SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 205549
FORM 10KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
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 87-0434297
(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
Indicate by check mark whether the registrant (1) has filed all reports
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
Indicate 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-KSB or any amendment to this Form 10-KSB. [x]
Indicate 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 30, 2000
$.001 PAR VALUE CLASS A COMMON STOCK 20,417,379
VALUE Class A Convertible Preferred Stock 657,144
VALUE Class B Convertible Preferred Stock 100,000
DOCUMENTS INCORPORATED BY REFERENCE
None
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 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:
* 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.
* 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.
All three methods (i) reduce the time and cost needed to construct the
average home, and (ii) reduce the amount of wood used in building the
average home. 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. The Company has been
approached by several international entities to establish factories to
supply Z Mix for construction.
To date Affordable Homes has made two (2) acquisitions:
(a) On April 28, 1999, Affordable Homes acquired 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.
(b) 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.
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 the surviving entity, 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.
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
a general contractor license and has the exclusive right to build out
136 homes for Heartland Homes Estates, an affordable housing project
near Tacoma, Washington. Big Mountain's master appraisals are
generally $10,000 - $12,000 higher than the selling price. This
allows Big Mountain to feature 100% financing for their buyers,
including VA and FHA programs. This feature will give Affordable Homes
the ability to qualify more homebuyers and close more loans than their
competition. Big Mountain Construction has had a presence in the entry-
level and one step-up housing market for over 20 years in the State of
Washington.
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.
Affordable Homes of America, Inc. has signed, or will sign, Joint Venture
Agreements or strategic alliance agreements with the following companies:
(a) Tristar USA of LA, Inc. and Affordable Homes signed a five-year
Joint Venture Agreement on June 22, 2000. Tristar will act as the
construction company and Affordable Homes will supply its proprietary
Z MIX material for building affordable housing in Developing Nations,
particularly in Nigeria.
(b) AL NASR Trading & Industrial Corporation L.L.C. and Affordable
Homes signed a three-year Joint Venture Agreement with a 25-year optional
extension, on August 17, 2000. AL NASR is to provide a proposal for the
establishment of a manufacturing plant for Z MIX in a Middle Eastern
country and a working plan for at least four other countries in the
Middle Eastern / Northern Africa area. Affordable Homes will provide its
patented Z MIX material and its technical expertise in building affordable
housing.
(c) Quadrant Resources Corporation and Affordable Homes signed a
strategic alliance agreement for the purpose of expanding the sale of
Affordable Homes' patented Z MIX material for home building and
manufactured products. Quadrant will bring to the Company funded
transactions, saving time and money in the International Sales market.
ITEM 2 PROPERTIES
The Company owns no properties. The Company leases its offices located at
4505 W. Hacienda Ave. Unit I-1, Las Vegas, Nevada 89118 at an annual
rent of $7,680.00. The property is leased on a month-to-month agreement.
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, 2000.
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is trading on the NASD Over-the-Counter
Bulletin Board under the symbol "AHOA". The stock has traded between
$3.125 per share and $0.25 per share. There are approximately 1259
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
The following discussion and analysis of financial condition and
results of operations of the Company should be read in conjunction
with the Consolidated Financial Statements, including the corresponding
footnotes, which is included within this report. The following
discussion contains certain forward-looking statements within the
meaning of Securities Act of 1933 as amended, and Section 21E of the
Securities and Exchange Act of 1934, as amended, which are not
historical facts and involve risks and uncertainties that could cause
actual results to differ materially from the results anticipated in
those forward-looking statements. These risks and uncertainties include,
but are not limited to those set forth below and the risk factors
described in the Company's other filings with the Securities and
Exchange Commission.
Affordable Homes of America, Inc, is a homebuilding and development co
mpan in the development stage focusing on building for low-income and
first-time homebuyers. The Company has and will continue to develop
new building techniques and patented products that significantly reduce
the overall cost and time, while maintaining or increasing the quality
and integrity of new home construction. The Company's plan is to
develop and build its World Home for sale outside the United States
in developing nations where there is an immediate need for permanent
affordable shelter. The patented Z MIX material used in the World Home
provides protection from the elements; hurricanes, earthquakes, as well
as being fireproof.
Affordable Homes' immediate focus is to enter into licensing and/or joint
Venture affiliations in which it will supply its proprietary, patent-
protected Z MIX material to established companies for use outside the
Unted States in home construction and other applications such as railroad
ties, utility poles and environmental remediation. The Company believes
this approach to be the fastest route for the penetration into the global
marketplace.
The Company projects that the revenues received from licensing Z MIX
technology will be recognized by the Company without incurring the usual
development and labor expenses associated construction projects.
Results of Operations
Year ended June 30, 1999 vs. June 30, 2000
Revenues. Affordable Homes of America, Inc. is presently a development
stage company. Accordingly, the Company has no revenues for the year
ended June 30, 2000. The Company has signed several joint ventures and
agreements and projects significant revenues for the next fiscal year.
Operation Expenses. Operating expenses are comprised of General and
Administrative Expenses which consists primarily of amortization of patent
expense, professional fees, product development expense and office expense.
Amortization expense amounted to $173,750 and $1,042,500 during the years
ended June 30, 1999 and June 30, 2000 respectively. The patent is being
amortized on a straight-line basis over the remaining life of the patent
(195 months as of the acquisition date, April 28, 1999).
Operating expenses increased from $1,746,567 for the twelve months ended
to $3,447,186 for the twelve months ended June 30, 2000. The increase in
operating expenses was primarily due to amortization expense of $1,042,500
and professional fees which increased from $1,474,736 for the twelve months
ended June 30, 1999 to $2,158,414 for the twelve months ended June 30, 2000.
Net Loss. As a result, our net loss increased from $1,190,329 for the
twelve months ended June 30, 1999 to $3,105,360 for the twelve months
ended June 30, 2000.
Liquidity and Capital Resources
Affordable is currently a development stage company, however management
prjects that during the next twelve months revenue derived from one or
more of the signed joint ventures, or the proceeds from a private place-
ment which is under negotiations should be sufficient to finance the
Company's working capital and capital expenditures.
Although Affordable believes that the revenues projected over the next
twelve months will be significant, we are presently in negotiations for
a private placement for immediate funds. The Company is confident that
with its product and technology, signed joint ventures and stronger
balance sheet, that it will successfully complete a private placement.
In the event that Affordable does not secure additional financing, the
company has made provisions for working capital, for the next twelve
months.
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
Table of Contents
PAGE
Report of Independent Auditors F-1
Consolidated Balance Sheets as of June 30, 1999 and 2000 F-2-3
Consolidated Statements of Operations During the Development
Stage for the years ended June 30, 1999 and 2000 and
Cumulative from February 10, 1997 (Inception) F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended June 30, 1999 and 2000 and Cumulative
from February 10, 1997 (Inception) F-5-7
Consolidated Statements of Cash Flows During the Development
Stage for the years ended June 30, 1999 and 2000 and
Cumulative from February 10, 1997 (Inception) F-8-12
Notes to the Consolidated Financial Statements
AFFORDABLE HOMES OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
and
REPORT OF INDEPENDENT AUDITORS
FROM FEBRUARY 10, 1997 (DATE OF INCEPTION)
TO JUNE 30, 1999 and 2000
<PAGE> F-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Affordable Homes of America, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Afford
ableHomes of America, Inc. and subsidiaries (a development stage company)
as of June 30, 1999 and 2000 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years
ended June 30, 1999 and 2000 and for the period from February 10, 1997
(inception), to June 30, 2000. These financial statements are the res-
ponsibility 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 state-
ments 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 usd 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 financial position of Affordable
Homes of America, Inc. and subsidiaries as of June 30, 1999 and 2000
and the results of their operations and their cash flows for the years
then ended and from February 10, 1997 (inception), to June 30, 2000,
in conformity with generally accepted accounting principles.
Garden City, New York
September 20, 2000
<PAGE> F-2
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 and 2000
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
1999 2000
Cash $ 192,398 $ 18,516
Employee advances 45,600 67,423
Other receivables 9,000 -
Advances to Omega International, Inc. 224,140 -
Investment in joint venture 800,000 -
Land and land development costs 7,676,736 449,206
Capitalized interest expense 487,041 44,059
Other assets - 80,060
Deferred tax asset 496,638 2,262,655
Machinery & equipment - at cost, less
accumulated depreciation of $47,466
in 1999 and $73,226 in 2000 108,285 95,968
Patent - at cost, less accumulated amortization
of $173,750 in 1999 and $ 1,216,250 in 2000, 17,024,349 15,981,849
Goodwill - net of accumulated amortization of
$ -0- in 1999 and $20,410 in 2000 408,197 387,787
TOTAL ASSETS $27,472,384 $19,387,523
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
<PAGE> F-3
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 and 2000
<TABLE>
<CAPTION>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 2000
LIABILITIES
Accounts payable $ 42,676 $ 55,024
Accrued expenses 380,409 195,360
Accrued interest payable 206,667 -
Notes payable 2,217,937 310,774
Loans and advances from related parties 235,287 281,434
Auto loan - 12,720
Deferred tax liability 5,655,587 5,309,385
Land purchase options 3,415,000 -
TOTAL LIABILITIES $12,153,563 $ 6,164,697
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS' EQUITY
Convertible preferred stock class A, (5,000,000 shares
authorized; 657,144 shares issued and outstanding
in 1999 and 428,572 shares outstanding in 2000) 2,311,086 1,511,086
Convertible preferred stock class B, (5,000,000 shares
authorized; 100,000 shares issued and outstanding
in 1999 and -0- shares outstanding in 2000) 550,000 -
Common stock ($.001 par value, 100,000,000
shares authorized, 17,549,402 shares issued
and outstanding as of June 30, 1999; 20,417,379
shares issued and outstanding as of June 30, 2000) 17,549 20,417
Additional paid-in capital 13,647,515 16,195,761
Officer loan receivable - (191,749)
Deficit accumulated during the development stage (1,207,329) (4,312,689)
Total Stockholders' Equity 15,318,821 13,222,826
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,472,384 $19,387,523
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
<PAGE> F-4
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
DURING THE DEVELOPMENT STAGE
FOR THE YEARS ENDED JUNE 30, 1999 and 2000
AND CUMULATIVE FROM FEBRUARY 10, 1997 (INCEPTION)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative from
Inception to
1999 2000 June 30, 2000
General and
Administrative expenses $ 1,746,567 $ 3,447,186 $ 5,210,753
(Loss) from operations (1,746,567) (3,447,186) (5,210,753)
Other income and expense
Interest and other income 4,750 4,453 9,203
(Loss) on forgiveness of debt - (136,814) (136,814)
Interest (expense) - (33,866) (33,866)
(Loss) on abandonment of land
and improvements - (1,604,166) (1,604,166)
(Loss) on disposition
of equipment (2,850) - (2,850)
Total other income and (expense) 1,900 (1,770,393) (1,768,493)
Net (loss) before income taxes (1,744,667) (5,217,579) (6,979,246)
Benefit for income taxes 554,338 2,112,219 2,666,557
Net (loss) $(1,190,329) $(3,105,360) $(4,312,689)
Net (loss) per common share $(.23) $(.16) $(.36)
Weighted average number of
shares outstanding 5,165,202 18,825,400 11,995,301
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
<PAGE> F-5
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1999 AND CUMULATIVE
FROM FEBRUARY 10, 1997 (INCEPTION)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Common Convertible Convertible
Stock Preferred Preferred
.001 Par Value Stock A Stock B
Shares Amount Shares Amount Shares Amount
------------------ -------------- --------------
Initial issuance of
common stock as
restated to account
for the 2 for 1 stock
split dated March 19,
1999 2,000,000 $ 2,000 $ - $ -
Net loss during the
development stage
through June 30, 1998
Issuance of common
stock in exchange for
100% of the common
stock of Affordable-
Nevada on March 17,
1999 4,000,000 4,000
Issuance of common
stock to founders on
March 18, 1999 250,000 250
Common stock split
on a 2 for 1 basis
on March 19, 1999 4,000,000 4,000
Issuance of convert-
ible preferred A stock
for acquisition of 100%
of the common stock of
Kampen and Associates,
Inc. on April 14, 1999 428,572 $1,511,086
Issuance of common stock
for the acquisition Com-
posite Industries, Inc.
on April 28, 1999 6,514,270 6,514
Issuance of Preferred B
convertible stock in the
acquisition of M.P. Hall
Enterprises, Inc. on
April 27, 1999 100,000 $550,000
Issuance of restricted
common stock in the
acquisition of Big
Mountain Construction
Company, Inc. on June
28, 1999 215,983 216
Issuance of preferred
A stock in the acqui-
sition of 100% of the
common stock of Realty
Center, Inc. and a 25%
interest in the Heart-
land Homes Joint
Venture on June 28, 228,572 $800,000
1999
Issuance of common
stock for services
rendered and other
consulting services 569,149 569
Net loss during the
development stage for
the year ended June 30,
1999
Closing balance ---------- ------ ------- --------- ------- -------
June 30, 1999 17,549,402 $17,549 657,144 $2,311,086 100,000 $550,000
========== ====== ======= ========= ======= =======
</TABLE>
<PAGE> F-6
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1999 AND CUMULATIVE
FROM FEBRUARY 10, 1997 (INCEPTION) (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Deficit
Accumulated
Additional during the Total
Paid-in Development Stockholders'
Capital Stage Equity
---------- ----------- ------------
Initial issuance of
common stock as
restated to account
for the 2 for 1 stock $ - $ - $ 2,000
split dated March 19,
1999
(17,000) (17,000)
Net loss during the
development stage
through June 30, 1998
Issuance of common
stock in exchange for
100% of the common
stock of Affordable-
Nevada on March 17,
1999 (4,000)
Issuance of common
stock to founders on
March 18, 1999 (250)
Common stock split
on a 2 for 1 basis
on March 19, 1999 (4,000)
Issuance of convert-
ible preferred A stock
for acquisition of 100%
of the common stock of
Kampen and Associates,
Inc. on April 14, 1999 1,511,086
Issuance of common stock
for the acquisition Com-
posite Industries, Inc.
on April 28, 1999 11,792,399 11,798,913
Issuance of Preferred B
convertible stock in the
acquisition of M.P. Hall
Enterprises, Inc. on
April 27, 1999 550,000
Issuance of restricted
common stock in the
acquisition of Big
Mountain Construction
Company, Inc. on June
28, 1999 524,904 525,120
Issuance of preferred
A stock in the acqui-
sition of 100% of the
common stock of Realty
Center, Inc. and a 25%
interest in the Heart-
land Homes Joint
Venture on June 28, 800,000
1999
Issuance of common
stock for services
rendered and other
consulting services 1,338,462 1,339,031
Net loss during the
development stage for
the year ended June 30,
1999
(1,190,329) (1,190,329)
Closing balance ---------- --------- ----------
June 30, 1999 $13,647,515 $(1,207,329) $15,318,821
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> F-7
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Common Convertible Convertible
Stock Preferred Preferred
.001 Par Value Stock A Stock B
Shares Amount Shares Amount Shares Amount
Opening balance - -------------------- -------------------- -----------------
July 1, 1999 17,549,402 $17,549 657,144 $2,311,086 100,000 $550,000
Rescission of
Preferred
A convertible
stock to reverse
the acquisition
of 100% of the
common stock of
Realty Center,
Inc. and a 25%
interest in the
Heartland Homes
Joint Venture (228,572) (800,000)
Rescission of
Preferred B
convertible
stock to reverse
the acquisition
of 100% of the
common stock of
M.P. Hall
Enterprises,
Inc. (100,000) (550,000)
Issuance of
common stock
for legal and
consulting
services
rendered 2,105,458 2,106
Common stock
issued for
equipment
on May 25,
2000 135,008 135
Common stock
issued in
connection
with investment
banking services 300,000 300
Officer loan
receivable 327,511 327
Net loss during
the development
stage for the
year ended June
30, 2000
Closing balance
June 30, 2000 ----------- ------- -------- ---------- ------- -------
$ 20,417,379 $20,417 428,572 $1,511,086 $ - $ -
=========== ======= ======== ========== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2000 (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Deficit
Accumulated
Additional During the Total
Paid-in Officer Development Stockholders'
Capital Loans Stage Equity
Opening balance - ----------- ------- ------------ -----------
July 1, 1999 $13,647,515 - $( 1,207,329) $15,318,821
Rescission of
Preferred
A convertible
stock to reverse
the acquisition
of 100% of the
common stock of
Realty Center,
Inc. and a 25%
interest in the
Heartland Homes
Joint Venture (800,000)
Rescission of
Preferred B
convertible
stock to reverse
the acquisition
of 100% of the
common stock of
M.P. Hall
Enterprises,
Inc. (550,000)
Issuance of
common stock
for legal and
consulting
services
rendered 1,959,199 1,961,305
Common stock
issued for
equipment
on May 25,
2000 79,925 80,060
Common stock
issued in
connection
with investment
banking services 317,700 318,000
Officer loan
receivable 191,422 (191,749) -
Net loss during
the development
stage for the
year ended June
30, 2000 (3,105,360) (3,105,360)
Closing balance
June 30, 2000 ---------- -------- --------- ----------
$16,195,761 $(191,749) $(4,312,689) $13,222,826
========== ======== ========= ==========
</TABLE>
<PAGE> F-8
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999 AND 2000 AND
CUMULATIVE FROM FEBRUARY 10, 1997 (Inception)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative from
inception to
1999 2000 June 30, 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net (loss) from
development stage operations $(1,190,329) $(3,105,360) $(4,312,689)
ADJUSTMENTS TO RECONCILE NET LOSS
FROM DEVELOPMENT STAGE OPERATIONS
TO CASH USED IN OPERATING ACTIVITIES
Depreciation and amortization 149,636 1,096,145 1,245,781
Benefit of deferred tax liability (57,700) (346,202) (403,902)
Stock issued for services and equipment 1,339,031 2,041,365 3,880,396
Loss on abandonment of land
and improvements - 1,561,972 1,567,972
(Increase) decrease in assets:
Employee advances (45,600) (21,823) (67,423)
Other receivables (9,000) 9,000 -
Deferred tax asset (496,638) (1,766,017) (2,262,655)
Capitalized interest (131,083) 442,982 311,899
Increase (decrease) in liabilities:
Accounts payable 42,676 12,348 55,024
Accrued expenses 108,409 71,951 195,360
Accrued interest payable 206,667 (206,667) -
Total Adjustments 1,106,398 2,901,054 4,022,452
Net cash provided by (used in) operations (83,931) (204,306) (290,237)
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment acquisitions (21,865) (723) (22,588)
Net cash (used in) investing activities (21,865) (723) (22,588)
Subtotal (105,796) (205,029) (312,825)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
<PAGE> F-9
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED JUNE 30, 1999 AND 2000 AND
CUMULATIVE FROM FEBRUARY 10, 1997 (Inception)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative from
Inception to
1999 2000 June 30, 2000
Subtotal (105,796) (205,029) (312,825)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued - - 2,000
Advances from related parties 308,194 46,147 354,341
Payments towards land purchase option (10,000) (15,000) (25,000)
Net cash from financing activities 298,194 31,147 331,341
Net Increase (decrease) in Cash 192,398 (173,882) 18,516
Cash - Beginning of period - 192,398 -
Cash - End of period $192,398 $18,516 $18,516
Supplemental Disclosure of cash
flow information:
Cash Paid During the Year for:
Interest expense $ - $33,886 $33,886
Income taxes $ - $ - $ -
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
<PAGE> F-10
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED JUNE 30, 1999 AND 2000 AND
CUMULATIVE FROM FEBRUARY 10, 1997 (Inception)
NON-CASH INVESTING AND FINANCING TRANSACTIONS
On April 14, 1999, Affordable issued 428,572 shares of Class A Convertible
Preferred Stock valued at $1,511,086 to acquire Kampen and Associates, Inc.
The assets and liabilities were ultimately written off during the fiscal
2000 year. See Note 3.
Fair value of assets acquired $ 6,668,676
Goodwill recognized -
Liabilities assumed 5,157,590
Cash paid -
Value of preferred stock issued 1,511,086
On April 28, 1999, Affordable issued 6,514,270 shares of common stock to
the shareholders of Composite in exchange for 100% of the common stock of
Composite.
Fair value of assets acquired $ 18,367,297
Goodwill recognized -
Liabilities assumed 5,970,287
Cash paid -
Net Value of Acquisition 12,397,010
On April 27,1999, Affordable issued 100,000 shares of Preferred class B
convertible stock to the shareholders of M.P. Hall Enterprises, Inc. in
exchange for 100% of M.P. Hall's common stock valued at $550,000.
The acquisition was subsequently rescinded during the fiscal 2000 year.
Fair value of assets acquired $ 885,252
Goodwill recognized -
Liabilities assumed 335,252
Cash paid -
Value of preferred stock issued 550,000
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
<PAGE> F-11
On May 24, 1999, the company issued 550,000 shares of Common Stock for
services rendered to the company valued at $1,293,979.
On June 23, 1999, the company issued 19,149 shares of Common Stock for
consulting services rendered to the company valued at $45,052.
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. valued at $525,120
Fair value of assets acquired $ 638,881
Goodwill recognized 408,197
Liabilities assumed 521,958
Cash paid -
Value of common stock issued 525,120
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 purchase was subsequently rescinded
during the fiscal 2000 year.
Fair value of assets acquired $ 800,000
Goodwill recognized -
Liabilities assumed -
Cash paid -
Value of common stock issued 800,000
On July 21, 1999, Affordable issued 300,000 shares of common stock
valued at $318,000 in connection with investment banking services
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
<PAGE> F-12
On May 25, 2000 Affordable issued 135,008 shares of common stock
valued at $80,060 to purchase certain construction equipment.
During the year ended June 30, 2000, Affordable issued 2,105,458 shares
of common stock valued at $1,961,305 to various individuals for legal and
consulting services performed.
Affordable issued 327,511 shares of common stock issued to an officer
valued at $191,749 for which payment was not received by June 30, 2000.
Accordingly the officer loan receivable is reflected as an offset to
stockholders' equity in the accompanying financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
<PAGE> F-13
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 2000
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 non-operating
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
re-capitalization of Affordable. Common stock and additional paid-in
capital have been restated to reflect the re-capitalization 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 28, 1999, Composite Industries, Inc. (Composite) was acquired by
and merged into Affordable. Composite, also a development stage company,
was in the process of developing and commercializing a compound to be used
in the construction process referred to as Z-MIX. See Note 2.
As of June 30, 2000, Affordable's operations include its wholly owned
subsidiary Big Mountain Construction Company, Inc. which company is a
general building contractor. In 1999, the company's operations also
included Kampen and Associates, Inc., M.P. Hall Enterprises, Inc. and
Realty Center, Inc. Operations for those three subsidiaries terminated
during the year with the preferred stock issued to M.P. Hall and Realty
Center, Inc. rescinded during the fiscal year 2000.
Affordable's corporate headquarters are located in Las Vegas, Nevada.
<PAGE> F-14
(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.
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 and 2000 as there were no stock options, warrants, or
other common stock equivalents outstanding during this period.
(C) - Cash and Cash Equivalents
Affordable considers all highly liquid debt instruments purchased with
maturities of 90 days or less to be cash equivalents for financial
statement purposes.
(D) - Income Taxes
Income taxes are provided or a benefit is accrued 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.
(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 from the date of acquisition on
a straight-line basis over its remaining life of 16 years and 3 months.
<PAGE> F-15
(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 sheets and related consolidated
statments of operations during the development stage, stockholders'
equity and cash flows includes the accounts of Affordable Homes of
America, Inc., Kampen and Associates, Inc., Big Mountain Construction
Company, Inc., Realty Center, Inc., M.P. Hall Enterprises, Inc. and
Composite Industries of America, Inc. as of June 30, 1999 and 2000 and
for the periods from their dates of combination to June 30, 1999. For
the year ended June 30, 2000, the operations included Kampen and
Associates, Inc., Big Mountain Construction Company, Inc. Significant
inter-company transactions or balaces as of and for the periods ended
June 30, 1999 and 2000 have been eliminated.
Note 2 - Patent
Acquisition
On April 28, 1999 Affordable acquired 100% of the common stock of
Composite Industries of America, Inc. for 6,514,270 shares of Common
Stock of Affordable valued at $2.73 per share or $17,769,200. Composite
Industries of America, Inc.'s most significant asset was a patent
covering the construction material "Z-MIX". Z-MIX is a cementitious
building material that can be used in a two-step construction method
instead of cement, drywall or lumber. Affordable believes Z-MIX will
enable it to build a better quality home at a lower price than if other
building products were used. Management assigned a net value of
$17,198,099 to the patent based upon the fair market value (the average
of the closing stock prices of Affordable's common stock two days prior
to and two days after the acquisition date) of Affordable's common stock
issued to acquire Composite. The gross value resulting from the
application of the average fair market value less the value of all other
assets acquired was discounted by 25% in recognition of the restricted
nature of the stock issued as well as the fact that the common stock was
thinly traded during the period encompassing the acquisition date.
<PAGE> F-16
On June 12, 2000, Affordable signed a joint venture agreement with a
major construction contractor to build homes in third world countries
utilizing Z-MIX, with gross revenues projected to be in excess of
$250,000,000. Management believes that it is appropriate to continue
to carry the cost of the patent at June 30, 2000 because the signing of
the long-term contract demonstrates the patent's immediate commercial
viability. Furthermore, management believes that the expected future
profits and cash flows will support the carrying value of the patent.
The patent is being amortized on a straight-line basis over the remaining
life of the patent (195 months as of the acquisition date). Amortization
expense amounted to $173,750 and $1,042,500 during the years ended June
30, 1999 and 2000 respectively.
Restatement of Prior Year's Financial Statement
During the fiscal year ended June 30, 1999, Affordable originally recorded
the patent at the accumulated out-of-pocket costs incurred by Composite
to secure the patent ($394,313). That cost basis was subsequently deemed
to be incorrect as there was crucial information about the legal form of
the transaction that was not presented until the current year and which
mandated a different accounting treatment. Specifically, it was originally
reported that Composite Industries merged into Affordable and the trans-
action was recorded similar to a pooling of interests. In fact,
Affordable acquired Composite by issuing 6,514,270 shares of its stock to
acquire all o the shares of Composite Industries and then merged. The
resultant fair market value assigned to the patent was 17,198,099 and a
corresponding deferred tax liability of $5,713,287 was recorded.
Management believes that in light of the new information and the resultant
accounting ramifications that a correction is required to the financial
statemens for the year ended June 30, 1999. For accounting purposes, the
upward adjustment of the carrying value of the patent is being reflected
as a restatement of financial statements as of June 30, 1999 and 2000 and
for the years then ended. The net increase in the acquisition value of
the patent was recorded as an increase to paid-in capital net of deferred
tax liabilities and amortization expense for 1999 was increased by
$134,319 as a result of the higher cost basis.
<PAGE> F-17
Note 3 - 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 $3.53
per share for a total purchase price of $1,511,086. 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 trans-
action. The inability of Affordable to maintain current payments for the
land purchase options caused Affordable to abandon its entire investment
in Kampen during the fiscal year ended June 30, 2000.
Abandonment of Land Purchase and Options
The assets acquired were primarily comprised of an agreement to purchase
land and improvements that was financed through an option payment agreement.
On May 21, 1999, Kampen was served with a notice of foreclosure as a con-
sequence of its default on the related obligation As a result of this
action by the creditors, Kampen filed for protection under the provisions
of Chapter 11 of U.S. Bankruptcy Code on June 24, 1999. On January 14,
2000, The U.S. Bankruptcy Court required a foreclosure on the property and
caused Affordable to abandon its investment and the related debts. The
total cost of the land, land improvements and capitalized interest amounted
to $6,793,107. Total debt, including the loan from Cascade Land Depository,
accrued interest and the options, amounted to $5,188,941. As a result, a
net loss was incurred amounting to $1,604,166 and is included in other
income and expense for the year ended June 30, 2000.
<PAGE> F-18
Composite Industries, Inc. - Composite Industries was acquired by Affordabe
under an agreement dated April 28, 1999 and immediately merged into
Affordable. The agreement called for the conversion of 100% of the issued
and outstanding shares of Composite in exchange for Affordable common stock
at therate of two shares of Composite for each share of Affordable. As of
the effective date, there were 13,028,539 common shares Composite out-
standing. The acquisition was treated as a purchase for financial reporting
purposes.
M.P. Hall Enterprises, Inc. - On April 27, 1999, Affordable acquired 100%
of M.P. Hall's common stock in exchange for 100,000 shares of preferred B
stock for a total purchase price of $550,000. M.P. Hall's assets consisted
of land and development costs incurred to build a motel in Washington State.
The acquisition was treated as a purchase for financial reporting purposes.
No goodwill was recognized in the transaction. Affordable rescinded the
transaction during the year ended June 30, 2000.
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 is amortized on the straight-line basis over twenty years
commencing July 1, 1999.
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 consisted 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 pre-
ferred 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. When the anticipated
financing from Euro Federal Bank, NV failed to materialize, (see Note 15)
Affordable decided that it was in the best interest of all parties to rescind
the transaction during the year ended June 30, 2000.
<PAGE> F-19
Allocation of the purchase price for each of the transactions follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Kampen and Composite M.P. Hall Big Mountain Realty Total
Associates, Industries Enterprises Construction Center all
Inc. Inc. Inc. Company, Inc. Inc. Companies
Assets
Cash $ - $296,662 $ - $ 9,858 $ - $306,520
Employee and
other advances - 234,133 - 54,600 - 288,733
Land, development
and capitalized
interest costs 6,668,676 885,252 516,703 - 8,070,631
Equipment (net) - 40,306 - 57,720 - 98,026
Patent 17,198,099 - - - _ 17,198,099
Investment in
Joint Venture - - - 800,000 800,000
Goodwill - - 408,197 - 408,197
Total $ 6,668,676 $17,769,200 $885,252 $1,047,078 $800,000 $27,170,206
Liabilities Assumed
and Equity
Liabilities assumed $ 5,157,590 $ 5,970,287 $335,252 $521,958 $ - $ 11,985,087
Convertible
Preferred Stock 1,511,086 - 550,000 - 800,000 2,861,086
Common Stock - 6,514 - 216 - 6,730
Additional paid-
in capital - 11,792,399 - 524,904 - 12,317,303
Total $ 6,668,676 $17,769,200 $ 885,252 $1,047,078 $800,000 $27,170,206
</TABLE>
<PAGE> F-20
AFFORDABLE HOMES OF AMERICA, INC.
(A Development Stage Company)
Pro-forma Statements of Operations and Deficit Accumulated
as if the Acquisitions occurred on July 1, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative
from Inception
(February 10, 1997) June 30 June 30
to June 30, 1999 1998 1999
Revenues:
Interest income $ 24,595 $ 3,142 $21,453
Expenses:
Research and
development costs 14,460 - 14,460
General and
administrative 1,979,479 277,423 1,702,056
Depreciation and
amortization 265,728 70,870 194,858
Loss on disposition
of equipment 2,850 - 2,850
Total expenses 2,262,517 348,293 1,914,224
Net (loss) before
income tax benefit (2,237,922) (345,151) (1,892,771)
Income tax benefit 554,338 - 554,338
Net (loss) $(1,683,584) $(345,151) $(1,338,433)
(Loss) per common share $(.47) $(.17) $(.26)
Weighted average shares 3,582,601 2,000,000 5,165,202
</TABLE>
<PAGE> F-21
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 2000
Note 4 Advances to Omega International, Inc.
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
in an effort to assist Omega in further developing its products. The
notes were unsecured, due upon demand, and bear interest at 8% per
annum. Interest income was recorded by Affordable from the date of
acquisition of Composite (April 28, 1999) to June 30, 1999 in the amount
of $3,436. During the fiscal year ended June 30, 2000, Omega filed for
Bankruptcy protection under Chapter 7 of the U.S. Bankruptcy Code and
accordingly, management concluded that the advances are not collectible
and were written off. For financial statement purposes, the expense is
included under the caption (loss) on forgiveness of debt.
Note 5 Machinery and Equipment
Machinery and equipment consists of the following as of June 30:
1999 2000
Machinery $ 84,640 $ 84,640
Office equipment 10,607 17,982
Furniture and fixtures 3,032 3,032
Vehicles 57,472 63,540
---------- ----------
155,751 169,194
Less Accumulated
depreciation (47,466) (73,226)
Total $ 108,285 $ 95,968
Depreciation expense was incurred in the amount of $7,106 and $33,235
for the years ended June 30, 1999 and 2000 respectively, and is
included in general and administrative expense.
<PAGE> F-22
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 2000
NOTE 6 - 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 2000 the income tax
(benefit) was comprised of the following components:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 2000 Cumulative
Current- Federal $ - $ - $ -
State - _ -
Total current -
Deferred- Federal $(554,338) $(2,112,219) $(2,666,557)
State - - -
Total deferred (554,338) (2,112,219) (2,666,557)
Total $(554,338) $(2,112,219) $(2,666,557)
</TABLE>
The only differing method of reporting income for tax purposes as compared
to financial reporting purposes was in connection with the deferred tax
liability resulting from the acquisition of patent rights in connection
with the acquisition of Composite Industries, Inc. In addition there is
a deferred tax asset relating to the benefit provided by the net operating
loss carryforward. As there are no state income taxes to be considered,
the income tax provision is computed at the federal statutory rate of 34%.
Deferred tax assets and liabilities consist of the following:
1999 2000
Deferred tax assets-
Tax benefit of net operating
loss carryovers $496,638 $ 2,262,655
Valuation allowance - -
$496,638 $2,262,655
Deferred tax liabilities-
Patent rights acquired $5,655,587 $5,309,385
<PAGE> F-23
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 2000
NOTE 6 - Income Taxes (continued)
No valuation allowance was required for the deferred tax asset for each
of the years presented because management determined that there is a
strong likelihood of realization of the deferred tax asset. The deferred
tax asset relates to the net operating loss carryforward. Affordable
incurred net operating losses for financial reporting purposes totaling
$5,749,785 available to offset future income for financial reporting
purposes expiring in 2020.
NOTE 7 - Loans and Notes Payable
The following schedule summarizes loans and notes payable by subsidiary
as of June 30, 1999 and 2000:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 2000
Kampen and Associates, Inc.
Cascade Land Depository described in Note 3 $ 1,550,000 $ -
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 335,251 -
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 15,159
Construction loan dated August 11, 1998 secured by
land and property with monthly payments on an
interest only basis and principal due October 1, 2000
including extension at prime + 2%, currently 11.5% 302,470 295,615
Total 2,217,937 310,774
Less current maturities 2,202,778 310,774
Long-term portion $ 15,159 $ -
</TABLE>
<PAGE> F-24
The entire amount of loans and notes payable at June 30, 2000
matures during the year ended June 30, 2001.
NOTE 8 - Related Party Transactions
Affordable had entered into consulting agreements with certain member
s ofthe Company's Board of Directors and stockholders to provide services
on various strategic and business issues. The agreements are renewable
at the discretion of management. Total fees paid for such services by the
Company either in stock or cash during the years ended June 30, 1999
and 2000 were $1,250,000 and $1,168,375 respectively and are included in
General and Administrative expenses 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 $235,287 and $281,434 as of June 30, 1999 and 2000
respectively. These advances are short-term in nature, and include
accrued interest at 8% in the amount of $0 and $20,809 as of June 30,
1999 and 2000 respectively.
<PAGE> F-25
NOTE 9 - Officer loan receivable
On May 25, 2000, the company issued 327,511shares of common stock in
connection with Regulation S-8 filings with the Securities and Exchange
Commission valued at $191,749 to an officer of the company as nominee
for the purpose of selling the shares on the open market and using the
proceeds to pay specific company expenses. Since the common stock was
issued in the officer's name, the officer has a liability to the company
for the value of the shares at the date of issuance. Accordingly, an
officer loan receivable was recorded for $191,749 and is being reflected
as a reductionof stockholders' equity at June 30, 2000. Subsequent to
year-end, the oficer sold a majority of the shares and $116,000 was paid
in to thecompany for specific company expenses and the outstanding loan
was reduced. The company expects the remaining balance of the officer
loan will be paid by the end of the calendar year 2000.
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.
NOTE 11 - 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).
<PAGE> F-26
The adoption of SFAS 131 requires the presentation of descriptive info
rmaton about reportable segments which is consistent with that made
available to the management of Affordable to assess performance.
As aresult 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Product Land and
General Sales and Building
Contracting Development Development Inter-segment Total
June 30, 1999
Sales $- $ - $ - $ - $ -
Operating (loss) (174,736) (1,533,107) (38,724) - (1,746,567)
Net interest - 4,750 - - 4,750
(Loss) on disposition
of equipment - (2,850) - - (2,850)
Pretax (loss) (174,736) (1,531,207) (38,724) - (1,744,667)
Net (loss) (115,326) (1,049,445) (25,558) - (1,190,329)
Assets 1,224,728 17,795,692 8,451,964 - 27,472,384
Depreciation & amortization - 149,636 - - 149,636
Additions to long-lived assets 57,720 65,942 - - 123,662
Product Land and
General Sales and Building
Contracting Development Development Inter-segment Total
June 30, 2000
Sales $ - $ - $ - $ - $ -
Operating (loss) (62,584) (3,365,938) (18,664) - (3,447,186)
Net interest (24,396) (5,017) - - (29,413)
(Loss) on disposition
of equipment - - - - -
Pretax (loss) (86,980) (5,111,935) (18,664) - (5,217,579)
Net (loss) (57,929) (3,035,001) (12,430) - (3,105,360)
Assets 998,633 18,388,890 - - 19,387,523
Depreciation & amortization 37,301 1,058,844 - - 1,096,145
Additions to long-lived assets 2,281 11,162 - - 13,443
</TABLE>
<PAGE> F-27
NOTE 12 - Stockholders' Equity
Affordable has authorized the issuance of 100,000,000 shares of
$.001 par value common stock. At June 30, 1999 and 2000, the
company had issued 17,549,402 and 20,417,379 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 and outstanding. Subsequently, 228,572 shares of
class A and 100,000 shares of class B were rescinded and the
acquisitions they related to were terminated.
NOTE 13 - Adjustments to and Restatement of Prior Year's Financial
Statements
As discussed previously in Note 2, the financial statements were
restated to reflect a correction of an error in connection with the
recording of the acquisition of Composite Industries, Inc. Further,
569,149 shares of common stock that was issued for services rendered
has been increased by $1,300,000 consistent with the value of the
stock issued. In addition to the restatements in connection with the
valuation of the common stock, there were certain additional
liabilities associated with the Composite acquisition that were not
included in the original purchase allocation. Those liabilities
amounted to $101,132, which resulted in an increase in compensation
costs included in general and administrative expenses. The effect of
all items restated resulted in a charge to income as follows:
1999 2000
Increase in General and
Administrative expenses $ 1,535,451 $ 1,042,500
Less Increase in tax benefit 522,053 347,746
Net charge to income $ 1,013,398 $ 694,754
Loss per share $(.20) $(.04)
<PAGE> F-28
NOTE 14 - Stock Options
The company maintains a stock option plan. On June 8, 2000, the
Board of Directors cancelled all Incentive Stock Option Agreements
outstanding.
Below is summarized the option activity for the year ended June 30,
1999 and 2000.
June 30, 1999 June 30, 2000
Options Options
Securities outstanding - beginning of year - 7,000,000
Securities granted 7,000,000 -
Securities exercised - -
Securities cancelled - 7,000,000
Securities outstanding - end of year 7,000,000 -
The company issued stock options in connection with a public
relations agreement signed on June 8, 2000. The stock option
agreement is for term of three years. The agreement call for
vesting of options as follows:
15,000 shares @ $1.50 per share when the stock price reaches $1.50
15,000 shares @ $2.50 per share when the stock price reaches $2.50
25,000 shares @ $3.50 per share when the stock price reaches $3.50
25,000 shares @ $4.50 per share when the stock price reaches $4.50
NOTE 15 - Stock Issued For Services
During the fiscal year ended June 30, 2000, the company issued stock
pursuant to it S-8 filing with the Securities and Exchange Commission
for services rendered by outside professionals and other consultants.
A total of 569,149 shares of stock were issued and valued at
$1,339,031. These costs are included in administrative expenses in
the accompanying consolidated statements of operations.
<PAGE> F-29
NOTE 16 - Commitments and contingencies
During the year ended June 30, 2000, Affordable issued 45,000,000
shares of common stock to Euro Federal Bank, NV as collateral for an
anticipated loan and financing agreement. No loans or financings were
extended to Affordable and the stock certificates were stopped. Euro
Federal Bank has stated that it will return the shares to Affordable.
Accordingly, these shares were not included in the earnings per share
calculation.
NOTE 17 - Fair Value of Financial Instruments
Estimated fair value of Affordable's financial instruments are as follows:
1999 2000
------------------ ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash $ 192,398 $ 192,398 $18,516 $18,516
Notes payable 2,217,937 2,217,937 310,774 310,774
Loans and advances
from related parties 235,287 235,287 281,434 281,434
Auto loan - - 12,720 12,720
The fair value of the financial instruments related to debt is
based on current rates at which Affordable could borrow funds
with similar remaining maturities.
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.
NAME AGE POSITION
Merle Ferguson 53 President, CEO and Chairman of the Board
Michael Schulman 44 Chief Financial Officer, Treasurer
Susan Donohue 47 Secretary, Director
James E. Pratt 66 General Counsel, Director
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 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.
Michael Schulman joined Affordable Homes of America as Chief Financial
Officer and Treasurer in June of 2000. He previously served as CFO for
two publically-traded companies; FindWhat.com, a pay for position search
engine and Gotham Apparel Corp, a women's apparel company. Mr. Schulman
also was a CFO for International Product Options Corp. and a Controller
for one of the Avnet Companies. Mr. Schulman received a Masters Degree in
Finance and a Bachelor's Degree in Accounting from St. John's University
and brings over 20 years of financial experience to the position.
Susan Donohue is the 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. Ms.
Donohue attended the University of Wisconsin at Stevens Point with
a focus in sociology and psychology. Ms. Donohue also attended
Cardinal Stritch College of Madison, where she majored in Business
Administration.
James E. Pratt is the General Counsel for 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.
ITEM 10 EXECUTIVE COMPENSATION
Affordable Homes of America, Inc. does not currently pay salaries to
itsofficers. Merle Ferguson and Susan Donohue are paid through
businessmanagement services agreements with the Company. The
agreements that were signed on March 19, 1999 are for a period of
five years. MerleFerguson is to be paid $150,000 per year and Susan
Donohue is to be paid $60,000 per year. The compensation is for
services as directors and officers, specific senior roles, consulting
services with regards to corporate operations and day-to-day duties
and responsibilities of running the corporate office.In addition to
the above, the Company hasentered into consulting agreements with
certain members of the Company's Board of Directors and stockholders
to provide services on various strategic, legal and business issues.
Total fees paid for such services by the Company either in stock or
cash during the years ended June 30, 1999 and 2000 were $940,000 and
$858,375 respectively.
Michael Schulman, Chief Financial Officer has agreed to an annual
compensation of $150,000 per annum effective July 1, 2000, but has not
receved any compensation as of this date. Any amounts not already pai
d to Mr. Schulman will be paid as funding becomes available to Affordable.
Dr. William T. Anton is paid $3,000 monthly for foreign travel and is
reimursed 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 include Turkey and Bulgaria.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 2000, information
regarding the beneficial ownership of shares by each person known by
the ompany to own five percent or more of the outstanding shares, by e
ach of the directors and by the officers and directors as a group.
Title of class Name and address Amount of beneficial Percent
of beneficial owner ownership of class
Common Stock Merle Ferguson 9,363,000 45.9%
4505 W. Hacienda Ave. # I-1
Las Vegas,
Nevada 89118
Common Stock Susan Donohue 1,002,511 4.9%
4505 W. Hacienda Ave.#I-1
Las Vegas,
Nevada 89118
Common Stock James E. Pratt 0
195 Kildare Road
Garden City, N.Y. 11520
All Officers as a Group and Directors 10,365,511 50.8%
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into a consulting agreement with CS & S
Enterprise, Inc. to provide general and technical building-related
services, in the amount of $100,000 per year. Merle Ferguson is a
director and shareholder of Affordable and also owns 100% of the
stock of CS & S Enterprises, Inc.
The President and Chief Executive Officer has from time to time advanced
funds to Affordable or to one of its subsidiaries to assist with working
capital requirements. As of June 30, 1999 and 2000, such funds advanced
to the Company amounted to $235,287 and $281,434 respectively. 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 past fiscal year except for the following. On May 25, 2000, the
Company issued 327,511 S-8 shares of common stock valued at $191,749 to
an officer of the Company as nominee for the purpose of selling the
shares on the open market and using the proceeds to pay specific Company
expenses. Since the common stock was issued in the officer's name, the
officer has a liability to the Company for the value of the shares at the
date of issuance.
ITEM 13 EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Articles of Incorporation
3.2 Articles of Merger
3.3 Amendment to Articles of Incorporation
3.4 By-Laws
10.1 Agreement with Affordable Homes of America, Inc.
Exchange of Shares
10.2 Agreement and Plan of Merger with Composite Industries
of America, Inc.
10.3 Agreement with Big Mountain Construction
10.4 Financial Guarantee Bond Agreement with American Home
Assurance Corporation
10.5 Agreement to Provide Financing with EuroFederal Bank N.V.
10.6 Consulting Agreement with A2 Consultants
10.7 Joint Venture Agreement with Tristar USA of LA
10.8 Joint Venture Agreement with Al Nasr Trading and
Industrial Corp.
10.9 Consulting Agreement with Africa Resources Corp.
10.10 Strategic Alliance Agreement with Quadrant Resources
Corp. for International Sales Market
23.2 Consent of Pascale, Razzino, Alexanderson & Co. PLLC
(filed herewith electronically)
27.0 Financial Data Schedule (filed herewith electronically)
(b) Reports on Form 8-K.
There were no reports in Form 8-K filed during the fourth quarter of
fiscal year 2000.
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: October 4, 2000 By: /s/ Merle Ferguson
Merle Ferguson, President, CEO and Director
Date: October 4, 2000 By: /s/ Michael Schulman
Michael Schulman, CFO
<PAGE> 2
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.
ITEM 13 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AMD REPORTS
ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
3.1 Articles of Incorporation
3.2 Articles of Merger
3.3 Amendment to Articles of Incorporation
3.4 By-Laws
10.1 Agreement with Affordable Homes of America, Inc.
Exchange of Shares
10.2 Agreement and Plan of Merger with Composite Industries
of America, Inc.
10.21 Articles of Merger of With Composite Industries
of America, Inc.
10.3 Agreement with Big Mountain Construction
10.4 Financial Guarantee Bond Agreement with American Home
Assurance Corporation
10.5 Agreement to Provide Financing with EuroFederal Bank N.V.
10.6 Consulting Agreement with A2 Consultants
10.7 Joint Venture Agreement with Tristar USA of LA
10.8 Joint Venture Agreement with Al Nasr Trading and
Industrial Corp.
10.9 Consulting Agreement with Africa Resources Corp.
10.10 Strategic Alliance Agreement with Quadrant Resources
Corp. for International Sales Market
23.2 Consent Of Pascale, Razzino, Alexanderson & Co. PLLC
(filed herewith electronically)
27.0 Financial Data Schedule (filed herewith electronically)
<PAGE> 3
There were no reports in Form 8-K during the fourth quarter of the
fiscal year 2000.
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 undesigned, thereunto duly authorized.
AFFORDABLE HOMES OF AMERICA, INC,
Date: SeptembeR 26, 2000 By: /s/ Merle Ferguson
--------------
Merle Ferguson,
President, CEO and Director
Date: September 26, 2000 By: /S/ Michael Schulman
----------------
Michael Schulman,
CFO
