##### 



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 Commission File Number 333-130488
 Stanley-Martin Communities, LLC
  DELAWARE
    
    03-0410135(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
 Registrants telephone number, including area code:
  Title of each class
    
    Name of each exchange on which registeredNone
    
    None
 NONE
 o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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Stanley-Martin Communities, LLC
 Item
    
    
    
    PageNo
    
    
    
    No.Part I1
    
    Business
    
    
    31A
    
    Risk Factors
    
    
    171B
    
    Unresolved Staff Comments
    
    
    262
    
    Properties
    
    
    273
    
    Legal Proceedings
    
    
    274
    
    Submission of Matters to a Vote of Security Holders
    
    
    27Part II5
    
    Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    286
    
    Selected Financial Data
    
    
    287
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    307A
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    438
    
    Financial Statements and Supplementary Data
    
    
    44-709
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    709A
    
    Controls and Procedures
    
    
    709B
    
    Other Information
    
    
    71Part III10
    
    Directors, Executive Officers and Corporate Governance
    
    
    7211
    
    Executive Compensation
    
    
    7312
    
    Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters
    
    
    7513
    
    Certain Relationships and Related Transactions
    
    
    7514
    
    Principal Accountant Fees and Services
    
    
    77Part IV15
    
    Exhibits and Financial Statement Schedules
    
    
    77-83Signatures
 2




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##### 



PART I
 ITEM 1. BUSINESS
 Overview
      Reorganization
  3




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##### 



(1)
    
    Neighborhood Holdings, LLC is not a guarantor of our $145.7 million senior subordinated notes
(the Notes) or subject to the covenants of the indenture governing the Notes. In addition to
Stanley-Martin Communities, LLC, Neighborhood Holdings has one other subsidiary, Stanley
Martin Woodlands, LLC as of December 31, 2007. On September 22, 2006, Neighborhood Holdings
contributed Wildewood Residential, LLC to our wholly owned subsidiary, Neighborhoods Capital,
LLC (Capital).(2)
    
    Stanley-Martin Communities, LLC, the registrant, and Stanley-Martin Financing Corp. are
co-issuers of the Notes. Stanley-Martin Financing Corp. is a wholly owned subsidiary of
Stanley-Martin Communities, LLC and was formed for the sole purpose of serving as a co-issuer
of the Notes.(3)
    
    Stanley-Martin Communities, LLC owns 51% of the membership interests of First Excel Title,
LLC (First Excel). Excel Title Corporation, a third party, which provides certain management
and administrative services to First Excel Title, LLC, owns the other 49% of the membership
interests.(4)
    
    Neighborhoods Capital, LLC and certain of its subsidiaries are borrowers and guarantors under
our senior secured credit facility.(5)
    
    Stanley-Martin Communities, LLC owns 75% of the membership interests of First Heritage
Mortgage, LLC and a third party owns the other 25% of the membership interests.(6)
    
    First Excel Title, LLC, First Heritage Mortgage, LLC, Stanley-Martin Custom Homes, LLC,
Stanley Martin Companies, LLC and certain other subsidiaries of ours do not guarantee the
Notes. See Risk Factors  Risks Related to the Notes and Our Indebtedness  The Notes will
be effectively subordinated to all indebtedness of our subsidiaries that are not guarantors of
the Notes.(7)
    
    On January 1, 2007, Stanley Martin Companies, Inc. was converted to a Maryland limited
liability company, Stanley Martin Companies, LLC.(8)
    
    In 2007, the Company commenced building custom homes under the name Stanley Martin Custom
Homes, LLC. 4




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##### 



MARKET OVERVIEW
 The information contained in this section is based on numerous assumptions, including
assumptions regarding the continued population growth rate of the Washington, D.C. metropolitan
area and the continued economic health of the region.
  Current Market Conditions
  
 5




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##### 



6




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##### 



Positive Employment Trends
  
  
 Continued Population Growth
  7




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##### 



Appealing Demographics
  
 8




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##### 



Competitive Strengths
 Long-Term Focus and Success in the Washington, D.C. Metropolitan Area
  Attractive Long-term Market Fundamentals
  Valuable Land Portfolio
  Product and Customer Diversification
  Operational Excellence
  Experienced Management Team
  9




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##### 



Business Strategy
 Capitalize on Valuable Land Position
  Pursue Disciplined Growth in Attractive Areas
  Provide High Quality Construction, Outstanding Service, Innovative Designs and Relative Value
  10




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##### 



Product Mix
   Our Communities
  Washington, D.C. Metropolitan Area
 Arlington and Alexandria, Virginia
 Beauregard Station.
 Shirlington Crest.
 Charles County, Maryland
 Avalon West.
 Fairfax County, Virginia
 Bell Manor Estates
 Fair Oaks Landing. st
 Glynn Tarra Estates.
 Kendall Square.
 Linden Tree Estates.
 Madison Manor.
 11




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##### 



Old Mill Station.
 Spring Park Station. st
 The Courtyards at Falls Gate.
 Loudoun County, Virginia
 Brambleton.
 Greene Mill Preserve.
 Prince William County, Virginia
 Coles Run Manor.
 Hope Hill Crossing.
 Occoquan Landing.
 Powells Landing.
 Smalls Crossing.
 Stonewall Manor.
 Stoney Branch Crossing.
 St. Marys County, Maryland
 Wildewood.
 12




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##### 



Our Communities
 2007 Deliveries
    
    
    Backlog as of 12/31/07
    
    
    2007 New Unit OrdersTotal
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AverageNumber
    
    
    
    
    
    
    Price of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Selling
    
    
    RemainingCommunity
    
    of Lots
    
    
    Units
    
    
    Units
    
    
    Units
    
    
    Value
    
    
    Units
    
    
    Value
    
    
    Price
    
    
    LotsSingle-Family HomesAvalon West
    
    
    16
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    16Bell Manor III
    
    
    10
    
    
    
    1
    
    
    $
    1,107,242
    
    
    
    3
    
    
    $
    2,942,576
    
    
    
    4
    
    
    $
    4,049,818
    
    
    $
    1,012,455
    
    
    
    6Brambleton
    
    
    188
    
    
    
    38
    
    
    $
    621,647
    
    
    
    7
    
    
    $
    4,104,141
    
    
    
    41
    
    
    $
    25,025,512
    
    
    $
    610,378
    
    
    
    35Coles Run Manor
    
    
    111
    
    
    
    14
    
    
    $
    598,236
    
    
    
    1
    
    
    $
    526,763
    
    
    
    9
    
    
    $
    5,287,167
    
    
    $
    587,463
    
    
    
    50The Courtyards at Falls Gate
    
    
    21
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    21Glynn Tarra Estates
    
    
    40
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    6Greene Mill Preserve I
    
    
    33
    
    
    
    15
    
    
    $
    813,467
    
    
    
    1
    
    
    $
    722,418
    
    
    
    8
    
    
    $
    6,319,571
    
    
    $
    789,946
    
    
    
    12Greene Mill Preserve II
    
    
    33
    
    
    
    9
    
    
    $
    685,915
    
    
    
    3
    
    
    $
    2,077,974
    
    
    
    8
    
    
    $
    5,398,826
    
    
    $
    674,853
    
    
    
    16Hope Hill Crossing
    
    
    311
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    311Linden Tree Estates
    
    
    12
    
    
    
    
    
    
    $
    
    
    
    
    7
    
    
    $
    6,328,726
    
    
    
    7
    
    
    $
    6,328,726
    
    
    $
    904,104
    
    
    
    12Madison Manor
    
    
    15
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    15Occoquan Landing
    
    
    39
    
    
    
    13
    
    
    $
    732,538
    
    
    
    1
    
    
    $
    750,477
    
    
    
    7
    
    
    $
    5,227,670
    
    
    $
    746,810
    
    
    
    25Old Mill Station
    
    
    33
    
    
    
    12
    
    
    $
    711,209
    
    
    
    
    
    
    $
    
    
    
    
    9
    
    
    $
    6,302,376
    
    
    $
    700,264
    
    
    
    Powells Landing II
    
    
    25
    
    
    
    12
    
    
    $
    675,897
    
    
    
    2
    
    
    $
    1,376,227
    
    
    
    10
    
    
    $
    6,513,648
    
    
    $
    651,365
    
    
    
    11Smalls Crossing
    
    
    34
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    34Stonewall Manor II
    
    
    25
    
    
    
    2
    
    
    $
    598,189
    
    
    
    
    
    
    $
    
    
    
    
    2
    
    
    $
    1,196,377
    
    
    $
    598,189
    
    
    
    Stoney Branch
    
    
    25
    
    
    
    7
    
    
    $
    558,718
    
    
    
    
    
    
    $
    
    
    
    
    6
    
    
    $
    3,288,184
    
    
    $
    548,031
    
    
    
    6Wildewood
    
    
    622
    
    
    
    49
    
    
    $
    434,596
    
    
    
    10
    
    
    $
    3,605,482
    
    
    
    39
    
    
    $
    15,321,257
    
    
    $
    392,853
    
    
    
    480TownhomesBeauregard Station
    
    
    41
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    41Kendall Square
    
    
    73
    
    
    
    3
    
    
    $
    535,493
    
    
    
    3
    
    
    $
    1,761,988
    
    
    
    6
    
    
    $
    3,368,468
    
    
    $
    561,411
    
    
    
    67Fair Oaks Landing
    
    
    73
    
    
    
    72
    
    
    $
    541,687
    
    
    
    
    
    
    $
    
    
    
    
    49
    
    
    $
    25,772,484
    
    
    $
    525,969
    
    
    
    1Spring Park Station
    
    
    41
    
    
    
    23
    
    
    $
    547,866
    
    
    
    
    
    
    $
    
    
    
    
    18
    
    
    $
    9,703,263
    
    
    $
    539,070
    
    
    
    3Shirlington Crest
    
    
    173
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    173Wildewood
    
    
    359
    
    
    
    9
    
    
    $
    326,822
    
    
    
    1
    
    
    $
    292,990
    
    
    
    10
    
    
    $
    3,234,392
    
    
    $
    323,439
    
    
    
    312Future Development (1) (2)
    
    
    1,617
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    1617279
    
    
    $
    574,199
    
    
    
    39
    
    
    $
    24,489,762
    
    
    
    233
    
    
    $
    132,337,739
 
 (1)
    
    Future development includes land owned or on which the Company has an option on land it
intends to purchase. The time frame of future development is beyond six months and therefore,
subject to change.(2)
    
    Includes 598 multi-family units and 1 site for commercial use. The Company does not
generally develop multi-family or commercial use lots and may sell those lots to a third party developer. Operations
 Land Acquisition and Development
     13




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Purchasing and Construction
    Design
   Customer Service and Quality Control
  Warranty
   14




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Marketing and Sales
    Customer Financial Services
 Mortgage Services
  Title Insurance Services
  Backlog
   15




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Seasonality
  Competition
   
    
    our long-term experience within the Washington, D.C. metropolitan area;
    
    the relative price affordability of our homes;
    
    our responsiveness to market conditions, which we believe helps us capitalize on
opportunities for advantageous land acquisitions in desirable locations; and
    
    our reputation for innovative and affordable designs, high quality construction and
outstanding customer service.
  Government Regulation and Environmental Matters
   16




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##### 



Employees
  Properties
  Legal Proceedings
  Available Information
  ITEM 1A. RISK FACTORS
  17




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##### 



Risks Related to the Notes and Our Indebtedness
 Our substantial indebtedness could adversely affect our financial health and prevent us from
fulfilling our obligations under the Notes.
   
    
    make it more difficult for us to satisfy our obligations with respect to the Notes;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    require us to dedicate a substantial portion of our cash flow from operations to payments
on our indebtedness, thereby reducing the availability of our cash flow to fund working
capital and other general corporate purposes;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate;
    
    place us at a competitive disadvantage compared to our competitors that have less debt or
greater financial resources than we do; and
    
    limit our ability to borrow additional funds.
  18




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##### 



To service our indebtedness, we will require a significant amount of cash. Our ability to
generate cash depends on many factors beyond our control.
    The right to receive payments on the Notes is junior to our existing indebtedness and possibly
all of our future borrowings. Further, the guarantees of the Notes are junior to all of our
guarantors existing indebtedness and possibly to all their future borrowings.
   We may not have the ability to raise the funds necessary to finance an offer to purchase Notes in
connection with a change of control or a decline in our Consolidated Tangible Net Worth.
   19




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##### 



Not all of our subsidiaries guarantee the Notes. Therefore, the Notes are effectively
subordinated to all indebtedness of our subsidiaries that are not guarantors of the Notes.
    Federal and state statutes allow courts, under specific circumstances, to void guarantees and
require noteholders to return payments received from guarantors.
  
    
    received less than reasonably equivalent value or fair consideration for the incurrence
of such guarantee; and
    
    was insolvent or rendered insolvent by reason of such incurrence; or
    
    was engaged in a business or transaction for which the guarantors remaining assets
constituted unreasonably small capital; or
    
    intended to incur, or believed that it would incur, debts beyond its ability to pay such
debts as they mature; or
    
    intended to hinder, delay or defraud that guarantors creditors.
   
    
    the sum of its debts, including contingent liabilities, was greater than the fair
saleable value of all of its assets; or
    
    if the present fair saleable value of its assets was less than the amount that would be
required to pay its probable liability on its existing debts, including contingent
liabilities, as they become absolute and mature; or
    
    it could not pay its debts as they become due.
  20




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##### 



The ability to transfer the Notes may be limited by the absence of an active trading market, and
an active trading market may not develop for the Notes.
  
    
    the number of holders of notes;
    
    our operating performance and financial condition;
    
    the market for similar securities;
    
    the interest of securities dealers in making a market in the Notes; and
    
    prevailing interest rates.
  Stanley-Martin Financing Corp. has only nominal assets from which to make payments on the
Notes.
  Risks Relating to Our Structure
 We depend on distributions from our operating subsidiaries to pay interest on the Notes.
Contractual or legal restrictions applicable to our subsidiaries could limit distributions from
them.
  A portion of our cash flow will be used to make payments to Neighborhood Holdings to distribute
to the holders of its Class A and Class B membership interests.
  21




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##### 



The principal members of Neighborhood Holdings exercise control over the operation of our
business and may have interests that conflict with the interests of the Noteholders.
  Risks Related to Our Business
 A deterioration in economic conditions generally could decrease demand and pricing for our homes.
  Inventory risk could adversely impact our operations and profitability.
  Compliance with, and liabilities under, applicable environmental laws may adversely affect us,
which could reduce our profits.
   22




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##### 



Government regulation could affect our related financial services operations and adversely affect
our business or financial results.
  Increase in taxes or government fees could increase our costs, and adverse changes in tax laws
could reduce customer demand for our homes.
  We compete on several levels with homebuilders, some of which have longer operating histories
and/or greater resources than us, which could hurt our margins and future earnings.
  Natural disasters, adverse weather conditions and conditions in nature beyond our control could
delay deliveries, increase costs and decrease demand for new homes, which could harm our business
and financial condition.
  We may be subject to potential liabilities as a result of construction defect, product
liability and warranty claims, which could adversely affect our business.
   23




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##### 



We experience variability in our operating results on a quarterly basis and accordingly, our
historical performance may not be a meaningful indicator of our future performance.
  Acts of war or terrorism may seriously harm our business.
  An adverse change in economic conditions could further reduce the demand for homes and, as a
result, could reduce our earnings and adversely affect our financial condition.
  The continuation of the slowdown in our business could adversely affect our financial
condition.
  Downward changes in general economic, real estate construction or other business conditions could
adversely affect our business or our financial results.
  If the market value of our land and homes drop, our profits will likely decrease.
  24




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##### 



Future increases in interest rates, reductions in mortgage availability or increases in the
effective costs of owning a home could prevent potential customers from buying our homes and
adversely affect our business or our financial results.
  Our future growth may require additional capital, which may not be available.
  Competition for homebuyers could reduce our deliveries or decrease our profitability.
   Our success depends on our ability to acquire land suitable for residential homebuilding at
reasonable prices, in accordance with our land investment criteria.
   25




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Supply shortages and other risks related to the demand for skilled labor and building materials
could increase costs and delay deliveries.
  Homebuilding is subject to warranty and liability claims in the ordinary course of business that
can be significant.
  Our cash flows and results of operations could be adversely affected if legal claims are
brought against us and are not resolved in our favor.
  Changes in accounting principles, interpretations and practices may affect our reported
revenues, earnings and results of operations.
  Inflation may result in increased costs that we may not be able to recoup if demand declines.
  ITEM 1B. UNRESOLVED STAFF COMMENTS
  26




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ITEM 2. PROPERTIES
 Properties
  ITEM 3. LEGAL PROCEEDINGS
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  27




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PART II
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
  ITEM 6. SELECTED FINANCIAL DATA
  Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousandsStatement of Operations Data:Homebuilding Revenue (1)
    
    $
    161,917
    
    
    $
    238,373
    
    
    $
    255,707
    
    
    $
    158,864
    
    
    $
    146,873Cost of sales (2)
    
    
    159,450
    
    
    
    189,730
    
    
    
    178,583
    
    
    
    118,012
    
    
    
    112,167Gross margin  homebuilding
    
    
    2,467
    
    
    
    48,643
    
    
    
    77,124
    
    
    
    40,852
    
    
    
    34,706Financial and management services revenue
    
    
    8,126
    
    
    
    11,910
    
    
    
    15,553
    
    
    
    9,626
    
    
    
    9,213Selling, general and administrative expense
    
    
    (31,886
    )
    
    
    (43,066
    )
    
    
    (46,953
    )
    
    
    (29,703
    )
    
    
    (24,857
    )Minority interest
    
    
    (248
    )
    
    
    (767
    )
    
    
    (1,113
    )
    
    
    (579
    )
    
    
    (709
    )Other, net
    
    
    324
    
    
    
    1,876
    
    
    
    1,622
    
    
    
    888
    
    
    
    (50
    )Net income (loss) (3)
    
    $
    (21,217
    )
    
    $
    18,596
    
    
    $
    46,233
    
    
    $
    21,084
    
    
    $
    18,303Other Financial Data:Gross-margin homebuilding margin(4)
    
    
    1.5
    %
    
    
    20.4
    %
    
    
    30.2
    %
    
    
    25.7
    %
    
    
    23.6
    %Depreciation and amortization
    
    $
    612
    
    
    $
    586
    
    
    $
    379
    
    
    $
    275
    
    
    $
    203Ratio of earnings to fixed charges (5)
    
    
    
    
    
    
    1.5x
    
    
    
    4.0x
    
    
    
    4.8x
    
    
    
    9.2xOperating Data:Net new home orders
    
    
    233
    
    
    
    251
    
    
    
    317
    
    
    
    335
    
    
    
    306Homes delivered (6)
    
    
    279
    
    
    
    352
    
    
    
    352
    
    
    
    302
    
    
    
    282Average sales price of homes closed (6)
    
    $
    575
    
    
    $
    622
    
    
    $
    712
    
    
    $
    525
    
    
    $
    521Backlog at end of period, homes (7)
    
    
    39
    
    
    
    85
    
    
    
    186
    
    
    
    221
    
    
    
    188Backlog at end of period, contract value (7)
    
    $
    24,490
    
    
    $
    52,390
    
    
    $
    122,933
    
    
    $
    148,819
    
    
    $
    97,293
 Year Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(Dollars in thousands)Balance Sheet Data:Cash
    
    $
    4,665
    
    
    $
    2,846
    
    
    $
    44,331
    
    
    $
    2,044
    
    
    $
    1,876Inventory
    
    $
    263,009
    
    
    $
    281,966
    
    
    $
    228,873
    
    
    $
    178,026
    
    
    $
    94,059Total assets
    
    $
    280,193
    
    
    $
    300,096
    
    
    $
    294,220
    
    
    $
    195,428
    
    
    $
    105,460Total debt
    
    $
    214,720
    
    
    $
    205,500
    
    
    $
    191,974
    
    
    $
    127,100
    
    
    $
    57,519Members capital and stockholders deficit
    
    $
    45,533
    
    
    $
    71,124
    
    
    $
    65,348
    
    
    $
    46,183
    
    
    $
    36,274
 
 (1)
    
    Homebuilding Revenue includes land sales of $19.3 million, $5.1 million and $0.2 million in
land sales 2006, 2005 and 2004, respectively. There were no land sales in 2007 or 2003.
Homebuilding Revenue also includes $1.4 million of custom home servicing fees in 2007.(2)
    
    Cost of Sales includes cost of land sales of $16.0 million, $3.9 million and $0.2 million
million in 2006, 2005 and 2004, respectively, and includes a $33.0 million and $9.2 impairment
charge in 2007 and 2006, respectively. There were no land sales in 2007 and 2003. Cost of
sales also includes $1.0 million of cost of sales for Custom Homes in 2007.(3)
    
    Because we are structured as a limited liability company, income tax obligations are paid by
our members and are not borne by us. Therefore, our net income is higher than it would be if
we were structured as a C corporation. Historically we have made distributions to our
stockholders and members in amounts necessary for them to pay income taxes on their share of
the net income. After June 30, 2005, our subsidiary, Stanley Martin Companies, Inc., became a
C corporation and, therefore, subject to federal and
state income taxes. On January 1, 2007 Stanley Martin Companies, Inc. was converted to a Maryland
limited liability company and thus is no longer a taxable entity. 28




---



##### 



(4)
    
    Gross-margin homebuilding is calculated by dividing homebuilding gross margin by homebuilding
revenue. The 2007 and 2006 gross homebuilding margins are inclusive of impairment charges of
$33.0 million and $9.2 million, respectively, related to our real estate inventory and
contract land deposits. There were no impairments in the prior three (3) years. The gross
homebuilding margin before impairment for 2007 and 2006 is 21.9% and 24.9%, respectively.(5)
    
    In calculating the ratio of earnings to fixed charges, earnings consisted of (a) pre-tax
income from operations before adjustment for minority interests in consolidated subsidiaries
or income or loss from equity investees, plus (b) fixed charges, plus (c) amortization of
capitalized interest, plus (d) distributed income from equity investees, minus (e) capitalized
interest. Fixed charges are comprised of (a) interest incurred, both expensed and capitalized,
(b) debt issue cost amortization in the period and (c) the portion of rental expense
representative of the interest factor. In 2007, the Company had a Deficiency of Earnings to
Fixed Charges of $33,891,586. (See Exhibit 12)(6)
    
    A home is included in homes closed when units are completed and title is transferred to the
buyer at settlement.(7)
    
    Backlog consists of homes under contract but not yet closed at the end of the period. There
can be no assurance that homes counted as backlog will close at their contracted price or at
all. 
 29




---



##### 



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
 This Managements Discussion and Analysis of Financial Condition and Results of Operations
should be read in connection with the other sections of this prospectus, including Business,
Selected Historical Consolidated and Combined Financial and Other Data, and our combined
financial statements including the notes thereto. The various sections of this MD&A contain a
number of forward-looking statements, all of which are based on our current expectations and could
be affected by the uncertainties and risk factors described throughout this prospectus and
particularly in the Risk Factors section. Our actual results may differ materially from those
discussed below.
 Forward looking statements give current expectations or forecasts of future events. Words such
as anticipate, expect, intend, plan, believe, seek, estimate, and other words and
terms of similar meaning in connection with discussions of future operating or financial
performance signify forward-looking statements. From time to time, we also may provide oral or
written forward-looking statements in other materials released to the public. Such statements are
made in good faith by us to the Safe Harbor provisions of the Reform Act. We undertake no
obligation to update publicly or revise any forward-looking statement, whether as a result of new
information, future events, or otherwise.
 Such forward-looking statements involve known risks, uncertainties and other factors that may
cause our actual results, performance or achievements to be materially different from our future
results, performance or achievements expressed or implied by the forward-looking statements. Such
factors include, among other things, those set forth under Item 1A-Risk Factors.
 The Company
      30




---



##### 



Economic Environment
     31




---



##### 



Application of Critical Accounting Estimates and Policies
   Revenue Recognition
 Homebuilding Revenues.
 Custom Homes Services Fees.
 Mortgage Loans and Title Fees.
 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities a
replacement of FASB Statement 125
  32




---



##### 



Homebuilding Inventory
   Consolidation of
Variable Interest Entitites,
 Warranty/Product Liability Accruals
  33




---



##### 



Legal Proceedings
  Derivative Financial Instruments
 Accounting for Derivative Instruments and Hedging Activities.
 34




---



##### 



Results of Operations
 Selected Homebuilding Operating Data
  Year Ended December 31,2007
    
    
    2006
    
    
    2005(Dollars in thousands)Homes Delivered:Single-family
    
    
    172
    
    
    
    300
    
    
    
    294Townhome
    
    
    107
    
    
    
    52
    
    
    
    58279
    
    
    
    352
    
    
    
    352Average Sales Price of Homes Delivered:Single-family
    
    $
    607
    
    
    $
    665
    
    
    $
    729Townhome
    
    $
    525
    
    
    $
    378
    
    
    $
    626Average sales price of homes closed
    
    $
    575
    
    
    $
    622
    
    
    $
    712Revenue from Homes Delivered:Single-family
    
    $
    104,335
    
    
    $
    199,434
    
    
    $
    214,266Townhome
    
    
    56,150
    
    
    
    19,656
    
    
    
    36,296$
    160,485
    
    
    $
    219,090
    
    
    $
    250,562Revenue from Land Sales:
    
    $
    
    
    
    $
    19,283
    
    
    $
    5,145Custom Homes Services Fees:
    
    $
    1,432
    
    
    $
    
    
    
    $
    New Orders (homes):Single-family
    
    
    150
    
    
    
    189
    
    
    
    298Townhome
    
    
    83
    
    
    
    62
    
    
    
    19233
    
    
    
    251
    
    
    
    317Average Sales Price of New Orders:Single-family
    
    $
    602
    
    
    $
    628
    
    
    $
    708Townhome
    
    $
    507
    
    
    $
    490
    
    
    $
    302Average sales price of all new orders
    
    $
    568
    
    
    $
    594
    
    
    $
    684Value of New Orders:Single-Family
    
    $
    90,259
    
    
    $
    118,616
    
    
    $
    211,183Townhome
    
    
    42,079
    
    
    
    30,392
    
    
    
    5,738Total
    
    $
    132,338
    
    
    $
    149,008
    
    
    $
    216,921Backlog at End of Period (homes):Single-family
    
    
    35
    
    
    
    57
    
    
    
    168Townhome
    
    
    4
    
    
    
    28
    
    
    
    18Total
    
    
    39
    
    
    
    85
    
    
    
    186Average Sales Price Backlog Value at End of PeriodSingle-family
    
    $
    641
    
    
    $
    636
    
    
    $
    702Townhome
    
    $
    514
    
    
    $
    576
    
    
    $
    282Average sales price backlog value for all homes in backlog
    
    $
    628
    
    
    $
    616
    
    
    $
    661Backlog Sales Value at End of Period:Single-family
    
    $
    22,435
    
    
    $
    36,263
    
    
    $
    117,857Townhome
    
    
    2,055
    
    
    
    16,127
    
    
    
    5,076Total
    
    $
    24,490
    
    
    $
    52,390
    
    
    $
    122,933
 35




---



##### 



Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 Revenue.
       New Orders and Backlog.
  36




---



##### 



Gross Margin-Homebuilding.
 Selling and Marketing.
 General and Administrative.
 Gain (loss) on derivative contracts.
 Other Income, net.
 Minority interest.
 Net Income(loss).
 Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
 Revenue.
  37




---



##### 



New Orders and Backlog.
   Gross Homebuilding Margin.
 Selling and Marketing.
 General and Administrative.
 Gain (loss) on derivative contracts.
 38




---



##### 



Other Income, net.
 Minority interest.
 Net Income.
 Seasonality and Variability in Quarterly Results
  Liquidity and Capital Resources
 Liquidity
   Cash Flows from Operating Activities.
 Cash Flows from Investing Activities.
 Cash Flows from Financing Activities.
  Cash Flows from Operating Activities.
 Cash Flows from Investing Activities.
 Cash Flows from Financing Activities.
 Capital Resources
  39




---



##### 



40




---



##### 



2007
    
    
    2006
    
    
    2005($ in thousands)Net income (loss)
    
    $
    (21,217
    )
    
    $
    18,596
    
    
    $
    46,233Permitted Tax Distributions (1)
    
    $
    3,571
    
    
    $
    7,334
    
    
    $
    18,234Class A Interests (2)
    
    
    3,924
    
    
    
    4,000
    
    
    
    3,320Neighborhood Holdings Overhead (2)
    
    
    450
    
    
    
    379
    
    
    
    6950% Net Income (3)
    
    
    
    
    
    
    1,107
    
    
    
    5,227$5.0 million basket
    
    
    
    
    
    
    
    
    
    
    Total distributions
    
    $
    7,945
    
    
    $
    12,820
    
    
    $
    26,850
 
 (1)
    
    Blended tax rate, the $3,571 permitted Tax Distribution for 2007 was paid in January 2008.(2)
    
    Limited to amount actually paid(3)
    
    Limited by Ratio Exception  Contractual Obligations
  Total
    
    
    <1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5+ Years(dollars in thousands)Senior Subordinated Notes (1) (4) (5)
    
    $
    145,720
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    145,720Senior secured credit facility (2)
    
    
    69,000
    
    
    
    
    
    
    
    69,000
    
    
    
    
    
    
    
    Operating leases (3)
    
    
    8,124
    
    
    
    1,180
    
    
    
    2,176
    
    
    
    1,807
    
    
    
    2,961Total
    
    $
    222,844
    
    
    $
    1,180
    
    
    $
    71,176
    
    
    $
    1,807
    
    
    $
    148,681
 
 (1)
    
    On August 10, 2005 we issued ten year $150.0 million senior subordinated notes which will
mature August 10, 2015. We cannot redeem the notes before August 15, 2010 subject to certain
exceptions. The notes bear interest at 9.75% which is paid twice a year each February 15 and
August 15. The above amounts do not include interest.(2)
    
    Borrowings under the senior secured credit facility carry a floating interest rate equal to
one month LIBOR plus a margin based on our senior debt ratio. The margin ranges from 175 to
225 basis points and was 175 basis points at December 31, 2007. We have fixed the rate on
$50.0 million of floating debt by virtue of three separate swap agreements. See Quantitative
and Qualitative disclosures about Market Risk. The above amounts do not include interest.(3)
    
    Represents rent payments on noncancellable leases for office space in Virginia and Maryland
with various lease expiration dates through 2016. 41




---



##### 



(4)
    
    Subsequent to year end, the Company repurchased an additional $7.4 million face value, of
the Senior Subordinated Notes for $3.7 million. The transaction resulted in a gain on
extinguishment of debt of $3.5 million after the write-off of related deferred financing
costs.(5)
    
    Subsequent to the 2007 year end Neighborhood Holdings purchased $16.5 million (face value) of
senior subordinated notes in four individually negotiated transactions for $8.1 million.
Neighborhood Holdings intends to hold onto the senior subordinated notes for the foreseeable
future.   Off-Balance Sheet Arrangements
  Land Option Contracts.
 Letters of Credit and Completion Bonds.
 Interest Rates and Inflation
   42




---



##### 



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Quantitative and Qualitative Disclosures About Market Risk
    Notional Amount
    
    Matures
    
    Company Pays
    
    Company Receives$12.5 million
    
    December 1, 2009
    
    Fixed-Rate payment of 4.12%
    
    Variable payments
at 1-month LIBOR$12.5 million
    
    October 3, 2011
    
    Variable payment at
1-monthLIBOR below 4.65%
    
    Variable payments
at 1-month LIBOR
above 5.50%$25.0 million
    
    December 1, 2010
    
    Fixed-Rate payment of 5.01%
    
    Variable payment at
1-month LIBOR
      43




---



##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 PageReport of Independent Registered Public Accounting Firm
    
    
    45Consolidated Balance Sheets at December 31, 2007 and 2006
    
    
    46Consolidated and Combined Statements of Operations for the years ended December 31, 2007, 2006 and 2005
    
    
    47Consolidated and Combined Statements of Members Capital and ShareholdersDeficit for the years ended
December 31, 2007, 2006 and 2005
    
    
    48Consolidated and Combined Statements of Cash Flows for the yeas ended December 31, 2007, 2006 and 2005
    
    
    49Notes to the Consolidated and Combined Financial Statements
    
    
    50-70
 44




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 45




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
Consolidated Balance Sheets
 December 31,2007
    
    
    2006ASSETSCash and cash equivalents
    
    $
    4,664,911
    
    
    $
    2,845,724Real estate inventory
    
    
    263,008,573
    
    
    
    281,965,819Deposits and escrows, net
    
    
    2,536,533
    
    
    
    4,504,954Property and equipment, net
    
    
    1,645,065
    
    
    
    2,135,396Due from related parties
    
    
    86,306
    
    
    
    154,851Accounts receivable
    
    
    2,388,026
    
    
    
    1,725,563Deferred financing costs, net
    
    
    4,054,793
    
    
    
    4,724,913Other assets, net
    
    
    1,808,743
    
    
    
    2,038,357$
    280,192,950
    
    
    $
    300,095,577LIABILITIES AND MEMBERS CAPITALLiabilities:Debt
    
    $
    214,720,000
    
    
    $
    205,500,000Accounts payable and accrued expenses
    
    
    5,259,319
    
    
    
    6,508,057Due to related parties
    
    
    51,816
    
    
    
    9,020Accrued interest payable
    
    
    5,749,318
    
    
    
    5,880,755Purchaser deposits
    
    
    1,112,613
    
    
    
    2,802,833Cost to complete and customer service reserves
    
    
    3,639,239
    
    
    
    5,592,766Other liabilities
    
    
    3,753,625
    
    
    
    2,226,596Total liabilities
    
    
    234,285,930
    
    
    
    228,520,027Minority interest
    
    
    373,615
    
    
    
    451,105Members capital
    
    
    45,533,405
    
    
    
    71,124,445$
    280,192,950
    
    
    $
    300,095,577
  46




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
Consolidated and Combined Statements of Operations
 Years Ended December 31,2007
    
    
    2006
    
    
    2005Revenues:Homebuilding sales  homes
    
    $
    160,485,010
    
    
    $
    219,089,702
    
    
    $
    250,561,585Land sales
    
    
    
    
    
    
    19,283,490
    
    
    
    5,145,000Custom homes services fees
    
    
    1,432,198
    
    
    
    
    
    
    
    Financial services
    
    
    7,187,043
    
    
    
    11,800,327
    
    
    
    15,451,724Management services
    
    
    938,658
    
    
    
    109,992
    
    
    
    101,728Total revenues
    
    
    170,042,909
    
    
    
    250,283,511
    
    
    
    271,260,037Operating expenses:Cost of sales  homes
    
    
    125,479,561
    
    
    
    164,538,117
    
    
    
    174,714,166Cost of land sales
    
    
    
    
    
    
    15,969,350
    
    
    
    3,868,746Cost of sales  custom homes services
    
    
    1,009,747
    
    
    
    
    
    
    
    Impairment of real estate inventory and contract land deposits
    
    
    32,960,562
    
    
    
    9,222,797
    
    
    
    Selling and marketing expense
    
    
    11,924,661
    
    
    
    15,036,547
    
    
    
    15,616,940General and administrative expenses
    
    
    19,960,248
    
    
    
    28,029,613
    
    
    
    31,335,993Operating income (loss)
    
    
    (21,291,870
    )
    
    
    17,487,087
    
    
    
    45,724,192Gain (loss) on derivative contracts, net
    
    
    (1,364,911
    )
    
    
    391,046
    
    
    
    228,844Gain on extinguishment of debt, net
    
    
    1,012,596
    
    
    
    
    
    
    
    Other income, net
    
    
    675,928
    
    
    
    1,485,011
    
    
    
    1,393,685Net income (loss) before minority interest
    
    
    (20,968,257
    )
    
    
    19,363,144
    
    
    
    47,346,721Minority interest
    
    
    (248,285
    )
    
    
    (767,072
    )
    
    
    (1,113,253
    )Net income (loss)
    
    $
    (21,216,542
    )
    
    $
    18,596,072
    
    
    $
    46,233,468
  47




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
Consolidated and Combined Statements of Members Capital and Stockholders Deficit
 Additional
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-In
    
    
    
    
    
    
    Stockholders
    
    
    MembersStock
    
    
    Capital
    
    
    Deficit
    
    
    Deficit
    
    
    Capital
    
    
    TotalBalance at January 1, 2005
    
    $
    237,500
    
    
    $
    4,342,940
    
    
    $
    (45,791,584
    )
    
    $
    (41,211,144
    )
    
    $
    87,394,559
    
    
    $
    46,183,415Dividends to stockholders
    
    
    
    
    
    
    
    
    
    
    (218,510
    )
    
    
    (218,510
    )
    
    
    
    
    
    
    (218,510
    )Distributions to members
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,908,225
    )
    
    
    (6,908,225
    )Net income (loss) from
January 1, 2005 to June 30,
2005
    
    
    
    
    
    
    
    
    
    
    (5,687,661
    )
    
    
    (5,687,661
    )
    
    
    27,897,273
    
    
    
    22,209,612Reorganization of ownership
interests into
Stanley-Martin Communities,
LLC on June 30, 2005
    
    
    (237,500
    )
    
    
    (4,342,940
    )
    
    
    51,697,755
    
    
    
    47,117,315
    
    
    
    (47,117,315
    )
    
    
    Distributions to member
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,941,775
    )
    
    
    (19,941,775
    )Net income from July 1,
2005 to December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,023,856
    
    
    
    24,023,856Balance at December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,348,373
    
    
    
    65,348,373Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,596,072
    
    
    
    18,596,072Distributions to member
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,820,000
    )
    
    
    (12,820,000
    )Balance at December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,124,445
    
    
    
    71,124,445Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,216,542
    )
    
    
    (21,216,542
    )Distributions to member
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,374,498
    )
    
    
    (4,374,498
    )Balance at December 31, 2007
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    45,533,405
    
    
    $
    45,533,405
  48




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
Consolidated and Combined Statements of Cash Flows
 Years Ended December 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net income (loss)
    
    $
    (21,216,542
    )
    
    $
    18,596,072
    
    
    $
    46,233,468Adjustments to reconcile net income to net cash provided by (used
in) operating activities:Impairment of real estate inventory
    
    
    32,960,562
    
    
    
    9,222,797
    
    
    
    Gain on extinguishment of senior subordinated notes
    
    
    (1,012,596
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    611,872
    
    
    
    586,438
    
    
    
    379,171Changes in fair value of derivative contracts
    
    
    1,578,750
    
    
    
    16,683
    
    
    
    414,588Minority interest
    
    
    248,285
    
    
    
    767,072
    
    
    
    1,113,253Change in:Real estate inventory
    
    
    (15,461,627
    )
    
    
    (62,962,079
    )
    
    
    (21,341,804
    )Accounts receivable and other assets
    
    
    (653,660
    )
    
    
    (964,781
    )
    
    
    (668,503
    )Due to/from related parties
    
    
    111,341
    
    
    
    (3,055,688
    )
    
    
    4,615,824Deposits and escrows
    
    
    2,018,421
    
    
    
    4,772,131
    
    
    
    (1,043,154
    )Accounts payable and accrued expenses
    
    
    (1,248,738
    )
    
    
    (279,451
    )
    
    
    2,760,446Purchaser deposits
    
    
    (1,690,220
    )
    
    
    (4,477,513
    )
    
    
    (923,539
    )Accrued interest payable
    
    
    (131,437
    )
    
    
    (1,382,684
    )
    
    
    6,868,322Other liabilities
    
    
    169,090
    
    
    
    1,348,138
    
    
    
    564,814Total adjustments
    
    
    17,500,043
    
    
    
    (56,408,937
    )
    
    
    (7,260,582
    )Net cash provided by (used in) operating activities
    
    
    (3,716,499
    )
    
    
    (37,812,865
    )
    
    
    38,972,886Cash flows used in investing activities-Purchases of property and equipment
    
    
    (121,541
    )
    
    
    (859,074
    )
    
    
    (1,271,271
    )Cash flows from financing activities:Proceeds from issuance of subordinated senior notes
    
    
    
    
    
    
    
    
    
    
    150,000,000Repurchase of senior subordinated notes
    
    
    (3,142,500
    )
    
    
    
    
    
    
    Borrowings of loans payable
    
    
    
    
    
    
    11,508,576
    
    
    
    Repayments of loans payable
    
    
    (2,750,000
    )
    
    
    (53,482,374
    )
    
    
    (12,291,967
    )Draws on (repayments of) line of credit, net
    
    
    16,250,000
    
    
    
    52,750,000
    
    
    
    (99,689,635
    )Financing costs
    
    
    
    
    
    
    
    
    
    
    (5,516,754
    )Distributions to members
    
    
    (4,374,498
    )
    
    
    (12,820,000
    )
    
    
    (26,850,000
    )Distributions to stockholders
    
    
    
    
    
    
    
    
    
    
    (218,510
    )Distributions to minority partners
    
    
    (325,775
    )
    
    
    (770,406
    )
    
    
    (847,000
    )Net cash provided by (used in) financing activities
    
    
    5,657,227
    
    
    
    (2,814,204
    )
    
    
    4,586,134Net increase (decrease) in cash and cash equivalents
    
    
    1,819,187
    
    
    
    (41,486,143
    )
    
    
    42,287,749Cash and cash equivalents at beginning of year
    
    
    2,845,724
    
    
    
    44,331,867
    
    
    
    2,044,118Cash and cash equivalents at end of year
    
    $
    4,664,911
    
    
    $
    2,845,724
    
    
    $
    44,331,867Supplemental disclosures of cash flow information:Cash paid during the year for interest net of capitalized interest of
$19,902,207, $19,106,562, and $12,485,232 respectively
    
    $
    134,250
    
    
    $
    179,527
    
    
    $
    190,870Supplemental disclosure of noncash financing activity:Seller financing in connection with land acquisition
    
    $
    
    
    
    $
    2,750,000
    
    
    $
    26,855,000Distribution of noncash assets and liabilities of Homebuilding and
Homes entities, net of cash distribution of $15,944
    
    $
    
    
    
    $
    
    
    
    $
    193,066
  49




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 (1) Summary of Significant Accounting Policies
 (a) Background and Principles of Consolidation and Combination
       50




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 Consolidation of Variable Interest Entities
 (b) Use of Estimates in the Preparation of Financial Statements
  (c) Revenue Recognition
 Homebuilding
  Custom Homes Services Fees
  Land Sales
  Mortgage Loans and Title Fees
  Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities a
replacement of FASB Statement 125,
 51




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
    (d) Homebuilding Inventory
   (e) Warranty and Product Liability Accruals
  52




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
  2007
    
    
    2006Balance, beginning of year
    
    $
    1,243,051
    
    
    $
    1,014,738Provision
    
    
    708,313
    
    
    
    1,590,015Payments
    
    
    (1,411,888
    )
    
    
    (1,361,702
    )Balance, end of year
    
    $
    539,476
    
    
    $
    1,243,051
 (f) Cash and Cash Equivalents
  (g) Financial Instruments
 Accounting for Derivative Instruments and Hedging Activities
 (h) Property and Equipment
  Useful LivesOffice furniture and equipment
    
    3-10 yearsLeasehold improvements
    
    Life of leaseMotor Vehicles
    
    3 Years
 (i) Income Taxes
  (j) Reclassifications
  53




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 (2) Real Estate Inventory
  December 31,2007
    
    
    2006Land
    
    $
    155,196,105
    
    
    $
    202,786,222Construction and other costs
    
    
    68,893,367
    
    
    
    52,768,575Finance costs
    
    
    38,919,101
    
    
    
    26,411,022$
    263,008,573
    
    
    $
    281,965,819
   December 31,2007
    
    2006
    
    2005Interest incurred and capitalized
    
    $
    19,902,207
    
    
    $
    19,106,562
    
    
    $
    12,485,232Interest cost unrelated to homebuilding, expensed
    
    $
    134,250
    
    
    $
    179,527
    
    
    $
    190,870Capitalized interest charged in cost of sales
    
    $
    6,978,878
    
    
    $
    8,787,519
    
    
    $
    4,781,856
  (3) Property and Equipment
  December 31,2007
    
    2006Office furniture and equipment
    
    $
    3,646,055
    
    
    $
    3,572,257Leasehold improvements
    
    
    756,194
    
    
    
    732,245Motor vehicles
    
    
    97,843
    
    
    
    97,8434,500,092
    
    
    
    4,402,345Less accumulated depreciation
    
    
    (2,855,027
    )
    
    
    (2,266,949
    )$
    1,645,065
    
    
    $
    2,135,396
 54




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 (4) Debt
  December 31,2007
    
    
    2006Senior subordinated notes,
bearing interest at 9.75%
payable semi-annually on
February 15 and August 15,
due August 2015
    
    $
    145,720,000
    
    
    $
    150,000,000Senior credit facility,
$127.5 million line of
credit, bearing interest at
one month LIBOR plus 1.75%
to 2.25% (6.73% and 7.10% at
December 31, 2007 and 2006,
respectively) due December
2010
    
    
    69,000,000
    
    
    
    52,750,000Deferred purchase money deed
of trust, bearing interest
at 8.00%, paid in full
January 31, 2007 with
proceeds from senior credit
facility
    
    
    
    
    
    
    2,750,000$
    214,720,000
    
    
    $
    205,500,000
        55




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
   2007
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    (21,216,542
    )
    
    $
    18,596,072
    
    
    $
    46,233,468Permitted Tax Distributions (1)
    
    $
    3,571,000
    
    
    $
    7,334,291
    
    
    $
    18,234,480Class A Interests (2)
    
    
    3,924,498
    
    
    
    4,000,000
    
    
    
    3,319,680Neighborhood Holdings Overhead (2)
    
    
    450,000
    
    
    
    378,719
    
    
    
    69,00050% Net Income (3)
    
    
    
    
    
    
    1,106,990
    
    
    
    5,226,840$5.0 million basket
    
    
    
    
    
    
    
    
    
    
    Total Distributions
    
    $
    7,945,498
    
    
    $
    12,820,000
    
    
    $
    26,850,000
 
 (1)
    
    Blended tax rate, the $3,571,000 permitted tax distribution was paid in January 2008(2)
    
    Limited to amount actually paid(3)
    
    Limited by Ratio Exception (5) Derivative Instruments
  Notional Amount
    
    Purchased
    
    Matures
    
    Company Pays
    
    Company Receives$
    12,500,000
    
    
    December 2004
    
    December 1, 2009
    
    Fixed Rate payments
at 4.12%
    
    Variable rate
payments  at 1-month LIBOR$
    12,500,000
    
    
    October 2006
    
    October 3, 2011
    
    Variable payments
at1-month LIBOR
below 4.65%
    
    Variable payments
at 1-month LIBOR
above 5.50%$
    25,000,000
    
    
    December 2005
    
    December 1, 2010
    
    Fixed Rate payments
at 5.01%
    
    Variable rate
payment at  1-month
LIBOR$
    12,500,000
    
    
    December 2004
    
    Terminated in 2006
for $198,127
    
    Fixed rate payment
at 3.71%
    
    Variable rate
payment at 1-month
LIBOR
   56




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 (6) Financial Services Revenues
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Loan origination fees
    
    $
    4,559,004
    
    
    $
    6,572,670
    
    
    $
    9,112,598Gain on sale of mortgages
    
    
    2,047,390
    
    
    
    4,534,223
    
    
    
    5,667,332Title insurance premiums
    
    
    580,649
    
    
    
    693,434
    
    
    
    671,794Financial services revenue
    
    $
    7,187,043
    
    
    $
    11,800,327
    
    
    $
    15,451,724
 (7) Leases
   Year Ending December 31:2008
    
    
    1,180,1982009
    
    
    1,161,1232010
    
    
    1,015,1362011
    
    
    903,2282012
    
    
    904,011Thereafter
    
    
    2,960,626$
    8,124,322
  (8) Minority Interest
   (9) Segment Reporting
   57




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
   2007FinancialHomebuilding
    
    
    Services
    
    
    TotalsRevenues
    
    $
    162,855,866
    
    
    $
    7,187,043
    
    
    $
    170,042,909Depreciation and amortization
    
    
    450,911
    
    
    
    160,961
    
    
    
    611,872Segment net income (loss)
    
    
    (21,535,825
    )
    
    
    319,283
    
    
    
    (21,216,542
    )Segment assets
    
    
    277,510,580
    
    
    
    2,682,370
    
    
    
    280,192,950Expenditures for segment assets
    
    
    101,109
    
    
    
    20,432
    
    
    
    121,541
 2006FinancialHomebuilding
    
    Services
    
    TotalsRevenues
    
    $
    238,483,184
    
    
    $
    11,800,327
    
    
    $
    250,283,511Depreciation and amortization
    
    
    425,028
    
    
    
    161,410
    
    
    
    586,438Segment net income
    
    
    16,821,685
    
    
    
    1,774,387
    
    
    
    18,596,072Segment assets
    
    
    296,714,492
    
    
    
    3,381,085
    
    
    
    300,095,577Expenditures for segment assets
    
    
    669,615
    
    
    
    189,459
    
    
    
    859,074
 2005FinancialHomebuilding
    
    Services
    
    TotalsRevenues
    
    $
    255,808,313
    
    
    $
    15,451,724
    
    
    $
    271,260,037Depreciation and amortization
    
    
    249,441
    
    
    
    129,730
    
    
    
    379,171Segment net income
    
    
    43,685,517
    
    
    
    2,547,951
    
    
    
    46,233,468Segment assets
    
    
    289,561,573
    
    
    
    4,658,618
    
    
    
    294,220,191Expenditures for segment assets
    
    
    1,142,669
    
    
    
    128,602
    
    
    
    1,271,271
 (10) Supplemental Guarantor and Non-Guarantor Information
  58




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
  Condensed Consolidating Balance Sheet as of December 31, 2007
 Non-Guarantor
    
    
    OtherGuarantor
    
    
    Homebuilding
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash
    
    $
    
    
    
    $
    3,222,679
    
    
    $
    847,052
    
    
    $
    595,180
    
    
    $
    
    
    
    $
    4,664,911Real estate inventory
    
    
    684,953
    
    
    
    202,208,244
    
    
    
    61,590,350
    
    
    
    
    
    
    
    (1,474,974
    )
    
    
    263,008,573Deposits and escrows
    
    
    
    
    
    
    1,998,639
    
    
    
    506,094
    
    
    
    31,800
    
    
    
    
    
    
    
    2,536,533Property and equipment, net
    
    
    
    
    
    
    186,214
    
    
    
    1,193,195
    
    
    
    265,656
    
    
    
    
    
    
    
    1,645,065Due from related parties
    
    
    139,031,997
    
    
    
    (83,928,535
    )
    
    
    (55,000,569
    )
    
    
    
    
    
    
    (16,587
    )
    
    
    86,306Accounts receivable
    
    
    
    
    
    
    284,150
    
    
    
    882,570
    
    
    
    1,221,306
    
    
    
    
    
    
    
    2,388,026Investment in affiliates
    
    
    53,140,884
    
    
    
    40,776,995
    
    
    
    
    
    
    
    
    
    
    
    (93,917,879
    )
    
    
    Deferred financing costs, net
    
    
    4,054,793
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,054,793Other assets, net
    
    
    
    
    
    
    41,449
    
    
    
    1,198,866
    
    
    
    568,428
    
    
    
    
    
    
    
    1,808,743$
    196,912,627
    
    
    $
    164,789,835
    
    
    $
    11,217,558
    
    
    $
    2,682,370
    
    
    $
    (95,409,440
    )
    
    $
    280,192,950Debt
    
    $
    145,720,000
    
    
    
    69,000,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    214,720,000Accounts payable and accrued
expenses
    
    
    331,335
    
    
    
    195,322
    
    
    
    3,437,732
    
    
    
    1,489,122
    
    
    
    (194,192
    )
    
    
    5,259,319Due to related parties
    
    
    
    
    
    
    
    
    
    
    51,816
    
    
    
    
    
    
    
    
    
    
    
    51,816Accrued interest
    
    
    5,327,887
    
    
    
    421,431
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,749,318Purchaser deposits
    
    
    
    
    
    
    1,051,323
    
    
    
    61,290
    
    
    
    
    
    
    
    
    
    
    
    1,112,613Cost to complete and
customer service reserves
    
    
    
    
    
    
    3,492,265
    
    
    
    146,974
    
    
    
    
    
    
    
    
    
    
    
    3,639,239Other liabilities
    
    
    
    
    
    
    2,657,938
    
    
    
    1,095,687
    
    
    
    
    
    
    
    
    
    
    
    3,753,625151,379,222
    
    
    
    76,818,279
    
    
    
    4,793,499
    
    
    
    1,489,122
    
    
    
    (194,192
    )
    
    
    234,285,930Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    373,615
    
    
    
    
    
    
    
    373,615Members capital
    
    
    45,533,405
    
    
    
    87,971,556
    
    
    
    6,424,059
    
    
    
    819,633
    
    
    
    (95,215,248
    )
    
    
    45,533,405$
    196,912,627
    
    
    $
    164,789,835
    
    
    $
    11,217,558
    
    
    $
    2,682,370
    
    
    $
    (95,409,440
    )
    
    $
    280,192,950
 59




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 Condensed Consolidating Balance Sheet as of December 31, 2006
 Non-Guarantor
    
    
    OtherGuarantor
    
    
    Homebuilding
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash
    
    $
    
    
    
    $
    888,326
    
    
    $
    1,138,737
    
    
    $
    818,661
    
    
    $
    
    
    
    $
    2,845,724Real estate inventory
    
    
    331,751
    
    
    
    154,273,600
    
    
    
    129,634,439
    
    
    
    
    
    
    
    (2,273,971
    )
    
    
    281,965,819Deposits and escrows
    
    
    
    
    
    
    2,248,729
    
    
    
    2,256,225
    
    
    
    
    
    
    
    
    
    
    
    4,504,954Property and equipment,
net
    
    
    
    
    
    
    16,743
    
    
    
    1,712,469
    
    
    
    406,184
    
    
    
    
    
    
    
    2,135,396Due from related parties
    
    
    151,653,013
    
    
    
    (57,852,696
    )
    
    
    (93,627,117
    )
    
    
    
    
    
    
    (18,349
    )
    
    
    154,851Accounts receivable
    
    
    
    
    
    
    391,581
    
    
    
    20,903
    
    
    
    1,313,079
    
    
    
    
    
    
    
    1,725,563Investment in affiliates
    
    
    70,070,802
    
    
    
    77,235,473
    
    
    
    
    
    
    
    
    
    
    
    (147,306,275
    )
    
    
    Deferred financing, net
    
    
    4,724,913
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,724,913Other assets, net
    
    
    1
    
    
    
    220,808
    
    
    
    974,387
    
    
    
    843,161
    
    
    
    
    
    
    
    2,038,357$
    226,780,480
    
    
    $
    177,422,564
    
    
    $
    42,110,043
    
    
    $
    3,381,085
    
    
    $
    (149,598,595
    )
    
    $
    300,095,577Debt
    
    $
    150,000,000
    
    
    $
    52,750,000
    
    
    $
    2,750,000
    
    
    $
    
    
    
    $
    
    
    
    $
    205,500,000Accounts payable and
accrued expenses
    
    
    171,660
    
    
    
    347,437
    
    
    
    4,107,814
    
    
    
    1,900,764
    
    
    
    (19,618
    )
    
    
    6,508,057Due to related parties
    
    
    
    
    
    
    
    
    
    
    9,020
    
    
    
    
    
    
    
    
    
    
    
    9,020Accrued interest
    
    
    5,484,375
    
    
    
    396,380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,880,755Purchaser deposits
    
    
    
    
    
    
    1,732,634
    
    
    
    1,070,199
    
    
    
    
    
    
    
    
    
    
    
    2,802,833Cost to complete and
customer service
reserves
    
    
    
    
    
    
    5,533,374
    
    
    
    59,392
    
    
    
    
    
    
    
    
    
    
    
    5,592,766Other liabilities
    
    
    
    
    
    
    744,939
    
    
    
    1,481,657
    
    
    
    
    
    
    
    
    
    
    
    2,226,596155,656,035
    
    
    
    61,504,764
    
    
    
    9,478,082
    
    
    
    1,900,764
    
    
    
    (19,618
    )
    
    
    228,520,027Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    451,105
    
    
    
    
    
    
    
    451,105Members capital
    
    
    71,124,445
    
    
    
    115,917,800
    
    
    
    32,631,961
    
    
    
    1,029,216
    
    
    
    (149,578,977
    )
    
    
    71,124,445$
    226,780,480
    
    
    $
    177,422,564
    
    
    $
    42,110,043
    
    
    $
    3,381,085
    
    
    $
    (149,598,595
    )
    
    $
    300,095,577
 60




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 Condensed Consolidating Statement of Operations for the
Year Ended December 31, 2007
 Non-Guarantor
    
    
    OtherGuarantor
    
    
    Homebuilding
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedHomebuilding sales-homes
    
    $
    
    
    
    $
    152,372,994
    
    
    $
    8,112,016
    
    
    $
    
    
    
    $
    
    
    
    $
    160,485,010Custom homes
services fees
    
    
    
    
    
    
    
    
    
    
    1,432,198
    
    
    
    
    
    
    
    
    
    
    
    1,432,198Financial services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,187,043
    
    
    
    
    
    
    
    7,187,043Management services
    
    
    450,000
    
    
    
    150,000
    
    
    
    10,748,910
    
    
    
    
    
    
    
    (10,410,252
    )
    
    
    938,658Total revenues
    
    
    450,000
    
    
    
    152,522,994
    
    
    
    20,293,124
    
    
    
    7,187,043
    
    
    
    (10,410,252
    )
    
    
    170,042,909Cost of sales-homes
    
    
    
    
    
    
    124,446,074
    
    
    
    6,667,991
    
    
    
    
    
    
    
    (5,634,504
    )
    
    
    125,479,561Cost of sales-custom
homes services
    
    
    
    
    
    
    
    
    
    
    1,009,747
    
    
    
    
    
    
    
    
    
    
    
    1,009,747Impairment of real estate
inventory
    
    
    
    
    
    
    22,228,396
    
    
    
    10,732,166
    
    
    
    
    
    
    
    
    
    
    
    32,960,562Selling and marketing
expenses
    
    
    
    
    
    
    11,290,024
    
    
    
    706,012
    
    
    
    67,372
    
    
    
    (138,747
    )
    
    
    11,924,661General and
administrative expenses
    
    
    5,946,701
    
    
    
    308,966
    
    
    
    12,588,477
    
    
    
    6,552,103
    
    
    
    (5,435,999
    )
    
    
    19,960,248Operating income (loss)
    
    
    (5,496,701
    )
    
    
    (5,750,466
    )
    
    
    (11,411,269
    )
    
    
    567,568
    
    
    
    798,998
    
    
    
    (21,291,870
    )Equity in earnings of
affiliates
    
    
    (16,732,437
    )
    
    
    (15,953,331
    )
    
    
    
    
    
    
    
    
    
    
    32,685,768
    
    
    
    Loss on derivative
contracts, net
    
    
    
    
    
    
    (1,364,911
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,364,911
    )Gain on extinguishment of
debt, net
    
    
    1,012,596
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,012,596Other income, net
    
    
    
    
    
    
    441,035
    
    
    
    234,893
    
    
    
    
    
    
    
    
    
    
    
    675,928Net income before
minority interest
    
    
    (21,216,542
    )
    
    
    (22,627,673
    )
    
    
    (11,176,376
    )
    
    
    567,568
    
    
    
    33,484,766
    
    
    
    (20,968,257
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (248,285
    )
    
    
    
    
    
    
    (248,285
    )Net income (loss)
    
    $
    (21,216,542
    )
    
    $
    (22,627,673
    )
    
    $
    (11,176,376
    )
    
    $
    319,283
    
    
    $
    33,484,766
    
    
    $
    (21,216,542
    )
 61




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 Condensed Combining Statement of Operations for the
Year Ended December 31, 2006
 Non-Guarantor
    
    
    OtherGuarantor
    
    
    Homebuilding
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedHomebuilding sales-homes
    
    $
    
    
    
    $
    210,724,519
    
    
    $
    16,044,067
    
    
    $
    
    
    
    $
    (7,678,884
    )
    
    $
    219,089,702Land sales
    
    
    
    
    
    
    133,257
    
    
    
    19,150,233
    
    
    
    
    
    
    
    
    
    
    
    19,283,490Financial services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,800,327
    
    
    
    
    
    
    
    11,800,327Management services
    
    
    
    
    
    
    
    
    
    
    14,444,874
    
    
    
    
    
    
    
    (14,334,882
    )
    
    
    109,992Total revenues
    
    
    
    
    
    
    210,857,776
    
    
    
    49,639,174
    
    
    
    11,800,327
    
    
    
    (22,013,766
    )
    
    
    250,283,511Cost of sales-homes
    
    
    
    
    
    
    173,266,199
    
    
    
    12,222,068
    
    
    
    
    
    
    
    (20,950,150
    )
    
    
    164,538,117Cost of land sales
    
    
    
    
    
    
    63,042
    
    
    
    15,906,308
    
    
    
    
    
    
    
    
    
    
    
    15,969,350Impairment of real estate
inventory and contract land
deposits
    
    
    
    
    
    
    8,137,430
    
    
    
    1,085,367
    
    
    
    
    
    
    
    
    
    
    
    9,222,797Selling and marketing expenses
    
    
    
    
    
    
    14,383,234
    
    
    
    1,511,137
    
    
    
    124,405
    
    
    
    (982,229
    )
    
    
    15,036,547General and administrative
expenses
    
    
    827,857
    
    
    
    1,923,261
    
    
    
    16,486,404
    
    
    
    9,134,463
    
    
    
    (342,372
    )
    
    
    28,029,613Operating income (loss)
    
    
    (827,857
    )
    
    
    13,084,610
    
    
    
    2,427,890
    
    
    
    2,541,459
    
    
    
    260,985
    
    
    
    17,487,087Equity in earnings of affiliates
    
    
    18,730,458
    
    
    
    20,528,330
    
    
    
    
    
    
    
    
    
    
    
    (39,258,788
    )
    
    
    Gain on derivative contracts,
net
    
    
    
    
    
    
    391,046
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    391,046Other income, net
    
    
    1,745
    
    
    
    921,037
    
    
    
    562,229
    
    
    
    
    
    
    
    
    
    
    
    1,485,011Net income (loss) before
minority interest
    
    
    17,904,346
    
    
    
    34,925,023
    
    
    
    2,990,119
    
    
    
    2,541,459
    
    
    
    (38,997,803
    )
    
    
    19,363,144Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (767,072
    )
    
    
    
    
    
    
    (767,072
    )Net income (loss)
    
    $
    17,904,346
    
    
    $
    34,925,023
    
    
    $
    2,990,119
    
    
    $
    1,774,387
    
    
    $
    (38,997,803
    )
    
    $
    18,596,072
 62




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 Condensed Combining Statement of Operations for the
Year Ended December 31, 2005
 Non-Guarantor
    
    
    OtherGuarantor
    
    
    Homebuilding
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedHomebuilding sales-homes
    
    $
    
    
    
    $
    250,561,585
    
    
    $
    5,793,101
    
    
    $
    
    
    
    $
    (5,793,101
    )
    
    $
    250,561,585Land sales
    
    
    
    
    
    
    150,000
    
    
    
    4,995,000
    
    
    
    
    
    
    
    
    
    
    
    5,145,000Financial services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,451,724
    
    
    
    
    
    
    
    15,451,724Management services
    
    
    78,358
    
    
    
    
    
    
    
    14,585,942
    
    
    
    
    
    
    
    (14,562,572
    )
    
    
    101,728Total revenues
    
    
    78,358
    
    
    
    250,711,585
    
    
    
    25,374,043
    
    
    
    15,451,724
    
    
    
    (20,355,673
    )
    
    
    271,260,037Cost of sales-homes
    
    
    
    
    
    
    188,887,189
    
    
    
    4,739,506
    
    
    
    
    
    
    
    (18,912,529
    )
    
    
    174,714,166Cost of land sales
    
    
    
    
    
    
    140,000
    
    
    
    3,728,746
    
    
    
    
    
    
    
    
    
    
    
    3,868,746Selling and marketing expenses
    
    
    
    
    
    
    14,913,216
    
    
    
    816,049
    
    
    
    
    
    
    
    (112,325
    )
    
    
    15,616,940General and administrative
expenses
    
    
    751,297
    
    
    
    2,504,423
    
    
    
    16,864,323
    
    
    
    11,895,592
    
    
    
    (679,642
    )
    
    
    31,335,993Operating income (loss)
    
    
    (672,939
    )
    
    
    44,266,757
    
    
    
    (774,581
    )
    
    
    3,556,132
    
    
    
    (651,177
    )
    
    
    45,724,192Equity in earnings of affiliates
    
    
    1,528,320
    
    
    
    46,499,348
    
    
    
    
    
    
    
    
    
    
    
    (48,027,668
    )
    
    
    Gain on derivative contracts,
net
    
    
    
    
    
    
    123,772
    
    
    
    
    
    
    
    105,072
    
    
    
    
    
    
    
    228,844Other income, net
    
    
    
    
    
    
    1,084,345
    
    
    
    327,956
    
    
    
    
    
    
    
    (18,616
    )
    
    
    1,393,685Net income (loss) before
minority interest
    
    
    855,381
    
    
    
    91,974,222
    
    
    
    (446,625
    )
    
    
    3,661,204
    
    
    
    (48,697,461
    )
    
    
    47,346,721Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,113,253
    )
    
    
    
    
    
    
    (1,113,253
    )Net income (loss)
    
    $
    855,381
    
    
    $
    91,974,222
    
    
    $
    (446,625
    )
    
    $
    2,547,951
    
    
    $
    (48,697,461
    )
    
    $
    46,233,468
 63




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 Condensed Consolidating Statement of Cash Flows for the
Year Ended December 31, 2007
 Non-GuarantorGuarantor
    
    
    Homebuilding
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating activities:Net income (loss)
    
    $
    (21,216,542
    )
    
    $
    (22,627,673
    )
    
    $
    (11,176,376
    )
    
    $
    319,283
    
    
    $
    33,484,766
    
    
    $
    (21,216,542
    )Equity in earnings of
affiliates
    
    
    16,732,437
    
    
    
    15,953,331
    
    
    
    
    
    
    
    
    
    
    
    (32,685,768
    )
    
    
    Impairment of real estate
inventory
    
    
    
    
    
    
    22,228,396
    
    
    
    10,732,166
    
    
    
    
    
    
    
    
    
    
    
    32,960,562Changes in real estate
Inventory
    
    
    (705,803
    )
    
    
    (71,148,035
    )
    
    
    57,191,209
    
    
    
    
    
    
    
    (798,998
    )
    
    
    (15,461,627
    )Other operating activities
    
    
    12,706,906
    
    
    
    44,529,443
    
    
    
    (57,038,684
    )
    
    
    (196,557
    )
    
    
    
    
    
    
    1,108Net cash provided by
(used in) operating
activities
    
    
    7,516,998
    
    
    
    (11,064,538
    )
    
    
    (291,685
    )
    
    
    122,726
    
    
    
    
    
    
    
    (3,716,499
    )Investing activities:Net cash provided by
(used in) investing
activities
    
    
    
    
    
    
    (101,109
    )
    
    
    
    
    
    
    (20,432
    )
    
    
    
    
    
    
    (121,541
    )Financing activities:Repayments of loans payable
    
    
    
    
    
    
    (2,750,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,750,000
    )Draws on line of credit, net
    
    
    
    
    
    
    16,250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,250,000Repurchase of senior
subordinated notes
    
    
    (3,142,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,142,500
    )Distributions to member
    
    
    (4,374,498
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,374,498
    )Distributions to minority
partners
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (325,775
    )
    
    
    
    
    
    
    (325,775
    )Net cash provided by
(used in) financing
activities
    
    
    (7,516,998
    )
    
    
    13,500,000
    
    
    
    
    
    
    
    (325,775
    )
    
    
    
    
    
    
    5,657,227Increase (decrease) in cash
and
cash equivalents
    
    
    
    
    
    
    2,334,353
    
    
    
    (291,685
    )
    
    
    (223,481
    )
    
    
    
    
    
    
    1,819,187Cash and cash equivalents,
beginning of year
    
    
    
    
    
    
    888,326
    
    
    
    1,138,737
    
    
    
    818,661
    
    
    
    
    
    
    
    2,845,724Cash and cash equivalents,
end of year
    
    $
    
    
    
    $
    3,222,679
    
    
    $
    847,052
    
    
    $
    595,180
    
    
    $
    
    
    
    $
    4,664,911
 64




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 Condensed Combining Statement of Cash Flows for the
Year Ended December 31, 2006
 Non-GuarantorGuarantor
    
    
    Homebuilding
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating activities:Net income (loss)
    
    $
    17,904,346
    
    
    $
    34,925,023
    
    
    $
    2,990,119
    
    
    $
    1,774,387
    
    
    $
    (38,997,803
    )
    
    $
    18,596,072Equity in earnings of
affiliates
    
    
    (7,964,308
    )
    
    
    (66,369,807
    )
    
    
    
    
    
    
    
    
    
    
    74,334,115
    
    
    
    Changes in real estate
inventory
    
    
    (390,650
    )
    
    
    (1,176,903
    )
    
    
    (63,400,919
    )
    
    
    
    
    
    
    2,006,393
    
    
    
    (62,962,079
    )Other operating
activities
    
    
    3,270,612
    
    
    
    (51,664,487
    )
    
    
    94,826,192
    
    
    
    (2,536,470
    )
    
    
    (37,342,705
    )
    
    
    6,553,142Net cash provided
by (used in)
operating
activities
    
    
    12,820,000
    
    
    
    (84,286,174
    )
    
    
    34,415,392
    
    
    
    (762,083
    )
    
    
    
    
    
    
    (37,812,865
    )Investing activities:Net cash used in
investing activities
    
    
    
    
    
    
    (4,744
    )
    
    
    (664,871
    )
    
    
    (189,459
    )
    
    
    
    
    
    
    (859,074
    )Financing activities:Issuance of debt
    
    
    
    
    
    
    
    
    
    
    11,508,576
    
    
    
    
    
    
    
    
    
    
    
    11,508,576Repayments of loans
payable
    
    
    
    
    
    
    
    
    
    
    (53,482,374
    )
    
    
    
    
    
    
    
    
    
    
    (53,482,374
    )Draws on (repayments
of) line of credit,
net
    
    
    
    
    
    
    52,750,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,750,000Distributions to member
    
    
    (12,820,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,820,000
    )Distribution to
minority partners
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (770,406
    )
    
    
    
    
    
    
    (770,406
    )Net cash provided
by (used in)
financing
activities
    
    
    (12,820,000
    )
    
    
    52,750,000
    
    
    
    (41,973,798
    )
    
    
    (770,406
    )
    
    
    
    
    
    
    (2,814,204
    )Decrease in cash and cash
equivalents
    
    
    
    
    
    
    (31,540,918
    )
    
    
    (8,223,277
    )
    
    
    (1,721,948
    )
    
    
    
    
    
    
    (41,486,143
    )Cash and cash
equivalents, beginning of
year
    
    
    
    
    
    
    32,429,244
    
    
    
    9,362,014
    
    
    
    2,540,609
    
    
    
    
    
    
    
    44,331,867Cash and cash
equivalents, end of
year
    
    $
    
    
    
    $
    888,326
    
    
    $
    1,138,737
    
    
    $
    818,661
    
    
    $
    
    
    
    $
    2,845,724
 65




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 Condensed Combining Statement of Cash Flows for the
Year Ended December 31, 2005
 Non-GuarantorGuarantor
    
    
    Homebuilding
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating activities:Net income (loss)
    
    $
    855,381
    
    
    $
    91,974,222
    
    
    $
    (446,625
    )
    
    $
    2,547,951
    
    
    $
    (48,697,461
    )
    
    $
    46,233,468Equity in
earnings of
affiliates
    
    
    (1,528,320
    )
    
    
    (46,499,348
    )
    
    
    
    
    
    
    
    
    
    
    48,027,668
    
    
    
    Changes in real
estate inventory
    
    
    
    
    
    
    19,386,261
    
    
    
    (40,975,973
    )
    
    
    
    
    
    
    247,908
    
    
    
    (21,341,804
    )Other operating
activities
    
    
    (143,810,307
    )
    
    
    103,101,945
    
    
    
    54,449,327
    
    
    
    (81,628
    )
    
    
    421,885
    
    
    
    14,081,222Net cash
provided by
(used in)
operating
activities
    
    
    (144,483,246
    )
    
    
    167,963,080
    
    
    
    13,026,729
    
    
    
    2,466,323
    
    
    
    
    
    
    
    38,972,886Investing activities:Net cash used in
investing
activities
    
    
    
    
    
    
    
    
    
    
    (1,142,669
    )
    
    
    (128,602
    )
    
    
    
    
    
    
    (1,271,271
    )Financing activities:Issuance of
subordinated
senior notes
    
    
    150,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,000,000Borrowings
(repayments) of
loans payable,
net
    
    
    
    
    
    
    (9,976,063
    )
    
    
    (2,315,904
    )
    
    
    
    
    
    
    
    
    
    
    (12,291,967
    )Draws on
(repayments of)
line of credit
    
    
    
    
    
    
    (99,689,635
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (99,689,635
    )Financing costs
    
    
    (5,516,754
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,516,754
    )Distributions to
members and
dividends to
stockholders
    
    
    
    
    
    
    (26,850,000
    )
    
    
    (218,510
    )
    
    
    
    
    
    
    
    
    
    
    (27,068,510
    )Distributions to
minority partners
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (847,000
    )
    
    
    
    
    
    
    (847,000
    )Net cash
provided by
(used in)
financing
activities
    
    
    144,483,246
    
    
    
    (136,515,698
    )
    
    
    (2,534,414
    )
    
    
    (847,000
    )
    
    
    
    
    
    
    4,586,134Increase in cash and
cash equivalents
    
    
    
    
    
    
    31,447,382
    
    
    
    9,349,646
    
    
    
    1,490,721
    
    
    
    
    
    
    
    42,287,749Cash and cash
equivalents,
beginning of year
    
    
    
    
    
    
    981,862
    
    
    
    12,368
    
    
    
    1,049,888
    
    
    
    
    
    
    
    2,044,118Cash and cash
equivalents, end
of year
    
    $
    
    
    
    $
    32,429,244
    
    
    $
    9,362,014
    
    
    $
    2,540,609
    
    
    $
    
    
    
    $
    44,331,867
 66




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 (11) Related Party Transactions
     12) Commitments and Contingencies
 (a) Legal Proceedings
  (b) Guarantees
  67




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
    (c) Contract Land Deposits
   (13) New Accounting Pronouncements
    68




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
     69




---



##### 



STANLEY-MARTIN COMMUNITIES, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 (14) Quarterly Financial Information (unaudited)
  Quarter EndedDecember 31,
    
    September 30,
    
    June 30,
    
    March 31,2007
    
    2007
    
    2007
    
    2007Homebuilding sales (includes custom home services)
    
    $
    50,100,881
    
    
    $
    42,207,435
    
    
    $
    43,181,769
    
    
    $
    26,427,123Total revenues
    
    $
    51,942,695
    
    
    $
    43,714,613
    
    
    $
    45,709,900
    
    
    $
    28,675,701Operating income (loss)
    
    $
    (9,861,445
    )
    
    $
    (7,904,113
    )
    
    $
    (4,743,816
    )
    
    $
    1,217,504Net income (loss)
    
    $
    (10,712,395
    )
    
    $
    (7,590,190
    )
    
    $
    (4,067,172
    )
    
    $
    1,153,215
 Quarter EndedDecember 31,
    
    September 30,
    
    June 30,
    
    March 31,2006
    
    2006
    
    2006
    
    2006Homebuilding sales (includes land sales)
    
    $
    65,486,292
    
    
    $
    58,811,362
    
    
    $
    71,004,733
    
    
    $
    43,070,805Total Revenues
    
    $
    68,309,854
    
    
    $
    61,519,143
    
    
    $
    74,518,375
    
    
    $
    45,936,139Operating Income
    
    $
    268,105
    
    
    $
    2,883,557
    
    
    $
    8,646,393
    
    
    $
    5,689,032Net income
    
    $
    758,708
    
    
    $
    2,409,807
    
    
    $
    9,103,025
    
    
    $
    6,324,532
 Quarter EndedDecember 31,
    
    September 30,
    
    June 30,
    
    March 31,2005
    
    2005
    
    2005
    
    2005Homebuilding sales (includes land sales)
    
    $
    77,671,485
    
    
    $
    64,725,565
    
    
    $
    63,240,466
    
    
    $
    50,069,069Total revenues
    
    $
    81,512,775
    
    
    $
    69,121,577
    
    
    $
    67,558,247
    
    
    $
    53,067,438Operating income
    
    $
    12,054,549
    
    
    $
    11,331,807
    
    
    $
    10,728,552
    
    
    $
    11,609,284Net income
    
    $
    12,137,430
    
    
    $
    12,054,389
    
    
    $
    10,178,231
    
    
    $
    11,863,418
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  ITEM 9A. CONTROLS AND PROCEDURES
  Managements Report on Internal Control Over Financial Reporting
  70




---



##### 



Internal Control-Integrated Framework Internal
Control-Integrated Framework
  ITEM 9B. OTHER INFORMATION
  71




---



##### 



PART III
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 Directors and Executive Officers
   Name
    
    Age
    
    Position(s)Martin K. Alloy
    
    
    68
    
    
    Chairman and ManagerSteven B. Alloy
    
    
    42
    
    
    Chief Executive Officer, President, Chief Financial Officer and ManagerStuart M. Ginsberg
    
    
    52
    
    
    Vice President, Secretary and General Counsel
 Martin K. Alloy.
 Steven B. Alloy.
 Stuart M. Ginsberg.
 Code of Conduct and Ethics
  72




---



##### 



ITEM 11. EXECUTIVE COMPENSATION
 Executive Compensation
 Compensation Discussion and Analysis
   Compensation Components
 Annual Compensation
  Annual Incentive Bonuses
  Long-Term Incentive Compensation
  Stock Options, Performance Shares or Other Stock Compensation Plans
  73




---



##### 



Retirement Savings Plan
  Change-in-Control Agreements
  Severance Plan Agreements
  Compensation Tables
 Summary Compensation Table
  Fiscal
    
    Annual Compensation ($)
    
    Long-Term
    
    OtherName and Principal Position
    
    Year
    
    Salary
    
    Bonus
    
    Compensation (3)
    
    Compensation (1)
    
    TotalMartin K. Alloy
    
    
    2007
    
    
    
    400,000
    
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    402,000Chairman
    
    
    2006
    
    
    
    400,000
    
    
    
    
    
    
    
    
    
    
    
    3,200
    
    
    
    403,2002005
    
    
    
    400,000
    
    
    
    
    
    
    
    
    
    
    
    3,200
    
    
    
    403,200Steven B. Alloy
    
    
    2007
    
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    502,000Chief Executive Officer and President
    
    
    2006
    
    
    
    500,000
    
    
    
    500,000
    
    
    
    
    
    
    
    3,200
    
    
    
    1,003,2002005
    
    
    
    489,583
    
    
    
    1,000,000
    
    
    
    
    
    
    
    28,200
    
    
    
    1,517,783Stuart M. Ginsberg
    
    
    2007
    
    
    
    351,625
    
    
    
    
    
    
    
    10,939
    
    
    
    2,000
    
    
    
    364,564Vice President and General Counsel
    
    
    2006
    
    
    
    352,682
    
    
    
    
    
    
    
    41,142
    
    
    
    3,200
    
    
    
    397,0242005
    
    
    
    302,290
    
    
    
    
    
    
    
    100,000
    
    
    
    2,800
    
    
    
    405,090Michael I. Roman (2)
    
    
    2007
    
    
    
    150,835
    
    
    
    
    
    
    
    
    
    
    
    86,000
    
    
    
    236,835Former Chief Financial Officer
    
    
    2006
    
    
    
    278,250
    
    
    
    100,000
    
    
    
    
    
    
    
    3,200
    
    
    
    381,4502005
    
    
    
    262,167
    
    
    
    115,000
    
    
    
    
    
    
    
    2,000
    
    
    
    379,167
 
 (1)
    
    Consists of company contributions to retirement savings plan and fringe benefits and $25,000
related to home improvement benefits provided in 2005.(2)
    
    Mr. Roman served as the Companys Chief Financial Officer until June 29, 2007. He forfeited
his long-term compensation upon his departure.
 74




---



##### 



(3)
    
    The Companys long-term incentive plan provides for a five year vesting and a three year
cliff payment after which distributions are made annually. No payments have been made under
the plan and amounts represent amounts added to the Named Executives account. Because the
Company did not make the Threshold for the Incentive Plan Awards no was made to the
participants.
 Plan-Based Awards
 Estimated Possible Payouts Under Non-EquityIncentive Plan Awards (1)Grant Date
    
    ThresholdName (a)
    
    (b)
    
    ($) (c)
    
    Target ($) (d)
    
    Maximum ($) (e)Michael
I. Roman
    
    11/2/06
    
    100,000
    
    150,000
    
    199,378Stuart
M. Glasberg
    
    11/2/06
    
    100,000
    
    150,000
    
    179,046
 
 (1)
    
    No awards have been made pursuant to our Long-Term Incentive Compensation Plan (LTICP) for
the plan year ending September 30, 2008. For a discussion of these performance goals see above
for our Compensation Discussion and Analysis included in this Form 10-K. Our managers target
payouts to be allocated to executive participants based upon the Companys achievement of
specified financial goals. For the plan year ended September 30, 2006, the amounts set forth
as Long Term Compensation in the Summary Compensation Table were allocated based on a
variable percentage of Company pretax profit in excess of a target return on equity. For the
plan year ended September 30, 2007, the Company did not achieve the minimum pre-tax profit
targets, therefore, no allocation was made.(2)
    
    The company does not have any equity incentive plans therefore columns (f) through (m) have
been excluded.
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
 Transactions with Related Parties
   75




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##### 



Purchase Agreements
   Heritage Contracting, LLC
    Duball, LLC
  Indemnity Agreements
  76




---



##### 



Home Purchase
  ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 Fees paid to Principal Accountant
  2007
    
    
    2006
    
    
    2005Audit fees (1)
    
    $
    315,629
    
    
    $
    354,000
    
    
    $
    695,515Audit related fees
    
    
    
    
    
    
    
    
    
    
    Tax fees
    
    
    
    
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    
    
    
    
    $
    315,629
    
    
    $
    354,000
    
    
    $
    695,515
 
 (1)
    
    The aggregate fees billed or anticipated to be billed by KPMG LLP for 2007, 2006 and 2005 for
professional services rendered for the audit of our consolidated and combined financial statements,
for the reviews of the unaudited condensed consolidated and combined financial statements included
in our Quarterly Reports on Form 10-Q during 2007, 2006 and 2005, or for services normally provided
by our independent registered public accounting firm in connection with statutory or regulatory
filings or engagements, including comfort and consent letters in connection with SEC filings and
financing transactions.
 Pre-approval Policies and Procedures
  Principal Accountant Independence
  PART IV
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  (1) Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    45Consolidated Balance Sheets at December 31, 2007 and 2006
    
    46Consolidated and Combined Statements of Operations for the years ended December 31, 2007, 2006 and 2005
    
    47Consolidated and Combined Statements of Members Capital and
StockholdersDeficit for the years ended
December 31, 2007, 2006 and 2005
    
    48Consolidated and Combined Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
    
    49Notes to the Consolidated and Combined Financial Statements
    
    50-70
 (2) Financial Statement Schedule
 77




---



##### 



(3) Exhibits
  3.1*
    
    
    
    Certificate of Formation of Stanley-Martin Communities, LLC3.2*
    
    
    
    Operating Agreement of Stanley-Martin Communities, LLC3.3*
    
    
    
    Certificate of Incorporation of Stanley-Martin Financing Corp.3.4*
    
    
    
    Certificate of Amendment of Certificate of Incorporation of Stanley-Martin Financing Corp.3.5*
    
    
    
    Bylaws of Stanley-Martin Financing Corp.3.6*
    
    
    
    Articles of Organization of Beech Grove Neighborhoods, LLC3.7*
    
    
    
    Limited Liability Company Operating Agreement of Beech Grove Neighborhoods, LLC3.8*
    
    
    
    Amendment to Operating Agreement of Beech Grove Neighborhoods, LLC3.9*
    
    
    
    Articles of Organization of Bram Neighborhoods, LLC3.10*
    
    
    
    Limited Liability Company Operating Agreement of Bram Neighborhoods, LLC3.11*
    
    
    
    Articles of Organization of Bram III Neighborhoods, LLC3.12*
    
    
    
    Limited Liability Company Operating Agreement of Bram III Neighborhoods, LLC3.13*
    
    
    
    Amendment to Operating Agreement of Bram III Neighborhoods, LLC3.14*
    
    
    
    Articles of Organization of Coles Run Neighborhoods, LLC3.15*
    
    
    
    Limited Liability Company Operating Agreement of Coles Run Neighborhoods, LLC3.16*
    
    
    
    Articles of Organization of Fair Oaks Neighborhoods, LLC3.17*
    
    
    
    Limited Liability Company Operating Agreement of Fair Oaks Neighborhoods, LLC3.18*
    
    
    
    Articles of Organization of Glenkirk Neighborhoods, LLC3.19*
    
    
    
    Limited Liability Company Operating Agreement of Glenkirk Neighborhoods, LLC3.20*
    
    
    
    Articles of Organization of Glynn Tarra Estates, LLC3.21*
    
    
    
    Limited Liability Company Operating Agreement of Glynn Tarra Estates, LLC3.22*
    
    
    
    Articles of Organization of KF Neighborhoods, LLC3.23*
    
    
    
    Limited Liability Company Operating Agreement of KF Neighborhoods, LLC3.24*
    
    
    
    Articles of Organization of KF II Neighborhoods, LLC3.25*
    
    
    
    Limited Liability Company Operating Agreement of KF II Neighborhoods, LLC3.26*
    
    
    
    Articles of Organization of Landmark Neighborhoods, LLC3.27*
    
    
    
    Limited Liability Company Operating Agreement of Landmark Neighborhoods, LLC3.28*
    
    
    
    Articles of Organization of Marumsco Neighborhoods, LLC3.29*
    
    
    
    Limited Liability Company Operating Agreement of Marumsco Neighborhoods, LLC3.30*
    
    
    
    Articles of Organization of Neighborhoods Capital, LLC3.31*
    
    
    
    Limited Liability Company Operating Agreement of Neighborhoods Capital, LLC3.32*
    
    
    
    Articles of Organization of Neighborhoods I, LLC3.33*
    
    
    
    Articles of Amendment to Articles of Organization of Neighborhoods I, LLC
 78




---



##### 



3.34*
    
    
    
    Limited Liability Company Operating Agreement of Neighborhoods I, LLC3.35*
    
    
    
    Articles of Organization of Neighborhoods II, LLC3.36*
    
    
    
    Limited Liability Company Operating Agreement of Neighborhoods II, LLC3.37*
    
    
    
    Articles of Organization of Neighborhoods III, LLC3.38*
    
    
    
    Articles of Amendment to the Articles of Organization of Neighborhoods III, LLC3.39*
    
    
    
    Limited Liability Company Operating Agreement of Neighborhoods III, LLC3.40*
    
    
    
    Articles of Organization of Neighborhoods IV, LLC3.41*
    
    
    
    Limited Liability Company Operating Agreement of Neighborhoods IV, LLC3.42*
    
    
    
    Articles of Organization of Neighborhoods V, LLC3.43*
    
    
    
    Limited Liability Company Operating Agreement of Neighborhoods V, LLC3.44*
    
    
    
    Amendment to Operating Agreement of Neighborhoods V, LLC3.45*
    
    
    
    Articles of Organization of Neighborhoods VI, LLC3.46*
    
    
    
    Limited Liability Company Operating Agreement of Neighborhoods VI, LLC3.47*
    
    
    
    Articles of Organization of Old Dominion Neighborhoods, LLC3.48*
    
    
    
    Limited Liability Company Operating Agreement of Landmark Neighborhoods, LLC3.49*
    
    
    
    Articles of Organization of Spring Park Neighborhoods, LLC3.50*
    
    
    
    Limited Liability Company Operating Agreement of Spring Park Neighborhoods, LLC3.51*
    
    
    
    Articles of Organization of Wall Neighborhoods, LLC3.52*
    
    
    
    Limited Liability Company Operating Agreement of Wall Neighborhoods, LLC3.53*
    
    
    
    Articles of Organization of Zion Neighborhoods, LLC3.54*
    
    
    
    Limited Liability Company Operating Agreement of Zion Neighborhoods, LLC3.55*
    
    
    
    Articles of Organization of Wildewood Neighborhoods, LLC3.56*
    
    
    
    Limited Liability Company Operating Agreement of Wildewood Neighborhoods, LLC3.57*
    
    
    
    Articles of Amendment to Articles of Organization to Bram Neighborhoods, LLC3.58*
    
    
    
    Articles of Organization of Shirlington Neighborhoods, LLC3.59*
    
    
    
    Limited Liability Company Operating Agreement of Shirlington Neighborhoods, LLC3.60*
    
    
    
    Articles of Organization of Avalon West Neighborhoods, LLC3.61*
    
    
    
    Limited Liability Company Operating Agreement of Avalon West Neighborhoods, LLC3.62****
    
    
    
    Articles of Organization of Stanley Martin Custom Homes, LLC3.63****
    
    
    
    Limited Liability Operating Agreement of Stanley Martin Communities, LLC4.1*
    
    
    
    Indenture dated as of August 10, 2005 by and among Stanley-Martin Communities, LLC, Stanley-Martin
Financing Corp., each of the Guarantors named therein and The Bank of New York4.2*
    
    
    
    Form of Senior Subordinated Note4.3*
    
    
    
    Registration Rights Agreement dated as of August 10, 2005 by and among Stanley-Martin Communities,
LLC, Stanley-Martin Financing Corp., each of the Guarantors named therein and Wachovia Capital
Markets, LLC10.1*
    
    
    
    Purchase Agreement dated as of August 3, 2005 by and among Stanley-Martin Communities, LLC,
Stanley-Martin Financing Corp, each of the Guarantors named therein and Wachovia Capital Markets, LLC
 79




---



##### 



10.2*
    
    
    
    Lot Purchase Agreement by and between Wildewood Residential, LLC and Wildewood Neighborhoods, LLC10.3*
    
    
    
    First Amendment to Lot Purchase Agreement by and between Wildewood Residential, LLC and Wildewood
Neighborhoods, LLC10.6*
    
    
    
    Lot Purchase Agreement by and between Wildewood Residential, LLC and Wildewood Neighborhoods, LLC10.7*
    
    
    
    First Amendment to Lot Purchase Agreement by and between Renaissance at Woodlands, LLC and
Neighborhoods I, LLC10.8*
    
    
    
    Assignment and Assumption of Lot Purchase Agreement by and between Renaissance at Woodlands, LLC and
Neighborhoods I, LLC10.9*
    
    
    
    Lot Purchase Agreement by and between Renaissance at Woodlands and Neighborhoods I, LLC10.11*
    
    
    
    Second Amendment to Lot Purchase Agreement by and between Renaissance at Woodlands, LLC and
Neighborhoods I, LLC10.12*
    
    
    
    Assignment and Assumption of Lot Purchase Agreement by and between Renaissance at Woodlands, LLC and
Neighborhoods I, LLC10.13*
    
    
    
    First Modified and Restated Loan Agreement among Neighborhoods Capital, LLC, certain Lenders
identified therein, Wachovia Capital Markets, LLC, Wachovia Bank and Branch Banking and Trust Company,
Southtrust Bank and Key Bank National Association dated as of November 15, 200410.14*
    
    
    
    Real Estate Contract dated July 5, 2005 by and between The Shaeffer Family and West End Group of
Investors and Stanley Martin Companies, Inc.10.16*
    
    
    
    Long Term Incentive Compensation Plan and Agreement with Stuart M. Ginsberg dated November 23, 200510.19*
    
    
    
    Long Term Incentive Compensation Plan and Agreement with Michael I. Roman dated November 23, 200510.20*
    
    
    
    Long Term Incentive Compensation Plan and Agreement with Michael E. Schnitzer dated November 23, 200510.21*
    
    
    
    Second Amendment to Lot Purchase Agreement by and between Wildewood Residential, LLC and Wildewood
Neighborhoods, LLC10.22*
    
    
    
    First Modification Agreement by and among Neighborhoods Capital, LLC, certain Lenders identified
theren and Wachovia Bank, dated as of July 11, 200510.23*
    
    
    
    Second Modification Agreement by and among Neighborhoods Capital, LLC, certain Lenders identified
theren and Wachovia Bank, dated as of October 5, 200610.24**
    
    
    
    Long Term Incentive Compensation Plan and Agreement with David W. Duggar dated November 2, 200610.25**
    
    
    
    Long Term Incentive Compensation Plan and Agreement with Gordon B. Thomas dated November 2, 200610.26**
    
    
    
    Third Modification Agreement by and among Neighborhoods Capital, LLC, certain Lenders identified
theren and Wachovia Bank, dated as of October 5, 2006 incorporated by reference to Exhibit 10.1 of the
Registrants form 10-Q filed with the Securities and Exchange Commission on November 30, 200610.27**
    
    
    
    The Fourth Modification Agreement by and among Neighborhoods Capital, LLC and Wachovia Bank, National
Association dated November 27, 2006 is hereby incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K filed with the Securities and Exchange Commission on November 30, 2006.10.28**
    
    
    
    Neighborhood Holdings, LLC Assignment and Contribution Agreement dated September 20, 200610.29**
    
    
    
    Second Modified and Restated Loan Agreement by and among Neighborhoods Capital, LLC and Wachovia Bank,
National Association dated October 12, 2007.10.30**
    
    
    
    Lot Purchase Agreement by and between Avalon West Neighborhoods, LLC and Centex Homes, LLC10.31***
    
    
    
    Second Modified and Restated Loan Agreement among Neighborhoods Capital, LLC, certain Lenders
identified therein, Wachovia Capital Markets, LLC, Wachovia Bank, National Association and Branch
Banking and Trust Company and First Horizon Home Loan Corporation dated October 12, 200712.1
    
    
    
    Ratio of Earnings to Fixed Charges (filed herewith)21
    
    
    
    Subsidiaries of the Registrant (filed herewith)
 80




---



##### 



31 (a)
    
    
    
    Rule 13a-14(a) Certification by Steven B. Alloy, President and Chief Executive Officer (filed herewith)(b)
    
    
    
    Rule 13a-14(a) Certification by Steven B. Alloy, Chief Financial Officer (filed herewith)32
    
    
    
    Certification Pursuant to 18 United States Code § 1350 and Rule 13a-14(b) of the Securities Exchange
Act of 1934 (filed herewith)
 
 *
    
    Incorporated by reference to the corresponding exhibit to the Registrants Registration
Statement of Form S-4 filed on December 17, 2005 with the Securities and Exchange Commission,
as amended.**
    
    Incorporated by reference to the corresponding exhibit to the Form 10-K filed on March 27,
2007 with the Securities and Exchange Commission.***
    
    Incorporated by reference to the corresponding exhibit to the Form 8-K filed on October 17,
2007 with the Securities and Exchange Commission.****
    
    Incorporated by reference to the corresponding exhibit to the Form 10-Q filed on May 11, 2007
with the Securities and Exchange Commission.
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##### 



SIGNATURES
  Stanley-Martin Communities, LLC
(Registrant)March 26, 2008
    By:
    /s/ Steven B. AlloySteven B. AlloyChief Financial Officer  Signature
    
    Title
    
    Date/s/ Steven B. Alloy
    
    Manager, President, Chief Executive Officer
    
    March 28, 2008Steven B. Alloy/s/ Steven B. Alloy
    
    Chief Financial Officer (Principal Financial Officer)
    
    March 28, 2008Steven B. Alloy
 82




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##### 

8

Exhibit Index
 ExhibitNumber
    
    Description12.1
    
    
    
    Ratio of Earnings to Fixed Charges (filed herewith)21
    
    
    
    Subsidiaries of the Registrant (filed herewith)31(a)
    
    
    
    Rule 13a-14 (a) Certification by Steven B. Alloy, Chief Executive Officer (filed herewith)31(b)
    
    
    
    Rule 13a-14(a) Certification by Steven B. Alloy, Chief Financial Officer (filed herewith)32
    
    
    
    Certification Pursuant to 18 United States Code § 1350 and Rule 13a-14(b) of the Securities Exchange Act
of 1934 (filed herewith)
 83