424B3 1 tm2330901d1_424b3.htm 424B3

Filed pursuant to Rule 424(b)(3)

Registration No. 333-271515

PROSPECTUS SUPPLEMENT NO. 2

(to Prospectus dated July 31, 2023)

United Homes Group, Inc.

Primary Offering of

Up to 8,625,000 Class A Common Shares Underlying Public Warrants

Up to 2,966,664 Class A Common Shares Underlying Private Placement Warrants

Secondary Offering of Up to 421,100 Class A Common Shares Issued in a Private Offering

Up to 2,966,664 Class A Common Shares Issuable Upon Exercise of Private Placement Warrants

Up to 2,966,664 Warrants to purchase Class A Common Shares

_______________________________

This prospectus supplement updates and supplements the prospectus dated July 31, 2023 (as may be further supplemented or amended from time to time, the “Prospectus”), which forms a part of our Registration Statement on Form S-1 (File No. 333-271515).

This prospectus supplement is not complete without the Prospectus. This prospectus supplement should be read in conjunction with the Prospectus, which is required to be delivered with this prospectus supplement. If there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

Our shares of common stock, par value $0.0001 per share (the “Class A Common Shares”), and warrants to purchase Class A Common Shares (the “Warrants”) are listed on the Nasdaq Stock Market LLC under the symbols “UHG” and “UHGWW”, respectively. On November 14, 2023, the closing price of our Class A Common Shares was $7.68 per share and the closing price of our Warrants was $0.94 per Warrant.

We are an “emerging growth company” and a “smaller reporting company” as such terms are defined under the federal securities laws and, as such, are subject to certain reduced public company reporting requirements.

Investing in our securities involves a high degree of risk. You should review carefully the risks and uncertainties described under the heading “Risk Factors” beginning on page 7 of the Prospectus, and under similar headings in any amendments or supplements to the Prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the Prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus supplement is November 17, 2023.

ABOUT THIS PROSPECTUS SUPPLEMENT

This prospectus supplement is being filed to update and supplement the Prospectus with the information contained in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023, filed with the U.S. Securities and Exchange Commission on November 14, 2023 (the “Quarterly Report”). Accordingly, we have attached the Quarterly Report to this prospectus supplement.

Additionally, the information that appears under the caption “Management” in the Prospectus is modified as set forth herein, and the information that appears under the caption “Principal Stockholders” in the Prospectus is modified as set forth herein.

MANAGEMENT

Effective July 17, 2023, John G. (Jack) Micenko, Jr., age 49, was appointed as our President. Michael Nieri continues to serve as our Chief Executive Officer and Chairman. The biographical information set forth below for Mr. Micenko is hereby added to the “Management” section of the Prospectus, and Mr. Nieri’s biographical information is also updated accordingly. In addition, Dan Goldstein, previously Executive Vice President – Finance, is no longer with the company and accordingly, all references to Mr. Goldstein are hereby removed from the Prospectus.

John G. (Jack) Micenko, Jr., has served as our President since July 2023. Mr. Micenko has more than 20 years of experience in the residential real estate and mortgage finance industry, most recently as Managing Director at BTIG LLC (“BTIG”), where he had led the firm’s Housing Ecosystem investment banking practice since 2021, identifying opportunities for corporate clients across all aspects of the residential housing industry. Before his tenure at BTIG, Mr. Micenko was Senior Equity Analyst and Deputy Director of Research for Susquehanna International Group, LLP from 2004 to 2021. Mr. Micenko served as Vice President at Lehman Brothers Holdings Inc. from 2000 to 2004 and as Vice President at Friedman Billings Ramsey Group, a real estate investment trust, from 1996 to 2000. Mr. Micenko holds a Bachelor of Finance from John Carroll University and brings to our management team his extensive background in residential housing finance, capital markets and mergers and acquisitions.

PRINCIPAL STOCKHOLDERS

The information in the “Principal Stockholders” section of the Prospectus is hereby removed and replaced with the following:

The following table sets forth information regarding the beneficial ownership of the Company’s voting securities, consisting of Class A and Class B Common Shares, as of November 13, 2023 by:

each person who is known by us to be the beneficial owner of more than five percent of any class of our voting securities,

each of our Named Executive Officers and directors; and

all of our executive officers and directors as a group.

Beneficial ownership is determined in accordance with SEC rules and includes voting or investment power with respect to securities. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below will have sole voting and investment power with respect to all stock that they beneficially own, subject to applicable community property laws.

Subject to the paragraph above, the percentage ownership of issued shares is based on (i) 11,382,296 Class A Common Shares and (ii) 36,973,877 Class B Common Shares issued and outstanding as of November 13, 2023.

Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them. Unless otherwise noted, the business address of each of the following entities or individuals is 917 Chapin Road, Chapin, South Carolina 29036.

Name and Address of Beneficial Owner (1)	Number of Class A Shares Beneficially Owned		% of Class (1)			Number of Class B Shares Beneficially Owned		% of Class (1)
Directors and Named Executive Officers
Michael Nieri (2)		37,223,876		77.0	%		36,973,877		100	%
Tom O’Grady		746,947		6.2	%		—		*	%
David Hamamoto (2)		3,134,826		25.1	%		—		*	%
Eric S. Bland		123,750		1.1	%		—		*	%
James P. Clements		28,870		*			—		*	%
Robert Dozier		15,120		*			—		*	%
Jason Enoch		21,370		*			—		*	%
Nikki R. Haley		26,703		*			—		*	%
Alan Levine (2)		883,870		7.8	%		—		*	%
Michael Bayles		—		*			—		*	%
Robert Grove		—		*			—		*	%
Keith Feldman		521,867		4.5	%		—		*	%
Shelton Twine (2)		18,381,202		62.6	%		17,926,728		48	%
All executive officers and directors as a group (18 individuals)		43,016,828		89.0	%		36,973,877		100	%
Greater than Five Percent Holders:
Antara Capital (3)		4,455,318		35.3	%		0		*	%
PWN Trust 2018 (4)		6,058,909		34.9	%		5,975,576		16	%
MEN Trust 2018 (5)		6,058,909		34.9	%		5,975,576		16	%
PMN Trust 2018 (6)		6,058,909		34.9	%		5,975,576		16	%
James Martell		748,020		6.2	%		—		*	%

___________________________

* Less than 1%

(1) The percentage of beneficial ownership of the Company is calculated based on (i) 11,382,296 Class A common stock and (ii) 36,973,877 Class B common stock issued and outstanding as of November 13, 2023.

(2) Includes shares which the identified holder may be deemed to beneficially own, including shares held in trusts for the benefit of family members, or trusts in which the identified holder is a trustee.

(3) The business address of Antara Capital is 55 Hudson Yards, 47th Floor, Suite C, New York, New York 10001. Voting and dispositive control of the securities is held by Himanshu Gulati, as managing member of Antara Capital GP LLC, a Delaware limited liability company which is the general partner of Antara Capital LP, a Delaware limited partnership which is the investment manager of Antara Capital.

(4) Voting and dispositive control of the securities is shared by Pennington Nieri and Shelton Twine.

(5) Voting and dispositive control of the securities is shared by Maigan Nieri Lincks and Shelton Twine.

(6) Voting and dispositive control of the securities is shared by Patrick Nieri and Shelton Twine.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File Number: 001-39936

United Homes Group, Inc.

(Exact name of Registrant as specified in its charter)

Delaware

85-3460766

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

917 Chapin Road

Chapin, South Carolina 29036

(Address of principal executive offices)

(844) 766-4663

(Registrant’s telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Class A Common Shares

UHG

The Nasdaq Stock Market LLC

Warrants, each whole warrant exercisable for one Class A Common Share, each at an exercise price of $11.50 per share

UHGWW

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 13, 2023, 11,382,296 Class A Common Shares, par value $0.0001 per share, and 36,973,877 Class B Common Shares, par value $0.0001 per share, were issued and outstanding.

FORM 10-Q

UNITED HOMES GROUP, INC.

TABLE OF CONTENTS

		Page No.
PART I.	FINANCIAL INFORMATION		3
Item 1.	Condensed Consolidated Financial Statements:		3
	Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022		3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)		4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)		5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited)		7
	Notes to Condensed Consolidated Financial Statements (unaudited)		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		48
Item 4.	Controls and Procedures		48
PART II.	OTHER INFORMATION		50
Item 1.	Legal Proceedings		50
Item 1A.	Risk Factors		50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		50
Item 3.	Defaults Upon Senior Securities		50
Item 4.	Mine Safety Disclosures		50
Item 5.	Other Information		50
Item 6.	Exhibits		50

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, including known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “seek,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the Securities and Exchange Commission. We cannot guarantee the accuracy of any such forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For further information regarding risks and uncertainties associated with our business, and important factors that could cause our actual results to vary materially from those expressed or implied in such forward-looking statements, please refer to the factors listed and described in this report and in our other Securities and Exchange Commission (“SEC”) filings.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNITED HOMES GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2023 (UNAUDITED) AND DECEMBER 31, 2022

	September 30, 2023		December 31, 2022
ASSETS
Cash and cash equivalents	$	81,243,705	$	12,238,835
Accounts receivable, net		1,917,322		1,976,334
Inventories:
Homes under construction and finished homes		108,821,016		163,997,487
Developed lots		23,725,065		16,205,448
Due from related party		77,333		1,437,235
Related party note receivable		628,832		—
Income tax receivable		4,742,415		—
Lot purchase agreement deposits		24,605,584		3,804,436
Investment in joint venture		1,116,491		186,086
Property and equipment, net		643,354		1,385,698
Operating right-of-use assets		719,595		1,001,277
Prepaid expenses and other assets		8,582,333		6,112,044
Total Assets	$	256,823,045	$	208,344,880
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	27,313,718	$	22,077,240
Homebuilding debt and other affiliate debt		62,196,208		120,797,006
Operating lease liabilities		723,269		1,001,277
Other accrued expenses and liabilities		4,947,404		5,465,321
Deferred tax liability		798,276		—
Derivative liabilities		58,541,934		—
Convertible note payable		67,574,708		—
Total Liabilities		222,095,517		149,340,844
Commitments and contingencies (Note 12)
Class A common stock, $0.0001 par value; 350,000,000 shares authorized; 11,382,296 and 373,473 shares issued and outstanding on September 30, 2023, and December 31, 2022, respectively. (1)		1,137		37
Class B common stock, $0.0001 par value; 60,000,000 shares authorized; 36,973,877 shares issued and outstanding on September 30, 2023, and December 31, 2022, respectively. (1)		3,697		3,697
Preferred Stock, $0.0001 par value; 40,000,000 shares authorized; none issued or outstanding.		—		—
Additional paid-in capital (1)		1,783,014		1,422,630
Retained Earnings (1)		32,939,680		57,577,672
Total Stockholders' equity (1)		34,727,528		59,004,036
Total Liabilities and Stockholders' equity	$	256,823,045	$	208,344,880

(1)Retroactively restated as of December 31, 2022 for the Reverse Recapitalization as a result of the Business Combination as described in Notes 1 and 2.

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

UNITED HOMES GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Revenue, net of sales discounts	$	87,728,091		$	111,046,233		$	304,646,422		$	361,951,774
Cost of sales		70,317,796			82,107,334			246,540,874			264,730,624
Gross profit		17,410,295			28,938,899			58,105,548			97,221,150
Selling, general and administrative expense		13,629,713			13,266,455			46,652,432			38,892,250
Net income from operations		3,780,582			15,672,444			11,453,116			58,328,900
Other (expense) income, net		(1,199,140	)		49,513			(3,291,755	)		312,991
Equity in net earnings (losses) from investment in joint venture		293,923			(49,000	)		930,405			(49,000	)
Change in fair value of derivative liabilities		149,703,161			—			184,981,652			—
Income before taxes		152,578,526			15,672,957			194,073,418			58,592,891
Income tax expense		(1,735,839	)		—			(2,372,300	)		—
Net income	$	150,842,687		$	15,672,957		$	191,701,118		$	58,592,891
Basic and diluted earnings per share
Basic	$	3.12		$	0.42		$	4.29		$	1.68
Diluted	$	2.35		$	0.40		$	3.61		$	1.66
Basic and diluted weighted-average number of shares (1)
Basic		48,356,057			37,347,350			44,723,915			34,884,887
Diluted		64,806,024			38,709,652			54,155,557			35,371,321

(1)Retroactively restated for the three and nine months ended September 30, 2022 for the Reverse Recapitalization as a result of the Business Combination as described in Notes 1 and 2.

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

UNITED HOMES GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY₍₁₎

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

	Common stock																Net Due To
	Class A					Class B								Shareholders'			and Due From
	Shares		Amount		Shares		Amount		Additional paid-in capital		Retained earnings			and other affiliates' net investment			Shareholders and Other Affiliates			Total Stockholders' Equity
Balance as of December 31, 2021 as originally reported		—	$	—		—	$	—	$	—	$	—		$	83,586,722		$	(17,028,310	)	$	66,558,412
Retroactive application of recapitalization		373,473		37		36,973,877		3,697		—		66,554,678			(83,586,722	)		17,028,310			—
Adjusted balance as of December 31, 2021		373,473		37		36,973,877		3,697		—		66,554,678			—			—			66,558,412
Distributions and net transfer to shareholders and other affiliates		—		—		—		—		—		(20,766,162	)		—			—			(20,766,162	)
Stock-based compensation expense		—		—		—		—		1,268,222		—			—			—			1,268,222
Net Income		—		—		—		—		—		17,017,928			—			—			17,017,928
Balance as of March 31, 2022		373,473		37		36,973,877		3,697		1,268,222		62,806,444			—			—			64,078,400
Distributions and net transfer to shareholders and other affiliates		—		—		—		—		—		(24,415,179	)		—			—			(24,415,179	)
Stock-based compensation expense		—		—		—		—		53,288		—			—			—			53,288
Net Income		—		—		—		—		—		25,902,006			—			—			25,902,006
Balance as of June 30, 2022		373,473		37		36,973,877		3,697		1,321,510		64,293,271			—			—			65,618,515
Distribution and net transfer to shareholders and other affiliates		—		—		—		—		—		(29,630,624	)		—			—			(29,630,624	)
Stock-based compensation		—		—		—		—		51,116		—			—			—			51,116
Net income		—		—		—		—		—		15,672,957			—			—			15,672,957
Balance, September 30, 2022		373,473	$	37		36,973,877	$	3,697	$	1,372,626	$	50,335,604		$	—		$	—		$	51,711,964

	Common stock												Retained
		Class A				Class B							Earnings			Total
	Shares		Amount		Shares		Amount			Additional paid-in capital			(Accumulated Deficit)			Stockholders' Equity
Balance as of December 31, 2022		373,473	$	37		36,973,877		$	3,697	$	1,422,630		$	57,577,672		$	59,004,036
Distributions and net transfer to shareholders and other affiliates		—		—		—			—		—			(4,193,093	)		(4,193,093	)
Stock-based compensation expense		—		—		—			—		51,079			—			51,079
Forfeiture of private placement warrants		—		—		—			—		890,001			—			890,001
Issuance of common stock upon the reverse recapitalization, net of transaction costs		8,492,537		849		—			—		17,869,735			—			17,870,584
Issuance of common stock related to PIPE Investment		1,333,963		133		—			—		9,501,782			—			9,501,915
Issuance of common stock related to lock-up agreement		421,100		42		—			—		4,194			—			4,236
Recognition of derivative liability related to earnout		—		—		—			—		(242,211,404	)		—			(242,211,404	)
Recognition of derivative liability related equity incentive plan		—		—		—			—		(1,189,685	)		—			(1,189,685	)
Earnout stock-based compensation expense for UHG employee options		—		—		—			—		4,448,077			—			4,448,077
Transaction costs related to reverse recapitalization		—		—		—			—		(2,932,426	)		—			(2,932,426	)
Net Loss		—		—		—			—		—			(204,504,328	)		(204,504,328	)
Reclassification of negative APIC		—		—		—			—		212,146,017			(212,146,017	)		—
Balance as of March 31, 2023		10,621,073		1,061		36,973,877			3,697		—			(363,265,766	)		(363,261,008	)
Stock-based compensation expense		—		—		—			—		410,530			—			410,530
Exercise of stock options under the 2023 Plan		12,643		1		—			—		132,411			—			132,412
Forfeiture of stock options under the 2023 Plan		—		—		—			—		479,742			—			479,742
Exercise of stock warrants		748,020		75		—			—		(75	)		—			—
Transaction costs related to equity issuance		—		—		—			—		(257,721	)		—			(257,721	)
Net Income		—		—		—			—		—			245,362,759			245,362,759
Balance as of June 30, 2023		11,381,736		1,137		36,973,877			3,697		764,887			(117,903,007	)		(117,133,286	)
Stock-based compensation expense		—		—		—			—		1,106,014			—			1,106,014
Exercise of stock options under the 2023 Plan		560		—		—			—		1,567			—			1,567
Recognition of derivative liability related equity incentive plan		—		—		—			—		(89,454	)		—			(89,454	)
Net Income		—		—		—			—		—			150,842,687			150,842,687
Balance as of September 30, 2023		11,382,296	$	1,137		36,973,877		$	3,697	$	1,783,014		$	32,939,680		$	34,727,528

(1)The shares of the Company’s common stock, prior to the Business Combination (as defined in Note 1) have been retroactively restated to reflect the exchange ratio of approximately 373.47 (“Exchange Ratio”) established in the Business Combination.

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

UNITED HOMES GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

	Nine Months Ended September 30,
	2023			2022
Cash flows from operating activities:
Net income	$	191,701,118		$	58,592,891
Adjustments to reconcile net income to net cash flows from operating activities:
Bad debt expense		87,786			—
Investment (earnings) losses in joint venture		(930,405	)		49,000
Depreciation		154,474			264,884
(Gain) loss on sale of property and equipment		(1,892	)		6,967
Amortization of deferred financing costs		694,219			283,157
Amortization of discount on convertible notes		860,432			—
Non cash interest income		(26,002	)		—
Stock compensation expense		6,015,700			1,372,626
Amortization of operating lease right-of-use assets		627,120			396,628
Change in fair value of contingent earnout liability		(191,222,357	)		—
Change in fair value of warrant liabilities		6,667,249			—
Change in fair value of equity incentive plan		(426,544	)		—
Deferred tax liability		2,668,586			—
Net change in operating assets and liabilities:
Accounts receivable		(28,774	)		(1,856,760	)
Related party receivable		1,359,902			(1,437,235	)
Inventories		48,838,741			(46,974,166	)
Lot purchase agreement deposits		(17,882,022	)		(664,490	)
Prepaid expenses and other assets		460,845			(505,383	)
Accounts payable		2,456,057			7,086,580
Operating lease liabilities		(623,446	)		(396,628	)
Income tax receivable		(5,444,286	)		—
Other accrued expenses and liabilities		(517,917	)		3,446,281
Net cash flows provided by operating activities		45,488,584			19,664,352
Cash flows from investing activities:
Purchases of property and equipment		(59,229	)		(116,420	)
Proceeds from the sale of property and equipment		66,100			13,808
Proceeds from promissory note issued for sale of property and equipment		62,190			—
Cash paid for acquisition		(2,166,516	)		—
Capital contribution in joint venture		—			(49,000	)
Net cash flows used in investing activities		(2,097,455	)		(151,612	)
Cash flows from financing activities:
Proceeds from homebuilding debt		42,500,000			129,089,631
Repayments of homebuilding debt		(90,055,992	)		(100,495,213	)
Proceeds from other affiliate debt		136,773			9,456,206
Repayments of other affiliate debt		—			(918,453	)
Payment of deferred financing costs		(3,240,984	)		—
Repayments on equipment financing		—			(142,536	)
Distributions and net transfer to shareholders and other affiliates		(17,896,302	)		(51,027,000	)
Changes in net due to and due from shareholders and other affiliates		—			(37,607,535	)
Proceeds from convertible note, net of transaction costs		71,500,000			—
Proceeds from PIPE investment and lock up		4,720,427			—
Proceeds from Business Combination, net of SPAC transaction costs		30,336,068			—
Payment of equity issuance costs		(257,721	)		—
Payment of transaction costs		(12,134,293	)		—
Proceeds from exercise of employee stock options		5,765			—
Net cash flows provided by (used in) financing activities		25,613,741			(51,644,900	)
Net change in cash and cash equivalents		69,004,870			(32,132,160	)
Cash and cash equivalents, beginning of year		12,238,835			51,504,887
Cash and cash equivalents, end of year	$	81,243,705		$	19,372,727
Supplemental cash flow information:
Cash paid for interest	$	12,265,939		$	2,969,521
Cash paid for income taxes	$	5,299,436		$	—
Non-cash investing and financing activities:
Additions of right-of-use lease assets and liabilities		272,543			1,149,832
Acquisition of developed lots from related parties in settlement of due from Other Affiliates		—			13,822,570
Conversion of other affiliates debt to homebuilding debt		—			1,414,681
Promissory note issued for sale of property and equipment		665,020			—
Settlement of co-obligor debt to affiliates		8,340,545			—
Release of guarantor from GSH to shareholder		2,841,034			—
Noncash distribution to owners of Other Affiliates		12,671,122			—
Earnest money receivable from Other Affiliates		2,521,626			—
Recognition of previously capitalized deferred transaction costs		2,932,426			—
Modification to existing lease		(40,968	)		—
Recognition of derivative liability related to earnout		242,211,404			—
Recognition of derivative liability related to equity incentive plan		1,279,139			—
Recognition of warrant liability upon Business Combination		1,531,000			—
Forfeiture of private placement warrants upon Business Combination		(890,001	)		—
Issuance of common stock upon the reverse recapitalization		39,933,707			—
Recognition of deferred tax asset upon Business Combination		1,870,310			—
Recognition of income tax payable upon Business Combination		701,871			—
Recognition of assumed assets and liabilities upon Business Combination, net		3,588,110			—
Noncash exercise of stock warrants		75			—
Noncash exercise of employee stock options		128,214			—
Forfeiture of employee stock options		(479,742	)		—
Total non-cash financing activities	$	320,077,435		$	16,387,083

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

UNITED HOMES GROUP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

Note 1 - Nature of operations and basis of presentation

The Company and Nature of Business

United Homes Group, Inc. (“UHG” or the “Company”), a Delaware corporation, is a homebuilding business which operates with a land-light strategy. The Company is a former blank check company incorporated on October 7, 2020 under the name DiamondHead Holdings Corp. (“DHHC”) as a Delaware corporation formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

UHG constructs single-family residential homes and has active operations in South Carolina, North Carolina, and Georgia offering a range of residential products including entry-level attached and detached homes, first-time move up attached and detached homes and second move-up detached homes. The constructed homes appeal to a wide range of buyer profiles, from first-time to lifestyle buyers. The Company’s primary objective is to provide customers with homes of exceptional quality and value while maximizing its return on investment. The Company has grown by expanding its market share in existing markets and by expanding into markets contiguous to the current active markets.

Business Combination

On September 10, 2022, DHHC entered into a Business Combination Agreement (the “Business Combination Agreement”) with Hestia Merger Sub, Inc., a South Carolina corporation and wholly owned subsidiary of DHHC (“Merger Sub”), and Great Southern Homes, Inc., a South Carolina corporation (“GSH”).

Upon the consummation of the transaction on March 30, 2023 (“Closing Date”), Merger Sub merged with and into GSH with GSH surviving the merger as a wholly owned subsidiary of the Company (“Business Combination”). As a result of the Business Combination, GSH is now a wholly owned subsidiary of DHHC, which has changed its name to United Homes Group, Inc.

GSH’s business historically consisted of both homebuilding operations and land development operations. In anticipation of the Business Combination, GSH separated its land development operations and its homebuilding operations across separate entities in an effort to adopt best practices in the homebuilding industry associated with ownership and control of land and lots and production efficiency. For accounting treatment of the Business Combination, see Note 2 - Merger and Reverse Recapitalization. Unless otherwise indicated or the context otherwise requires, references in this quarterly report on Form 10-Q to “Legacy UHG” refer to the homebuilding operations of GSH prior to the consummation of the Business Combination.

Basis of Presentation

The Condensed Consolidated Financial Statements included in this report reflect (i) the historical operating results of Legacy UHG prior to the Business Combination; (ii) the combined results of UHG and DHHC following the Closing; (iii) the assets and liabilities of UHG and DHHC, and Legacy UHG at their historical cost; and (iv) the Company’s equity structure for all periods presented.

The accompanying Condensed Consolidated Balance Sheet as of December 31, 2022, the Condensed Consolidated Statements of Operations and Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022, and the Statement of Cash Flows for the nine months ended September 30, 2022 (“Legacy UHG financial statements”) have been prepared from Legacy UHG’s historical financial records and reflect the historical financial position, results of operations and cash flows of the Legacy UHG for the periods presented on a carve-out basis in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The Statements of Changes in Stockholders’ Equity are adjusted for the retroactive application of the reverse recapitalization using the Exchange Ratio. The Legacy UHG financial statements present historical information and results attributable to the homebuilding operations of GSH. The Legacy UHG financial statements exclude GSH’s operations related to land development operations as Legacy UHG historically did not operate as a standalone company. The carve-out methodology was used since Legacy UHG’s inception until the Closing Date. Thus, after March 30, 2023, no carve-out amounts were included in UHG’s financial statements.

Periods prior to the Business Combination

Prior to the Business Combination until the Closing Date, Legacy UHG has historically transacted with affiliates that were owned by the shareholders of GSH. Legacy UHG has categorized the various affiliates based on the nature of the transactions with Legacy UHG and their primary operations. The categories are as follows:

Land Development Affiliates - Land development affiliates’ primary operations consist of acquiring and developing raw parcels of land for vertical home construction. Upon completion, the land development affiliates transfer the developed lots to Legacy UHG in a non-cash transaction.

Other Operating Affiliates - Other operating affiliates’ operations consist of acquiring and developing land, purchasing constructed houses for rental properties, leasing activities, and purchasing model homes to be maintained during the sell down period of a community.

Collectively, these are referred to as “Other Affiliates” in these financial statements and represented as related parties (see Note 9 - Related party transactions).

All assets, liabilities, revenues, and expenses directly associated with the activity of Legacy UHG are included in these financial statements. Cash and cash equivalents is included in these financial statements, as Legacy UHG provided the cash management/treasury function for the Other Affiliates until January 1, 2023. In addition, a portion of Legacy UHG’s corporate expenses including share-based compensation were allocated to Legacy UHG based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional cost of sales or employee headcount, as applicable. The corporate expense allocations include the cost of corporate functions and resources provided by or administered by GSH including, predominately, costs associated with executive management, finance, accounting, legal, human resources, and costs associated with operating GSH’s office buildings. The corporate expense allocation requires significant judgment and management believes the basis on which the corporate expenses have been allocated reasonably reflects the utilization of services provided to Legacy UHG during the periods presented. Balance Sheet accounts were reviewed to determine what was attributable to Legacy UHG. There were no Balance Sheet accounts that required allocation procedures for assets and liabilities.

In addition, all significant transactions between Legacy UHG and GSH have been included in these financial statements. The aggregated net effect of transactions between Legacy UHG and GSH are settled within Retained Earnings/ (Accumulated Deficit) on the Balance Sheets as they were not expected to be settled in cash. These amounts were reflected in the Statements of Cash Flows within Distributions and net transfer to shareholders and other affiliates and, when transactions were historically not settled in cash, in Non-cash financing activities.

GSH’s third-party long-term debt and related interest expense have all been allocated to Legacy UHG. Legacy UHG was considered the primary legal obligor of such debt as it was the sole cash generating entity and responsible for repayment of the debt. Certain portions of that long-term debt and the related interest consist of construction revolving lines of credit and are reflected as Homebuilding debt. The remaining portions of long-term debt and the related interest have been used to finance operations that were not related to Legacy UHG, primarily land development activities, and were presented as Other Affiliate debt.

The results reported in these financial statements would not be indicative of Legacy UHG’s future performance, primarily because prior to the Business Combination, the lots developed by affiliates were not transferred to the homebuilding operations of GSH at a market rate. As such, these results do not necessarily reflect what the financial position, results of operations and cash flows would have been had it operated as an independent company during the periods presented.

Note 2 - Merger and Reverse Recapitalization

On the Closing Date, the following transactions were completed:

•Merger Sub merged with and into GSH, with GSH surviving the merger as a wholly owned subsidiary of the Company;

•All 1,000 shares of Class A common stock of GSH (“GSH Class A Common Shares”) issued and outstanding prior to the Closing Date were exchanged for 373,473 shares of Class A common stock of UHG (“UHG Class A Common Shares”);

•All 99,000 shares of Class B common stock of GSH (“GSH Class B Common Shares”) issued and outstanding prior to the Closing Date were exchanged for 36,973,877 shares of Class B common stock of UHG (“UHG Class B Common Shares”);

•All 2,426 outstanding options of GSH to acquire GSH Class A Common Shares were assumed by the Company and converted into options to acquire an aggregate of approximately 905,930 UHG Class A Common Shares (the “Rollover Options”);

•All 5,000 outstanding warrants to purchase GSH Class A Common Shares were assumed by the Company and converted into warrants to purchase 1,867,368 UHG Class A Common Shares (the “Assumed Warrants”);

•8,625,000 outstanding shares of DHHC Class B common stock held by DHP SPAC II Sponsor LLC (the “Sponsor”) converted into 4,160,931 UHG Class A Common Shares, all of which are subject to resale or transfer restrictions;

•The Company issued an aggregate of 1,755,063 UHG Class A Common Shares to the PIPE Investors, Lock-Up Investors and the Convertible Note Investors, pursuant to the terms of the PIPE Subscription Agreements, Share Lock-up Agreements and the PIPE Investment, (together the “PIPE Financings”), as described below.

As of the Closing Date and following the completion of the Business Combination, UHG had the following outstanding securities:

•10,621,073 UHG Class A Common Shares;

•36,973,877 UHG Class B Common Shares;

•2,966,664 warrants to purchase 2,966,664 UHG Class A Common Shares, each exercisable at a price of $11.50 per share, issued in connection with the DHHC initial public offering and held by the Sponsor and BlackRock Inc. and Millennium Management LLC (the “Anchor Investors”);

•8,625,000 warrants to purchase 8,625,000 UHG Class A Common Shares, each exercisable at a price of $11.50 per share, issued in connection with the DHHC initial public offering;

•1,867,368 Assumed Warrants to purchase 1,867,368 UHG Class A Common Shares, each exercisable at a price of $4.05 per share;

•905,930 Rollover Options to purchase 905,930 UHG Class A Common Shares, each exercisable at a price of $2.81 per share.

Earnout

In connection with the Business Combination, holders of GSH common shares, certain holders of stock options, and holders of GSH warrants (together, “GSH Equity Holders”), options held by employees and directors (“Employee Option Holders”) and the Sponsors (together, the “Earnout Holders”) are entitled to receive consideration in the form of common shares (“Earnout Shares”). The Company reserved 21,886,378 Earnout Shares for future issuance upon achievement of certain earnout conditions, of which 20,000,000 may be awarded to GSH Equity Holders and Employee Option Holders and 1,886,378 additional earnout shares may be awarded to the Sponsors. Refer to Note 15 - Earnout Shares.

In connection with the Closing, and under the terms of the Sponsor Support Agreement entered into in connection with the execution of the Business Combination Agreement, 1,886,378 shares of the 8,625,000 shares of DHHC Class B common stock held by the Sponsor were converted to Earnout Shares and became subject to vesting conditions based on the achievement of certain market-based share price thresholds. Refer to Note 15 - Earnout Shares for additional information regarding the terms and conditions of the Earnout Triggering Events. Of the remaining 6,738,622 shares of DHHC Class B common stock, 2,577,691 shares were forfeited and 4,160,931 shares were converted into UHG Class A Common Shares.

Convertible Note

In connection with the closing of the Business Combination, DHHC entered into a Convertible Note Purchase Agreement (the “Note Purchase Agreement”), by and among itself, GSH, and a group of investors (the “Convertible Note Investors”). Pursuant to and at the closing of the transactions contemplated by the Note Purchase Agreement, the Convertible Note Investors agreed to purchase $80.0 million in original principal amount of Convertible Promissory Notes (the “Notes,” or “Note PIPE Financing”) and, pursuant to the terms of share subscription agreements entered into between each Convertible Note Investor and UHG, an additional 744,588 UHG Class A Common Shares (the “PIPE Shares”) in a private placement PIPE investment (the “PIPE Investment”). Refer to Note 13 - Convertible Note for additional information on the accounting treatment for the Notes, including issuance costs.

Subscription Agreement

In connection with the execution of the Business Combination Agreement, UHG entered into separate subscription agreements (each a “Subscription Agreement,” or “Subscription Agreement PIPE Financing,” and together with the “Note PIPE Financing,” the “PIPE Financings”) with a number of investors (each a “PIPE Investor”), pursuant to which the PIPE Investors agreed to purchase, and UHG agreed to sell to the PIPE Investors, an aggregate of 471,500 shares of common stock for a purchase price of $10.00 per share and 117,875 shares for a purchase price of $0.01 per share for an aggregate purchase price of $4.7 million, in a private placement offering. The PIPE Financings closed simultaneously with the consummation of the Business Combination.

Lock-Up Agreement

In connection with the execution of the Business Combination Agreement, DHHC entered into separate Share Issuance and Lock-Up Agreements (each a “Lock-up Agreement”) with a number of investors (each a “Lock-up Investor”), pursuant to which UHG agreed to issue each Lock-up Investor 0.25 UHG Class A Common Shares (up to 421,100 UHG Class A Common Shares in the aggregate) for a purchase price of $0.01 per share, for each UHG Class A Common Share held by such Lock-up Investor at the Closing. Following the closing of the Business Combination, UHG notified each Lock-Up Investor that UHG waived the lock-up restriction contained in the Lock-Up Agreements.

The number of shares of UHG common stock issued immediately following the consummation of the Business Combination was as follows:

	Shares		Ownership %
DHHC public shareholders – UHG Class A Common Shares1		4,331,606		9.1	%
DHHC sponsor shareholders – UHG Class A Common Shares		4,160,931		8.7	%
GSH existing shareholders – UHG Class B Common Shares		36,973,877		77.7	%
GSH existing shareholders – UHG Class A Common Shares		373,473		0.8	%
Convertible Note Investors – UHG Class A Common Shares		744,588		1.6	%
PIPE Investors - UHG Class A Common Shares		589,375		1.2	%
Lock-up Investors - UHG Class A Common Shares		421,100		0.9	%
Total Closing Shares		47,594,950		100	%

1Represents remaining DHHC Class A shares following share redemptions prior to the Business Combination.

Treatment of Merger

The Business Combination is accounted for as a reverse recapitalization under GAAP. This determination is primarily based on Legacy UHG retaining the largest portion of the voting rights, the post-transaction management team is primarily comprised of the pre-transaction management team of GSH and the relative size of GSH’s operations is larger than DHHC’s. Under this method of accounting, DHHC is treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Condensed Consolidated Financial Statements of UHG represent a continuation of the financial statements of Legacy UHG with the Business Combination being treated as the equivalent of Legacy UHG issuing stock for the net assets of DHHC, accompanied by a recapitalization. The net assets of DHHC are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are presented as those of Legacy UHG. All periods prior to the Business Combination have been retrospectively adjusted using the Exchange Ratio of 373.47 for the equivalent number of shares outstanding immediately after the Business Combination to effect the reverse recapitalization. Accordingly, certain amounts have been reclassified and retroactively adjusted to reflect the reverse recapitalization pursuant to the Business Combination for all periods presented within the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Changes in Stockholders’ Equity.

In connection with the Business Combination, the Company received approximately $128.6 million of gross proceeds including the contribution of $43.9 million of cash held in DHHC’s trust account from its initial public offering, $4.7 million of cash in connection with the Subscription Agreement PIPE Financing, and $80.0 million in connection with the Notes PIPE Financing. As part of the PIPE Financings, the Company entered into the Note Purchase Agreement for an original principal amount of $80.0 million. The Company incurred debt issuance costs of $5.0 million of original issuance discount and an additional $3.5 million of transaction costs that were allocated to the Notes, resulting in net cash proceeds of $71.5 million.

The Company incurred $25.7 million of transaction costs in connection with the Business Combination, consisting of advisory, banking, legal, and other professional fees, of which $13.6 million were incurred by DHHC and $12.1 million were incurred by Legacy UHG. All costs were capitalized and recorded as a reduction to additional paid-in capital.

Note 3 - Summary of significant accounting policies

The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s fiscal year end is December 31 and, unless otherwise stated, all years and dates refer to the fiscal year.

Unaudited Interim Condensed Consolidated Financial Statements - The accompanying Condensed Consolidated Financial Statements of the Company have been prepared in accordance with GAAP for interim financial information and the rules and regulations of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, certain information, notes, and disclosures normally included in the annual financial statements prepared under GAAP have been condensed or omitted in accordance with SEC rules and regulations. Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes included in the audited financial statements of Legacy UHG for the year ended December 31, 2022 included in the Form S-1/A filed with the SEC on July 17, 2023. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying Condensed Consolidated Financial Statements as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 are unaudited. The unaudited interim Condensed Consolidated Financial Statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the Company’s financial position as of September 30, 2023, results of operations for the three and nine months ended September 30, 2023 and 2022 and cash flows for the nine months ended September 30, 2023 and 2022. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2023 and 2022 are also unaudited. The Condensed Consolidated Balance Sheet at December 31, 2022, was derived from audited annual financial statements and adjusted for the retrospective recapitalization as described in Note 1 - Nature of operations and basis of presentation and Note 2 - Merger and Reverse Recapitalization but does not contain all of the note disclosures from the annual financial statements. Other than policies noted below, there have been no significant changes to the significant accounting policies disclosed in Note 2 of audited Legacy UHG financial statements as of December 31, 2022 and 2021 and for each of the three years in the period ended December 31, 2022. The results for the three and nine months ended September 30, 2023 and 2022 are not necessarily indicative of results to be expected for the year ended December 31, 2023, any other interim periods, or any future year or period.

Emerging Growth Company - The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is not an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Principles of consolidation – The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation.

Use of Estimates – The preparation of the accompanying Condensed Consolidated Financial Statements in conformity with GAAP requires management to make informed estimates and judgments that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Estimates made by the Company include corporate expense allocation, useful lives of depreciable assets, revenue recognition associated with contracts recognized over time, capitalized interest, warranty reserves, share-based compensation, valuation of earnout liability, valuation of convertible note and valuation of stock warrants. Due to inherent uncertainty involved in making estimates, actual results reported in future periods may differ from those estimates.

Segment Information – The Company determines its chief operating decision maker (“CODM”) based on the person responsible for making resource allocation decisions. Operating segments are components of the business for which the CODM regularly reviews discrete financial information. The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions.

Inventories and Cost of Sales – The carrying value of inventory is stated at cost unless events and circumstances indicate the carrying value may not be recoverable. Inventory consists of developed lots, homes under construction, and finished homes.

–Developed lots - This inventory consists of land that has been developed for or acquired by the Company and where vertical construction is imminent. Developed lot costs are typically allocated to individual residential lots on a per lot basis based on specific costs incurred for the acquisition of the lot. As of September 30, 2023 and December 31, 2022, the amount of developed lots included in inventory was $23,725,065 and $16,205,448, respectively. Developed lots purchased at fair value from third parties and related parties was $23,150,065 and $10,052,179 as of September 30, 2023 and December 31, 2022, respectively, which is included in Developed Lots on the Condensed Consolidated Balance Sheets.

–Homes under construction - At the time construction of the home begins, developed lots are transferred to homes under construction within inventory. This inventory represents costs associated with active homebuilding activities which include, predominately, labor, materials and overhead costs related to home construction, capitalized interest, real estate taxes and land option fees. As of September 30, 2023 and December 31, 2022, the amount of inventory related to homes under construction included in homes under construction and finished homes was $85,322,597 and $141,863,561, respectively.

–Finished homes - This inventory represents completed but unsold homes at the end of the reporting period. Costs incurred in connection with completed homes including associated selling, general, and administrative costs are expensed as incurred. As of September 30, 2023 and December 31, 2022, the amount of inventory related to finished homes included in homes under construction and finished homes was $23,498,419 and $22,133,926, respectively.

Goodwill - Goodwill represents the excess of purchase price over the fair value of the assets acquired and the liabilities assumed in a business combination. See Note 4 - Business Combinations, for details on recent acquisitions. In accordance with ASC Topic 350, Intangibles-Goodwill and Other, the Company evaluates goodwill for potential impairment on at least an annual basis. The Company has the option to perform a qualitative or quantitative assessment to determine whether the fair value of a reporting unit exceeds its carrying value. Qualitative factors may include, but are not limited to economic conditions, industry and market considerations, cost factors, overall financial performance of the reporting units and other entity and reporting unit specific events. If the qualitative assessment indicates that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, then a quantitative assessment is performed to determine the reporting unit’s fair value. If the reporting unit’s carrying value exceeds its fair value, then an impairment loss is recognized for the amount of the excess of the carrying amount over the reporting unit’s fair value.

Unconsolidated Variable Interest Entities - Pursuant to ASC 810 and subtopics related to the consolidation of variable interest entities (“VIEs”), management analyzes the Company’s investments and transactions under the variable interest model to determine if they are VIEs and, if so, whether the Company is the primary beneficiary. Management determines whether the Company is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion if changes to the Company’s involvement arise. To make this determination, management considers factors such as whether the Company could direct finance, determine or limit the scope of the entity, sell or transfer property, direct development or direct other operating decisions. The primary beneficiary is defined as the entity having both of the following characteristics: 1) the power to direct the activities that most significantly impact the VIE’s performance, and 2) the obligation to absorb losses and rights to receive the returns from the VIE that would be potentially significant to the VIE. Management consolidates the entity if the Company is the primary beneficiary or if a standalone primary beneficiary does not exist and the Company and its related parties collectively meet the definition of a primary beneficiary. If the investment does not qualify as a VIE under the variable interest model, management then evaluates the entity under the voting interest model to assess if consolidation is appropriate.

The Company has entered into a shared services agreement with a related party that operates in the land development business in which the Company will provide accounting, IT, HR, and other administrative support services and receive property maintenance services and due diligence and negotiation assistance with purchasing third party finished lots. Management has analyzed and concluded that it has a variable interest in this entity through the services agreement that provides the Company with the obligation to absorb losses and the right to receive benefits based on fees that are below market rates.

Additionally, the Company enters into lot option purchase agreements with the same related party and other related parties to procure land or lots for the construction of homes. Under these contracts, the Company funds a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time. Under the terms of the option purchase contracts, the option deposits are not refundable. Management determined it holds a variable interest through its potential to absorb some of the related parties’ first dollar risk of loss by placing a non-refundable deposit.

Management determined that these related parties are VIEs, however, the Company is not the primary beneficiary of the VIEs as it does not have the power to direct the VIEs’ significant activities related to land development. Accordingly, the Company does not consolidate these VIEs.

As of September 30, 2023 the Company recognized $77,333 of assets related to the services agreement included within Due from related party on the Condensed Consolidated Balance Sheets, and $20,138,083 of assets related to lot purchase agreements included within Lot purchase agreement deposits on the Condensed Consolidated Balance Sheets. There were no amounts associated with these agreements as of December 31, 2022. The Company determined these amounts to be the maximum exposure to loss due to involvement with the VIEs as the Company does not provide any financial guarantees or support to these related parties.

Revenue Recognition - The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. For the three months ended September 30, 2023 and 2022, revenue recognized at a point in time from speculative home closings totaled $84,644,068, and $105,694,086, respectively, and for the three months ended September 30, 2023 and 2022, revenue recognized over time from construction activities on land owned by customers totaled $3,084,023, and $5,352,147, respectively. For the nine months ended September 30, 2023 and 2022, revenue recognized at a point in time from speculative home closings totaled $294,749,743, and $345,566,071, respectively, and for the nine months ended September 30, 2023 and 2022, revenue recognized over time from construction activities on land owned by customers totaled $9,896,679, and $16,385,703, respectively.

Advertising – The Company expenses advertising and marketing costs as incurred and includes such costs within Selling, general, and administrative expense in the Condensed Consolidated Statements of Operations. For the three months ended September 30, 2023 and 2022, the Company incurred $511,505 and $460,457, respectively, in advertising and marketing costs. For the nine months ended September 30, 2023 and 2022, the Company incurred $1,485,185 and $2,286,890, respectively, in advertising and marketing costs.

Income Taxes – Income taxes are accounted for using the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences on differences between the carrying amounts of assets and liabilities and their respective tax basis, using tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is “more-likely-than not” that some portion or all of the deferred tax assets will not be realized. When evaluating the realizability of deferred tax assets, all evidence, both positive and negative, is evaluated.

The Company recognizes interest and penalties related to the underpayment of income taxes, including those resulting from the late filing of tax returns within the provision for income taxes in the Condensed Consolidated Statements of Operations. The Company analyzes its tax filing positions in the U.S. federal, state, and local tax jurisdictions where the Company is required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, the Company determines that uncertainties in tax positions exist, a liability is established.

Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions, including evaluating uncertainties under GAAP. The Company reviews its tax positions quarterly and adjusts its tax balances as new legislation is enacted or new information becomes available.

Prior to the Business Combination, Legacy UHG was included in the tax filing of the shareholders of GSH, which was taxed individually under the provision of Subchapter S and Subchapter K of the Internal Revenue Code. Individual shareholders were liable for income taxes on their respective shares of GSH’s taxable income. No income tax liability nor income tax was allocated to Legacy UHG as of December 31, 2022 or for the nine months ended September 30, 2022, nor was there any recorded liability for uncertain tax positions.

Derivative liabilities – The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging (“ASC 815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

The 8,625,000 warrants issued in connection with DHHC’s Initial Public Offering (the “Public Warrants”), the 2,966,664 Private Placement Warrants (as defined below), 21,491,695 Earnout Shares and certain stock options (as discussed in Note 14 - Share-based compensation) are recognized as derivative liabilities in accordance with ASC 815. Accordingly, the Company recognizes the warrant instruments, earnout shares and stock options as liabilities at fair value and adjusts the instruments to fair value at each reporting period until they are exercised or issued, respectively. The Public Warrant quoted market price was used as the fair value for the Public Warrants as of September 30, 2023. The Private Placement Warrants and the Earnout shares were valued using a Monte Carlo analysis. See the Earnout and Warrant Liabilities sections below for further detail on each instrument and their classification. Stock options were valued using Black-Scholes valuation model. See Note 14 - Share-based compensation for further detail.

Earnout - In connection with the Business Combination, Earnout Holders are entitled to receive consideration in the form of Earnout Shares upon the Company achieving certain Triggering Events, as described in Note 15 - Earnout Shares. The contingent obligations to issue Earnout Shares to the Earnout Holders, excluding Employee Option Holders, are recognized as derivative liabilities in accordance with ASC 815. The liabilities were recognized at fair value on the Closing Date and are subsequently remeasured at each reporting date with changes in fair value recorded in the Condensed Consolidated Statements of Operations.

Earnout Shares issuable to Employee Option Holders are considered a separate unit of account from the Earnout Shares issuable to GSH Equity Holders, and the Sponsors, and are accounted for as equity classified stock compensation. The Earnout Shares issuable to Employee Option Holders are fully vested upon issuance, thus there is no requisite service period, and the value of these shares is recognized as a one-time stock compensation expense for the grant date fair value.

The estimated fair values of the Earnout Shares were determined by using a Monte Carlo simulation valuation model using a distribution of potential outcomes on a daily basis over the Earnout Period as defined in Note 15 - Earnout Shares. The preliminary estimated fair values of the Earnout Shares were determined using the most reliable information available, including the current trading price of the UHG Class A Common Shares, expected volatility, risk-free rate, expected term and dividend rate.

The earnout liability is categorized as a Level 3 fair value measurement because the Company estimated projections during the Earnout Period utilizing unobservable inputs. See Note 5 - Fair Value Measurement for further detail on UHG’s accounting policy related to the fair value of financial instruments.

Warrant Liabilities- The Company assumed 8,625,000 publicly-traded warrants (“Public Warrants”) from DHHC’s initial public offering and 2,966,664 private placement warrants originally issued by DHHC (“Private Placement Warrants” and, together with the Public Warrants, the “Common Stock Warrants” or “Warrants”). Upon consummation of the Business Combination, each Common Stock Warrant issued entitled the holder to purchase one UHG Class A Common Share at an exercise price of $11.50 per share. The Common Stock Warrants are exercisable as of April 29, 2023. The Private Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants were not transferable, assignable or salable until 30 days after the completion of the Business Combination, subject to certain exceptions. During the three and nine months ended September 30, 2023, no Common Stock Warrants were exercised. The Public Warrants are publicly traded and are exercisable for cash unless certain conditions occur which would permit a cashless exercise. The Private Placement Warrants are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees, subject to certain exceptions. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants are redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

The Company evaluated the Public Warrants and Private Placement Warrants and concluded that both meet the definition of a derivative and will be accounted for in accordance with ASC Topic 815-40, as the Public Warrants and Private Placement Warrants are not considered indexed to UHG’s stock.

PIPE Investment - In connection with the closing of the Business Combination, GSH entered into the Note Purchase Agreement, dated March 21, 2023, and effective March 30, 2023, with DHHC and the Convertible Note Investors. As part of the PIPE Investment, the Convertible Note Investors agreed to purchase $80.0 million in original principal amount of Notes at a 6.25% original issue discount and were issued an additional 744,588 UHG Class A Common Shares. The aggregate proceeds received from the Convertible Note Investors was $75.0 million. Additionally, in connection with the Business Combination, (i) the PIPE Investors purchased from the Company an aggregate of (A) 471,500 UHG Class A Common Shares at a purchase price of $10.00 per share, and (B) 117,875 UHG Class A Common Shares at a purchase price of $0.01 per share for gross proceeds to the Company of approximately $4.7 million, pursuant to the PIPE Subscription Agreements, and (ii) the Lock-Up Investors purchased from the Company an aggregate of 421,100 UHG Class A Common Shares at a purchase price of $0.01 per share pursuant to the Share Lock-Up Agreements. Following the closing of the Business Combination, UHG notified each Lock-Up Investor that UHG waived the lock-up restriction contained in the Share Lock-Up Agreements.

The Company accounts for the Notes and PIPE Shares as two freestanding financial instruments. The Company accounts for the Notes at amortized cost and amortizes the debt discount to interest expense using the effective interest method over the expected term of the Notes pursuant to ASC 835, Interest. The Company accounts for the PIPE Shares as equity, as they are not in the scope of ASC 480. The Company applied the relative fair value method to allocate the $75.0 million in aggregate proceeds received among the freestanding instruments issued. Specifically, $70.2 million was allocated to the Notes, and $4.8 million was allocated to the PIPE Shares. The amount allocated to the PIPE Shares is presented as an increase in additional paid-in capital.

The Notes are considered a hybrid financial instrument consisting of a debt “host” and embedded features. The Company evaluated the Notes at issuance for embedded derivative features and the potential need for bifurcation under ASC 815, and determined that the Notes contained embedded derivatives, including conversion features and redemption rights. Although the Company determined that a group of these embedded features which are contingent on certain events occurring, as further discussed in Note 13 - Convertible Note, would need to be bifurcated, the contingencies themselves are either entirely within the Company’s control or based on an event for which management considers the probability of occurring as extremely remote. Therefore, the group of embedded features which are contingent on certain events and required to be bifurcated would likely have minimal or no value and therefore deemed to not be material to the Condensed Consolidated Financial Statements.

The Company engaged an independent valuation firm to assist with the valuation of the Notes and the PIPE Shares. Refer to Note 13 - Convertible Note for further valuation details.

The Company recognized issuance costs of $3.5 million in connection with the Note Purchase Agreement. Issuance costs are specific incremental costs that are (1) paid to third parties and (2) directly attributable to the issuance of a debt or equity instrument. The issuance costs attributable to the initial sale of the instrument are offset against the associated proceeds in the determination of the instrument’s initial net carrying amount.

Recently Adopted Accounting Pronouncements – In June 2016, FASB issued ASU 2016-13, Financial Instruments – Credit Losses Measurement of Credit Losses on Financial Instruments (“ASC 326”). ASC 326 significantly changes the way impairment of financial assets is recognized by requiring companies to immediately recognize estimated credit losses expected to occur over the remaining life of many financial assets. The immediate recognition of the estimated credit losses generally will result in an earlier recognition of allowance for credit losses on loans and other financial instruments. The Company adopted this ASU effective January 1, 2023. The adoption of ASC 326 did not have a significant impact on the Company’s Condensed Consolidated Financial Statements.

In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), which provides practical expedients and exceptions for applying GAAP when modifying contracts and hedging relationships that use the London Interbank Offered Rate (“LIBOR”) as a reference rate. During the three months ended March 31, 2023, the Company adopted Topic 848 and amended the related debt agreement (see Note 8 - Homebuilding debt and other affiliate debt). The adoption of Topic 848 did not have a significant impact on the Company’s Condensed Consolidated Financial Statements.

Note 4 - Business Combinations

In August 2023, the Company entered the Raleigh, North Carolina market through the acquisition of selected assets of Herring Homes, LLC (“Herring Homes”) for a purchase price of $2,166,516 in cash. The results of operations have been included in the financial statements since August 18, 2023, the effective date of the acquisition. The purchase price for the acquisition was allocated based on estimated fair value of the assets and liabilities at the date of the acquisition. The Company recognized the excess purchase price over the fair value of the net assets acquired as goodwill of $500,000. The goodwill arising from the acquisition consists largely of the expected synergies from establishing a market presence in Raleigh and the experience and reputation of the acquired management team. The remaining basis of $1,666,516 is primarily comprised of the fair value of the acquired developed lots and lot purchase agreement deposits with limited other assets and liabilities. Transaction costs were not material and were expensed as incurred.

The Company has entered into an agreement with Herring Homes, LLC to provide certain services including providing the use of UHG employees to finish unacquired WIP and treasury management in exchange for fees outlined in the agreement. For the three and nine months ended September 30, 2023, the Company recorded $50,000, $95,086, and $88,931 in Revenue, Other (expense) income, net, and Cost of sales, respectively. Subsequent to the acquisition, UHG acquired 50 lots for a fair value of $4.9 million in the Raleigh, North Carolina market.

Note 5 - Fair Value Measurement

Certain assets and liabilities measured and reported at fair value under GAAP are classified in a three-level hierarchy that prioritizes the inputs used in the valuation process. Categorization within the valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The hierarchy is based on the observability and objectivity of the pricing inputs as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data.

Level 3 – Prices or valuation techniques that require significant unobservable data inputs. These inputs would normally be the Company’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.

Due to the short-term nature of the Company’s Cash and cash equivalents, Accounts receivable, and Accounts payable, the carrying amounts of these instruments approximate their fair value. Lot purchase agreement deposits are recorded at the agreed-upon contract value, which approximates fair value. The interest rates on the Homebuilding debt and other affiliate debt vary and are the greater of either a reference rate plus an applicable margin, or the base rate plus the aforementioned applicable margin. Refer to Note 8 - Homebuilding debt and other affiliate debt for additional detail on the determination of these instruments’ interest rate. As the reference rate of the Homebuilding debt and other affiliate debt at any point in time is reflective of the current interest rate environment the Company operates in, the carrying amount of these instruments approximates their fair value.

The Convertible note payable is presented on the Condensed Consolidated Balance Sheet at its amortized cost and not at fair value. As of September 30, 2023, the fair value of the convertible note is $142,700,000. See Note 13 - Convertible Note for further details on how the fair value was estimated.

All other financial instruments except for Derivative private placement warrants liability, Contingent earnout liability, Derivative stock option liability and Convertible note payable are classified within Level 1 or Level 2 of the fair value hierarchy because the Company values these instruments either based on recent trades of securities in active markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.

The estimated fair value of the Derivative private placement warrants liability, Contingent earnout liability, Derivative stock option liability and Convertible note payable is determined using Level 3 inputs. The models and significant assumptions used in preparing the valuations are disclosed in Note 16 - Warrant liability, Note 15 - Earnout Shares, Note 14 - Share-based compensation, and Note 13 - Convertible Note respectively.

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2023 and indicates the fair value hierarchy of the valuation. There were no assets or liabilities that are measured at fair value as of December 31, 2022.

	Fair Value Measurements as of September 30, 2023
	Level 1		Level 2		Level 3		Total
Contingent earnout liability	$	—	$	—	$	50,989,047	$	50,989,047
Derivative private placement warrant liability		—		—		2,046,998		2,046,998
Derivative public warrant liability		5,261,250		—		—		5,261,250
Derivative stock option liability		—		—		244,639		244,639
Total Derivative Liability	$	5,261,250	$	—	$	53,280,684	$	58,541,934

Transfers to/from Levels 1, 2 and 3 are recognized at the beginning of the reporting period. There were no transfers to/from levels during the nine month period ended September 30, 2023 and the year ended December 31, 2022.

The following table presents a roll forward of the Level 3 liabilities measured at fair value on a recurring basis:

	Contingent earnout liability			Derivative private placement warrant liability			Derivative stock option liability
Liability at January 1, 2023	$	—		$	—		$	—
Recognition		242,211,404			625,370			1,189,685
Forfeitures		—			(890,001	)		—
Change in fair value		203,418,892			1,213,963			922,263
Liability at March 31, 2023	$	445,630,296		$	949,332		$	2,111,948
Forfeitures	$	—		$	—		$	(817,862	)
Exercise of liability awards		—			—			(272,621	)
Change in fair value		(245,918,719	)		1,394,332			(527,315	)
Liability at June 30, 2023	$	199,711,577		$	2,343,664		$	494,150
Recognition							$	89,454
Change in fair value		(148,722,530	)		(296,666	)		(338,965	)
Liability at September 30, 2023	$	50,989,047		$	2,046,998		$	244,639

Note 6 - Capitalized interest

The Company accrues interest on the Company’s Homebuilding debt. That debt is used to finance homebuilding operations (see Note 8 - Homebuilding debt and other affiliate debt) and the associated interest is capitalized during active development of the home and included within inventory for Homes under construction and finished homes. Capitalized interest is expensed to Cost of sales upon the sale of the home. The Company also accrued interest on the Company’s Convertible note payable. During periods in which the Company’s active inventory is lower than its debt level, a portion of the interest incurred is reflected as interest expense within Other (expense) income, net in the period incurred (see Note 13 - Convertible Note). Capitalized interest activity is summarized in the table below for the three and nine months ended September 30, 2023 and 2022:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Capitalized interest at beginning of the period:	$	847,951		$	969,337		$	1,250,460		$	1,190,318
Interest incurred		4,779,675			1,623,028			12,343,274			3,361,561
Interest expensed:
Amortized to cost of sales		(1,531,318	)		(1,582,819	)		(6,078,117	)		(3,542,333	)
Directly to interest expense		(2,039,512	)		—			(5,458,821	)		—
Capitalized interest at September 30:	$	2,056,796		$	1,009,546		$	2,056,796		$	1,009,546

Note 7 - Property and equipment

Property and equipment consisted of the following as of September 30, 2023 and December 31, 2022:

Asset Group	September 30, 2023			December 31, 2022
Furniture and fixtures	$	507,972		$	688,487
Leasehold improvements		380,187			380,187
Machinery and equipment		55,882			1,037,231
Office equipment		23,221			165,774
Vehicles		176,455			750,950
Total Property and equipment	$	1,143,717		$	3,022,629
Less: Accumulated depreciation		(500,363	)		(1,636,931	)
Property and equipment, net	$	643,354		$	1,385,698

Depreciation expense, included within Selling, general and administrative expense on the Condensed Consolidated Statements of Operations was $23,594 and $89,667 for the three months ended September 30, 2023 and 2022, respectively and $154,474 and $264,884, for the nine months ended September 30, 2023 and 2022, respectively.

Note 8 - Homebuilding debt and other affiliate debt

Prior to the Business Combination, Legacy UHG, jointly with its Other Affiliates considered to be under common control, entered into debt arrangements with financial institutions. These debt arrangements are in the form of revolving lines of credit and are generally secured by land (developed lots and undeveloped land) and homes (under construction and finished). Legacy UHG and certain related Other Affiliates were collectively referred to as the Nieri Group. The Nieri Group entities were jointly and severally liable for the outstanding balances under the revolving lines of credit, however, Legacy UHG was deemed the primary obligor. Legacy UHG was considered the primary legal obligor of such debt as it was the sole cash generating entity and responsible for repayment of the debt. As such, Legacy UHG had recorded the outstanding advances under the financial institution debt and other debt within these financial statements as of December 31, 2022.

A portion of the revolving lines of credit were drawn down for the sole operational benefit of the Nieri Group and Other Affiliates outside of Legacy UHG. These line of credit balances are reflected in the table below as Other Affiliates’ debt.

Post Business Combination, the Company no longer enters into debt arrangements with Other Affiliates of Legacy UHG. As discussed further below, in connection with the Business Combination, the Wells Fargo Syndication line was amended and restated to exclude any members of the Nieri Group and Other Affiliates of Legacy UHG from the borrower list.

The advances from the revolving construction lines, reflected as Homebuilding debt, are used to build homes and are repaid incrementally upon individual home sales. The various revolving construction lines are collateralized by the homes under construction and developed lots. The revolving construction lines are fully secured, and the availability of funds are based on the inventory value at the time of the draw request. Interest is accrued based on the total syndication balance and is paid monthly. As the average construction time for homes is less than one year, all outstanding debt is considered short-term as of September 30, 2023 and December 31, 2022.

The following table and descriptions summarize the Company’s debt as of September 30, 2023 and December 31, 2022:

	September 30, 2023
	Weighted average interest rate			Homebuilding Debt - Wells Fargo Syndication
Wells Fargo Bank		8.02	%	$	16,844,806
Regions Bank		8.02	%		14,253,298
Flagstar Bank		8.02	%		12,957,543
United Bank		8.02	%		10,366,035
Third Coast Bank		8.02	%		7,774,526
Total debt on contracts				$	62,196,208

	December 31, 2022
	Weighted average interest rate			Homebuilding Debt - Wells Fargo Syndication		Other Affiliates(1)		Total
Wells Fargo Bank		4.98	%	$	34,995,080	$	8,203,772	$	43,198,852
Regions Bank		4.98	%		27,550,618		—		27,550,618
Texas Capital Bank		4.98	%		19,676,552		—		19,676,552
Truist Bank		4.98	%		19,659,329		—		19,659,329
First National Bank		4.98	%		7,870,621		—		7,870,621
Anderson Brothers		4.74	%		—		2,841,034		2,841,034
Total debt on contracts				$	109,752,200	$	11,044,806	$	120,797,006

(1)Outstanding balances relate to bank financing for land acquisition and development activities of Other Affiliates for which the Company is the co-obligor or has an indirect guarantee of the indebtedness of the Other Affiliates. In addition, the $8,203,772 of Other Affiliates debt with Wells Fargo Bank as of December 31, 2022 is part of the Wells Fargo Syndication.

Wells Fargo Syndication

In July 2021, the Nieri Group entities entered into a $150,000,000 Syndicated Credit Agreement (“Syndicated Line”) with Wells Fargo Bank, National Association (“Wells Fargo”). The Syndicated Line was a three-year revolving credit facility with a maturity date of July 2024, and an option to extend the maturity date for one year that could be exercised upon approval from Wells Fargo. The Syndicated Line also included a $2,000,000 letter of credit as a sub-facility subjected to the same terms and conditions as the Syndicated Line. The Syndicated Line was amended and restated (“First Amendment”) on March 30, 2023 (“Amendment Date”) in connection with the Business Combination (as defined in Note 1 - Nature of operations and basis of presentation) and made GSH the sole borrower of the Syndicated Line. An additional amendment and restatement (“Second Amendment”) was entered into on August 10, 2023 (“Second Amendment Date”). As a result of the Second Amendment, UHG became a co-borrower of the Syndicated Line, the maximum borrowing capacity was increased to $240,000,000, and the maturity date was extended to August 10, 2026. In addition, Wells Fargo Bank and Regions Bank increased their participation in the Syndicated Line, three lenders exited the Syndicated Line, and three lenders joined as new participants of the Syndicated Line. No other significant terms of the arrangements were changed other than those relating to the financial covenants and interest rate terms described below.

The remaining availability to be drawn down on the Syndicated Line was $48,776,907 as of September 30, 2023 and $12,015,246 as of December 31, 2022. The Company pays a fee ranging between 15 and 30 basis points per annum depending on the unused amount of the Syndicated Line. The fee is computed on a daily basis and paid quarterly in arrears.

The Syndicated Line contains financial covenants, including (a) a minimum tangible net worth of no less than the sum of (x) $65 million and (y) 25% of positive after-tax income until the Amendment Date (which amount is subject to increase over time based on earnings) and no less than $70 million from the Amendment Date until June 30, 2023, no less than $70 million plus 25% of quarterly earnings on and after June 30, 2023 until the Second Amendment Date, no less than the sum of (x) $70 million and (y) 25% of positive actual consolidated earnings earned in any fiscal quarter end, plus 100% of new equity contributed to the Company, plus 100% of any new equity contributed as well as increases from an equity issuance or repurchase of equity interests on or after the Second Amendment Date (b) a maximum leverage covenant that prohibits the leverage ratio from exceeding 2.75 to 1.00 for any fiscal quarter until the Amendment Date, 2.50 to 1.00 for any fiscal quarter after the Amendment Date until December 31, 2023, and 2.25 to 1.00 for any fiscal quarter thereafter (c) a minimum debt service coverage ratio to be less than 2.50 to 1.00 for any fiscal quarter, and (d) a minimum liquidity amount of not less than $15,000,000 at all times until the Second Amendment Date, and not less than the greater of i) $20,000,000 or ii) an amount equal to 1.50x the trailing twelve month interest incurred on or after the Second Amendment Date and (e) unrestricted cash of not less than $7,500,000 until the Second Amendment Date and not less than 50% of the required liquidity on or after the Second Amendment Date. The Company was in compliance with all debt covenants as of September 30, 2023. Legacy UHG was in compliance with all debt covenants as of December 31, 2022.

The interest rates on the borrowings under the Syndicated Line vary based on the leverage ratio. In connection with the First Amendment, the benchmark interest rate was converted from LIBOR to Secured Overnight Financing Rate (“SOFR”), with no changes in the applicable rate margins. The interest rate is based on the greater of either LIBOR prior to Amendment Date or SOFR post Amendment Date plus an applicable margin (ranging from 275 basis points to 350 basis points) based on the Company’s leverage ratio as determined in accordance with a pricing grid, or the base rate plus the aforementioned applicable margin.

Other Affiliates debt

The amounts in Other Affiliates debt are unrelated to the operations of Legacy UHG, and therefore, an equal amount is included as an offset in Retained Earnings in lieu of Additional paid-in capital. For the nine months ended September 30, 2023 and 2022, Other Affiliates borrowed $136,773, and $9,456,206, respectively. These amounts are recorded on the Statements of Cash Flows, financing activities section, with borrowings presented as Proceeds from other affiliate debt and repayments as Repayments of other affiliate debt. On February 27, 2023, Legacy UHG paid off Wells Fargo debt associated with Other Affiliates in the amount of $8,340,545 and on February 28, 2023, Legacy UHG was released as a co-obligor from the Anderson Brothers debt associated with Other Affiliates in anticipation of the Business Combination that closed on March 30, 2023 as discussed in Note 1. As a result there is no remaining debt balance associated with Other Affiliates as of September 30, 2023.

In connection with the amendments of the Syndicated Line, the Company incurred debt issuance costs, of which $3,240,984 is deferred and will be amortized over the remaining life of the Syndicated Line. The amendments are accounted for as modifications of an existing line of credit under ASC 470, Debt for any lenders that continue to participate in the Syndicated Line, therefore, any previously unamortized deferred costs related to those lenders continue to be amortized over the remaining life of the Syndicated Line. The Company expensed all remaining unamortized deferred costs for any lenders that no longer participate in the Syndicated Line as of the Second Amendment Date. The Company recognized $358,325 and $81,149, respectively, of amortized deferred financing costs within Other (expense) income, net for the three months ended September 30, 2023 and 2022, respectively. The Company recognized $694,219 and $283,157 of amortized deferred financing costs within Other (expense) income, net for the nine months ended September 30, 2023 and 2022, respectively. Outstanding deferred financing costs related to the Company’s Homebuilding debt were $3,257,825 and $690,804 as of September 30, 2023 and 2022, respectively, and are included in Prepaid expenses and other assets on the Condensed Consolidated Balance Sheets as the debt is a revolving arrangement.

Note 9 - Related party transactions

Prior to the Business Combination, Legacy UHG transacted with Other Affiliates that were owned by the shareholders of GSH. Those Other Affiliates included Land Development Affiliates and Other Operating Affiliates (see Note 1 - Nature of operations and basis of presentation).

Post Business Combination, the Company continues to transact with these parties, however, they are no longer considered affiliates of the Company. Land Development Affiliates and Other Operating Affiliates of Legacy UHG (post Business Combination) meet the definition of related parties of the Company as defined in ASC 850-10-20.

Prior to the Business Combination, Legacy UHG maintained the cash management and treasury function for its Other Affiliates. Cash receipts from customers and cash disbursements made to vendors were recorded through one centralized bank account. Legacy UHG recorded a Due from Other Affiliate when cash was disbursed, generally to a vendor, on behalf of an affiliate. Conversely, Legacy UHG recorded a Due to Other Affiliate when cash was received from a customer on behalf of an affiliate. The balances were settled through equity upon the consummation of the Business Combination.

The below table summarizes Legacy UHG transactions with the Land Development Affiliates and Other Operating Affiliates for the nine months ended September 30, 2023 and 2022.

	Nine Months ended September 30, 2023
	Land Development Affiliates			Other Operating Affiliates			Total
Financing cash flows:
Land development expense	$	(384,349	)	$	—		$	(384,349	)
Other activities		(225,392	)		(422,342	)		(647,734	)
Total financing cash flows	$	(609,741	)	$	(422,342	)	$	(1,032,083	)

Non-cash activities
Settlement of co-obligor debt to other affiliates	$	8,340,545		$	—		$	8,340,545
Release of guarantor from GSH to shareholder		2,841,034			—			2,841,034
Credit for earnest money deposits		2,521,626			—			2,521,626
Total non-cash activity	$	13,703,205		$	—		$	13,703,205

	Nine Months ended September 30, 2022
	Land Development Affiliates			Other Operating Affiliates			Total
Financing cash flows:
Land development expense	$	(29,264,304	)	$	(665,777	)	$	(29,930,081	)
Other activities		(1,928,677	)		(748,777	)		(2,677,454	)
Cash transfer		—			(5,000,000	)		(5,000,000	)
Total financing cash flows	$	(31,192,981	)	$	(6,414,554	)	$	(37,607,535	)

Non-cash activities
Acquisition of developed lots		13,822,570			—			13,822,570
Total non-cash activity	$

SEC Form 424B3 filed by DiamondHead Holdings Corp.