SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 205549
FORM 10K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________to_________
Commission File No. 33-55254-18
AFFORDABLE HOMES OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
NEVADA 86-0853511
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
4505 W. Hacienda Ave. Unit I-1
Las Vegas, Nevada 89118
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (702) 579-4888
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicated by check mark whether the registrant (1) has filed all report
required to filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [x] yes []no
Indicated by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of the Form 10-K or any amendment to this Form 10-K. [x]
Indicated the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding as of June, 1999
$.001 PAR VALUE CLASS A COMMON STOCK 17,549,402
$.001 PAR VALUE Class A Convertible Preferred Stock 657,144
$.001 PAR VALUE Class B Convertible Preferred Stock 100,000
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
Item 1. Business
On March 17, 1999, Kowtow, Inc. received 100% of the common stock of
Affordable Homes of America, Inc. in a merger. Additionally, Kowtow, Inc.
issued 4,000,000 shares of common stock to SCS Enterprises, Inc. Trust, the
sole shareholder of Affordable Homes of America, Inc. On the same date the
company accepted the resignation of Krista Nielson and Sasha Belliston as
Officers and Directors of the Company and elected Merle Ferguson as
President, CEO and Chairman of the Board of Directors. The Company also
elected Susan Donohue as Secretary and as a member of the Board of
Directors.
The Company changed its name to Affordable Homes of America, Inc. on March
19, 1999 and obtained a new CUSIP number -000826G106 - and a new trading
symbol -AHOA. The Company restructured its common stock with a two for one
forward split effective March 31, 1999. Affordable Homes of America
maintains its principle offices at 4505 W. Hacienda Ave., Unit I-1, Las
Vegas, Nevada 89118.
Affordable Homes of America, Inc. is in the business of building homes for
low income and first time home buyers. Founded in 1997, the focus of
Affordable Homes of America is to develop and build homes for sale in the
United States and international locations with little or no timber
products. The Company's methods are patented and are being implemented
this year. There are three methods for new home construction. These
include:
* In-line Framing - A new method of construction that reduces the amount
of wood used by one third. This reduces the cost of lumber used in
construction, and thereby reduces the overall cost of the home.
* Foam-Panelized Construction - This method of construction uses foam
slabs covered with panels and strengthened with internal trusses. This
allows for increased insulation and quick construction.
* Z Mix - A cementitious product that combines diatomaceous earth and
used tires to create a lightweight building material that reduces the time
and the cost for constructing a house. The Company currently holds the
patent on Z Mix.
All three methods (i) reduce the amount of wood used in building the
average home, and (ii) reduce the time and cost needed to construct the
average home. Recent company research has shown that more Americans ages
25 to 45 would prefer to purchase homes rather than rent. To make this
option viable, the Company's homes are financed 100% by lending
institutions and the monthly payments are comparable to the expense of
renting. Additionally, older Americans are more inclined to move into
homes that are less expensive, due to their retirement status and reduced
monthly income.
The Company is finishing the certification procedures necessary to sell its
Z Mix products in the US. Once complete, the Company will begin sales and
distribution of its products in US and international locations. The
Company has been approached by several international entities to establish
factories to supply Z Mix for construction.
<PAGE>
To date Affordable Homes has made five (5) acquisitions:
(a) On April 7, 1999, Affordable Homes acquired Kampen and
Associates, Inc., the owner of an option to purchase 485 acres of land
located in Pierce County, Washington.
(b) On April 27, 1999, Affordable Homes acquired M.P.Hall
Enterprises, Inc., owner of a site near McCord Air Force Base and Ft.
Lewis Army Base in Lakewood, Washington, upon which Affordable Homes
plans to construct a Ramada Inn
(c) On April 28, 1999, Affordable Homes merged with Composite
Industries of America Inc. the owner of a patent covering a construction
material known as "Z Mix". Z Mix is a cementitious building material
and can be used in a two step construction method instead of cement, dry
wall or lumber. Affordable Homes believes Z Mix will enable it to build
better quality homes at a lower price than if other products were used.
(d) On June 28, 1999, acquired a 50% interest in a real estate
development in Pierce County, Washington, known as the Heartland Homes
Estates. Affordable Homes is currently developing this project, which
is the construction and sale of homes, with the other 50% owner.
(e) On June 28, 1999 Affordable Homes also acquired Big Mountain
Construction Company which holds the exclusive right to build all the
houses for the Heartland Homes development. The development is planned
for the construction of 136 homes, each on an individual site.
Kampen and Associates, Inc. The acquisition of Kampen and Associates, Inc.
was accomplished by the issuance of convertible preferred shares with a
strike price of $3.50 per share. The total purchase price paid for Kampen
was $7,000,000. This was paid by the issuance of convertible stock and
assumption of debt slightly in excess of $5,000,000. Kampen is a real
estate development company located in the Seattle area. At the present
time the Seattle area is experiencing rapid growth in the construction and
sale of single family homes. Kampen owns a project which consist of 575
lots on one of the prime building sites in the Seattle area. The Kampen
site has an MAI appraisal of $8,000,000 "as is".
On June 24, 1999, Affordable Homes of America, Inc. placed its wholly owned
subsidiary, Kampen and Associates, Inc. in Chapter 11 pursuant to the
federal bankruptcy act. Although payments to the first mortgage holder are
current. Affordable has not been successful in restructuring Kampen's debt
to the second mortgage. However, Affordable believes it will be able to
successfully reorganize Kampen on a basis satisfactory to all including the
first mortgage holder.
M. P. Hall Enterprises, Inc. The acquisition of M. P. Hall Enterprises
was accomplished by the issuance of convertible preferred shares at a
strike price of $5.50 per share. The total purchase price of M. P. Hall
<PAGE>
was $500,000. By agreement, once the strike price is reached 20,000 shares
per quarter can be sold in the public market. Affordable has assumed the
debt in the amount of $375,000. M.P. Hall assets consists of a motel site
located near the front gates of Mc. Cord and Ft. Lewis Base. The site is
appraised for $930,000 "as is". Affordable plans to build a 55 unit Ramada
Inn on the site. All plans and permits have been approved and sewer and
water hook-up have been paid. Application has been made for the
construction and development loan. Construction is expected to take 6
months to complete. The estimate gross revenues are $879,285.00 per year.
Composite Industries of America, Inc. The acquisition of Composite
Industries of America, Inc. was accomplished by exchanging one share of
Affordable's common stock for two shares of Composite's common stock. All
stock issued by Affordable pursuant to this acquisition is restricted.
Affordable is the surviving entity. Affordable pursuant to the merger, now
owns the patents formerly owned by Composite. The patents cover a
construction material call "Z Mix". Z Mix is a building material lighter
than cement that can be used in home construction instead of cement,
lumber or dry wall. The patented construction material is a lightweight
cementitious insulating mixture with a high compression strength and
thermal resistance values up to 30 to 40 times that of standard concrete.
It is fire proof, insect proof, has excellent acoustical properties and is
easy to clean up. Z Mix can be used for wall and roof panels and can
easily by pumped for walls and floors. Z Mix makes a well insulated cost
effective floor that has a slight give to it. Z Mix is excellent for
gymnasium floors. This material is used for residential, light commercial
and agricultural building. The composition has the unique property of
being able to absorb contaminated or hazardous materials, especially
petroleum based contaminants and is especially useful in cleaning up and
controlling contaminants in underground storage tanks, especially in
abandoned or closed service stations.
Affordable also acquired the plans for a "World Home" and a "US Home" made
from this material. These plans have been certified by Larson Engineering,
Inc. as earthquake resistant in all four seismic regions in the world.
Larson Engineering, Inc. also certified that houses built from these
materials are able to withstand hurricane winds up to 150 mph. Affordable
believes that use of Z Mix will permit it to construct lower cost housing
at substantial less that the present cost for such housing. Z Mix can also
be used in the manufacturing of utility poles, railroad ties and pallets
with substantial savings in the manufacturing cost of these items.
Affordable believes that the use of Z Mix will broaden its market and
increase its profitability.
Heartland Homes Estates. The Company purchased a 50% interest in
Heartland Homes Estates by acquiring a 25% interest in the housing
developments project from 2 owners:
(a) Affordable acquired 100% of Realty Center, Inc. for Class A
Convertible Preferred Stock in the amount of 114,286 shares. This stock
is convertible at $3.50 per share, which makes the purchase price
$400,000.00 Realty Center owned 25% of the project known as Heartland
Homes.
<PAGE>
(b) Affordable also acquired an additional 25% of Heartland Homes from
Thomas Lief for 114, 286 shares of Class A Convertible Preferred Stock
for a purchase price of $400,000.00 This brought the total of
Affordable's ownership in Heartland Homes to 50%. Heartland is a 136
home site development in the Seattle-Tacoma area in Washington. Four
models are on site now and final approval to sell houses is expected
very shortly. Affordable expects this project to sell out very quickly.
Big Mountain Construction Company, Inc. The Company acquired Big Mountain
Construction Company, Inc. for $500,000 paid in restrictive common stock
in the amount of 215,983 shares. Big Mountain maintains the building
contractor license and has the exclusive right to construct Heartland
Homes. An MAI appraisal was made for the Centennial Bank, Tacoma,
Washington, the prospective bank lender for the Heartland Homes project.
The appraisal value of the property prior to the removal of the Designated
Forrest Land (DFL) classification was $880,000.00 After removal of the
DFL classification and when the lots are ready to be sold but without any
house construction being done the appraisal value was set at $4,900,000.00
Heartland Homes falls within the area boundaries of the Farm Home Loan
Program. This program is a subsidy that allows buyers to purchase a home
and subsidizes their monthly payment to be in line with their income.
What this does is allow the buyer who could not normally afford to purchase
in this price range, to qualify for a home purchase. In addition with the
master appraisals being complete and at least $10,000 higher than the
asking price, the qualifying factor under a VA type loan is favorably
changed for the buyer. These changes will allow buyers to use up to
$10,000 to pay off short term loans and roll them into their new home loan,
thereby qualifying for a higher loan amount. The impact of this financing
feature on Heartland is very positive. It will allow first time
homebuyers to qualify much easier and with no money down. This will give
Affordable Homes the ability to qualify more home buyers and close more
loans than originally anticipated. Affordable believes this to be a big
edge over the competition. Where a buyer won't be able to qualify in other
neighborhoods, he will in the Heartland Homes project.
The Company's business is not seasonal although during some snow storms on
site construction generally does not take place unless indoors. The
Company uses no special raw materials and the materials it does use are
available from numerous suppliers throughout the United States. The
Company is not computer dependent and does not anticipate any Y-2K problems
any time prior to the year 2000.
ITEM 2 PROPERTIES
The Company owns no properties other than as set forth in Item 1. The
Company leases its offices located at 4505 W. Hacienda Ave. Unit I-1, Las
Vegas, Nevada 89118 at an annual rent of $7092.00 The expiration date of
the lease is July 31, 1999.
<PAGE>
ITEM 3 LEGAL PROCEEDINGS
There is no pending or threatened litigation or other legal proceedings,
material or otherwise, nor any claims or assessments with respect to
Affordable Homes of America, Inc. at the present time.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to the Company security holders for a vote during
the fiscal year ending June 30, 1999.
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is trading on the NASD Electronic Bulletin Board
under the symbol "AHOA". The stock has traded between $4.25 per share and
$2.625 per share. There are approximately 890 record holders of the
Company's common stock. The Company has not previously declared or paid
any dividends on its common stock and does not anticipate declaring any
dividends in the foreseeable future
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Affordable Homes of America, Inc. is a real estate development company in
the development stage focusing on building homes for low-income and first-
time home buyers. There are 5,000,000 families in the United States that
spend 50% of their income on rent. This does not leave them sufficient
funds for buying the basic family needs of medicine, education, decent
transportation and the like. Because of Affordable Home's specialized
construction techniques i.e. in-line framing, foam-panelized construction
and Z Mix construction the Company believes it will bring the ability to
purchase a home within the reach of this 5,000,000 family market and other
potential home buyers whose financial resources would not otherwise enable
them to purchase a home.
Affordable Homes has also designed a "World Home" which is a smaller
building, for marketing abroad. Preliminary discussions in South America,
Europe, and the Philippines have indicated widespread acceptance of the
World Home in those areas.
In order to finance the marketing of the World Home and also to implement
Affordable Homes' low income and first time home buyer program nationwide,
Affordable Homes has made certain acquisitions for near term cash
requirements. For a description of these acquisitions see Item 1 Business
herein.
The first acquisition to be developed is the Heartland Homes real estate
development project of 136 homes. Bank financing has been arranged for
this project which means that when all permits are received by Affordable
Homes, construction can begin.
<PAGE>
In addition, Affordable Homes has applied for a five year loan in the
amount of $15,000,000 from Euro Federal Bank NV which is located in
Amsterdam.
While the proceeds of the loan are not necessary for the implementation of
Affordable Homes building program, the receipt of such funds would greatly
accelerate the program.
There can be no assurance that the Company will receive the proceeds of
this loan nor can there be any assurances that the Company will be able to
complete construction of homes and the Ramada Inn on the properties it
acquired.
ITEM 6A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no market risk sensitive instruments or market risk
exposures.
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules
appearing on page F-1 through F-26 of this Form 10-K.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table shows the positions held by the Company's officers and
directors. The directors were appointed and will serve until the next
annual meeting of the Company's stockholders, and until their successors
have been elected and have qualified. The officers were appointed to their
positions, and continue in such positions at the discretion of the
directors.
<TABLE>
NAME AGE POSITION
<S> <C> <C>
Merle Ferguson 53 President, CEO and Chairman of the Board
Frank C. Calmes 53 Chief Financial Officer, Vice Chairman
James E. Pratt 66 General Counsel, Secretary and Director
Susan Donohue 47 Treasurer, Assistant Secretary, Director
Dr. William T. Anton 52 Vice President of International Operations
Randy Vozka 36 Vice President of Research ,Development
</TABLE>
Merle Ferguson founded Affordable Homes of America, Inc. in 1997 and is the
President, CEO and Chairman of the Board of Directors. Prior to starting
Affordable Homes Mr. Ferguson spent 22 years in the construction industry
as a developer and builder. Mr. Ferguson built commercial and residential
buildings in California, Oregon and Washington. Mr. Ferguson is currently
managing the construction of 136 homes located near Tacoma, Washington.
These are being constructed using Affordable's In-line framing method.
<PAGE>
Mr. Ferguson attended Yakima Valley College in Washington State with a
focus in forestry. He honorably served his country with the United States
Marine Corps from 1966 to 1970. This included two tours in Vietnam. For
the past 7 years, Mr. Ferguson has been researching new construction
products used to reduce deforestation. Some of the construction methods
under development by Affordable Homes of America use no timber products.
Frank C. Calmes is the Chief Financial Officer, Vice Chairman and director
of the Company. He is also the President of First Equity Capital
Corporation, a privately held investment banking corporation. During the
past 14 years Mr. Calmes has worked mainly in the investment banking
industry. He was Vice-President in charge of business development of
Britannia Capital, Ltd. And President and CEO of Calco Marine, Inc.
Mr. Calmes background also includes positions at Westinghouse Credit
Corporation, where he worked in business development and management, and at
CIT Corporation where he worked in the credit and collections department
and the leasing equipment and financing accounts receivables department.
Mr. Calmes honorably served his country with United States Air Force, where
he achieved the rank of Sergeant. He received a Bachelor of Science degree
from Louisiana State University in New Orleans with a major in Accounting.
James E. Pratt is the Secretary, General Counsel and a Director of the
Company. Mr. Pratt has specialized in investment banking law, including:
preparation of registration statements, private placements, public
offerings, filings with the SEC, NYSE, NASDAQ, and state Blue Sky
authorities; limited partnerships, reverse mergers, mergers and
acquisitions, joint ventures, assets purchases, spin-offs, buyouts and
corporate reorganizations. He is also an experienced litigator. During
his career, Mr. Pratt has been associated with and been a partner of
various New York City law firms and was general counsel and a partner in
the investment banking and brokerage firm of Van Alstyne Noel & Co. where
he worked from 1967 until 1973. Mr. Pratt's clients have been mostly
small, emerging, growth companies seeking venture capital and a public
market for their securities. Mr. Pratt received a B. A. from Yale in 1955
and an L.L.B from Harvard Law School in 1959.
Susan Donohue is the Treasurer, Assistant Secretary and a Director of the
Company. She was one of the two founders of Zawada Technologies, Inc. At
Zawada Technologies she worked directly with Joseph Zawada on the research
of the Z Mix product. Zawada Technologies merged with Composite
Industries, Inc. Ms. Donohue joined Affordable Homes when Composite merged
with Affordable Homes of America, Inc. Prior to Zawada Technologies, Susan
worked with Waukesha Bearings in Wisconsin as the Senior Buyer starting in
1989. Ms. Donohue attended the University of Wisconsin at Stevens Point
with a focus in sociology and psychology. Additionally, she attended North
Central Technical College for certification as an Account Clerk, and also
attended Cardinal Stritch College of Madison, where she majored in
Business Administration.
<PAGE>
Dr. William T. Anton joined Affordable Homes of America, Inc. in 1999 as
Vice President of International Operations when Composite Industries of
America, Inc. merged with Affordable Homes in April 1999. Prior to the
merger he was President of Composite Industries of America, Inc. Prior to
working for Composite Industries of America, Inc., Dr Anton was President
of World Technologies Associates, Inc. - a consulting firm for management,
telecommunications, internet and computer systems integration. The company
managed international projects in Argentina, Congo, Germany, Ivory Coast,
Mali, Burkina Faso, Portugal, Russia, Romania and Turkey. Dr. Anton was a
Professor of Management and Marketing at Schiller University in Heidelberg,
Germany, from 1992 to 1994, where he held the titles of Director, Master of
International Management Degree Program and Chairman of the Graduate School
Committee. Dr. Anton also provided consultant services to KONEX Global
Corporation. This included consulting for management on communications,
computer systems, training and marketing. At KONEX, he also provided
services and equipment to support Desert Storm allies. With an extensive
military career, Dr. Anton served his country as Battalion Commander held
numerous command and staff positions in Europe, Asia and South America.
Dr. Anton is a Vietnam veteran. Dr. Anton earned his Doctorate from
George Washington University in Human Resource Development and Management
Science, his Master degree from North Carolina State University, and his
Bachelor of Science degree from the University of Nebraska.
Randy Vozka joined Affordable Homes of America, Inc. in 1999 as Vice
President of Research and Development when Composite Industries of America,
Inc. merged with Affordable Homes in April, 1999. He worked to complete
the engineering studies on the different uses of the Z Mix products that
Joseph Zawada started. Prior to joining Composite Industries, Mr. Vozka
was President of Vozka Exteriors from 1986 until 1999 He has over 12 years
of experience in the management of real estate development projects
including all stages of construction, including bidding, contract creation,
planning, managing, subcontractors, heavy equipment operations, and
managing P&L
ITEM 10 EXECUTIVE COMPENSATION
The Company pays no salaries to its officers and directors except that
Susan Donohue receives a monthly salary of $2000. On June 11, 1999 the
Company issued 75,000 shares of its common stock pursuant to S-8
Registration Statement to James E. Pratt, Esq., the Secretary , General
Counsel and a Director of the Company for legal services rendered and to be
rendered and for out of pocket expenses necessarily incurred on behalf of
the Company. On June 11, 1999 The Company issued 325,000 shares of its
common stock pursuant to a S-8 Registration Statement to First Equity
Capital Corp. for consulting work in assisting the company in the area of
business development. Frank C. Calmes is the President of First Equity
Capital Corp. The consulting work included evaluating the acquisitions and
mergers that have taken place as well as the evaluation and rejection of
various potential acquisitions, conferring on a daily basis with the
Company and travel on behalf of the Company, including travel to South
America and Canada. First Equity Capital Corp. spends 90% of its time on
the Company business.
<PAGE>
Dr. William T. Anton is paid $3,000 monthly for foreign travel and is
reimbursed for his travel expenses on behalf of the Company. Dr. Anton has
traveled extensively in Europe in order to market the World Home in various
countries, which includes Turkey, and Bulgaria
On March 22, 1999 options were granted pursuant to the Company's Incentive
Stock Option Plan as follows:
<TABLE>
Option Grants in Last Fiscal Yea
Percentage
of Total
Number of Granted to Grant
Securities Employees Exercise of Date
Underlying in Fiscal Base Price Expiration Present
Name Options Year (S/SH) Date Value
<S> <C> <C> <C> <C> <C>
Merle Ferguson 1,500,000 21% 500,000 5-22-04 -0-
@$.25
500,000@$.50
500,000@50%
of
prevailing
Bid
price at
time of
exercise
Frank C. Calmes 2,500,000 36% 500,000@$.25 5-22-04 -0-
500,000@$.50
500,000@50%
500,000@60%
500,000@70%
of the
prevailing
Bid
price at
time of
exercise
James E. Pratt 2,500,000 36% 500,000@$.25 5-22-04 -0-
500,000@$.50
500,000@50%
500,000@60%
500,000@70%
of the
prevailing
Bid
price at
time of
exercise
Susan Donohue 500,000 7% 100,000@$.25 5-22-09 -0-
100,000@$.50
100,000@50%
100,000@60%
100,000@70%
of the
prevailing
Bid
price at
time of
exercise
</TABLE>
<PAGE>
None of the options have been exercised. There are no agreements or
understandings with respect to the amount of remuneration that officers and
directors are expected to receive in the future. Management takes no
salaries from the Company and does not anticipate receiving any salaries in
the foreseeable future. No present prediction or representation can be
made as to the compensation or other remuneration which may ultimately be
paid to the Company's management. There are no plans, proposals,
arrangements or understandings with respect to the sale of additional
securities to affiliates, current shareholders or others.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 1999, information regarding
the beneficial ownership of shares by each person known by the Company to
own five percent or more of the outstanding shares, by each of the
directors and by the officers and directors as a group.
<TABLE>
Amount of
Name and address beneficial Percent
Title of class of beneficial owner ownership of class
<S> <C> <C> <C>
Common Stock Merle Ferguson
c/o SCS Trust 8,000,000 45.5%
8452 Boseck
#285 Las Vegas,
Nevada 89128
Common Stock Frank Calmes
13760 Highway 190 743,000 04.23%
Covington, La. 70433
Common Stock James E. Pratt 411,000 02.34%
195 Kildare Road
Garden City, N.Y. 11520
Common Stock Susan Donohue 40,000 0.39%
8452 Boseck
#285 Las Vegas,
Nevada 89128
Common Stock Randy Vozka 99,500 0.56%
4800 Hwy 8
Beltline
Rhinelinder, WI. 54501
All Officers and Directors as a Group 9,293,500 53.11%
</TABLE>
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No officer, director, nominee for election as a director, or associates of
such officer, director or nominee is or has been in debt to the Company
during the last fiscal year.
<PAGE>
ITEM 13 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements and Financial Statement Schedules.
Financial Statements June 30, 1999 - December 31, 1998, - 1997
Report on Form 8-k
Reports in form 8-k were filed on March 30, 1999, March 31, 1999, April
15,1999, and May 3, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AFFORDABLE HOMES OF AMERICA, INC.
Date: December 21, 1999 By: /s/ Merle Ferguson
Merle Ferguson, President, CEO and Director
Date: December 21, 1999 By: /s/ James E. Pratt
James E. Pratt, Secretary and General Counsel
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
and
REPORT OF INDEPENDENT AUDITORS
FROM THE DATE OF INCEPTION TO JUNE 30, 1999 and 1998
REPORT OF INDEPENDENT AUDITORS
<PAGE>
Board of Directors and Stockholders
Affordable Homes of America, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Affordable
Homes of America, Inc. and Subsidiaries (a development stage company) as of
June 30, 1998 and 1999, the related consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows for the periods
from inception (February 10, 1997) to June 30, 1998 and 1999. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial
position of Affordable Homes of America, Inc. and subsidiaries as of June
30, 1998 and 1999 and the results of their consolidated operations and
their cash flows for the period from inception (February 10, 1997) to June
30, 1998 and 1999 in conformity with generally accepted accounting
principles.
Garden City, New York
September 30, 1999
<PAGE>
<TABLE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEETS
JUNE 30,1998 and 1999
ASSETS
1998 1999
---------------- -----------------
<S> <C> <C>
Cash in banks $ - $ 192,398
Employee advances - 45,600
Other receivables - 9,000
Advances - 224,140
Investment in joint venture - 800,000
Land and land development costs - 7,676,736
Capitalized interest expense - 487,041
Machinery & equipment - at
Cost, less accumulated
Depreciation of $ -0- and
$47,466 as of June 30, 1998 and
1999, respectively - 108,285
Patents - at cost, less
Accumulated amortization of
$ -0- and $39,431 as of June
30, 1998 and 1999 respectively - 354,882
Goodwill - 408,197
----------------- -----------------
TOTAL ASSETS $ - $ 10,306,279
================= =================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
<PAGE>
<TABLE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEETS
JUNE 30,1998 and 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1999
<S> <C> <C>
LIABILITIES
Accounts payable $ - $ 42,676
Accrued expenses 15,000 22,277
Accrued interest payable - 206,667
Notes payable - 2,217,937
Loans and advances from
Related parties - 235,287
Land purchase options - 3,415,000
----------- -----------
TOTAL LIABILITIES 15,000 6,139,844
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible preferred stock classes A
And B ($.001 par value, 5,000,000
Shares of each class authorized,
657,144 and 100,000 of class A and
B issued and outstanding, respectively) - 757
Additional paid-in capital - 4,374,345
Common stock ($.001 par value
100,000,000 shares authorized,
17,549,402 shares issued and
Outstanding as of June 30, 1999
2,000,000 shares issued and
Outstanding as of June 30, 1998) 2,000 17,549
Deficit accumulated during the
Development stage (17,000) 226,216)
----------- ------------
Total Stockholders, Equity (Deficit) (15,000) 4,166,435
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 0 $10,306,279
=========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
<PAGE>
<TABLE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
DURING THE DEVELOPMENT STAGE
CUMULATIVE FROM INCEPTION (February 10, 1997)
TO JUNE 30,1998 and 1999
Cumulative from
Inception to
1998 1999 June 30, 1999
----------- ---------- ---------------
<S> <C> <C> <C>
Administrative expenses $15,000 $211,116 $228,116
Cumulative (Loss)
From operations (15,000) (211,116) (228,116)
----------- ---------- ---------------
Other income and expense
Interest and other income - 4,750 4,750
(Loss) on disposition
of equipment - (2,850) (2,850)
----------- ---------- ---------------
Total other income
And expense - 1,900 1,900
----------- ---------- ---------------
Net (loss) before
Income taxes (15,000) (209,216) (226,216)
Provision for income taxes - - -
----------- ---------- ---------------
Net (loss) $(15,000) $(209,216) $(226,216)
=========== ========== ===============
Net (loss) per common share $(.01) $(.04) $(.06)
=========== ========== ===============
Weighted average number of
Shares outstanding 2,000,000 5,165,202 3,582,601
=========== ========== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
<PAGE>
<TABLE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
CUMULATIVE FROM INCEPTION (February 10, 1997) TO JUNE 30,1998
Preferred Preferred Deficit
Stock Stock Accumulat Total
Common Stock A .001 Par B .001 Par Additio ed Stockholde
.001 Par value value value nal During rs'
Paid-in the Equity
Capital Developme (Deficit)
nt
Stage
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
issuance
of
Common
stock as
restated
to account
for 2 for
1
Stock
split
dated
March 19, 2,000,000 $2,000 $ 2,000
1999
Net loss
prior to
Developmen
t stage
Activity (2,000) (2,000)
Net loss
during the
Developmen
t stage
Through (15,000) (15,000)
June 30,
1998
--------- ------ ---- ---- ------ ------ ------- --------- ----------
Closing
balance -
June30 2,000,000 $2,000 - $- - $- $- $(17,000) $(15,000)
1998
========= ====== ==== ====== ====== ====== ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
<TABLE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
CUMULATIVE FROM INCEPTION (February 10, 1997) TO JUNE 30,1999
Preferred Preferred Deficit
Stock Stock Accumul Total
Common Stock A .001 Par B .001 Par Additional ated Stock
.001 Par value value value Paid-in During holde
Capital the rs'
Develop Equit
ment y
Stage (Defi
cit)
Shares Amount Shares Amoun Shares Amoun
t t
------- ------ ------ ----- ------ ----- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Opening
balance-
July 1, 2,000,000 $2,000 - $- - $- $- $(17,00 $(15,
1998 0) 000)
Issuance
of common
stock
in
exchange
for 100%
of the
common
stock of
Affordabl
e-Nevada
on
March 4,000,000 4,000 (4,000)
17,1999
Common
stock
split on
a 2 for 1
basis on
March 4,000,000 4,000 (4,000)
19,1999
Issuance
of common
stock
to
founders
on March
18,
1999 250,000 250 (250)
Issuance
of
Preferred
A
Stock in
the
acquisiti
on
of 100%
of the
common
Stock of
Kampen
and
Associate
s, Inc.
on
April 14, 428,572 429 1,510,657 1,511
1999 ,086
</TABLE>
(Continued)
The accompanying notes are an integral part of these statements
<PAGE>
<TABLE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
CUMULATIVE FROM INCEPTION (February 10, 1997) TO JUNE 30,1999
Preferred Stock Preferred Def
A .001 Par Stock ici Total
Common Stock value B .001 Par Additional t Stockholde
.001 Par value value Paid-in Acc rs'
Capital umu Equity
lat (Deficit)
ed
Dur
ing
the
Dev
elo
pme
nt
Sta
ge
Shares Amoun Shares Amount Shares Amo
t unt
------- ----- ------ ------ ------ --- ------ -- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance
of
common
stock
in the
merger
trans-
Action
with
Composit
e
Industri
es, Inc.
on
April 6,514,270 6,514 1,560,059 1,566,573
15, 1999
Issuance
of
Preferre
d B
Stock
in the
acquisit
ion
of 100%
of the
common
Stock
of M.P.
Hall
Enterpri
ses, Inc
on
April 100,000 100 549,900 550,000
27, 1999
Issuance
of
restrict
ed
Common
stock in
the
Acquisit
ion of
Big
Mountain
Construc
tion
Company,
Inc. on
June 215, 980 216 524,904 525,120
28,
1999.
Issuance
of
common
stock
In the
acquisit
ion of
100% of
the
common
stock
of
Realty
Center,
Inc.
and 25%
interest
in
the
Heartlan
d Homes
Joint
Venture
on
June 228,572 228 799,772 800,000
28,
1999.
</TABLE>
(Continued)
The accompanying notes are an integral part of these statements
<PAGE>
<TABLE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
CUMULATIVE FROM INCEPTION (February 10, 1997) TO JUNE 30,1999
Preferred Preferred Deficit
Stock Stock Accumulate Total
Common Stock A .001 Par B .001 Par Additional d Stockholde
.001 Par value value value Paid-in During thers Equity
Capital Developmen(Deficit)
t
Stage
Shares Amount Shares Amou Shares Amou
nt nt
------- ------ ------ ---- ------ ---- ---------- ------------------
<A> <C> <C> <C> <C> <C> <C> <C> <C>
Issua
nce
of
commo
n
stock
for
servi
ces
rende
red
on 569,149 569 38,462 39,031
May
24,
1999.
Recla
ssifi
catio
n of
Retai
ned
defic
it
for
(595,710) (595,710)
Compa
nies
acqui
red
Expen
ses
incur
red
in
conne
ction
with
(5,449) (5,449)
Publi
c
offer
ing
Net
loss
durin
g the
Devel
opmen
t
stage
the
year (209,216) (209,216)
ended
June
30,
1999
--------- ------ ------- ---- ------ ---- ---------- ---------- ----------
Closi
ng
balan
ce-
June
17,549,402 $17,549 657,144 $657 100,000 $100 $4,374,345 $(226,216) $4,166,435
30,
1999
========= ======= ======= ==== ======= ==== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
<TABLE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
CUMULATIVE FROM INCEPTION (February 10, 1997)
TO JUNE 30, 1998 and 1999
Cumulative
From
Inception
to
June 30,
1998 1999 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES;
Consolidated net (loss) from
Development stage operations $(15,000) $(209,216) $(226,216)
ADJUSTMENTS TO RECONCILE NET LOSS
FROM DEVELOPMENT STAGE OPERATIONS
TO CASH USED IN OPERATING ACTIVITIES
Depreciation and amortization 15,317 15,317
Stock issued for services 39,031 39,031
(Increase) decrease in assets:
Increase (decrease) in liabilities:
Accrued expenses 15,000 7,277 22,277
Accrued interest payable - 20,666 20,666
------------ ----------- ----------
Total Adjustments 15,000 82,291 97,291
------------ ----------- ----------
Net cash (used in) operations 0 (126,925) (128,925)
------------ ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment acquisitions - (57,671) (57,671)
Net cash (used in)
Investing activities - (57,671) (57,671)
------------ ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to and capitalization of
Subsidiaries 386,994 388,994
Payments of land purchase option - (10,000) (10,000)
------------ ----------- ----------
Net cash from financing activities - 376,994 378,978
------------ ----------- ----------
Net Increase in Cash in banks - 192,398 192,398
------------ ----------- ----------
Cash in banks Beginning of period - - -
------------ ----------- ----------
Cash in banks End of period - $192,398 $192,398
============ =========== ==========
Supplemental Disclosure of cash flow information:
Cash Paid during the year
for
Interest expense $- $- $-
============ ============ =============
Income taxes $- $- $-
============ ============ =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
CUMULATIVE FROM INCEPTION (February 10, 1997)
TO JUNE 30, 1998 and 1999
NON-CASH INVESTING AND FINANCING TRANSACTIONS
In January of 1998, Composite Industries of America, Inc. issued 370,000
shares of common stock in exchange for patent rights amounting to $370,000,
and 15,534 shares of common stock for machinery and equipment amounting to
$15,534. In April of 1998, the company issued 4,039 shares of common stock
in exchange for equipment amounting to $4,039.
On April 14, 1999, the company issued 428,572 shares of Class A Convertible
Preferred Stock valued at $1,500,000 to acquire Kampen and Associates, Inc.
On April 15, 1999, the company issued 13,028,539 shares of Common Stock to
acquire Composite Industries, Inc. valued at $1,566,573.
On April 27, 1999, the company issued 100,000 shares of Class B Preferred
Stock to acquire M.P. Hall Enterprises, Inc. valued at
$525,120.
On May 24, 1999, the company issued 550,000 shares of Common Stock for
services rendered to the company valued at $30,000.
On June 23, 1999, the company issued 19,149 shares of Common Stock for
consulting services rendered to the company valued at $9,575.
On June 28, 1999, the company issued 215,983 of restricted Common Stock
valued at $2.43 per share to acquire Big Mountain Construction Company,
Inc.
On June 28, 1999, Affordable purchased 100% of the Common Stock of Realty
Center, Inc. for 228,572 shares of Preferred Class A Stock valued at $3.50
per share ($800,000).
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1999
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Business
Affordable Homes of America, Inc. (Affordable-Nevada), was incorporated
under the laws of the state of Nevada on February 10, 1997. On March 17,
1999, Affordable-Nevada was merged into Kowtow, Inc., a nonoperating public
shell corporation, through exchange of 80% of the issued and outstanding
shares of Kowtow's common stock for 100% of the outstanding common stock of
Affordable. Kowtow, a Utah corporation, was incorporated on March 7, 1986.
Kowtow's legal name was changed to Affordable Homes of America, Inc.,
(Affordable). The acquisition is considered to be a capital transaction,
in substance equivalent to the issuance of stock by Affordable-Nevada for
the net monetary assets of Kowtow, accompanied by a recapitalization of
Affordable. Common stock and additional paid in capital have been restated
to reflect the recapitalization for all periods presented.
Affordable is a development stage company primarily in the business of land
development and the construction of residential houses. In addition, on
April 15, 1999, Composite Industries, Inc. (Composite) was merged into
Affordable. Composite, also a development stage company is in the process
of developing and commercializing a compound to be used in the construction
process referred to as Z-MIX.
In addition to Composite, the company's operations include four wholly
owned subsidiaries:
* Kampen and Associates, Inc. owns 485 acres of land located in Pierce
County, Washington. Kampen intends to construct 575 residential units on
the property;
* M.P. Hall Enterprises, Inc. owns property also located in Pierce
County, Washington. M.P. Hall intends to construct a 55 unit motel on the
site;
* Big Mountain Construction Company, Inc. is a general building
contractor;
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1999
NOTE 1 - General and Summary of Significant Accounting Policies (continued)
(A) -Nature of Business (continued)
* Realty Center, Inc. owns a 50% interest in a joint venture to develop
a residential home site known as Heartland Homes. The project is located
in Seattle, Washington.
Affordable's corporate headquarters are located in Las Vegas, Nevada.
(B) -Consolidated Net (Loss) per Common Share
Consolidated net (loss) per common share is computed on the basis of the
weighted average number of common shares outstanding during the period.
The 1998 loss per share was restated to give retroactive effect for the 2
for 1 stock split effective 3/19/99. Only the weighted average number of
shares of common stock outstanding was used to compute basic loss per share
for the period from inception to June 30, 1999 as there were no stock
options, warrants, or other common stock equivalents during this period.
(C) -Cash and Cash Equivalents
Affordable considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(D) -Income Taxes
No income taxes were provided since the Affordable incurred a loss during
the development stage, no income taxes were provided. Normally, taxes are
provided on all revenue and expense items included in the Consolidated
Statements of Operations, regardless of the period in which such items are
recognized for income tax purposes, except for items representing a
permanent difference between pretax accounting income and taxable income.
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1999
NOTE 1 -General and Summary of Significant Accounting Policies (continued)
(E) -Depreciation
Affordable depreciates equipment, vehicles and machinery on a straight-line
basis over five to seven years for financial reporting purposes.
(F) -Patents
Affordable amortizes its patent rights on a straight-line basis over 10
years.
(G) -Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(H) -Basis of Presentation
The accompanying consolidated balance sheet and related statements of
operations and deficit accumulated during the development stage,
stockholders' equity and cash flows includes the accounts of Affordable
Homes of America, Inc., Kampen and Associates, Inc., M.P. Hall Enterprises,
Inc., Big Mountain Construction Company, Inc., Realty Center, Inc. and
Composite Industries of America, Inc. as of June 30, 1999 and for the
periods from their dates of acquisition or merger to June 30, 1999. The
accompanying balance sheet and related statements of operations and deficit
accumulated during the development stage, stockholders' equity and cash
flows includes the accounts of Affordable Homes of America, Inc. as of and
for the year ended June 30, 1998 and for the period then ended.
Significant intercompany transactions or balances as of and for the periods
ended June 30, 1999 and 1998 have been eliminated.
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1999
Note 2 -Acquisition of Subsidiaries
Kampen and Associates, Inc. - Effective April 14, 1999, Affordable
purchased 100% of the common stock of Kampen and Associates, Inc. for
428,572 convertible Class A preferred shares of Affordable valued at $3.50
per share for a total purchase price of $1,500,000. The cost basis of the
net assets acquired was increased by $1,511,086 to reflect the purchase
price of the company. The acquisition was treated as a purchase for
financial reporting purposes. No goodwill was recognized in the
transaction. Kampen filed for protection under Chapter 11 of the U.S.
Bankruptcy Code on June 24, 1999. See Note 13.
Composite Industries, Inc. - Composite Industries was merged into
Affordable under an agreement and plan of merger dated April 15, 1999. The
agreement called for the conversion of 100% of the issued and outstanding
shares of Composite in exchange for Affordable common stock at the rate of
two shares of Composite for each share of Affordable. As of the effective
date, there were 13,028,539 common shares Composite outstanding. The
acquisition was treated as a purchase for financial reporting purposes.
M.P. Hall Enterprises, Inc. - Effective April 27, 1999, Affordable
purchased 100% of the common stock of M.P. Hall Enterprises, Inc. for
100,000 convertible Class B preferred shares of Affordable valued at $5.50
per share for a total purchase price of $550,000. The cost basis of the net
assets acquired was increased by $550,000 to reflect the purchase price of
the company. The acquisition was treated as a purchase for financial
reporting purposes. No goodwill was recognized in the transaction.
Big Mountain Construction Company, Inc. - Effective June 28, 1999,
Affordable purchased 100% of the common and preferred stock of Big Mountain
Construction Company, Inc. for 215,983 restrictive common shares of
Affordable valued at $2.43 per share for a total purchase price of
$525,120. The acquisition was treated as a purchase for financial reporting
purposes. Goodwill in the amount of $408,197 was recognized in the
transaction. Goodwill will be amortized on a straight-line basis over
seven years commencing July 1, 1999.
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30,1998 and 1999
Note 2 - Acquisition of Subsidiaries (continued)
Realty Center, Inc. - Effective June 28, 1999, Affordable purchased 100% of
the common stock of Realty Center, Inc. for 114,286 convertible Class A
preferred shares of Affordable valued at $3.50 per share for a total
purchase price of $400,000. Realty Center's assets consist of a 25% joint
venture interest in a real estate development project known as Heartland
Homes. Further, Affordable acquired an additional 25% interest in Heartland
Homes directly by issuing an additional 114,286 shares of convertible Class
A preferred stock. Immediately after Affordable's acquisition of Realty
Center, Affordable transferred it's 25% interest in Heartland into Realty
Center. The acquisition was treated as a purchase for financial reporting
purposes. No goodwill was recognized in the transaction.
Allocation of the purchase price for each of the transactions follows:
<TABLE>
Kampen and M.P. Hall Big Mountain Realty Total all
Associates Enterprise Construction Center Companies
, Inc. s Inc Company, Inc.
Inc.
---------- ---------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C>
Assets
Cash $0 $0 $9,858 $0 $9,858
Employee
and
Other 54,600 54,600
advances
Land,
develop-
Ment and
cap-
Italized
Interest 6,668,676 885,252 516,703 8,070,631
costs
Equipment 57,720 57,720
(net)
Investment
in
Joint 800,000 800,000
Venture
Goodwill 408,197 408,197
---------- ---------- ------------ ------- -----------
Total $6,668,676 $885,252 $1,047,078 $800,00 $9,401,006
0
========== ========== ============ ======= ===========
Liabilities Assumed and Equity
Liabilities
Assumed $5,157,590 $335,252 $521,958 $0 $6,014,800
Convertible
Preferred Stock 429 100 229 758
Common Stock
Additional paid
in capital 1,510,657 549,900 524,904 779,771 3,385,232
---------- -------- ---------- -------- ----------
Total $6,668,676 $885,252 $1,047,078 $800,000 $9,401,006
========== ======== ========== ======== ==========
</TABLE>
<PAGE>
<TABLE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30,1998 and 1999
Note 2 -Acquisition of Subsidiaries (continued)
AFFORDABLE HOMES OF AMERICA, INC.
(A Development Stage Company)
Pro forma Statements of Operations and Deficit accumulated
during the development stage
Cumulative from
inception
(March 21, 1996) June 30,
to June 30, 1999
1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Revenues:
Interest $24,595 $- $- $3,142 $21,453
income
------------- -------- ------- -------- --------
Expenses:
Research and
Development 14,640 - - - 14,460
costs
General and
578,347 - - 277,423 300,924
Administrative
Depreciation
and
Amortization 199,550 3,202 64,939 70,870 60,539
Loss on
disposition
of equipment 2,850 - - - 2,850
------------- -------- ------- -------- --------
Total expenses 795,387 3,202 64,939 348,293 378,953
------------- -------- ------- -------- --------
Net (loss) $(770,792) $(3,202) $(64,939) $(345,151) $(357,500)
============= ======== ========= ========== ==========
(Loss) per
Common share $(.22) $(NIL) $(.03) $(.17) $(.07)
============= ======== ========= ========== ==========
Shares used in
Computing loss
per
Share amounts 3,582,601 2,000,00 2,000,000 2,000,000 5,165,202
0
============= ======== ========= ========== ==========
</TABLE>
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1999
Note 3 - Advances
Affordable, through Composite Industries, Inc. had from time to time,
advanced funds to Omega International, Inc., an unrelated company in the
business of developing products for the construction industry. Composite
advanced the funds totaling $224,140 through June 30, 1999 which included
principal of $205,000 and accrued interest receivable of $19,140 and funds
totaling $183,000 through June 30, 1998 which included principal of
$180,000 and accrued interest receivable of $3,000 in an effort to assist
Omega in further developing its products. The notes are unsecured, due
upon demand, and bear interest at 8% per annum. Interest income was
recorded in the amounts of $16,140 and $3,000 for the years ended June 30,
1999 and 1998 respectively.
Management is in the process of negotiating the acquisition of Omega and
intends to offset a portion of the purchase price of the company by these
advances. Composite's financial statements as of June 30, 1998 reflected
this advance as a current asset in the amount of $183,000. The proforma
consolidated balance sheet as of June 30, 1998 includes a restatement of
this asset to be consistent with that of June 30, 1999.
Note 4 - Machinery and Equipment
Machinery and equipment consists of the following as of June 30, 1999:
Machinery $ 84,640
Office Equipment 13,639
Vehicles 57,472
155,751
Less: Accumulated depreciation ( 47,466)
Total $108,285
Depreciation expense was incurred in the amount of $7,106 for the year
ended June 30, 1999 and is included in general and administrative expense.
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1999
NOTE 5 - Income Taxes
Affordable accounts for income taxes on the liability method, as provided
by Statement of Financial Accounting Standards 109, Accounting for Income
Taxes (SFAS 109). At June 30, 1999 and 1998 no income taxes were provided.
There were no differing methods of reporting income for tax purposes as
compared to financial reporting purposes. There was no net deferred income
tax provision for the years ended June 30, 1999 and 1998.
Deferred tax assets and liabilities consist of the following:
1999 1998
Deferred tax assets-
Net operating loss carryovers $226,216 $ 17,000
Valuation allowance 226,216 17,000
$- -
======== =======
Deferred tax liabilities- $- $-
======== =======
The valuation allowances provided for the periods are based on management's
valuation of the likelihood of realization.
Affordable incurred net operating losses of $226,216 available to offset
future income for financial reporting purposes expiring in 2019.
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1999
NOTE 6 - Loans and Notes Payable
The following schedule summarizes loans and notes payable by subsidiary as
of June 30, 1999:
Kampen and Associates, Inc.
Cascade Land Depository described in Note 8 $ 1,550,000
Big Mountain Construction Company, Inc.
$33,000 equipment loan dated May 20, 1999
secured by excavating equipment payable at
$1,664 per month including interest at 20.9%
per annum with the final installment due on
May 20, 2001 30,216
Construction loan dated August 11, 1998 secured
by land and property with monthly payments on an
interest only basis and principal due November
16, 1999 including extension at prime + 2%,
currently 10% 302,470
M.P. Hall Enterprises, Inc.
Promissory note dated March 17, 1999 secured by
land and property with monthly payments on an
interest only basis and principal due on March
17, 2000. Interest is payable at 14% per annum 335,252
Total 2,217,937
Less current maturities 2,202,779
Long-term portion $ 15,159
Aggregate annual schedule maturities of long-term debt at June 30, 1999 are
as follows:
June 30, 1999 $2,202,779
June 30, 2000 15,159
Total $2,217,937
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1999
NOTE 7 - Land Purchase and Options
On June 12, 1996, Kampen and Associates, Inc. agreed to purchase 485 acres
of land located in Pierce County, Washington from Maytel Partnership. The
total purchase price of $4,000,000 and is financed through an option
payment agreement. Payments under this agreement are due at various stages
and are not subject to interest. The payment terms and conditions of the
agreement are summarized as follows:
* An initial payment of $15,000 was paid upon the execution of the
agreement;
* Under an alternative agreement selected by Kampen, a payment of
$250,000 was paid on July 31, 1996;
* Payments of $5,000 are due on the 1st day of each month commencing
July 1, 1996. Kampen has the option of defaulting on these payments
whereby the land would revert to the seller;
* At the point where residential units are completed and sold, Kampen
will remit to the seller $7,000 at the closing of each unit until the
balance is paid in full.
The remaining balance on these option payments is $3,415,000 of which
$60,000 is currently due as of June 30, 1999.
NOTE 8 - Loan from Cascade Land Depository
On June 12, 1996, Kampen and Associates, Inc. negotiated a loan in the
amount of $1,550,000 from the Shoalwater Bay Indian Tribe, doing business
as Cascade Land Depository. The purpose of the loan was to finance a
portion of the purchase price of land described in Note 7 and other related
costs. The note was due and payable on May 1, 1998 with a stated interest
rate of 8% per annum. Interest is due and payable in six month intervals
on November 1 and May of each year. The loan is currently in default with
interest payable from November 1, 1997. The unpaid interest has
accumulated to $206,667 as of June 30, 1999. See Note 13.
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1999
NOTE 9 - Related Party Transactions
The company had entered in to consulting agreements with certain members of
the Company's Board of Directors and stockholders to provide services on
various strategic and business issues. The agreements were for one year in
duration and expired on July 1, 1999 (except one which expires on October
15, 1999). The agreements are renewable at the discretion of the company
and are presently under review. Total fees paid for such services by the
Company either in stock or cash during the year ended June 30, 1999 were
$234,000 and are included in consulting fees in the statement of
operations.
Management believes the transactions were at arm's length.
The President and Chief Executive Officer has from time to time advanced
funds to Affordable or one of its subsidiaries to assist with working
capital requirements. As of June 30, 1999, such funds advanced to the
company amounted to $182,186. In addition, the joint venture construction
project known as Heartland Homes advanced $53,101 to Big Mountain
Construction Company, Inc. These advances are non interest bearing and are
short-term in nature.
NOTE 10 -Concentration of Credit Risk - Cash
The Company maintains its cash balances at financial institutions located
in Nevada and Montana. At times, the balance may exceed federally insured
limits of $100,000. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk on
cash on deposit. The fair market value of this financial instrument
approximates cost. The fair market value of these balances approximate book
value.
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1999
NOTE 11 - Patents
Affordable through its merger with Composite Industries of America, Inc.
holds the exclusive rights to produce Z-MIX, a cementitious composite
developed and acquired from Zawada Industries in October 1997. On July 21,
1998, Composite was issued the patent rights for this product. A second
patent relating to improvements to the product was issued on December 22,
1998.
Costs incurred through June 30, 1999 to develop and obtain the patents
rights amounted to $394,313 of which $370,000 was attributable to the
issuance of common stock. Amortization of $8,211 was charged during the
year ended June 30, 1999 and is included general and administrative
expenses.
Note 12 - Commitments
In January 1999, Affordable entered into an agreement to lease their
current facility located in Las Vegas, Nevada. The lease term is for six
months beginning February 1, 1999 at the rate of $591 per month plus
additional charges for common area operating maintenance. There is an
option to extend the lease on a month-to-month basis at 115% of the current
monthly rent.
Total lease commitments are as follows:
Year ended Amount
June 30, 2000 $ 591
Total $ 591
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1999
Note 13 - Chapter 11 Bankruptcy Petition
On May 21, 1999, Kampen & Associates, Inc. was served with a notice of
foreclosure as a consequence of its default in its loan obligation to
Shoalwater Bay Indian Tribe d/b/a/ Cascade Land Depository. See Note 8.
As a result of this action by Cascade, Kampen filed for protection under
the provisions of Chapter 11 of U.S. Bankruptcy Code on June 24, 1999.
Under these provisions, Kampen is protected from collection actions by its
creditors until it can be implement a plan of reorganization. The total
liabilities owed by Kampen to third parties amounts to $5,218,807 as of
June 30, 1999.
NOTE 14 - Industry Segment Information
Affordable has three major business segments all related to the building
and construction industry: general contracting, product sales and
development and land development. During 1998, Affordable adopted
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131).
The adoption of SFAS 131 requires the presentation of descriptive
information about reportable segments which is consistent with that made
available to the management of Affordable to assess performance. As a
result of this change, the company now reports segment performance on an
after-tax basis. In determining the net income of each segment of the
company effective tax rates are determined for each business segment.
<PAGE>
<TABLE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30,1998 and 1999
Note 14 - Industry Segment Information (continued)
Product Land and
General Sales and Building Inte
Contracting Development Development r- Total
segm
ent
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
June 30, 1998
Sales $ $- $- $- $- $-
Operating (loss) (15,000) - - - (15,000)
Net interest - - - - -
(LOSS) on
Disposition
of Equipment
Pretax (loss) (15,000) - - - (15,000)
Net (loss) (15,000) - - - (15,000)
Assets - - - - -
Depreciation &
Amortization - - - - -
Additions to long-
lived assets - - - - -
Product Land and
General Sales and Building Inte
Contracting Development Development r- Total
segm
ent
- ---------------------------------------------------------------------------
-
June 30, 1999
Sales $ $- $- $- $- $-
Operating (loss) (73,604) (98,788) (38,724) - (211,116)
Net interest - 4,750 - - 4,750
(Loss) on
disposition
of Equipment - (2,850) - - (2,850)
Pretax (loss) (73,604) (96,888) (38,724) - (209,216)
Net (loss) (73,604) (96,888) (38,724) - (209,216)
Assets 1,224,728 629,587 8,451,964 - 10,306,279
Depreciation &
Amortization - 15,317 - - 15,317
Additions to long-
Lived assets 57,720 65,942 - - 123,662
</TABLE>
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1999
NOTE 15 - Stockholders' Equity
Affordable has authorized the issuance of 100,000,000 shares of $.001 par
common stock. At June 30, 1999 and 1998, the company had issued 17,549,402
and 2,000,000 shares, respectively.
The company is also authorized to issue two classes of convertible
preferred stock; Class A and Class B. Each share of Class A preferred is
convertible to common stock at $3.50 per share. Class B preferred stock is
convertible to common stock at $5.50 per share. Each class of preferred
stock is authorized at 5,000,000 shares. At June 30, 1999, 657,144 shares
of Class A convertible preferred stock and 100,000 of Class B convertible
preferred stock were issued.
NOTE 16 - Year 2000 Compliance
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the Year 2000 as 1900 or some other date, resulting in possible errors when
information-using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entities
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 issue affecting Affordable
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
Generally, costs associated with the Year 2000 issue are being expensed as
incurred.
NOTE 17- Subsequent Events
Affordable is currently negotiating a bank line of credit for $15,000,000
to accommodate future business expansion and provide working capital for
the company.
<PAGE>
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1999
PAGE
Report of Independent Auditors 1
Consolidated balance sheets as of
June 30, 1998 and 1999 2-3
Consolidated statements of operations during
the development stage cumulative from inception
(February 10, 1997) to June 30, 1998 and 1999 4
Consolidated statements of changes in stockholders'
equity (deficit) cumulative from inception
(February 10, 1997) to June 30, 1998 and 1999 5-8
Consolidated statements of cash flows during the
development stage cumulative from inception
(February 10, 1997) to June 30, 1998 and 1999 9-10
Notes to the Consolidated Financial Statements 11-25
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 192,398
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,306,279
<CURRENT-LIABILITIES> 6,139,844
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,306,279
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (209,216)
<INCOME-TAX> (209,216)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (209,216)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
