, as compared to the prices that other local and national builders pay for lots in these developments.
NOTE E - CONSTRUCTION LOANS
Construction loans consist of the following at December 31:
2014 | 2013 | ||
Construction loans collateralized by inventories and | |||
payable as the projects are sold, bearing interest | |||
at rates of Prime plus one half percent per annum | $ 34,754,186 | $ 17,016,067 | |
Construction loans collateralized by inventories and | |||
payable as the projects are sold, bearing interest | |||
at the bank's prime rate | 13,350,874 | 9,745,277 | |
$ 48,105,060 | $ 26,761,344 | ||
All construction loans are classified as current liabilities on December 31, 2014. Interest expense of $424,108 and $236,068 was capitalized as an additional cost of inventories during 2014 and 2013, respectively.
The Company’s main construction loan has additional related borrowers included. The development companies included that are related by common ownership (Bonterra Village, Poplin Development Group) are listed as borrowers on the line and any assets of these companies have been cross-collateralized with the loan. The amount borrowed on this construction line as of December 31, 2014 is $21,094,268.
NOTE F - CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances at one bank. Accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. Balances at this institution often exceed the insured limits. At December 31, 2014, the balances in the bank exceeded FDIC limits by approximately $4,500,000.
The construction industry is highly competitive and lacks firms with dominant market power. The volume and profitability of the company’s construction work depends to a significant extent upon the general state of the economies and the volume of work available to contractors. The adverse conditions currently in the housing market along with the inherit risk of construction projects are of major concern across the industry along with inherent financing risks. The Company’s construction operation could be adversely affected by labor stoppages or shortages, adverse weather conditions, or shortages of supplies.