INCO HOMES CORP, 10KSB40, 1999-07-09

INCO HOMES CORP
10KSB40, 1999-07-09
OPERATIVE BUILDERS

Previous: ENERGY BIOSYSTEMS CORP, 8-K, 1999-07-09

Next: GEON CO, 8-K, 1999-07-09

<PAGE>

===============================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---------------

FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

For the fiscal year ended December 31, 1998

[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the transition period from to

Commission file number 0-21378

---------------

INCO HOMES CORPORATION
(Name of small business issuer in its charter)

<TABLE>
<S> <C>
Delaware 33-0534734
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
</TABLE>

1282 West Arrow Highway Upland, California 91786
(Address of principal executive offices)(Zip code)

(909) 981-8989
Issuer's telephone number, including area code

---------------

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

None

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

Common Stock
(Title of class)

---------------

Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]
No [_]

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [X]

Revenues of the issuer for the year ended December 31, 1998 were
$29,241,000.

The aggregate market value of the voting stock held by non-affiliates of
the issuer on June 30, 1999 was $1,756,000.

The number of shares outstanding of each of the issuer's classes of common
stock on June 30, 1999 was as follows:

Common Stock (par value $.01 per share) 2,210,073 shares

DOCUMENTS INCORPORATED BY REFERENCE

Definitive Proxy Statement relating to the Company's 1999 Annual Meeting to
be filed hereafter (incorporated into Part III hereof).

Transitional Small Business Disclosure Format: Yes [_] No [X]

===============================================================================
<PAGE>

All information herein with respect to shares of Common Stock gives effect to
the Company's one-for-six reverse stock split that was effective
on January 16, 1997.

PART I
ITEM 1. BUSINESS.

Except for historical information contained herein, the matters discussed
in this report contain forward-looking statements that involve risks and
uncertainties that could cause results to differ materially, including the land
valuation write-downs, changing market conditions, and other risks detailed in
this report and other documents filed by the Company with the Securities and
Exchange Commission from time to time.

General

Inco Homes Corporation (the "Company") is a developer and builder of
affordably priced single-family detached homes. Historically, its markets have
been in Southern California, primarily in San Bernardino and Riverside Counties,
and to a lesser extent, in Los Angeles County. The Company's homes are
primarily targeted to the first time buyer and also to the first time move-up
buyer where the Company believes there is significant long-term demand. The
Company strives to deliver superior value to its homebuyers by aggressively
pricing its homes while providing a high quality product.

During 1998, prices for the Company's homes, including a project being
built for a fee, ranged from $75,990 to $221,990, with an average sales price of
$141,260. The Company believes that its focus on affordable housing and history
of developing and delivering these types of homes since 1976 has helped it to
develop a positive reputation in this market with homebuyers.

The Company's business strategy in evaluating new projects includes such
factors as (i) the strength of the demand for affordable housing, (ii) the
existence and type of competition, (iii) the availability of relatively low-cost
land, (iv) the availability of utilities and zoning and (v) the receptiveness of
local government and community to growth in the housing sector. The Company
considers the demand for affordable housing by evaluating such statistical
information as (i) the projected growth of the population, (ii) the number of
new jobs created or projected to be created, (iii) the number of housing starts
in previous periods, (iv) housing inventory and (v) sales absorption rates.

The Company places great emphasis on customer service and relations and
maintaining favorable visibility in the markets in which the Company builds
homes. This emphasis on customer service and relations and the Company's value-
driven product have earned the Company substantial referrals and a favorable
reputation among homebuyers and local governments. The Company believes that
customer service and relations is an integral part of its strategy. See "--
Customer Service and Relations."

The Company was incorporated in October 1992 to succeed to the homebuilding
business of its predecessors operating under the "Inco Homes" name through
several limited partnerships and various corporations under the control of Ira
C. Norris, the Company's founder. At the time of the Company's initial public
offering in 1993, the Company issued its Common Stock to acquire the equity
interests of its predecessors and consolidated ownership of its core projects
and businesses into the Company. The Company sold its Arizona and Nevada
operations in 1995 and now exclusively builds in Southern California.

The Homebuilding Industry

The homebuilding industry is cyclical and is significantly affected by
changes in general and local economic conditions, such as employment levels,
availability of land, availability and cost of financing land acquisition,
development and construction, interest rates, consumer confidence and housing
demand, as well as changes in elected officials and changes in government
regulation. A variety of other factors affect the housing industry and demand
for new homes, including changes in costs associated with home ownership such as
increases in property taxes and energy

2
<PAGE>

costs, changes in consumer preferences, demographic trends and the availability
of and changes in mortgage financing programs. Homebuilders are subject to
various risks, including conditions of supply and demand in local markets,
availability and cost of land, building materials and labor, weather conditions,
delays in construction schedules, cost overruns, the entitlement process, the
effect of moratoriums and environmental controls, decreased availability of
homeowners insurance, and increases in real estate taxes and other local
government fees. The Company's business could be adversely affected in the event
the Company is not able to attract qualified subcontractors for its projects.
Certain of the Company's projects are long-term in nature and are particularly
susceptible to cyclical real estate conditions and the other risks outlined
above due to the significant up-front expenditures required and the length of
time required to achieve profits from these projects.

Southern California Housing Markets

The Company currently conducts all of its business in the Southern
California Counties of San Bernardino, Riverside and Los Angeles. The Company
believes that the depressed economic and real estate conditions in Southern
California over the last several years had adversely affected its results of
operations, most particularly in the high desert region of San Bernardino
County. The Company now believes that the economy in the inland empire has
improved significantly. The Company has experienced improved sales in recent
months, sales prices have been increased and incentives offered to prospective
purchasers have decreased. Management hopes that the improved conditions will
continue but there can be no assurance that they will. See "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The Company continues to conduct detailed reviews of its land holdings,
which include land costs, capitalized costs and related seller financing. This
has resulted in various writedowns and allowances in current and prior years.
There can be no assurance that there will be no write-off of additional costs in
the future.

The areas in which the Company operates in California are subject to
earthquakes and other natural disasters. Damage to the Company's projects or
highway access to such projects from such earthquakes or other natural
disasters, or the perception of potential homebuyers as to the possible damage
to a home in these areas, could have a material adverse effect on the Company's
business, financial condition and results of operations. To the Company's
knowledge, the Company has never suffered any physical damage to its projects as
a result of an earthquake, including the Northridge earthquake in January 1994.

[Remainder of page intentionally left blank]

3
<PAGE>

Summary of Residential Projects

Table I presents information relating to the Company's projects completed
since 1987. All homes are single-family detached homes.

TABLE I - PROJECTS COMPLETED SINCE 1987

<TABLE>
<CAPTION>
Total
Number
Year of Sales Price
Project City County Completed Homes Range (1)
- ------- ---- ------ --------- ----- ---------
<S> <C> <C> <C> <C> <C>
Liberty Village Victorville San Bernardino 1987 784 $ 49,990-$85,990
Moreno Del Rey Moreno Valley Riverside 1987 119 89,990-123,990
Atlantic Village Palmdale Los Angeles 1988 127 92,990-105,990
Catalina Collection Moreno Valley Riverside 1989 124 99,990-155,990
Southlake Moreno Valley Riverside 1989 185 104,990-154,990
Pacific Village Palmdale Los Angeles 1991 283 112,990-210,990
Liberty Village Victorville San Bernardino 1991 446 80,990-108,990
Country Village Victorville San Bernardino 1991 189 85,990-135,990
Mustang Series at Northfork Murrieta San Bernardino 1992 123 129,990-198,990
Hunter Classic at Northfork Murrieta San Bernardino 1992 77 194,990-255,990
Paloverde at Eagle Ranch Victorville San Bernardino 1992 116 112,990-147,990
American Traditions Palmdale Los Angeles 1993 89 99,990-127,990
Estates of Chaparral at Eagle Ranch Victorville San Bernardino 1994 88 169,990-219,990
Summerplace Indio Riverside 1994 156 84,990-108,990
Dakota at Eagle Ranch Victorville San Bernardino 1995 79 102,990-133,490
Spirit at Eagle Ranch Victorville San Bernardino 1995 104 119,990-153,990
Pride at Eagle Ranch Victorville San Bernardino 1995 39 89,990-127,990
American Traditions Adelanto San Bernardino 1995 401 79,990-100,990
Harmony Adelanto San Bernardino 1995 25 97,990-130,990
Hometown Adelanto San Bernardino 1995 526 72,990-85,990
Victory Lenwood Lenwood San Bernardino 1995 24 53,990-63,990
Pride at Wildrose Corona Riverside 1995 102 126,990-151,490
Spirit Murrieta Riverside 1995 261 133,990-171,990
Pride at Tradition East Chandler Maricopa 1995 73 (2) 91,990-121,990
Reunion at Tradition East Chandler Maricopa 1995 103 (2) 85,990-110,990
Victory at Amberlea Phoenix Maricopa 1995 55 (2) 66,990-91,990
Hometown Las Vegas Clark 1995 63 (2) 84,990-105,990
Reunion Las Vegas Clark 1995 58 (2) 99,990-122,990
Victory Las Vegas Clark 1995 22 (2) 72,990-94,990
Ventana Victorville San Bernardino 1996 196 136,990-169,990
Reunion Adelanto San Bernardino 1997 72 91,990-118,990
Spirit Corona Riverside 1997 102 170,000-219,000
Victory Lane Adelanto San Bernardino 1998 331 59,990-82,990
Winners Circle Adelanto San Bernardino 1998 12 89,990-119,990
Spirit Palmdale Los Angeles 1998 81 139,000-166,000
Hometown (formerly Reunion) Lake Elsinore Riverside 1998 63 99,990-141,990
-----
Total 5,698
</TABLE>

_________________
(1) Sales price range reflects base price, excluding any lot premiums, buyer-
selected options and incentives, which vary from project to project.
(2) Reflects homes closed by the Company prior to the December 1995 sale of the
Phoenix and Las Vegas divisions.

4
<PAGE>

Table II presents information as of December 31, 1998 relating to the
Company's projects in which construction is either in progress or is in the
planning process. All homes are single-family detached homes. In all cases the
Company either owns the land or has a contract or option to acquire the land,
and all such land is entitled.

<TABLE>
<CAPTION>
TABLE II - CURRENT AND PLANNED PROJECTS
Anticipated
Estimated Home Sites or Actual
Number Homes Remaining Year
of Homes at Closed as as of of Initial Sales Price
Project Location (1) Completion (2) of 12/31/98 12/31/98 Closings3(3)8 Range(4)
------- ------------ -------------- ----------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
HIGH DESERT - San Bernardino and Los Angeles Counties
- -----------

Freedom at Eagle Ranch (5) Victorville 166 46 120 1997 $110,990 - 132,540
Triumph (6) Lancaster 78 77 1 1996 75,990 - 92,990
Saratoga I & II Palmdale 43 2 41 1998 94,990 - 116,990
Heritage Place Adelanto 326 0 326 1999 64,990 - 89,990
Monarch Collection Lancaster 42 0 42 1999 110,490 - 125,490
Greenbrier (7) Palmdale 79 0 79 1999 138,990 - 168,990
Saratoga III (8) Palmdale 166 0 166 n/a n/a
Vista Verde (8) Victorville 756 0 756 n/a n/a
------ ------ ------
Total High Desert 1,656 125 1,531

INLAND - San Bernardino and Riverside Counties
- ------

Desert Pride (formerly Reunion) La Quinta 150 56 94 1995 127,490 - 155,490
Bella Vita Fontana 42 41 1 1997 181,990 - 221,990
Wildwood Fontana 62 19 43 1998 110,190 - 147,190
Falcon Pointe Fontana 76 0 76 1998 164,990 - 193,990
Hidden Oaks (9) Moreno Valley 139 30 109 1998 92,490 - 122,490
Country Manors Riverside 154 0 154 1999 259,990 - 292,990
Lexington (7) Rancho Cucamonga 29 0 29 1999 229,990 - 249,990
RC-56 (7) Rancho Cucamonga 56 0 56 2000 239,990 - 259,990

------ ------ ------
Total Inland 708 146 562

TOTAL COMPANY 2,364 271 2,093
====== ====== ======
</TABLE>

_________________________
(1) Victorville, Adelanto, Fontana and Rancho Cucamonga are located in San
Bernardino County. Palmdale and Lancaster are located in Los Angeles
County. La Quinta, Riverside and Moreno Valley are located in Riverside
County.
(2) Estimated number of homes at completion is subject to change and there can
be no assurance that the Company will build these homes.
(3) Anticipated year of initial closing is based on the Company's current
planning estimates and forecasts, new orders and the status of construction
at these projects, and therefore is subject to change.
(4) Sales price range reflects estimated base price, excluding any lot
premiums, buyer-selected options and incentives, which vary from project to
project.
(5) The Company is the managing general partner of, and has a 50% interest in,
Freedom-Eagle Ranch Housing Partners ("FERHP"), the limited partnership
that owns this project.
(6) The Company is the managing general partner of, and has a 50% interest in,
Triumph-Lancaster Housing Partners ("Triumph"), the limited partnership
that owns this project.
(7) Subsequent to December 31, 1998, the Company entered into a Development and
Marketing Agreement with a third party to develop, construct and market
these lots owned by the third party. Under this agreement: i) all financing
and bonding is the responsibility of the third party; ii) the Company is to
receive compensation in the form of development fees and design center
profits totaling approximately 4.0% of the gross sales price of the homes;
and iii) all home warranty costs are to be borne by the third party.
(8) Represents additional land owned by the Company, which may be used for
future projects or may be sold in a bulk sale.
(9) In October 1997, the Company entered into a Development and Marketing
Agreement with a third party to develop, construct, and market these
lots owned by the third party. Under this Agreement: i) all financing
and

5
<PAGE>

bonding is the responsibility of the third party; ii) the Company will
receive compensation in the form of overhead draws, development fees and
sales and marketing fees totaling approximately 8.0% of the gross sales
price of the homes; and iii) the Company will assume the home warranty
costs for which it will be paid $750 per house.

Land Acquisition and Development

The Company generally purchases land that has the necessary entitlements to
enable the Company to begin development or construction as market conditions
warrant. In addition, as the Company becomes familiar with local entitlement
and zoning procedures, or when the location and/or price is attractive, the
Company may buy unentitled land upon completion of a feasibility analysis. The
term "entitlements" refers to development agreements and/or tentative maps,
pursuant to which a developer has the right to obtain building permits upon
compliance with conditions which are usually within the developer's control.
Even if entitlements are obtained prior to the Company's purchase of the land,
however, the Company is still required to obtain a variety of governmental
approvals and permits during the development process. The Company strives to
acquire land as economically as possible, and to negotiate land purchase
contracts which allow the Company to defer payment for parcels until it is ready
to begin construction.

The Company selects its land for development based upon a variety of
additional factors, including: (i) internally and externally generated
demographic and marketing studies; (ii) soil and other physical conditions of
the site; (iii) financial and legal reviews as to the feasibility of the
proposed project, including projected profitability; (iv) the ability to secure
necessary financing and additional governmental approvals and entitlements; (v)
environmental due diligence; (vi) competition; (vii) proximity to local traffic
corridors and community facilities; (viii) infrastructure requirements for
grading, drainage, utilities and streets; and (ix) management's judgment as to
the real estate market, economic trends and the Company's experience in a
particular market.

In some cases, the Company purchases finished lots which are ready for
construction. In other instances, the Company purchases land or obtains an
option to purchase land that may require certain site improvements prior to
construction. The Company then undertakes the development activities that
include site planning and engineering, as well as constructing roads, sewer,
water, utilities and drainage facilities and other amenities. The activities
are carefully managed, with the phases geared to anticipated demand.

The Company historically has conducted some residential development
activities through partnerships and limited liability companies in order to fund
a portion of the Company's land acquisition, model complex development costs and
initial marketing expenditures. The Company expects to continue to utilize such
arrangements when management perceives a favorable opportunity.

With respect to its landholdings, the Company maintains the flexibility to
sell parcels of land adjacent to existing phases of a project to other builders
in a single transaction or a series of transactions. Sales of land and lots,
which are not the Company's principal business focus, are made to take advantage
of market opportunities that might exist from time to time or to generate needed
cash. Accordingly, these sales vary from year to year depending on market
conditions. Revenue from land sales totaled $2,342,000 in 1998 and $933,000 in
1997, respectively. Additionally, parcels of land owned by the Company and
adjacent to its residential projects may be zoned for commercial use. To date,
the Company has never built on commercial land, but may later sell, lease or
joint venture such land with commercial property developers. See "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Construction

The Company strives to develop a design and marketing concept for each of
its housing subdivisions, which includes determination of size, style and price
range of the homes, layout of streets, layout of individual lots and overall
community design. The product line offered in a particular subdivision depends
upon many factors, including the housing generally available in the area, the
needs of a particular market and the Company's cost of lots in the subdivision.

6
<PAGE>

The development, construction and closing of each project generally is
managed at the various stages by Company employees reporting to persons
responsible for the various disciplines. Projects move through a series of
stages, departmentally organized, beginning with the entitlement process, if
applicable, and ending with the closing and post-closing stages. The Company
believes this strategy, as opposed to assigning each project to a manager who is
responsible for all stages of development, is more efficient, providing for
standardized procedures, quality service and considerable cost savings.

The Company utilizes what it considers to be a "manufacturer's approach" to
home construction, always seeking to increase production efficiency and position
itself to be among the lowest-cost producers in each of its markets. The Company
(i) generally adheres to strict construction schedules and standardized plans,
(ii) generally pre-sells a portion of its homes before commencing construction
of a phase of a project, and (iii) generally purchases land that has necessary
entitlements. See "--Land Acquisition and Development."

The Company acts as the general contractor for the construction of its
residential projects. The Company's employees supervise the construction of
each project, coordinate the activities of subcontractors and suppliers, subject
subcontractors' work to quality and cost controls and assure compliance with
zoning and building codes, but do no actual construction. The Company specifies
that high-quality, durable materials be used in the construction of its homes.
The Company's subcontractors follow design plans prepared by architects who are
retained by the Company and whose designs are geared to the local market.
Subcontractors typically are retained on a project-by-project basis to complete
construction at a fixed price. Agreements with the Company's subcontractors are
generally entered into after competitive bidding.

As a result of the limited amount of available working capital,
relationships with certain of its subcontractors have weakened due to the
Company's inability to pay all of its subcontractors and their suppliers on a
current basis. Numerous subcontractors, suppliers and general creditors are
pursuing further legal action, including the initiation of lawsuits. As of
December 31, 1998, nine of these claims, totaling approximately $565,000, have
been perfected as judgments against the Company. The Company has or intends to
negotiate payment arrangements, as appropriate, in an effort to settle these
claims. However, if the Company continues to have disputes with its
subcontractors and suppliers, in the future it may be difficult for the Company
to attract and retain qualified subcontractors and suppliers who are willing to
work with the Company and the Company's business could be adversely affected.

Generally, the Company "pre-sells" (execution of a sales contract, receipt
of a deposit, and generally an indication of the buyer's ability to qualify for
a mortgage) a portion of the homes to be built in a phase before construction in
that phase is commenced. Construction lenders typically specify minimum pre-
sale requirements. The Company attempts to minimize cancellations by requiring
a refundable cash deposit of approximately $500 to $2,500 and by training its
sales force to assess the qualification of potential homebuyers. See "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The Company generally adheres to strict construction schedules and
standardized plans. Construction time for the Company's homes depends on the
availability of labor, materials and supplies, product type and location, but
the Company historically has completed construction of a home within three to
six months from commencement. Homes are designed to promote efficient use of
space and materials and to minimize construction costs and time.

Materials used in the construction of the Company's homes are available
from a number of sources, but material prices may fluctuate due to various
factors, including demand or supply shortages. Construction labor and materials
have generally been available to the Company. Although there is presently an
adequate supply of labor and materials it is possible that future shortages of
skilled workers and/or materials may occur. See "--The Homebuilding Industry."

The Company generally provides a one-year limited warranty of workmanship
and materials with each of its homes. In addition, California law provides a
ten-year period during which consumers can seek redress for structural defects
in new homes. The Company reserves against the possibility of charges relating
to its one-year warranty. In

7
<PAGE>

1998, certain homeowners in three of the Company's Southern California projects,
which were completed from 1989 to 1995, filed complaints against the Company
alleging construction defects. See "Item 3. Legal Proceedings."

Marketing and Sales

The Company seeks to develop marketing programs tailored to the specific
buyers and markets in which the Company operates. The Company takes a consumer
product approach to marketing its homes, conducting product research and
developing buyer and visitor profiles on each project. Techniques employed by
the Company include referral incentives, customer testimonials, direct mail, and
radio and print advertisements.

The Company normally builds, decorates, furnishes and landscapes model
homes for each project and maintains on-site sales offices, which typically are
open seven days a week. The Company believes that model homes and the selection
of interior designs play a particularly important role in the Company's
marketing efforts. Consequently, the Company expends a significant effort in
creating an attractive atmosphere at its model homes. Interior decorations vary
among the Company's models and are carefully selected based upon the lifestyles
of targeted buyers.

The Company has renewed effort seeking to convince the homebuying shopper
that its product has superior features and livability. The Company is now
offering new features such as dog care centers, bulk item storage rooms,
electrical outlets in the eaves for easy installation and operation of holiday
lighting, and a number of custom-added features in the master bathroom including
an undercounter refrigerator, coffee bar, thoughtfully designed make-up area and
a locked compartment in the medicine cabinet among a host of others.

Structural changes in design from the Company's standard plans are not
generally permitted, but homebuyers may select various optional amenities.
Additionally, the Company has designed a number of homes offering an options
program that gives homebuyers numerous opportunities to customize the interior
design. For example, these options may provide for the ability to tailor a room
according to a homebuyer's needs such as a third garage space, an extended
family room, or an additional den, bedroom or bonus room.

The Company maintains a design center in Southern California to provide
homebuyers with a greater visual presentation of the available amenities and
options, primarily in the area of flooring and window treatments. Most of the
Company's homebuyers that have upgraded their flooring and window treatments
have utilized the Company's design center. The company intends to expand the
amenities offered by the design center to serve the growing number of consumers
who desire the ability to customize and upgrade their home.

The Company sells its homes primarily through its internal sales force,
which typically work from the sales offices located at the model homes in each
of the Company's subdivisions. The Company occasionally uses independent and
cooperative brokers. Company personnel are available to assist prospective
buyers by providing them with floor plans, price information and tours of model
homes and by assisting them with the selection of options. The Company's
selection of interior features is a principal component of its marketing and
sales efforts. Sales personnel are trained by the Company and attend periodic
meetings to be updated on sales techniques, competitive products in the area,
the variety of financing programs available, construction schedules and
marketing and advertising plans, which management believes results in reduced
training costs and a more motivated sales force with extensive knowledge of the
Company's operating policies and housing products.

Through a customer referral program, persons referring homebuyers to the
Company may receive $250 or more from the Company at the closing of a home sale.

The Company has developed a savings program to assist homebuyers in saving
the money required to close the sale of their home. Under the savings program,
the Company determines the monthly contribution required to be put into escrow
so that the homebuyer has sufficient money in escrow to close the purchase of
the home when it is completed. The Company monitors the homebuyer's
contributions to escrow under the savings program.

8
<PAGE>

Customer Financing

The Company seeks to assist its homebuyers in obtaining financing by
arranging with independent mortgage lenders to offer qualified buyers a variety
of financing options and to process their loans. When necessary, the Company
provides prospective homebuyers free credit counseling and pre-qualification to
determine the price of the home they are able to afford.

Substantially all homebuyers utilize long-term mortgage financing to
purchase a home and lenders generally make loans only to borrowers who earn
three to four times the total amount of the mortgage payment plus insurance and
property taxes. Therefore, adverse economic conditions such as increases in
unemployment and high mortgage interest rates can eliminate a substantial number
of potential homebuyers from the market. When necessary, the Company will pay a
fee to subsidize interest rates to assist homebuyers with financing. Under such
programs, lower interest rates on mortgages are provided to the Company's
homebuyers than would otherwise prevail under then-current market conditions.
However, because of improving economic conditions in the inland empire and
surrounding counties, the Company believes its potential home buyers may be less
in need of closing cost assistance and interest rate buydowns than they were in
the recent past. Although mortgage financing for qualified homebuyers was
readily available during 1998, there can be no assurance that mortgage financing
will remain readily available to the Company's customers as a result of changing
general economic conditions and any restrictions of the ability of mortgage
finance markets to provide financing for the purchase of homes by homebuyers.
The Company attempts to minimize its exposure to interest rate fluctuations by
purchasing mortgage financing commitments that lock in the availability of funds
and interest rates at specified levels for a certain period of time and by
entering into hedging contracts, as it deems necessary. See "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Most of the Company's current projects meet applicable Federal Housing
Administration ("FHA") or Veteran's Administration ("VA") requirements. In 1998
and 1997, FHA or VA financing was provided to a substantial number of purchasers
of the Company's homes. FHA and VA financing generally enables homebuyers to
purchase homes with lower down payments than the down payments required by
conventional mortgage lenders. The principal reason why certain of the Company's
projects may not meet applicable FHA or VA requirements is that the base price
of homes in those projects exceeds established FHA or VA maximum home prices.
The Company believes that the availability of FHA and VA financing broadens the
group of potential purchasers for the Company's homes. The VA financing limit is
$203,000. The FHA financing limit is $179,050 in San Bernardino and Riverside
Counties, and $208,800 in Los Angeles County. The FHA generally permits loans
for up to 97% of the value of the home.

In general, housing demand is adversely affected by increases in interest
rates. If mortgage interest rates increase significantly, affecting prospective
buyers' ability to adequately finance home purchases, the Company's business,
financial condition and results of operations could be materially effected.
The Company's homebuilding activities are dependent upon the availability and
cost of mortgage financing for (i) potential customers who purchase a home from
the Company, and (ii) buyers of homes owned by potential customers so they can
sell their existing homes and purchase new homes from the Company, to the extent
they are not first time buyers. In addition, the Company believes that the
availability of FHA or VA mortgage financing is an important factor in marketing
its homes. Any limitations or restrictions on the availability of such financing
could have a material adverse effect on the Company's business, financial
condition and results of operations.

Customer Service and Relations

The Company strongly believes that a high level of customer service is a
key component of its homebuilder strategy. Salespeople are encouraged to
develop a personal relationship with the homebuyers and offer support and
guidance throughout the home buying process. The Company periodically arranges
dinners for groups of homebuyers during which information is provided about the
home buying process. Homebuyers are oriented to local shopping, hospitals,
industry, schools and recreation and are familiarized with the homebuyers
obligations in the loan and escrow procedures and the final home inspection
process.

9
<PAGE>

The Company provides each homebuyer with a Homebuyer's Information Booklet
describing area amenities and services, such as schools, health services and
emergency services. The Booklet also contains voter registration cards, change
of address forms for the Department of Motor Vehicle and United States Postal
Service and a variety of other helpful moving tips. A Warranty and Information
Guide identifies the subcontractors and vendors, appliances, fixtures and
heating/cooling and other systems installed in the house, and provides
information on warranties, maintenance and manufacturer information. The
Company's utilization of these sales and closing programs are designed to reduce
the prospective homebuyer's anxiety over relocating and to help the homebuyer
settle into the new neighborhood.

Approximately sixty days after closing, every homebuyer is asked to
complete a questionnaire that evaluates all aspects of the buying experience,
including questions about the home itself, the salespeople, the escrow process,
mortgage financing assistance, the closing process and customer service. The
Company uses the responses to identify any problem areas, as well as to evaluate
and improve the floor plans and amenities offered in the Company's projects.

The Company believes that its commitment to customer service has earned the
Company substantial referrals and an excellent reputation among homebuyers.

Competition and Market Forces

The development and sale of residential properties is highly competitive.
Homebuilders, such as the Company, compete for desirable properties, financing,
raw materials and skilled labor. The Company competes for residential sales on
the basis of a number of interrelated factors, including location, reputation,
amenities, design, quality and price, with numerous large and small
homebuilders, including some homebuilders with nationwide operations and greater
financial resources than the Company. The Company also competes for residential
sales with individual resales of existing homes and condominiums and with
available rental housing. New entrants into the markets in which the Company
operates increases competition in those markets.

The housing industry is cyclical and affected by consumer confidence levels
and prevailing economic conditions in general and by job availability and
interest rate levels in particular. A variety of other factors affect the
housing industry and demand for new homes, including changes in costs associated
with home ownership such as increases in property taxes and energy costs,
changes in consumer preferences, demographic trends and the availability of and
changes in mortgage financing programs.

Government Regulation and Environmental Matters

The Company is subject to a variety of statutes and rules regulating
certain environmental matters, as well as building design and site design.

The Company generally purchases land with entitlements, giving it the right
to obtain building permits upon compliance with specified conditions which are
within the Company's control. Upon compliance with such conditions, the Company
must seek building permits for each house. In developing a project, the Company
must obtain the approval of numerous governmental authorities regulating such
matters as permitted land uses and levels of density and the installation of
utility services such as electricity, water and waste disposal. The length of
time necessary to obtain permits and approvals increases the carrying costs of
unimproved property acquired for the purpose of development and construction.
Several governmental authorities in California have imposed fees as a means of
defraying the cost of providing certain governmental services to developing
areas. To date, the governmental approval processes discussed above have not
had a material adverse effect on the Company's development activities. In
addition, because the Company generally purchases land that has already been
zoned for residential development, restrictive zoning issues also have not had a
material adverse effect on the Company's development activities. However, there
is no assurance that these and other restrictions will not adversely affect the
Company in the future.

10
<PAGE>

The Company may also be subject to additional costs or periodic delays or
may be precluded entirely from developing communities due to building
moratoriums or "slow-growth" or "no-growth" initiatives, building permit
allocation ordinances or similar governmental regulations that could be
implemented in the future in the areas in which it operates. Because the
Company usually purchases land with entitlements, the moratoriums generally
would only adversely affect the Company if they arose from unforeseen health,
safety and welfare issues. Local and state governments also have broad
discretion regarding the imposition of development fees for projects in their
jurisdiction.

The Company is also subject to a variety of local, state and federal
statutes, ordinances, rules and regulations concerning protection of the
environment. The particular environmental laws that apply to any given
community vary greatly according to the community site, the site's environmental
conditions and the present and former uses of the site. These laws may result in
delays, cause the Company to incur substantial compliance costs, and prohibit or
severely restrict development in certain environmentally sensitive regions or
areas. Homebuilding projects in California are especially susceptible to
restrictive government regulations and environmental laws. Environmental
regulations can also have an adverse impact on the availability and price of
certain raw materials such as lumber.

Bonds and Other Obligations

The Company is frequently required, in connection with the development of
its projects, to post performance, maintenance and other bonds. The amount of
these bonds outstanding at any time varies in accordance with the Company's
pending development activities. In the event any such obligations are drawn
upon because of the Company's failure to build required infrastructure, the
Company would be obligated to reimburse the issuing surety company or bank. The
Company has never defaulted on any such bond. At December 31, 1998, there were
approximately $11,752,000 in outstanding bonds for such purposes.

Employees

At December 31, 1998, the Company employed 57 persons. None of the
Company's employees are covered by collective bargaining agreements. The
Company believes that its relations with its employees are good. Certain of the
subcontractors that the Company engages are represented by labor unions or are
subject to collective bargaining arrangements.

The Company's success is highly dependent upon the performance of its
senior management and, in particular, Ira C. Norris, President of the Company.
The loss of key personnel or an inability to attract, retain and motivate key
personnel could have a material adverse effect on the Company's business. Mr.
Norris intends to continue to devote his full time to the affairs of the
Company.

At April 30, 1999, the Board of Directors and officers of our company
beneficially owned 29.8% of our outstanding common stock. The ownership
positions of the members of management, together with the anti-takeover effect
of certain provisions contained in the Company's Restated Certificate of
Incorporation and Restated Bylaws, may have the effect of delaying, deferring or
preventing a change in control of the Company. These factors could have an
adverse effect on the market price of the Company's Common Stock.

Recent Developments

In April 1999, the company entered into an Agreement and Plan of Merger
("Merger Agreement') with American Communities, Inc., a Nevada corporation
("American"), a privately held Las Vegas builder of entry level and move up
single family homes. Under the Merger Agreement, the two principals of American
were to receive shares of newly issued common stock of the Company in exchange
for all of the outstanding common stock of American. In addition, the Merger
Agreement provided for representation on the Company's Board of Directors for
representatives of American and the provision of a line of credit or alternative
financing of at least $3 million by American which would be available to the
Company after the closing. In June 1999, the Merger Agreement with American was
terminated prior to any of the proposed transactions being consummated.

11
<PAGE>

ITEM 2. PROPERTIES.

The Company occupies approximately 6,800 square feet of office space in
Upland, California, which it uses as its corporate headquarters. This space is
leased at an annual rental of approximately $124,000 for a term expiring in
November 2002. The Company is also renting, on a month-to-month basis,
approximately 1,400 square feet of office space in Southern California for its
design center operations. The Company believes that in general its facilities
are sufficient to meet its needs for the next year.

ITEM 3. LEGAL PROCEEDINGS.

Except as disclosed below, the Company is involved only in routine
litigation arising in the ordinary course of business. Such matters, if decided
adversely to the Company, would not, in the opinion of management, have a
material adverse effect on the financial condition of the Company. In addition,
from time to time, the Company could be involved in litigation in connection
with claims of development or construction defects, which matters, if decided
adversely to the Company, could have a material adverse effect on the financial
condition of the Company.

In May 1994, the owners of 11 homes sold by the Company at its 200-home
Northfork project located in Murrieta, California filed a complaint against Inco
Development Corporation, a wholly-owned subsidiary of the Company ("Inco
Development"), in the Superior Court of California in Riverside County. Through
October 1996, various owners of additional homes in this project filed separate
complaints. All complaints were subsequently consolidated into one complaint
involving 40 homeowners. The alleged damages related primarily to the
performance of the concrete slabs of the homes. The matter was resolved in
mediation, which concluded on March 2, 1998, in the agreed upon amount of
$2,100,000. Payments of the settlement amount will be shared by three of the
Company's primary insurance carriers, and by various subcontractors against whom
the Company had filed cross-complaints. Settlement documents were signed in
April and May 1998, which included all necessary releases and dismissals of all
complaints.

As a result of the limited amount of available working capital,
relationships with certain of its subcontractors have weakened due to the
Company's inability to pay all of its subcontractors and their suppliers on a
current basis. Numerous subcontractors and suppliers have filed liens, and some
are pursuing further legal action, including the initiation of lawsuits. As of
December 31, 1998, nine of these claims, totaling approximately $565,000, have
been perfected as judgements against the Company. The Company has negotiated
payment arrangements, as appropriate, in an effort to settle these claims and
release the liens. However, if the Company continues to have disputes with its
subcontractors and suppliers, in the future it may be difficult for the Company
to attract and retain qualified subcontractors and suppliers who are willing to
work with the Company and the Company's business could be adversely affected.

Pending Litigation

In September 1998, the owners of 30 homes sold by the Company at its 261-
home Spirit project located in Murrieta, California, which was completed in
1995, filed a complaint against Inco Homes Corporation in the Superior Court of
California in Riverside County. In January 1999, the owners of 13 additional
homes filed a separate complaint. These two complaints were consolidated into
one action. The complaint alleges, among other things, defects in design and
material, negligence, strict liability and breach of implied warranty. The
plaintiffs are seeking compensatory and special damages in an unspecified
amount, attorney fees and interest at the legal rate.

In November 1998, the owners of 8 homes sold by the Company at its 200-home
Northfork project located in Murrieta, California, which was completed in 1992,
filed a complaint in the Superior Court of California in Riverside County. The
complaint alleges, among other things, defective material and workmanship,
negligence, nuisance, strict liability, breach of express and implied warranty.
The plaintiffs are seeking general, special and punitive damages in an
unspecified amount, and attorney fees.

12
<PAGE>

In November 1998, the owners of 10 homes sold by the Company at its 185-
home Southlake at Sunnymead Ranch project located in Moreno Valley, California,
which was completed in 1989, filed a complaint against SMR Housing Development,
a wholly-owned subsidiary of the Company, in the Superior Court of California in
Riverside County. The complaint alleges, among other things, construction
failures and deficiencies, negligence, strict liability and breach of express
and implied warranty. The plaintiffs are seeking compensatory and special
damages in an unspecified amount, attorney fees and interest at the legal rate.

In November 1998, the Company was notified of threatened litigation from
the owners of 3 homes sold by the Company at its 22-home Victory project located
in Las Vegas, Nevada, which was completed in 1995. The correspondence alleges
construction failures and deficiencies and requests compromise and settlement
discussions be initiated.

The Company believes that the claims made against it are without merit and
has tendered all of these claims to its product liability insurers who have
accepted defense subject to reservation of rights.. The Company believes that
these claims will not have a material adverse effect on the Company's business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

On November 10, 1998 a "Notice of Special Meeting of Stockholders To Be
Held on December 11, 1998" was sent to stockholders of record as of October 27,
1998. At the special meeting, the following matters were voted upon:

(1) A proposal to approve the issuance of a three-year warrant (the "Warrant")
to purchase up to an aggregate of 200,000 shares of Common Stock of the Company
to the Norris Living Trust (the "Norris Trust"), a principal stockholder of the
Company and a trust created by and for the benefit of the Company's Chairman of
the Board, President and Chief Executive officer and his family:

Affirmative Votes: 1,221,565 Abstentions: 7,631
Negative Votes: 11,938 Not Voted: 854,666

(2) A proposal to approve the issuance of 32,970 shares of the Company's Common
Stock to certain of the Company's current and former directors as payment in
full for an aggregate of $90,000 in unpaid director fees owed by the Company to
such individuals:

Affirmative Votes: 1,516,285 Abstentions: 7,730
Negative Votes: 24,120 Not Voted: 547,665

(3) A proposal to approve future issuances of shares of the Company's Common
Stock to the non-employee directors of the Company in lieu of paying each of
them $2,500 per quarter in director fees for the fourth quarter of 1998 and for
each of the fiscal quarters of 1999:

Affirmative Votes: 1,516,553 Abstentions: 7,797
Negative Votes: 23,785 Not Voted: 547,665

(4) A proposal to approve an amendment to the Company's Certificate of
Incorporation reducing the total number of authorized shares of Common Stock
from 20,000,000 to 5,000,000:

Affirmative Votes: 1,535,413 Abstentions: 6,284
Negative Votes: 6,438 Not Voted: 547,665

13
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Price Range of Common Stock

The Company's Common Stock was quoted on the Nasdaq SmallCap Market tier of
the Nasdaq Stock Market under the symbol INHM until April 21, 1999, at which
time the Company's Nasdaq trading symbol was changed to "INHME" to reflect the
Company's delinquency in filing this Form 10-KSB. Effective as of June 4, 1999,
the Company was delisted from its Small-Cap equity listing due to the delinquent
filing of this Form 10-KSB. See "Pending Proceedings Regarding Nasdaq SmallCap
Listing." The following table shows the high and low closing prices for the
Common Stock of the Company for the periods indicated, as reported by the Nasdaq
SmallCap Market. These prices do not include retail markups, markdowns or
commissions.

<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Quarter ended March 31, 1997....................... $ 5.25 $ 1.75
Quarter ended June 30, 1997........................ 5.125 2.625
Quarter ended September 30, 1997................... 4.00 1.00
Quarter ended December 31, 1997.................... 4.00 1.25
Quarter ended March 31, 1998....................... 3.25 2.00
Quarter ended June 30, 1998........................ 5.50 2.75
Quarter ended September 30, 1998................... 4.50 2.00
Quarter ended December 31, 1998.................... 3.00 2.0625
</TABLE>

As of May 5, 1999, there were approximately 155 holders of record of the
Company's Common Stock, whose record ownership, management believes, was for
approximately 701 beneficial holders.

Pending Proceedings Regarding Nasdaq SmallCap Listing

The Company's Common Stock has historically traded on the Nasdaq SmallCap
Market. By letter dated April 20, 1999, the Company received notice from Nasdaq
stating Nasdaq's intention to delist the Company's Common Stock from the Nasdaq
SmallCap Market effective April 27, 1999 because of the Company's failure to
file this Form 10-KSB on a timely basis. Effective as of April 21, 1999, the
Company's Nasdaq trading symbol was changed to "INHME" to reflect the Company's
delinquency in filing this form 10-KSB. Before April 27, 1999, the Company
requested a hearing before a Nasdaq panel to demonstrate its ability to regain
compliance with the filing requirement, as well as its ability to sustain long
term compliance with all applicable maintenance criteria. This hearing was held
on June 3, 1999 and the Company provided Nasdaq with a submission showing that
this Form 10-KSB would be filed shortly, as well as stating how the Company
intended to meet the Nasdaq standards for maintenance of the listing of the
Company's Common Stock on the Nasdaq SmallCap Market. For continued listing on
the Nasdaq SmallCap Market, a company, among other criteria, must have at least
$2,000,000 of total net assets (or $35,000,000 of market capitalization or
$500,000 in net income in two of the last three years), 500,000 share in the
public float, a market value of its public float of $1,000,000 and a minimum bid
price of $1.00 per share.

The Nasdaq Listing Qualifications Panel (the "Panel") determined that the
Company had failed to provide a definitive plan which would enable it to
evidence compliance with all requirements for continued listing on the SmallCap
Market and that, since this Form 10-KSB and the Form 10-Q for the quarter ended
March 31, 1999 had not been filed, the Panel was unable to evaluate the true
extent of the Company's compliance with Nasdaq's continued listing standards
without accurate, complete and publicly filed audited financial statements. As
a result, the Panel delisted the Company's securities from the Nasdaq SmallCap
Market effective on June 4, 1999. The Company has requested an appeal of this
ruling. However, no assurances can be given that the Company will be successful
in its

14
<PAGE>

appeal of Nasdaq's determination of the Company's noncompliance with the
SmallCap Market listing requirements or that the Common Stock will be quoted on
the Nasdaq SmallCap Market in the near future, if ever. At this time trading,
if any, in the Company's Common Stock is conducted only in the over-the-counter
market in the so-called "pink sheets" published by the National Qualification
Bureau, or the OTC Bulletin Board of the National Association of Securities
Dealers, Inc. A consequence of the delisting by Nasdaq is that a stockholder is
likely to find it more difficult to sell, or to obtain quotations as to the
price of, the Company's Common Stock

Dividends

The Company has not declared or paid any cash dividends on its Common Stock
since its initial public offering in 1993. The Company anticipates that any
earnings in the foreseeable future will be retained to help finance the
Company's business and does not anticipate paying cash dividends on its Common
Stock in the foreseeable future. The payment of any future dividends will be at
the discretion of the Company's Board of Directors and will depend upon, among
other things, future earnings, the success of the Company's business activities,
capital requirements, the general financial condition of the Company and general
business conditions.

Recent Sales of Unregistered Securities

In December 1998, the Company sold an aggregate of 8,252 shares of Company
Common Stock to one of its consultants in satisfaction of indebtedness to them
in the amount of $25,000.

The above-described sale of securities was not effected through any broker-
dealer, and no underwriting discounts or commissions were paid in connection
with such sale. Exemption from registration requirements is claimed under the
Securities Act of 1933 (the "Securities Act") in reliance on Section 4(2) of the
Securities Act and Regulation D promulgated thereunder. No brokers' commissions
or fees were paid in connection with the foregoing transaction. The recipient of
securities in such transaction represented that the company was an accredited
investor under Regulation D of the Act and their intention to acquire the
securities for investment only and not with a view to, or for sale in connection
with, any distribution thereof and appropriate legends were affixed to the
certificates evidencing the securities in such transactions. The recipient had
adequate access to information about the Company. No consideration or other
remuneration was paid or given, and no solicitation was made, in connection with
the conversion of the indebtedness involved in the sale.

[Remainder of page intentionally left blank]

15
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

The Company's results of operations for the periods presented reflect the
cyclical nature of the homebuilding industry and the Company's historical focus
on the Southern California housing market. The Company believes that the
depressed economic and real estate conditions in Southern California over the
last several years had adversely affected its results of operations, most
particularly in the high desert region of San Bernardino County. The Company
now believes that the economy in the inland empire has improved significantly.
The Company has experienced improved sales in recent months, sales prices have
been increased and incentives offered to prospective purchasers have decreased.
Management hopes that the improved conditions will continue but there can be no
assurance that they will.

Results of Operations - 1998 vs. 1997

The following discussion of financial condition and results of operations
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto, appearing elsewhere in this report. Information concerning the
operations of the project built for a fee are limited to unit closings,
revenues, average sales price, backlog and net sales orders. Project costs and
profitability of the fee project are the sole responsibility of the non-
affiliated owner of the project and are not discussed further.

The following table sets forth, for the periods indicated, selected
information regarding home sales made for the years ended December 31, 1998 and
1997:

<TABLE>
<CAPTION>
For Year Ended December 31,
---------------------------
1998 1997
---- ----
<S> <C> <C>
Number of Home Sales Closed:
High Desert of San Bernardino and Los Angeles Counties 82 100
Inland San Bernardino and Riverside Counties 98 57
------------ ------------
Subtotal, Owned Projects 180 157

Project Built for a Fee (See Liquidity and Capital Resources) 30 --
------------ ------------
Total Combined Closings 210 157
============ ============

Revenue from Home Sales:
Owned Projects $26,320,000 $20,788,000
Fee Income from Home Sales 579,000 --
------------ ------------
Total Combined Revenue $26,899,000 $20,788,000

Average Sales Price of Owned Projects: $ 146,200 $ 132,400

Gross Sales Generated from Fee Projects $ 3,345,000 --

Average Sales Price of Fee Projects $ 111,500 --
</TABLE>

16
<PAGE>

The following table sets forth, for the periods indicated, consolidated
statements of operations data of the Company as a percentage of revenue from
home sales of Company owned projects:

<TABLE>
<CAPTION>
For Year Ended December 31,
---------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues from home sales 100.0% 100.0%
Cost of homes sold (97.0%) (95.5%)
Income from fee projects 2.2 --
Profit/(Loss) from sale of land and lots 2.3% (0.8%)
------------ ------------
Gross profit 7.5% 3.7%

Provision for write-down of real estate (4.3%) (44.6%)
Selling expenses (5.8%) (7.5%)
Marketing expenses (6.6%) (8.9%)
General and administrative expenses (8.7%) (7.6%)
------------ ------------
Operating loss (17.9%) (64.9%)
============ ============
</TABLE>

Revenue from Home Sales, including the Fee Project

Revenue from home sales in 1998 was $26,320,000, an increase of $5,532,000
from $20,788,000 during 1997. The total number of home sales closed in 1998 was
180 at an average sales price of $146,200, compared to 157 home sales closed at
an average sales price of $132,400 in 1997, an increase of 14.6% in number of
home sales closed and a 10.4% increase in average sales prices. Management
attributes the increase in revenue during the year ended December 31, 1998 to
the increase in the number of home sales closed and attributes the increased
average sales price to a change in the mix of homes offered for sale and sold.
The home sales from fee project jobs during 1998 was $3,345,000. The total
number of sales closed was 30 at an average sales price of $111,500. The
Company earned $579,000 in fees from these projects.

Revenue from Land and Lot Sales

The Company has expanded its focus on generating cash flow by selling land
as an ongoing and important part of its operations. Such sales are made to take
advantage of market opportunities that might exist from time to time or to
generate needed cash. Accordingly, these sales vary from year to year.

In November 1998, the Company sold approximately 21 acres of undeveloped
land it owned in Murrieta, California to an unrelated party for $2,342,000, of
which $2,042,000 was paid in cash with the balance of $300,000 withheld in an
interest bearing account for the benefit of the Company. This sum will be
released to the Company on or before November 1999 after deduction for certain
remedial costs which are estimated to be immaterial.

In April 1997, the Company sold approximately 22 acres of undeveloped land
it owned in its Eagle Ranch project in the high desert of San Bernardino County.
The buyer was a local school district, which paid cash of $490,000 for the land.

In June 1997, the Company sold to Overland Opportunity Fund, LLC
("Overland") approximately 13 acres of undeveloped land in Murrieta, California
for a price of $110,000, which was paid in cash. Overland owned approximately
10.6% of the Company's outstanding Common Stock at March 25, 1998. This
transaction was a result of arms-length negotiations between the parties, and
the Company believes the sales price represented the fair market value of the
property.

17
<PAGE>

In July 1997 the Company sold to an unrelated party seven improved lots
within its Spirit Corona project in Riverside County for a price of $333,200,
which was paid in cash. Also in July 1997, this same buyer purchased 35
improved lots located within the Company's Spirit Corona project owned by Spirit
77, a non-consolidated partnership, for a price of $1.67 million, which was paid
in cash. The Company received approximately $200,000 from Spirit 77 as a result
of this sale and the subsequent dissolution of the partnership. See "Liquidity
and Capital Resources."

Cost of Homes Sold

Cost of homes sold includes land acquisition, development, construction,
direct and indirect costs, job-site supervision, customer service, warranty
costs, capitalized interest, property taxes and other capitalized indirect
costs.

Cost of homes sold during the year ended December 31, 1998 was $25,526,000,
an increase of $5,674,000, or 28.6%, from $19,852,000 during the year ended
December 31, 1997. Cost of homes sold as a percentage of revenue from home
sales increased to 97.0% in the year ended December 31, 1998 from 95.5% in the
same period in 1997. The increase in cost of homes sold as a percentage of
revenue for the year ended December 31, 1998 is primarily the result of the
write-off of previously capitalized costs due to the Company's reduction of
scope of one community in the high desert of San Bernardino County and one
community in Riverside County. This increase is partially offset by the large
amount of closings occurring in one of the Company's newer, lower cost
subdivisions as well as in an existing lower cost subdivision.

The Company believes that, since the prices of lumber, other building
materials and related services are subject to fluctuation, its gross margins in
future periods may be significantly affected by changes in prevailing prices.

For a description of certain risks associated with the homebuilding
industry, see "Item 1. Business--The Homebuilding Industry."

Provision for Write-Down of Real Estate Assets

Effective January 1, 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 121 ("SFAS No. 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which requires that impairment losses be recorded on long-lived assets that are
being developed based on their fair value, when (i) indicators of impairment are
present and (ii) the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Assets that are held for sale
are to be carried at the lower of cost or fair value, less the estimated selling
costs.

The estimation process in determining the value of real estate inventories
is inherently uncertain and relies to a considerable extent on current and
future economic and market conditions, the availability of suitable financing to
fund holding, development and construction activities, and the repayment or
refinancing of existing indebtedness. Such economic and market conditions may
affect management's development and marketing plans. Accordingly, the ultimate
realization of the Company's real estate inventories is dependent upon future
events and conditions that may cause realizations to differ from amounts
presently estimated.

At December 31, 1998, in accordance with the provisions of SFAS No. 121 an
impairment allowance was established for two projects as follows:

<TABLE>
<S> <C>
Sale to a third party of the remaining finished lots of the Company's Desert Pride
project in Riverside County (as described herein) $ 974,000

Remaining lots of the Company's Wildwood project in San Bernardino County (as
described herein) 169,000
---------------
$1,143,000
---------------
</TABLE>

18
<PAGE>

During the year ended December 31, 1997, the Company reevaluated its plans
for holding and developing several of its properties. As a result of this
reevaluation, the Company reduced the number of lots it planned to develop in
certain projects, and identified other properties it plans to sell in their
current stage of development or deed back to lenders in satisfaction of the
loans securing the properties. Additionally, the Company determined the
undiscounted cash flows estimated to be generated by various real estate
holdings were less than the assets' carrying amounts. In accordance with the
provisions of SFAS No. 121, an impairment allowance, which writes these assets
down to fair value, was established totaling $9,270,000, consisting of the
following:

<TABLE>
<S> <C>
Sale of the Company's Eagle Ranch project in the high desert of San
Bernardino County and related repurchase option (as described herein) $5,925,000

Listing for sale of land formerly held for future development at the
Company's Vista Verde project in the high desert of San Bernardino
County 2,288,000

Decision not to proceed with the Company's Winners Circle
project in the high desert of San Bernardino County (as described herein) 806,000

Sale to a third party of the remaining finished lots of the
Company's Spirit Corona project in Riverside County (as described herein) 251,000
---------------
$9,270,000
===============
</TABLE>

Selling and Marketing Expenses

Selling expenses include loan discount points, internal and third party
sales commissions, escrow fees, title insurance fees and other closing costs.

Selling expenses were $1,539,000 and $1,552,000 for the years ended
December 31, 1998 and 1997, respectively, representing a 0.8% decrease. This
decrease resulted primarily from improved market conditions which allowed the
Company to reduce selling budgets. Selling expenses as a percentage of revenue
from home sales were 5.8% and 7.5% for the years ended December 31, 1998 and
1997, respectively.

Marketing expenses include advertising and promotion and costs associated
with maintaining model homes and sales offices. Marketing expenses in any given
period may be significantly influenced by the number of grand openings and the
number of projects that are being actively marketed during the period.
Marketing costs associated with items such as establishing the sales offices and
upgrading standard homes to model homes are capitalized when incurred and are
expensed as revenue is earned, while other marketing costs are expensed as
incurred.

Marketing expenses were $1,724,000 and $1,859,000 for the years ended
December 31, 1998 and 1997, respectively, representing a 7.3% decrease. As a
percentage of revenue from home sales, marketing expenses were 6.6% and 8.9% for
the years ended December 31, 1998 and 1997, respectively. The decrease in
marketing costs for the year ended December 31, 1998 is primarily the result of
improved market conditions which allowed the Company to reduce market budgets.

During 1998, the Company had grand openings for two new projects and was
delivering homes from ten active projects compared with two grand openings and
eight active projects in 1997.

General and Administrative Expenses

General and administrative expenses include payroll and related benefits,
insurance, financial reporting costs, and general office expense.

19
<PAGE>

General and administrative expenses were $2,273,000 and $1,578,000 for the
years ended December 31, 1998 and 1997, respectively, an increase of $695,000 or
44.0%. As a percentage of revenue from home sales, general and administrative
expenses were 8.7% and 7.6% for the years ended December 31, 1998 and 1997,
respectively. The increase in general and administrative expenses is primarily
the result of the significant increase in sales volume and project activity in
1998.

Minority Partners' Share

Minority partners' share represents the interests of the limited partners
of FERHP and Triumph. These partnerships are consolidated in the Company's
financial statements. See "Item 1. Business--Table II - Current and Planned
Projects, Notes (5) and (7)."

The minority partners' share of losses was $66,000 and $331,000 for the
years ended December 31, 1998, and 1997, respectively.

Provision for Income Taxes

At December 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of $32,341,000 that are available to offset future
federal taxable income. Generally accepted accounting principles require that a
deferred tax asset be recognized for net operating loss carryforwards and
deductible temporary differences, and for management to reduce the deferred tax
asset by a valuation allowance to the extent that management believes that it is
more likely than not that some portion or all of the deferred tax asset will not
be realized. As of December 31, 1997, the Company had recorded a gross deferred
tax asset of $11,198,000 and a valuation allowance of $8,998,000. Management
believed that future taxable income would be sufficient to realize the tax
benefit reflected by the net deferred tax asset of $2.2 million. The Company
continued to incur operating losses in 1998 in spite of improving residential
real estate market conditions, leading management to conclude that it is more
likely than not that the net deferred tax asset of $2.2 million will not be
realized. Accordingly, management increased the valuation allowance to reduce
the net deferred tax asset to zero and has reflected this increase in the
valuation allowance, totaling $2.2 million, as the provision for income taxes
for the year ended December 31, 1998.

Backlog

The Company's homes are offered for sale in advance of their construction.
Historically, the Company has entered into standard sales contracts for a
portion of the homes to be built in the phase of a project before construction
commences. Such sales contracts are usually subject to contingencies such as
the buyer's ability to qualify for financing and/or the sale of an existing home
and thus may not be completed. Homes covered by such sales contracts are
considered by the Company as its backlog. The Company does not recognize
revenue on homes covered by such contracts until the escrows are closed and
title is transferred to the buyer. The following table sets forth the Company's
backlog at the dates indicated:

[Remainder of page intentionally left blank]

20
<PAGE>

<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
Backlog Gross Revenue
------------------------------ ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
High Desert of San Bernardino
and Los Angeles Counties 25 22 $ 2,947,000 $3,110,000

Inland San Bernardino and
Riverside Counties 52 21 7,549,000 2,968,000

Projects Built for a Fee (See
Liquidity and Capital Resources) 22 -- 2,481,000 --
------------- ------------- ------------- -------------
Total Number of Homes 99 43
============= =============

Aggregate Sales Value $12,977,000 $6,078,000
============= =============

Average Sales Price $ 131,000 $ 141,300
============= =============
</TABLE>

The Company's backlog at any particular date is subject to substantial
variation and is dependent upon several factors including the number of homes
then available for sale, prevailing market conditions and the length of time
necessary to complete the closing of home sales subject to pending contracts.
The Company's backlog increased 130%, to 99 homes at December 31, 1998 from 43
homes at December 31, 1997 and management believes this was due to the
strengthening market for single family homes in Southern California's inland
regions and the growing number of new home communities from which the Company is
selling. The aggregate sales value of the units in backlog increased by
$6,899,000 or 114%, primarily due to the increase in number of homes under sales
contracts. The average sales price of homes in backlog decreased by $9,700 or
6.9% due to a change in the mix of homes offered for sale. Included in the
"Aggregate Sales Value" of the backlog is the value of the homes which are being
built for a fee and only the fee will represent revenue that will eventually be
recognized in the Company operating statement. No assurances can be given that
homes in backlog will result in actual closings because cancellations vary from
period to period.

Net Orders

Net orders, including the fee projects, represents the number of homes for
which the Company has received signed sales contracts and purchase deposits
during the period, net of cancellations.

During 1998, the Company had received 266 net orders, of which 85 were in
the high desert of San Bernardino and Los Angeles Counties and 181 were in
inland San Bernardino and Riverside Counties. This compares to 118 net orders in
1997, of which 70 were in the high desert of San Bernardino and Los Angeles
Counties and 48 were in inland San Bernardino and Riverside Counties, an overall
increase of 125%.

The increase in net orders received for the year ended December 31, 1998 is
attributable to intensive new marketing programs, innovative product offered by
the company including Smart Architecture and Meter Miser features, our ability
to access $0 down financing for our customers and improved market conditions in
certain of the geographic areas of Southern California in which the Company
conducts operations.

Variability in Quarterly Results

The Company has experienced, and expects to continue to experience,
significant variability in its operating results. This variability may cause
the Company's overall results of operations to fluctuate significantly on a
period-to-period basis, and revenues anticipated to occur in a fiscal period may
not be earned until subsequent fiscal periods. Many factors contribute to this
variability, including: (i) the timing and mix of home deliveries; (ii) the
Company's ability to continue to acquire additional land on favorable terms for
future developments; (iii) the condition of the real estate markets and the
economy in general; (iv) the cyclical nature of the home building industry and
changes in

21
<PAGE>

prevailing interest rates; (v) cost and availability of materials and labor; and
(vi) delays in construction schedules caused by timing of inspections and
approvals by regulatory agencies, strikes at subcontractors and adverse weather
conditions. The Company's historical financial results are not necessarily a
meaningful indicator of future results and, in general, the Company expects its
financial results to vary from project to project. The Company's revenue and net
income may also vary substantially as a result of variations in the number of
projects at which the Company is closing the sale of homes at any one time.

Inflation

The Company, as well as the homebuilding industry in general, may be
adversely affected during periods of high inflation, primarily because of higher
land acquisition, land development, construction and interest costs. In
addition, higher interest rates may significantly affect the affordability of
permanent mortgage financing to prospective purchasers and the cost of financing
the Company's land acquisition, development of real estate and construction of
homes. The Company attempts to pass any increases in its costs due to inflation
to its buyers through increased selling prices of its homes. However, there is
no assurance that inflation will not have a material adverse impact on the
Company's future results of operations.

Adoption of Accounting Standards

Management believes there are no new accounting pronouncements that could
have a significant effect on the Company's financial statements for any period
presented.

Year 2000 Issue

The Year 2000 ("Y2K") issue is a general term used to describe the
complications that may arise from the use of existing computer hardware and
software designed by applicable manufacturers without consideration for the
upcoming change in the century. If not corrected, software programs with this
embedded problem may cause computer systems to fail or to miscalculate data.

With respect to the Y2K issue, the Company has undertaken a project to
replace and/or convert portions of its existing computer operating systems to
ensure they will function properly with respect to dates in the year 2000 and
thereafter. The Company has also formed a Y2K project team to direct the
company-wide efforts to ensure Y2K compliance. The Y2K project team is
responsible to assure proper planning, sufficient resources, contemporaneous
monitoring, proper certification and timely completion of the year 2000
projects. The Company's Y2K project encompass its information technology
systems as well as its non-information technology systems, such as systems
embedded in its office equipment and facilities.

State of Y2K Readiness

The scope of the Company's Y2K compliance effort has been defined to
include six distinct projects. Two of the six projects address areas of
greatest business risk and require the greatest technical effort and, therefore,
have been given the highest priority. These two high priority projects are the
conversion and upgrade of the Company's accounting information systems and the
upgrade of the Company's primary computer network and personal computers. Of
these two high priority projects, as of June 30, 1999, the accounting
information systems conversion has been implemented, the Company replaced all of
its older personal computers with current models and the upgrade of the
Company's primary computer network file server will be remediated by August 1,
1999.

The remaining four projects that comprise the balance of the Company's Y2K
compliance effort present a lower business risk and require less technical
effort to complete. These projects are identified as follows: upgrade of the
Company's telephone and voice mail systems; certification of Y2K readiness or
upgrade of the Company's fax machines, copiers, miscellaneous equipment and
office facilities; and verification that material third-party suppliers to the
Company are Y2K compliant. These three projects are in various stages of
assessment and/or remediation. The

22
<PAGE>

sixth project is comprised of the Company's contingency plan in the event
problems are encountered as the year 2000 begins. This project is in the
assessment stage and is expected to be completed by September 30, 1999.

As noted, two of the six projects that comprise the Company's Y2K
compliance effort involve verification that the third parties with which the
Company has a material relationship are Y2K compliant. The Company is currently
in various stages of assessment with respect to these third-party verification
projects. As part of these projects, the Company's relationships with
suppliers, subcontractors, financial institutions and other third parties are
being examined to determine the status of their Y2K issue efforts as related to
the Company's operations. As a general matter, the Company is vulnerable to its
suppliers' inability to remedy their own Y2K issues. Furthermore, the Company
relies on financial institutions, government agencies (particularly for FHA/VA
financing, zoning, building permits and related matters), utility companies,
telecommunication service companies and other service providers outside of its
control. There is no assurance that such third parties will not suffer a Y2K
business disruption and it is conceivable that such failures could, in turn,
have a material adverse effect on the Company's liquidity, financial condition
or results of operations.

Costs of Addressing Y2K Issues

The total cost of all of the Company's projects associated with its Y2K
plan is currently estimated to be approximately $50,000; however, some projects
mentioned above involve conversions and upgrades that were not solely
necessitated to meet Y2K concerns and would have been undertaken regardless of
Y2K exposure. It is not possible to determine the portion of that amount which
is specifically attributable to Y2K compliance efforts. The Company believes
that the total costs incurred to specifically address the Y2K issue will not
have a material impact on the Company's liquidity, financial condition or
results of operations, for any year in the reasonably foreseeable future. The
schedule for the successful completion of the Company's Y2K project and the
estimated costs are based upon certain assumptions by management regarding
future events, including the continued availability of qualified resources to
implement the project and the costs of such resources.

Risks Presented by Y2K Issues

The Company's failure to resolve a material Y2K issue could result in the
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations. Although the Company considers its exposure to the Y2K
issue risks from third-party suppliers as generally low, due to the uncertainty
of the Y2K readiness of third party suppliers, the Company is unable to
determine at this time the consequences of a Y2K failure. In addition, the
Company could be materially impacted by the widespread economic or financial
market disruption by Y2K computer system failures at government agencies on
which the Company is dependent for lending, zoning, building permits and related
matters. Possible risks of Y2K failure could include, among other things,
delays or errors with respect to payments, third-party delivery of materials and
government approvals. The Company's Y2K project is expected to significantly
reduce the Company's level of uncertainty and exposure to the Y2K issue and, in
particular, its vulnerability to the Y2K compliance of material third parties.
To date, the Company has not identified any operating systems, either of its own
or of a third-party supplier, that present a material risk of not being Y2K
ready or for which a suitable alternative cannot be implemented.

Contingency Plan

The Company's Y2K project calls for a Y2K-specific contingency plan to be
developed. This plan is in the assessment stage and is expected to be completed
by September 30, 1999.

Management currently anticipates that its operating systems will be Y2K
compliant well before January 1, 2000, and that its third party verification and
overall contingency plans should enable it to mitigate third-party disruptions
to its business which are of short duration or geographically localized. At the
present time, management believes that the Y2K issue will not have a material
adverse effect on the Company's liquidity, financial condition or results of
operations.

23
<PAGE>

Liquidity and Capital Resources

The homebuilding industry is capital intensive and often involves high
leverage and significant up-front expenditures to acquire land and begin
development. Accordingly, the Company incurs substantial indebtedness to finance
its homebuilding activities and its business and earnings are substantially
dependent on its ability to obtain bank or other debt financing on acceptable
terms The Company plans for substantial future expenditures relating to the
acquisition and construction of new projects, as well as the continued
construction of existing, ongoing projects.

As a result of the limited amount of the Company's available working
capital, relationships with certain of its subcontractors have weakened due to
the Company's inability to pay all of its subcontractors and their suppliers on
a current basis. Numerous subcontractors, suppliers and general creditors are
pursuing further legal action, including the initiation of lawsuits. As of
December 31, 1998, nine of these claims, totaling approximately $565,000, have
been perfected as judgments against the Company. The Company has or intends to
negotiate payment arrangements, as appropriate, in an effort to settle these
claims. However, if the Company continues to have disputes with its
subcontractors and suppliers, in the future it may be difficult for the Company
to attract and retain qualified subcontractors and suppliers who are willing to
work with the Company and the Company's business could be adversely affected.

In April 1999, the Company entered into the Merger Agreement with American.
From April through early June, the Company devoted significant time and
resources to this proposed transaction which, in addition to the merger with
American, included a requirement that American obtain a $3 million line of
credit or alternative financing which would be available to the Company after
the closing. The Company expected that this financing would be available to it
to address its short and long-term working capital needs. However, the proposed
transactions with American were terminated in June 1999 and the Company has been
forced to seek financing from alternative sources.

The Company has incurred net operating losses which have significantly
impacted its working capital levels and its ability to pay its obligations.
Management's current business plan reflects that, in addition to future profits,
sales of real estate inventories provide cash flow to the Company to help meet
operating requirements. During 1999, the Company will also need to extend the
maturity dates of certain notes payable and to raise capital for acquisitions of
additional land for future projects and working capital needs. Management's
plans and anticipated results are dependent on future events and economic market
conditions which are inherently uncertain. No assurances can be given that
anticipated cash flows from operations and the Company's ability to borrow from
various sources will be sufficient to fund all of its planned expenditures. In
its efforts to seek funding for working capital shortfalls and to reduce old
payables, as well as to finance the acquisition of additional land for the
delivery of future homes, the Company is discussing with various sources of
capital their investing additional funds in the Company. No material agreements
between the Company and these potential sources of capital have been signed, and
no assurances can be given whether or when the Company may enter into an
agreement with any source or, if entered into, what the precise terms of the
agreement will be.

If the Company is not successful in obtaining sufficient capital to fund
its planned expenditures, the Company's ability to continue its current level of
business operations will be impaired, and the Company will not be able to
conduct operations as presently anticipated. This would ""have a material
adverse effect on the Company's business, financial condition and results of
operations. Historically, the Company has financed its operations from a
combination of limited partner capital contributions, subordinated debt, cash
generated from operations, purchase money financing of land purchases,
borrowings from various banking institutions, borrowings from related parties,
deferring accounts payable and sales of its capital stock, as discussed in more
detail below. The Company is currently also exploring alternative methods of
financing. Management believes that existing cash and capital resources,
including cash flow from operations, will be insufficient to fund the Company's
cash requirements at the Company's presently anticipated level of operations
without additional funds from outside sources. No assurances can be given that
any funds will be available from such financial sources, or that they will be
available on terms favorable to the Company. If adequate funds are not
available from those other sources, there are substantial doubts about the
Company's ability to continue as a going concern and fund its ongoing
operations.

24
<PAGE>

In February 1999, the Company concluded a private offering (the "Offering")
of Subordinated Investment Notes ("Investment Notes') bearing interest at the
rate of 15% per annum. The Investment Notes have an 18 month maturity date and
no prepayment penalty. The face value of each Investment Note is $10,000. As of
December 31, 1998, total outstanding bond indebtedness related to this offering
was $290,000.

The Investment Notes have not been, and will not be, registered under the
Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements of
the Securities Act of 1933.

Thomas A. Hantges, a director and stockholder of the Company, owns
approximately 67% of both USA Commercial Mortgage Company ("USA") and USA
Commercial Real Estate Group ("USA Real Estate"). USA has provided loans and
arranged for individual lenders to provide loans to the Company secured by
Company projects in cumulative amounts totaling $13,650,000 and $12,120,000 for
the years ended December 31, 1998 and 1997, respectively. USA has earned
cumulative fees for these loans for the years ended December 31, 1998 and 1997
totaling $1,118,000 and $1,087,000, respectively, of which $909,000 and
$878,000, respectively, has been paid. The balance is secured by notes and is
to be paid from proceeds from sales of completed homes in certain of the
Company's projects. The interest rates on these loans range from 12.25% to
15.25% in 1998 and from 12.25% to 20.25% in 1997. The outstanding balance of
these loans at December 31, 1998 and 1997 was $5,397,700 and $6,922,000,
respectively.

In June 1997, USA Real Estate arranged for an additional group of investors
to purchase the Company's Eagle Ranch project in the high desert for $2,400,000.
Funds from this sale helped the Company repay portions of matured loans secured
by this project with a commercial bank. The investors granted the Company a
six-year option to periodically repurchase portions of the property, subject to
annual minimum repurchase thresholds, for the development of single-family
homes. If the Company failed to repurchase the minimum number of lots in any
year, the option would terminate. Because of an election by the Company not to
acquire any lots under this option agreement and the failure to pay the
prerequisite real estate taxes, the Company was notified that its rights to
acquire these lots had been terminated.

From September 1996 through November 30, 1997, the Company received
advances of $2,747,000 from Ira C. Norris, of which the Company had repaid
$460,000. The advances were unsecured, bore interest at 10% and were due on
March 31, 1998. The balance of these advances at December 23, 1997 was
$2,462,000, which included accrued interest of $171,000. On that date, Mr.
Norris agreed to convert $2,340,000 of this debt into 2,340 shares of Series A
Cumulative Preferred Stock of the Company. The Company issued these shares on
December 30, 1997 to the Norris Living Trust, of which Mr. Norris is a
beneficiary and trustee. The Series A Preferred Stock has a par value of $0.01,
has no voting rights, is non-participating, and has no conversion features. The
stock is redeemable at the option of the Company for cash at the redemption
price of $1,000 per share plus accumulated but unpaid dividends. The established
dividend rate on the Preferred Stock is $100 per share per annum payable
quarterly from available working capital. An unsecured note to the Norris
Living Trust, bearing interest at 10%, evidences the balance of indebtedness not
converted in the amount of approximately $122,000. The note was due in December
1998 and has been extended until December 23, 1999. The balance owing under
this note at December 31, 1998 was $134,035, which includes accrued interest of
approximately $12,035.

In addition to the loans described above, in June 1997, the Norris Living
Trust loaned the Company $500,000 secured by undeveloped land owned by the
Company in Victorville and Palmdale, California. This note bears interest at
10%, was due in June 1998 and has been extended until June 1999. The balance
owing under this note at December 31, 1998 was $575,815, which includes accrued
interest of approximately $75,815.

25
<PAGE>

period, with an interest rate of 10.0% per annum, which will accrue and be due
along with the principal on December 2, 1999. Subsequent to December 31, 1998,
the Norris Living Trust advanced an additional $200,000 to the Company to be
repaid within 12 months at an interest rate of 10.0% per annum. The Company has
pledged a security interest in its Mockingbird Canyon Estates project to the
Norris Living Trust as security for the repayment of the notes.

Additionally, on December 11, 1998, the stockholders of the Company
approved the issuance of a three year warrant to purchase 200,000 shares of
Common Stock, at the purchase price of $2.625 per share, to Ira C. Norris in
connection with the extension of a $1,000,000 non-revolving line of credit made
by Mr. Norris on July 15, 1998 through the living trust he created for the
benefit of himself and his family (the "Norris Living Trust") to the Company's
wholly owned subsidiary Huntington Homes LLC. The $1,000,000 non-revolving line
of credit bears interest at a variable interest rate, of which the initial
interest rate was 10.0% per annum. The note securing the line of credit is due
and payable in full by July 2, 1999. At December 31, 1998, the accrued interest
under the note was $2,275.

In June 1997, the Company signed a note and deed of trust in connection
with a loan of $500,000 from the Neeley Revocable Family Trust. Ronald L.
Neeley, a director of the Company, is a beneficiary and trustee of this trust.
The note bears interest at 15%, was due in June 1998 and has been extended until
June 1999, and is secured by the same undeveloped land owned by the Company in
Victorville and Palmdale, California which secures the Norris Living Trust loan
of $500,000 mentioned above. The balance owing under this note at December 31,
1998 was $614,000, which includes accrued interest of approximately $114,000.

All of the above transactions with Mr. Norris and the Company's other
directors were unanimously approved by the disinterested members of the
Company's board of directors.

In October 1997, the Company entered into a Development and Marketing
Agreement with a third party to develop, construct, and market 139 lots owned by
the third party in Moreno Valley, California. Under this agreement, i) all
financing and bonding is the responsibility of the third party; ii) the Company
is to receive compensation in the form of development fees and design center
profits totaling approximately 8.0% of the gross sales price of the homes; and
iii) the Company is to assume the home warranty costs for which it will be paid
$750 per house.

Subsequent to December 31, 1998, the Company entered into three Development
and Marketing Agreements with three entities affiliated with the Overland Group
and Mr. Fred Liao, to develop, construct, and market 79 lots owned by the one
entity in Palmdale, California and 56 and 29 lots owned by two other entities in
Rancho Cucamonga, California. Under these agreements, i) all financing and
bonding is the responsibility of each entity; ii) the Company will receive
compensation in the form of development fees and sales commissions totaling
approximately 4.0% of the gross sales price of the homes; iii) the Company will
receive all profits generated from buyer upgrades via the design center and iv)
all home warranty costs are to be borne by each entity. The Overland Group and
Mr. Liao are affiliates of Overland Opportunity Fund, LLC ("Overland"), which
owned 9.1% of the Company's outstanding Common Stock at April 30, 1999. The
Company often acquires land with an initial down payment, with the balance
financed by seller non-recourse notes. The notes typically include partial
reconveyance provisions, which allow the Company to obtain the necessary
development financing on a phased basis. The Company also occasionally uses
options to acquire property. At December 31, 1998, the Company had land seller
indebtedness outstanding of $1,325,000.

The Company typically obtains its infrastructure, development and
construction funding and various other land loans from commercial banks and
other financing sources. Lenders generally provide interim construction loans
for each phase of homes within the project for a term of up to 12 months, with
extension provisions. The development loans typically are repaid with proceeds
from these interim construction loans. The loan agreements include customary
representations and covenants. All outstanding indebtedness under these
facilities is secured by a lien on the project real property. At December 31,
1998, aggregate borrowings of $40,653,000 were outstanding under these
facilities and $19,809,000 was available for further qualified project finance
borrowing. Interest rates on these loans range from 7.65% to 15.25%, with the
weighted average being 11.53%.

26
<PAGE>

The Company has unsecured revolving lines of credit of $1,000,000 and
$250,000 with commercial banks that bear interest at the prime rate plus 1.0%
and prime rate plus 2.0%. The net outstanding balance under these lines of
credit at December 31, 1998 was $768,000. With regard to the $1,000,000 line of
credit, at the time a homebuyer enters into a sales contract with the Company,
meets certain loan pre-qualification requirements with a third party mortgage
lender, and opens an escrow, the bank advances funds to the Company under this
line at an amount equal to 70% of the net cash proceeds estimated by the Company
that it would receive at the close of the homebuyer's escrow. The Company repays
the lender weekly from net escrow closing proceeds. With regard to the $250,000
credit line, the Company submits a loan request for project costs incurred prior
to obtaining a construction loan. The line is repaid when the construction loan
records. The Company is reimbursed for the project costs previously paid.

In December 1997, the Company restructured a secured line of credit with an
outstanding principal balance of $2,891,000 from a commercial bank, which had
become due. Pursuant to a series of agreements, the bank's note was purchased
for $1,750,000 by a group of lenders ("new lender") provided by USA. The bank
forgave accrued interest of $92,000 and canceled its rights under a warrant to
purchase 41,667 shares of the Company's Common Stock that was issued to the bank
pursuant to an agreement made in June 1996 extending and modifying the line of
credit. The resulting obligation of the Company to the new lender is $2,350,000,
which includes the $1,750,000 paid to the bank, fees earned by USA, an interest
reserve and a payoff made by the new lender to an unrelated commercial bank of
another loan to the Company. The loan is secured by undeveloped land owed by the
Company in Victorville and Palmdale, California and by an assignment of the
Company's rights under the Eagle Ranch repurchase option agreement previously
described. Since the land in Palmdale was owned by Palmdale Vistas Housing
Developments, Ltd. ("Palmdale Vistas"), in which the Company was the managing
general partner and had a 51.3% interest, the new lender required the
dissolution of Palmdale Vistas pursuant to an Agreement signed by the partners
of Palmdale Vistas. The limited partners of Palmdale Vistas, which include a
former director of the Company (see "Item 7. Financial Statements and
Supplementary Data, Note 6" herein), received title to a 17 acre undeveloped
commercial site owned by Palmdale Vistas. The Company, as general partner of
Palmdale Vistas, received title to the balance of the partnership assets
consisting of three completed model homes, 11 completed homes for sale, and
approximately 180 unimproved residential lots. Additionally, the Company has
agreed to repay the bank the $1,141,000 principal amount not paid by the new
lender when it purchased the bank's note. This payment is unsecured, non-
interest bearing and payable from 15% of profits earned annually by the Company
commencing with the fiscal year ending December 31, 1999. Certain non-
operational changes in the Company's net worth in excess of $3,500,000 and
certain changes in control of the Company will also require additional payments
to the bank.

In February 1997, the Company obtained new financing from both USA and
another third party lender, providing a total of $2,336,000. Pursuant to an
Agreement with a commercial bank, this amount was accepted as payment in full on
matured loans with balances totaling $2,822,000, secured by one of the Company's
projects in Riverside County. Additionally, in June 1997, pursuant to a separate
Agreement with this same commercial bank, $2,647,000 was accepted as payment in
full on matured loans with balances totaling $3,494,000 secured by the Company's
Eagle Ranch project in the high desert of San Bernardino County. The Company
repaid the bank from the following sources: (i) the sale in June 1997,
previously described, of the majority of the Eagle Ranch project for $2,400,000
to a group of investors provided by USA Real Estate, (ii) a new loan from a
third party lender in the amount of $580,000 and (iii) other Company funds.

The availability of borrowed funds for homebuilders, especially for land
acquisition and construction financing is variable, and at times has been
severely restricted and in some cases eliminated entirely. Currently such
financings are generally available, but some lenders have been requiring
borrowers to invest increased amounts of equity in a project in connection with
both new loans and the extension of existing loans.

27
<PAGE>

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants............................................................... F-2

Consolidated Balance Sheets as of December 31, 1998 and 1997.................................... F-3

Consolidated Statements of Operations for the years ended December 31, 1998 and 1997............ F-4

Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998 and 1997.. F-5

Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997............ F-6

Notes to Financial Statements................................................................... F-8
</TABLE>

F-1
<PAGE>

Report of Independent Accountants

To the Board of Directors and Shareholders of
Inco Homes Corporation

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Inco Homes
Corporation at December 31, 1998 and 1997 and the results of their operations
and their cash flows for the years ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
which have negatively impacted cash flow and its abilities to pay its
obligations that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

PRICEWATERHOUSECOOPERS LLP

Newport Beach, California
June 8, 1999

F-2
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data) December 31, December 31,
------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS

Cash $ 712 $ 736
Real estate inventories 30,238 27,329
Deferred tax asset 2,200
Other assets 1,056 669
--------------------- --------------------

Total assets $ 32,006 $ 30,934
===================== ====================

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued liabilities $ 7,500 $ 5,580
Notes payable 23,044 19,202
Line of credit 768 330
Notes to stockholders 2,649 1,187
--------------------- --------------------

Total liabilities $ 33,961 $ 26,299
===================== ====================

Minority partners' investment in consolidated partnerships 254 545

Stockholders' Equity
Preferred stock - $.01 par value; 1,000,000 shares authorized; 2,340 shares
issued and outstanding
for 1998 and 1997 2,340 2,340
Common stock - $.01 par value; 20,000,000 shares
authorized; 2,104,052 and 1,637,096 shares issued
and outstanding for 1998 and 1997 21 16
Additional paid in capital 43,301 42,876
Deficit (47,871) (41,142)
--------------------- --------------------

Total stockholders' equity (2,209) 4,090
--------------------- --------------------

Total liabilities and stockholders' equity $ 32,006 $ 30,934
===================== ====================
</TABLE>

See accompanying notes to financial statements

F-3

<PAGE>

INCO HOMES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

<TABLE>
<CAPTION>
For the Twelve Months Ended
(Dollars in thousands, except per share data) December 31,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenue from home sales $ 26,320 $ 20,788
Revenue from fee projects $ 579
Revenue from land and lot sales 2,342 933
---------- ----------
29,241 21,721
---------- ----------

Cost of homes sold 25,526 19,852
Cost of land and lots 1,736 1,094
---------- ----------
27,262 20,946
---------- ----------

Gross profit 1,979 775
---------- ----------

Provision for write-down of real estate 1,143 9,270
Selling and marketing expenses 3,263 3,411
General and administrative expenses 2,273 1,578
---------- ----------

6,679 14,259
---------- ----------

Operating loss (4,700) (13,484)

Other income 173 79
---------- ----------

Loss before minority partners' share
and provision for income taxes (4,527) (13,405)
- -
Minority partners' share (66) (331)
---------- ----------

Loss before provision for income tax (4,461) (13,074)

Provision for income tax (2,200) -
---------- ----------

Loss before extraordinary item (6,661) (13,074)

Extraordinary item (68) 1,425
---------- ----------

Net loss $ (6,729) $ (11,649)
Cumulative preferred stock requirement (234) -
---------- ----------

Net loss available to common stockholders (6,963) (11,649)
========== ==========

Basic and diluted net loss per common share
Loss before extraordinary item $(3.48) $(8.03)
Extraordinary items (0.03) 0.88
---------- ----------
Net loss per common share $(3.51) $(7.15)
========== ==========

Weighted average number of common shares
outstanding 1,983,371 1,628,694
========== ==========
</TABLE>

See accompanying notes to financial statements

F-4
<PAGE>

INCO HOMES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
- ---------------------------------------------

<TABLE>
<CAPTION>
Additional
(Dollars in Thousands) Preferred Stock Common Stock Paid -in
Shares Amount Shares Amount Capital Deficit Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance-December 31, 1996 $ 1,437,096 $ 14 $ 41,763 (29,493) $ 12,284

Preferred stock issued 2,340 2,340 2,340

Common stock issued 200,000 2 463 465

Common stock subscriptions 300 300

Cash received pursuant to pending exercise of
warrants 350 350

Net loss - 1997 (11,649) (11,649)
--------------------------------------------------------------------------------

Balance-December 31, 1997 2,340 $2,340 1,637,096 $ 16 $ 42,876 $(41,142) $ 4,090

Common Stock Issued -- -- 463,956 5 425 430

Net Loss -- -- -- -- (6,729) (6,729)
--------------------------------------------------------------------------------

Balance-December 31, 1998 2,340 $2,340 2,101,052 $ 21 $ 43,301 $(47,871) $ (2,209)
================================================================================
</TABLE>

F-5
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
(Dollars in thousands) 1998 1997
---- ----

<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,729) $ (11,649)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Extraordinary item 68 (1,425)
Provision for write-down of real estate 1,143 9,270
Minority partners' share (66) (331)
Increase in real estate inventories (6,832) 1,196
Decrease in deferred income tax asset 2,200 -
Increase in other assets (218) (68)
Increase (decrease) in accounts payable and accrued liabilities 2,473 (657)
---------- ----------

Net cash used in operating activities (7,961) (3,664)
---------- ----------

Cash flow from financing activities:

Proceeds from notes payable secured by real estate 34,696 28,278
Repayments on notes payable secured by real estate (28,347) (25,431)
Proceeds from line of credit 908 1,481
Repayments on line of credit (470) (4,313)
Proceeds from notes to stockholder 1,325 2,992
Repayments on notes to stockholder (368)
Distribution from non-consolidated partnership 260
Repayments to minority partners (225) -
Proceeds from sale of common stock 500
Costs of stock issuance and reverse stock split (35)
Proceeds from common stock subscriptions 50 450
---------- ----------

Net cash provided by financing activities 7,937 3,814
---------- ----------

Net increase in cash and cash equivalents (24) 150

Cash and cash equivalents at beginning of year 736 586
---------- ----------

Cash and cash equivalents at end of period $ 712 $ 736
========== ==========
</TABLE>

F-6

<PAGE>

INCO HOMES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

Supplemental schedule of non-cash activities

[1] During 1998 the Company converted $290,000 of accounts payable to $290,000
worth of Subordinated Investment Notes - See Note 4.

[2] During 1998 the Company issued 62,798 shares of Common Stock to creditors
in exchange for relieving the Company of $125,531 of accounts payable - See
Note 12.

[3] During 1998 the Company deeded back properties with a book cost of $396,000
to land sellers in satisfaction of indebtedness in that amount - See Note
3.

[4] During 1998 the Company chose to not exercise an option on land previously
sold to a related party and was relieved of indebtedness of $2,400,000 -See
Note 10.

[5] During 1997, the Company was relieved of debt in the amount of $1,425,000
pursuant to various agreements - See Note 8.

[6] During 1997, the Company deeded back properties with a book cost basis of
$1,000,000 to land sellers in satisfaction of indebtedness in that amount -
See Note 3.

[7] During 1997, the Company was relieved of debt in the amount of $680,000 as
a result of a non-judicial foreclosure - see Note 10.

[8] During 1997, the Company sold 204,122 shares of Common Stock in which a
portion of the consideration consisted of a $200,000 reduction of a note
payable - see Note 12.

[9] During 1997, the Company converted $2,340,000 of debt to 2,340 shares of
Series A Cumulative Preferred Stock - see Note 6.

See accompanying notes to financial statements.

F-7
<PAGE>

INCO HOMES CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997

NOTE 1. BACKGROUND AND ORGANIZATION

Inco Homes Corporation, a Delaware corporation, ("Inco" or the "Company")
is a developer and builder of affordably priced single-family detached homes.
The Company's sole market is in Southern California and it is substantially
dependent on local economic factors.

On January 16, 1997, a stockholder approved amendment to the Company's
Restated Certificate of Incorporation effecting a one-for-six reverse stock
split ("the reverse stock split") became effective. All share information
presented below is restated to reflect this reverse stock split.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of the Company, all wholly-owned subsidiaries,
and the Company's general partnership interests in Palmdale Vistas Housing
Developments, Ltd. ("Palmdale Vistas"), Freedom-Eagle Ranch Housing Partners
("FERHP") and Triumph-Lancaster Housing Partners ("Triumph"). All significant
intercompany transactions have been eliminated. Palmdale Vistas was dissolved in
December 1997.

The minority partners' investment in consolidated partnerships represents
the limited partners' net equity in the real estate projects. Pursuant to the
terms of the partnership agreements, losses are generally allocated 99% to the
limited partners, and their net equity will be repaid to the extent the
partnerships generate sufficient funds.

Use of Estimates. The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the financial statement dates and the reported amounts of revenues and
expenses during the reporting periods. Due to uncertainties inherent in the
estimation process, it is reasonably possible that actual results could differ
from the estimates.

Basis of Presentation. The Company has incurred net operating losses which
have significantly impacted its working capital levels and its ability to pay
its obligations. Management's current business plan reflects that, in addition
to future profits, sales of real estate inventories provide cash flow to the
Company to help meet operating requirements. During 1999, the Company will also
need to extend the maturity dates of certain notes payable and to raise capital
for acquisitions of additional land for future projects and working capital
needs. Management's plans and anticipated results are dependent on future events
and economic market conditions which are inherently uncertain. No assurances can
be given that anticipated cash flows from operations and the Company's ability
to borrow from various sources will be sufficient to fund all of its planned
expenditures. In its efforts to seek funding for working capital shortfalls and
to reduce old payables, as well as to finance the acquisition of additional land
for the delivery of future homes, the Company is discussing with various sources
of capital their investing additional funds in the Company. No material
agreements between the Company and these potential sources of capital have been
signed, and no assurances can be given whether or when the Company may enter
into an agreement with any source or, if entered into, what the precise terms of
the agreement will be.

If the Company is not successful in obtaining sufficient capital to fund
its planned expenditures, the Company's ability to continue its current level of
business operations could be impaired, and the Company may not be able to
conduct operations as presently anticipated. This could have a material adverse
effect on the Company's business, financial condition and results of operations.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

F-8
<PAGE>

Cash and Cash Equivalents. Cash equivalents represent short-term, highly
liquid investments with a maturity of three months or less when acquired. The
Company maintains some of its cash in bank deposit accounts which, at times, may
exceed the federally insured limits. Based on the quality of the financial
institutions, the Company does not believe it is exposed to any significant
concentrations of credit risk on cash and cash equivalents.

Real Estate Inventories. Costs incurred which are included in inventory
consist of land, land development costs, direct and indirect costs of
construction, other overhead costs, interest and property taxes. Interest and
property taxes are capitalized to real estate inventories when development
activities begin, and capitalization ends when the qualifying assets are ready
for their intended use.

Properties Under Construction and Land Held for Development. Properties
under construction and land held for development are stated at cost, unless it
is determined to be impaired, in which case the carrying value is reduced to
fair value. Costs include land acquisition and related costs, direct and
indirect construction costs, and indirect construction-related overhead costs.
Interest and property taxes are capitalized when development activities begin,
and capitalization ends when the property is available for sale.

The Company review real estate inventories whenever events or changes in
circumstances indicate the cost basis of such assets may not be recoverable. If
the cost basis of the real estate is greater than the projected future
undiscounted net cash flows from the real estate, exclusive of interest, the
property is considered impaired. The estimation process in determining the value
of land held for development is inherently uncertain and relies to a
considerable extent on current and future economic and market conditions. Such
economic and market conditions may affect management's development and marketing
plans. Accordingly, the ultimate realization of the Company's real estate
inventories is dependent upon future events and conditions that may cause
realization to differ from amounts previously estimated.

Sales and Profit Recognition. Revenue from the sale of homes, land and lots
is recognized when closings have occurred and a buyer has met down payment
requirements. At the time of revenue recognition, cost of sales is charged with
direct costs of construction, and an allocation of a project's total estimated
costs of land, land development, indirect construction, other overhead costs,
interest and property taxes.

Earnings Per Share. In the fourth quarter of 1997, the Company was required
to adopt the provisions of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS No. 128). SFAS No. 128 replaces the previous
presentation of earnings per share on the Consolidated Statements of Operations
with dual presentation of Basic Earnings per Share and Diluted Earnings per
Share. Basic Earnings per Share are computed by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted Earnings per Share reflects the potential dilution
that could occur if stock options and other contracts to issue Common Stock were
exercised or converted into Common Stock or resulted in the issuance of Common
Stock that shared in the earnings of the Company. SFAS No. 128 requires
restatement of all prior-period earnings per share presented. Since losses have
occurred in all periods presented, the inclusion of potential shares would be
anti-dilutive. As a result, Basic and Diluted Earnings per Share do not differ
from earnings per share as previously and currently reported. At December 31,
1998, options to purchase 138,133 shares of Common Stock between $2.00 and $6.75
per share and warrants to purchase 200,000 shares of Common Stock at $2.625 per
share were outstanding during the year which were not included in the
computation of Diluted Earnings per Share because they are antidilutive, or
would have been excluded because the option's exercise price was greater than
the average market price or market value of the Common Shares.

As of December 31, 1997, 41,023 options were outstanding at prices ranging
from $1.563 to $56.25 per share, none of which had been exercised.

Fair Value of Financial Instruments. The carrying amounts reported on the
balance sheet for the Company's cash equivalents and accounts payable and
accrued liabilities approximate fair value due to the short-term nature of these
items. The carrying amounts of the Company's notes payable secured by real
estate, lines of

F-9
<PAGE>

credit, and notes to stockholder approximate fair value based on a comparison
with current market rates for loans of similar risks and maturities.

NOTE 3. REAL ESTATE INVENTORIES

Real estate inventories consist of the following:

<TABLE>
<CAPTION>
December 31,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Land $ 17,168,000 $ 16,929,000
Land development and construction in progress 20,087,000 18,366,000
Completed inventory not subject to pending sales
contracts (unsold) 3,410,000 2,552,000
Allowances for write-down of real estate (10,427,000) (10,518,000)
------------ ------------
Total $ 30,238,000 $ 27,329,000
============ ============
</TABLE>

As of December 31, 1998 and 1997, the Company owned title to and held
options to acquire approximately 2,093 and 1,600 lots, respectively.
Approximately 200 lots were in the process of being deeded back to land sellers
as of both December 31, 1998 and 1997 (see below).

The Company incurred interest that was capitalized. The following table
shows the components of interest:

<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Interest incurred and capitalized $ 5,204,000 $ 3,686,000
============ ============

Amortization of capitalized interest included in
cost of homes sold, cost of land and lots sold, and provision
for write-down of real estate $ 3,547,000 $ 2,827,000
============ ============

Unamortized capitalized interest included in
real estate inventories at year end $ 5,229,000 $ 3,572,000
============ ============
</TABLE>

F-10
<PAGE>

NOTE 4. NOTES PAYABLE

Notes payable consist of the following:

<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
Various land acquisition loans secured by real estate bearing interest
at fixed rates ranging from 7.0% to 10.0% per annum. Principal
payments are required on fixed schedules or as land is taken down.
The loan balance at December 31, 1998 can be reduced to zero as
properties are deeded back to land sellers (see Note 3). $ 1,325,000 $ 716,000

Various infrastructure, development, construction and other land loans
secured by real estate with an aggregate maximum amount of
$39,804,000 of which $19,516,000 was available as of December 31,
1998 to finance construction. Interest rates on these loans range
from 7.625% to 20.25% and are due primarily in 1998 and 1999.
Principal payments on construction loans are generally required as
homes are closed. The prime rate as of December 31, 1998 and 1997
was 7.75% and 8.50%, respectively. 20,288,000 14,945,000
----------- -----------

Total notes payable secured by real estate 21,613,000 15,661,000
Subordinated Investment Notes 290,000 --
Repurchase option for property sold in June 1997 (see Note 10) -- 2,400,000
Unsecured loan payable to commercial bank 1,141,000 1,141,000
----------- -----------

$23,044,000 $19,202,000
=========== ===========
</TABLE>

Included in infrastructure, development, construction and other land loans
at December 31, 1998 and 1997, respectively, is a secured note payable to
Hunters Ridge Investment Partners ("HRIP") with a balance of $529,000 and
$474,000, respectively and $5,398,000 and $6,922,000, respectively, of secured
notes payable provided by USA Commercial Mortgage Company, Inc. ("USA") (see
Note 10).

The weighted average short term borrowing rate for infrastructure,
development, construction and other land loans was 11.53% and 12.29% for the
years ended December 31, 1998 and 1997, respectively.

The minimum future principal payments due on the notes payable secured by
real estate at December 31, 1998 are as follows:

1999 $16,962,000
2000 390,000
2001 3,588,000
2002 0
2003 0
Thereafter 673,000
-----------
$21,613,000
===========

F-11
<PAGE>

Stock that was issued to the bank pursuant to an agreement made in June 1996
extending and modifying the line of credit. The resulting obligation of the
Company to the new lender is $2,350,000, which includes the $1,750,000 paid to
the bank, fees earned by USA, an interest reserve and a payoff made by the new
lender to an unrelated commercial bank of another loan to the Company. The loan
is secured by undeveloped land owed by the Company in Victorville and Palmdale,
California and by an assignment of the Company's rights under a repurchase
option agreement (see Note 10). Additionally, the Company has agreed to repay
the bank the $1,141,000 principal amount not paid by the new lender when it
purchased the bank's note. This payment is unsecured, non-interest bearing and
payable from 15% of profits earned annually by the Company commencing with the
fiscal year ending December 31, 1999. Certain non-operational changes in the
Company's net worth in excess of $3,500,000 and certain changes in control of
the Company will also require additional payments to the bank.

NOTE 5. LINE OF CREDIT

The Company has unsecured revolving lines of credit of $1,000,000 and
$250,000 with commercial banks that bear interest at the prime rate plus 1.0%.
The net outstanding balance under these lines of credit at December 31, 1998 and
1997 were $768,000 and $330,000, respectively. At the time a homebuyer enters
into a sales contract with the Company, meets certain loan prequalification
requirements with a third party mortgage lender, and opens an escrow, the bank
advances funds to the Company under this line at an amount equal to 70% of the
net cash proceeds estimated by the Company that it would receive at the close of
the homebuyer's escrow. The escrow company repays the lender directly from net
proceeds when the escrow closes. The $1,000,000 line of credit expired May 30,
1999. The Company is currently in negotiations with the bank for an additional
extension. With regard to the $250,000 credit line, the Company submits a loan
request for project costs incurred prior to obtaining a construction loan. The
line is repaid when the construction loan records and the Company is reimbursed
for the project costs previously paid.

NOTE 6. NOTES TO STOCKHOLDERS

On December 2, 1998, the Norris Living Trust advanced $40,000 to the
Company to be repaid within 12 months at an interest rate of 10.0% per annum. In
addition, on December 4, 1998, the Norris Living Trust advanced an additional
$285,000 at an interest rate of 10.0% per annum to the Company in connection
with the closing of a $16.5 million construction loan on the Company's
Mockingbird Canyon Estates project. The note is for a 12-month period, with an
interest rate of 10.0% per annum, which will accrue and be due along with the
principal on December 2, 1999. Subsequent to December 31, 1998, the Norris
Living Trust advanced an additional $200,000 to the Company to be repaid within
12 months at an interest rate of 10.0% per annum. The Company has pledged a
security interest in its Mockingbird Canyon Estates project to the Norris Living
Trust as security for the repayment of the notes.

On December 11, 1998, the stockholders of the Company approved the issuance
of a warrant to purchase 200,000 shares of Common Stock to Ira C. Norris in
connection with the extension of a $1,000,000 non-revolving line of credit made
by Mr. Norris on July 15, 1998 through the living trust he created for the
benefit of himself and his family (the "Norris Living Trust") to the Company's
wholly owned subsidiary Huntington Homes LLC. The $1,000,000 non-revolving line
of credit bears interest at a variable interest rate, of which the initial
interest rate was 10.0% per annum. The note securing the line of credit is due
and payable in full by July 2, 1999. At December 31, 1998, the accrued interest
under the note was $2,275. In accordance with SFAS 123, the Company has recorded
the value of this warrant issued as issuance costs and will amortize the cost
over the extension period of the line.

F-12
<PAGE>

redeemable at the option of the Company for cash at the redemption price of
$1,000 per share plus accumulated but unpaid dividends. The established dividend
rate on the Preferred Stock of $100 per share per annum payable quarterly from
available working capital. An unsecured note to the Norris Living Trust, bearing
interest at 10%, evidences the balance of indebtedness not converted in the
amount of approximately $122,000. The note was due in December 1998 and has been
extended until December 23, 1999. The balance owing under this note at December
31, 1998 was $134,000, which includes accrued interest of approximately $12,000.

NOTE 7. INCOME TAXES

The Company and its subsidiaries file a consolidated federal income tax
return and combined state income tax returns.

Generally accepted accounting principles requires the recognition of
deferred tax assets for the estimated future tax effects attributable to net
deductible temporary differences and net operating loss carryforwards. To the
extent that management believes that it is more likely than not that some
portion or all of the deferred tax asset will not be realized, deferred taxes
are to be reduced by a valuation sufficient to reduce the deferred tax asset to
the amount that is more likely than not to be realized. The income tax provision
for the year ended December 31, 1998 represents an increase in the valuation
allowance necessary to reduce the deferred tax asset to zero as of December 31,
1998. Due to operating losses in 1998 and 1997, a provision for income taxes was
not otherwise required.

The tax effects of temporary differences and net operating loss
carryforwards that give rise to the deferred tax asset and deferred tax
liability consist of the following at:

<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards $ 11,966,000 $ 8,327,000
Write-downs of real estate 817,000 1,747,000
Accrued expenses 41,000 124,000
------------ ------------
Total deferred tax asset 12,824,000 11,198,000
Valuation allowance (12,824,000) (8,998,000)
------------ ------------

Net deferred tax asset $ 0 $ 2,200,000
============ ============
</TABLE>

At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of $32,341,000 that are available to offset future
federal taxable income. The federal net operating losses expire in the years
2009 through 2018.

A reconciliation of the computed statutory income tax benefit at the
Federal statutory rate to the effective income tax benefit follows:

F-13
<PAGE>

<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Percent of pre-tax loss at current
federal statutory income tax rate (34.0%) (34.0%)
------------ ------------
State and local income taxes net of federal benefit (4.7) (4.7)
Increase in valuation allowance 38.7 38.7
Net increase (reduction) 34.0 34.0
------------ ------------

Effective tax rate 0.0% 0.0%
============ ============
</TABLE>

NOTE 8. STOCK-BASED COMPENSATION PLANS

Stock Options

In November 1992, the Board of Directors and stockholders of the Company
adopted the Company's initial Stock Option/Stock Issuance Plan (the "Initial
Plan"), which provides for the grant of options to purchase up to 100,000 shares
of Common Stock. In June 1998, the Board of Directors and stockholders of the
Company adopted the 1998 Incentive and Nonstatutory Stock Option Plan (the "1998
Plan") and reserved 200,000 shares of Common Stock to be optioned and sold under
the 1998 Plan. The discretionary option grant program provides for the grant of
options to purchase shares of the Company's Common Stock to key employees
(including officers and directors) and consultants of the Company. The options
issued to employees are subject to certain vesting requirements. The options
issued to directors may be exercised in full six months after the grant date.

As of January 2, 1998, the Compensation Committee of the Board of Directors
offered all employees of the Company and one director who was a former employee
of the Company the right to exchange 32,269 outstanding options at prices
ranging from $3.75 to $6.75 per share with replacement options. The replacement
options were set at $2.00, the current fair market value at the time, and the
required holding period was reset. All employees and the director elected to
exchange their existing options for replacement options. Also on January 2,
1998, 41,058 new options were granted to employees at a price of $2.00 per
share.

The Company has adopted Statement of Financial Accounting Standards No. 123
("SFAS No. 123") "Accounting for Stock-Based Compensation." In accordance with
the provisions of SFAS No. 123, the Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plan and does not recognize compensation expense for its
stock-based compensation plan. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date for awards
given in 1998 and 1997 under this plan consistent with the methodology
prescribed by SFAS No. 123, the Company's net loss and loss per share would have
been reduced to the following pro forma amounts (in thousands, except per share
amounts):

1998 1997
-------- --------
Basic and diluted net loss per share
As reported $3.51 $7.15
Pro forma 3.55 $7.18

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:

1998 1997
-------- --------
Risk free interest rate 5.56% 6.26%
Dividend yield 0% 0%
Expected volatility 37.74% 40.68%
Weighted average fair value $ 1.20 $ 0.93
Expected option life (years) 10 10

F-14
<PAGE>

The table below summarizes the transactions in the Company's stock option
plans (in thousands, except per share amounts):

1998 1997
-------- --------

Options outstanding at beginning of year 41,023 45,741
Granted 159,625 3,752
Exercised 0 0
Canceled (62,535) (8,470)
-------- --------

Outstanding options at end of year 138,113 41,023

Exercisable at end of year

Exercise prices of outstanding options range from $1.563 to $6.75.

The following table summarizes information about certain options in the
stock option plans outstanding as of December 31, 1998 in accordance with SFAS
123:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------- ----------------------------------------
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------- ----------------- ------------------- ----------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Less than $2.50 67,133 1/1999-1/2008 1.99 56,695 1.99
$2.51 to $5.00 73,775 1/1999-8/2008 3.30 7,418 3.23
Greater than $5.00 2,255 1/1999-12/2005 12.53 1,250 6.00
</TABLE>

NOTE 9. EXTRAORDINARY ITEMS

During 1998 the Company issued stock to relieve accounts payable which
resulted in a loss on the transaction.

In December 1997, the Company restructured a line of credit with another
commercial bank. Pursuant to the Agreement with this bank, accrued and unpaid
interest was forgiven, resulting in an extraordinary gain of approximately
$92,000 (see Note 4).

Additionally, in June 1997, pursuant to a separate Agreement with this same
commercial bank, $2,647,000 was accepted as payment in full on matured loans
with balances totaling $3,494,000 secured by the Company's Eagle Ranch project
in the high desert of San Bernardino County. The Company repaid the bank from
the following sources: (i) the sale in June 1997 of the majority of the Eagle
Ranch project for $2,400,000 to a group of investors provided by USA Real Estate
(see Note 10), (ii) a new loan from a third party lender in the amount of
$580,000 and (iii) other Company funds. This resulted in an extraordinary gain
of approximately $847,000.

NOTE 10. COMMITMENTS AND CONTINGENCIES

F-15
<PAGE>

material adverse effect on the financial condition of the Company. In addition,
from time to time, the Company could be involved in litigation in connection
with claims of development or construction defects, which matters, if decided
adversely to the Company, could have a material adverse effect on the financial
condition of the Company.

The Company believes that the claims made against it are without merit and
has tendered all of these claims to its product liability insurers who have
accepted defense subject to reservation of rights. The Company believes that
these claims will not have a material adverse effect on the Company's business.

Commitments and contingencies also include the usual obligations incurred
by real estate developers in the ordinary course of business, including the
securing of financing, performance bonds, entitlement and water rights.
Outstanding performance bonds at December 31, 1998 and 1997 were $11,752,000 and
$11,230,000, respectively.

The Company is responsible for a one-year warranty period upon the sale of
single-family homes. An estimated reserve for warranty costs is included in
accounts payable and accrued liabilities.

The Company is committed under various operating leases for office space
and equipment. Rental expense relating to operating leases of $185,000 and
$148,000 for the years ended December 31, 1998 and 1997, respectively, is
included in general and administrative expenses. The minimum future payments due
on the lease contracts payable at December 31, 1999 are $198,000 for 1999,
$194,000 for 2000, $165,000 for 2001, $118,000 for 2002.

NOTE 11. RELATED PARTY TRANSACTIONS

For the years ended December 31, 1998 and 1997, the Company incurred
$25,500 and $45,000, respectively, in model home design fees and $152,431 and
$108,400, respectively, as reimbursement for the cost of the model home
furnishings to Nancy Orman Interiors. Nancy Orman Interiors is owned by Nancy
Norris, the wife of Ira C. Norris.

In May 1996, the Company assigned an unsecured non-interest bearing
receivable in the amount of $293,000 from Victor Valley Commercial Properties to
Ira C. Norris in exchange for a cash payment of $293,000. Victor Valley
Commercial Properties is a limited partnership owned 50% by G&N Investments,
Ltd., its sole general partner.

F-16
<PAGE>

Thomas E. Gibbs, Jr., a former director of the Company, holds a 56.3%
general partner's interest in Hunter's Ridge Investment Partners ("HRIP").
Included in notes payable at December 31, 1998 is a loan with a balance of
$529,000 from HRIP, secured by one of the Company's projects in Fontana,
California. Additionally, the Gibbs Family Trust, of which Mr. Gibbs is a
beneficiary and trustee, is a 50% limited partner in Triumph.

Thomas A. Hantges, a director and stockholder of the Company, owns
approximately 67% of both USA Commercial Mortgage Company ("USA") and USA
Commercial Real Estate Group ("USA Real Estate"). USA has provided loans and
arranged for individual lenders to provide loans to the Company secured by
Company projects in cumulative amounts totaling $13,650,000 and $12,120,000 for
the years ended December 31, 1998 and 1997, respectively. USA has earned
cumulative fees for these loans for the years ended December 31, 1998 and 1997
totaling $1,118,000 and $1,087,000, respectively, of which $909,000 and
$878,000, respectively, has been paid. The balance is secured by notes and is to
be paid from proceeds from sales of completed homes in certain of the Company's
projects. The interest rates on these loans ranged from 12.25% to 15.25% in 1998
and from 12.25% to 20.25% in 1997. The outstanding balance of these loans at
December 31, 1998 and 1997 was $5,397,700 and $6,922,000, respectively.

In June 1997, USA Real Estate arranged for an additional group of investors
to purchase the Company's Eagle Ranch project in the high desert for $2,400,000.
Funds from this sale helped the Company repay portions of matured loans secured
by this project with a commercial bank. The investors granted the Company a six-
year option to periodically repurchase portions of the property, subject to
annual minimum repurchase thresholds, for the development of single-family
homes. If the Company failed to repurchase the minimum number of lots in any
year, the option would terminate. Because of an election by the Company not to
acquire any lots under this option agreement and the failure to pay the
prerequisite real estate taxes, the Company was notified that its rights to
acquire these lots had been terminated.

In February 1999, the Company entered into an Agency Agreement with USA.
Pursuant to the Agency Agreement, upon completion of a proposed merger with
American Communities, Inc., USA was to receive a 10-year option to purchase
250,000 shares of Common Stock of the Company for $2.00 per share. In addition,
USA was to receive certain registration rights with respect to the optioned
shares. If the Company's stockholders did not approve the stock options and
registration rights, USA was to receive, upon completion of the American merger,
the sum of $600,000 payable $200,000 within two business days of approval of the
merger by the Company's stockholders, and $50,000 quarterly thereafter. The
proposed merger with American was terminated in June 1999.

Subsequent to year end, the Company sold 53 finished lots and 4 completed
models to USA Investors II, LLC, whose manager is USA Commercial Mortgage. USA
Commercial Mortgage is controlled by Thomas Hantges, who is a member of the
Company's Board of Directors. The property was sold for cash consideration of
$50,000 and the assumption of approximately $1.7 million of debt and trade
accounts payable, including existing debt to USA Mortgage of approximately $1.1
million. The debt assumed is estimated based upon current outstanding
obligations minus proforma debt paydowns from the closing of 12 units under
construction. The Company is also entitled to additional consideration of
$100,000 payable from the profits upon the sale of these properties by USA
Investors II, LLC. As of December 31, 1998, the Company has chosen to write down
additional capitalized costs attributable to these lots. These costs would have
been charged to cost of sales in the normal course of business as each house was
sold had the lots been built out. The additional charge of $974,000 was expensed
to the provision for write down of real estate.

One of the owners of Overland Opportunity Fund, LLC ("Overland"), which
owned 9.1% of the Company's outstanding Common Stock at April 30, 1999, is an
affiliate of three entities with which the Company has signed Development and
Marketing Agreements. See "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."

F-17
<PAGE>

NOTE 12. EMPLOYEES' PROFIT SHARING PLAN

The Company has an employee profit-sharing plan covering substantially all
employees. Contributions are made annually on a discretionary basis. No
contributions have been made for the years ended December 31, 1998 and 1997.

NOTE 13. STOCKHOLDERS' EQUITY

Common Stock Issued

In December 1997, the Company sold 204,122 shares of Company Common Stock
in a private transaction to Institutional Equity Partners, LLC ("IEP"), an
entity owned 67% by Thomas A. Hantges. The total consideration was $306,183,
paid as follows: (i) payment to the Company of $100,000 in cash, (ii) reduction
by $200,000 of a $347,500 note payable to the principals of USA by the Company
for fees related to a loan arranged by USA with respect to one of the Company's
projects and (iii) $6,183 for consulting services provided by the principals of
USA for the Company. The shares were issued in January 1998.

In December 1996, the Company issued a warrant to purchase 200,000 shares
of Common Stock in a private transaction to Overland Company, Inc. ("OCI"). OCI
is affiliated with Overland. The warrant was issued as compensation for services
to be performed pursuant to a consulting agreement entered into with OCI in
December 1996. The consulting agreement is for a term of two years during which
OCI, on a non-exclusive basis, is to seek out, investigate and pursue
residential development projects and present them to the Company for its
consideration and approval. The warrant was exercisable within eighteen months
of the date of the agreement at a price of $5.25 per share. Beginning in
November 1997, the Company offered OCI the opportunity to exercise the warrant
for an exercise price of $2.00 per share. From November 1997 through February
1998, OCI assigned portions of its total interest in the warrant to third
parties. The Company received $350,000 in 1997 and $50,000 in 1998 from these
third parties as deposits pursuant to the exercise of the warrants for all
200,000 shares. The stock certificates were issued in June 1998.

NOTE 14. SUBSEQUENT EVENTS

In April 1999, the Company entered into an Agreement and Plan of Merger
("Merger Agreement') with American Communities, Inc., a Nevada corporation
("American"), a privately held Las Vegas builder of entry level and move up
single family homes. Under the Merger Agreement, the two principals of American
were to receive shares of newly issued common stock of the Company in exchange
for all of the outstanding common stock of American. In addition, the Merger
Agreement provided for representation on the company's Board of Directors for
representatives of American and the provision of a line of credit or alternative
financing of at least $3 million by American which would be available to the
Company after the closing. In June 1999, the Merger Agreement with American was
terminated prior to any of the proposed transactions being consummated.

F-18
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Executive Officers of the Registrant

The following are the names and respective ages as of December 31, 1998 of
the executive officers of the Company. The Company's executive officers are
elected by, and serve at, the discretion of the Board of Directors.

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>

Ira C. Norris....................... 62 Chairman of the Board, President and Chief
Executive Officer
David A. Fogg....................... 48 Chief Financial Officer and Secretary
Gary E. Sorley...................... 44 Division Manager
Sue Monaco.......................... 37 Vice President of Sales and Marketing
</TABLE>

Ira C. Norris founded the Company in 1976, and has served as the Chairman
of the Board, President and Chief Executive Officer since that time. From 1968
to 1976, Mr. Norris served as a Corporate Vice President and Division Operating
Manager of Kaufman and Broad, Inc., a company engaged in the real estate and
life insurance business. From 1960 to 1968, he was an independent
builder/developer in Los Angeles and the San Fernando Valley suburbs.

David A. Fogg has served as a director and Chief Operating Officer of the
Company since April 1998, and has served as Chief Financial Officer of the
Company since November 1997. Prior to joining the Company, Mr. Fogg was Chief
Financial Officer of Century/Crowell Communities, a builder/developer in San
Bernardino, California from 1992 to 1997.

Gary E. Sorley has served as the Company's Division Manager since August
1998. Prior to becoming Division Manager, Mr. Sorley served the Company as Vice
President of Operations and Forward Planning and Director of Purchasing. Prior
to joining the Company in 1994, Mr. Sorley worked for Brock Homes, a
builder/developer in Laguna Hills, California, from 1984 to 1994 and Shea Homes
from 1977 to 1984.

Sue Monaco has served the Company since July 1997 in various capacities,
most recently as Vice President of Sales and Marketing. From 1994 to 1997, Ms.
Monaco was manager of Stuart Wright, a mortgage banking firm located in Las
Vegas, Nevada. Prior to 1994, she sold new homes for various builders in
Southern California. Ms. Monaco is licensed with the State of California,
Department of Real Estate.

28
<PAGE>

Directors of the Company.

The members of the Board of Directors of Inco Homes are classified into
three classes, one of which is elected at each Annual Meeting of Stockholders to
hold office for a three-year term and until successors of such class have been
elected and qualified. The following are the names of the Board of Directors of
the Company as of April 30, 1999:

<TABLE>
<CAPTION>
Class and Year
Director In Which Term
Name Principal Occupation Since Will Expire Age
---- -------------------- -------- -------------- ---
<S> <C> <C> <C> <C>
Ira C. Norris Chairman of the Board, President and 1993 Class I 62
Chief Executive Officer of Inco Homes 1999
Corporation

David A. Fogg Chief Operating Officer and Chief 1998 Class I 48
Financial Officer of Inco Homes 1999
Corporation

John F. Seymour, Jr. Chief Executive Officer, Southern 1995 Class II 61
California Housing Development 2001
Corporation

Thomas A. Hantges Founder and Chairman, USA Capital 1998 Class II 46
2001

Robert H. Daskal Senior Vice President and Chief 1995 Class III 57
Financial Officer, Olympic Cascade 2000
Financial Corporation
</TABLE>

For additional information regarding Mr. Norris and Mr. Fogg, see
"Executive officers of the Registrant."

Thomas A. Hantges has served as a director of the Company since January
1998. Mr. Hantges is the founder and Chairman of USA Capital, a Nevada-based
private lending corporation that specializes in originating, funding and
servicing short-term real estate loans to major builders and developers
throughout the United States. Mr. Hantges has been involved in the investment
banking industry since 1980.

John F. Seymour, Jr. has served as a director of the Company since December
1995. Mr. Seymour has been the Chief Executive Officer of Southern California
Housing Development Corporation, a non-profit organization, since January 1995.
Prior to joining Southern California Housing Development Corporation, Mr.
Seymour served for two years as the Executive Director of the California Housing
Finance Agency which directs billions of dollars of capital vital to affordable
housing. In January 1991, Mr. Seymour was appointed by Governor Pete Wilson to
be his successor in the United States Senate, where he served until January
1993. From April 1982 to January 1991, Mr. Seymour served as a California State
Senator for the 35th Senate District. Mr. Seymour is a director of Irvine
Apartment Communities, a Real Estate Investment Trust.

Robert H. Daskal has served as a director of the Company since May 1995.
Mr. Daskal is Senior Vice President and Chief Financial Officer of Olympic
Cascade Financial Corporation, a financial services holding company. Mr. Daskal
was the Executive Vice President and Chief Financial Officer of Inco Homes
Corporation from October 1994 to January 1997. Before joining the Company, Mr.
Daskal was Executive Vice President-Finance and Chief Financial Officer of UDC
Homes, Inc., a homebuilder in Tempe, Arizona, from 1985 to 1994. UDC Homes,
Inc. filed a petition for relief under Chapter 11 of the U.S. Bankruptcy code in
May 1995.

29
<PAGE>

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten-percent stockholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) reports
they file.

Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that there was compliance for the fiscal year ended December
31, 1998 with all Section 16(a) filing requirements applicable to the Company's
officers, directors and greater than 10% beneficial owners.

ITEM 10. EXECUTIVE COMPENSATION.

Summary of Cash and Certain Other Compensation

The following table sets forth the compensation paid by the Company for the
years ended December 31, 1998, 1997, and 1996 to the named Executive Officers.

<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation
------------
Annual Compensation Awards
------------------- ------
Securities
Name and Principal Underlying All Other
Position Year Salary (1) Bonus Options/SARs (#) Compensation (2)
-------- ---- ---------- ----- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Ira C. Norris 1998 $ 180,000 $ 0 25,0000 $ 6,196 (3)
Chairman of the Board, 1997 240,000 (4) 0 0 5,580 (5)
President and Chief 1996 360,000 (6) 0 0 7,856 (7)
Executive Officer

David A. Fogg 1998 $ 100,222 $ 0 60,000 $ 14,183 (8)
Chief Operating Officer and 1997 12,500 0 0 0
Chief Financial Officer 1996 0 0 0 0

Gary E. Sorley 1998 $ 100,178 $ 0 23,000 (9) 0
Division Manager 1997 85,008 0 0 0
1996 85,008 50 2,084 0
</TABLE>

______________
(1) Salary includes employee contributions under the Company's 401(k) Plan.
(2) Excludes a nominal amount, not more than $500 per employee annually, for
life insurance premiums.
(3) Represents medical expenses of $2,788, auto expenses of $2,920 paid by the
Company, and $488 of the Company's contribution under the Company's 401(k)
Plan..
(4) Includes $42,500 accrued in 1997, but not yet paid.
(5) Represents medical expenses of $2,477 and auto expenses of $2,303 paid by
the Company, and $800 of the Company's contribution under the Company's
401(k) plan.
(6) Includes $75,000 accrued in 1996, but not yet paid.
(7) Represents medical expenses of $4,849 and auto expenses of $2,072 paid by
the Company, and $935 of the Company's contribution under the Company's
401(k) Plan.
(8) Represents vacation pay of $1,923, auto expenses of $12,000 paid by the
Company, and $260 of the Company's contribution under the Company's 401(k)
Plan.
(9) Includes options to purchase 2,501 shares granted in exchange for the
options originally granted in 1996 and 1995.

30
<PAGE>

Stock Options

The following table contains information concerning the grant of stock
options under the Company's 1992 Stock Option/Stock Issuance Plan and the
Company's 1998 Incentive and Nonstatutory Stock Option Plan for the 1998 fiscal
year to the named Executive Officers. The table also lists potential realizable
values of such options on the basis of assumed annual compounded stock
appreciation rates of 5% and 10% over the life of the options which are set at a
maximum of 10 years.

<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term

- -------------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#)(1) Fiscal Year ($/Sh) (2) Date 5% (3) 10% (3)
---- ------------- ----------- ---------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Ira C. Norris 25,000 12.6% $ 3.25 08/02/08 51,098 129,492

David A. Fogg 60,000 30.3% $ 3.25 08/02/08 122,634 310,780

Gary E. Sorley 13,000 (4) 6.6% $ 2.00 01/01/08 16,351 41,437
10,000 5.0% 3.25 08/02/08 20,439 51,797
</TABLE>

________________
(1) Each listed option granted to a named executive officer becomes exercisable
for 25% of the option shares after 12 months of continued service from the
date of grant. The option will become exercisable for the balance of the
shares in a series of 36 successive equal monthly installments upon the
optionee's completion of each additional month of service measured from the
first anniversary of the date of grant. Each option will become immediately
exercisable for all of the option shares in the event the Company is
acquired by merger or sale of substantially all of the Company's assets or
outstanding Common Stock, unless the option is assumed or otherwise replaced
by the acquiring entity. The Compensation Committee has authority to provide
for the acceleration of each option in connection with certain hostile
tender offers or proxy contests for Board membership. Each option includes a
limited stock appreciation right pursuant to which the option, if in effect
for at least six months, will automatically be cancelled upon the occurrence
of certain hostile tender offers, in return for a cash distribution from the
Company based on the tender offer price per share. Each option has a maximum
term of 10 years, subject to earlier termination in the event of the
optionee's cessation of service with the Company.
(2) The exercise price of each option may be paid in cash, in shares of Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares and the
federal and state tax liability incurred in connection with such exercise.
The Compensation Committee has the authority to reprice outstanding options
through the cancellation of those options and the grant of replacement
options with an exercise price equal to the lower fair market value of the
option shares on the regrant date.
(3) The potential realizable value is reported net of the option price, but
before income taxes associated with exercise. These amounts represent
assumed annual compounded rates of appreciation at 5% and 10% only from the
date of grant to the expiration date of the option. There is no assurance
provided to any executive officer or any other holder of the Company's
securities that the actual stock price appreciation over the 10-year option
term will be at the assumed 5% and 10% levels or at any other defined level.
Unless the market price of the Common Stock does in fact appreciate over the
option term, no value will be realized from the option grants made to the
executive officers.
(4) Includes options to purchase 2,501 shares granted in exchange for options
originally granted in 1996 and 1995.

31
<PAGE>

Option/SAR Exercises and Holdings

The following table provides information with respect to the named
executive officers concerning the unexercised options held as of the end of the
last fiscal year. None of the named executive officers exercised options to
purchase the Company's Common Stock during the last fiscal year.

Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Name Number of Securities Underlying Unexercised Value of Unexercised in-the-Money
Options/SARs at FY-End Options/SARs at FY-End (Market price of
shares at FY-End ($2.1875) less
exercise price) (1)
----------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ira C. Norris 0 25,000 0 0
David A. Fogg 0 60,000 0 0
Gary E. Sorley 0 23,000 0 0
===================================================================================================================
</TABLE>

Option/SAR Repricing

Compensation Committee Report on Option Exchange

The Compensation Committee (the "Committee") of the Board of Directors is
responsible for administration of the Company's Stock Option Plan, including the
determination that the Plan continues to provide a continuing incentive to
employees to remain as employees of the Company. A report of the Committee at
the time of the exchange relating to repricing of the options is as follows: (i)
the fair market value of the Company's common stock ("Common Stock") on January
2, 1998 was $2.00 per share based on the closing selling price of the Common
Stock, as reported by Nasdaq; (ii) a number of employees of the Company held
outstanding options (the "Higher-Priced Options") granted under the Company's
1992 Stock Option/Stock Issuance Plan (the "Plan") to purchase shares of Common
Stock at an exercise price which is significantly in excess of the current fair
market value of the Common Stock; (iii) it is in the best interests of the
Company to provide its employees with a continuing opportunity to acquire shares
of the Common Stock at the current fair market value of such stock and provide
each individual with a significant incentive to operate the Company from the
perspective of an owner with an equity stake in the business; and (iv) the
Committee deems it advisable to implement a cancellation/re-grant program under
the Plan, pursuant to which there shall be granted, in cancellation of each
Higher-Priced Option, a new replacement option under the Plan to purchase shares
of Common Stock with an exercise price equal to the current fair market value of
such shares.

Reports on Option Exchange submitted by the Compensation Committee of the
Company's Board of Directors:

Ira C. Norris
Thomas A. Hantges
John F. Seymour, Jr.

32
<PAGE>

Director Remuneration

Each non-employee member of the Board is paid an annual retainer fee of
$10,000 and reimbursed for all out-of-pocket costs incurred in connection with
attendance at meetings of the Board of Directors of the Company. In January
1999, the Company issued an aggregate of 35,826 shares of Company Common Stock
to certain of the Company's current and former directors as payment in full of
an aggregate of $97,500 in unpaid director fees owed by the Company to such
individuals. Upon joining the Board, the Company granted to each non-employee
director options to purchase 1,250 shares of Common Stock pursuant to the
Company's automatic option grant program under the Company's 1992 Stock
Option/Stock Issuance Plan. The options have a maximum term of ten years from
the date of grant at exercise prices per share equal to the fair market value on
the date of grant as follows: John F. Seymour Jr. - $6.00; Robert H. Daskal -
$2.622; and Thomas A. Hantges - $2.00. The Company made and makes similar
automatic option grants to purchase 834 shares annually to each continuing non-
employee director on the date of each Annual Meeting of Stockholders, provided
that such individual has served on the Board for at least six months prior to
the date of the meeting. Accordingly, in June 1998, John F. Seymour, Jr. and
Robert H. Daskal each received a ten-year option to purchase 834 shares of
Common Stock at an exercise price of $3.625 per share. Options granted under the
automatic option program may be exercised in full six months after the grant
date, provided the eligible director remains a member of the board through that
date. Such automatic option grants cease for any non-employee director who has
been granted options to purchase a cumulative total of options of 5,417 shares
of Common Stock.

[Remainder of page intentionally left blank]

33
<PAGE>

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1999 by (i) each person
who is known to the Company to own beneficially more than 5% of the outstanding
shares of the Common Stock of the Company, (ii) each director and director
nominee, (iii) each officer listed in the Summary Compensation Table, and (iv)
all directors and executive officers as a group. All shares are subject to the
named person's sole voting and investment power except where otherwise
indicated.

<TABLE>
<CAPTION>
Name and Address
of Beneficial Owner Shares Beneficially Owned
------------------- -------------------------
Number Percentage(1)
------ -------------
<S> <C> <C>
Ira C. Norris (2).................................................... 607,405 27.5%
1282 West Arrow Highway
Upland, CA 91786

Robert C. and Cheryl C. Porter....................................... 229,122 10.4%
3068 East Sunset Road, Suite 14
Las Vegas, NV 89120

Overland Opportunity Fund, LLC (3)................................... 200,000 9.0%
147 East Olive Avenue
Monrovia, CA 91016

Ronald L. Neeley (4)................................................. 153,213 6.93%
P.O. Box 371347
San Diego, CA 92137

Wellington Management Company, LLP (5)............................... 128,016 5.8%
75 State Street
Boston, MA 02109

First Financial Fund, Inc. (6)....................................... 128,016 5.8%
One Seaport Plaza - 25th Floor
New York, NY 10292

Robert H. Daskal (7)................................................. 19,860 *
1282 West Arrow Highway
Upland, CA 91786

John F. Seymour, Jr. (8)............................................. 15,670 *
1282 West Arrow Highway
Upland, CA 91786

Thomas A. Hantges (9)................................................ 6,341 *
3900 Paradise Road, Suite 253
Las Vegas, NV 89109

David A. Fogg........................................................ -- --
1282 West Arrow Highway
Upland, CA 91786

All directors and executive officers as a group
(7 persons)(2)(7)(8)(9).............................................. 657,900 29.8%
</TABLE>

_______________
* Percentage of shares beneficially owned does not exceed 1% of the class so
owned.

34
<PAGE>

(1) The percentage of beneficial ownership is calculated using 2,210,073 shares
of Common Stock which were outstanding on April 30, 1999. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to the securities.
(2) Includes warrants to purchase 200,000 shares of the Company's Common Stock,
currently exercisable at $2.625 per share, which were granted to the Norris
Living Trust in December 1998. All shares of Common Stock are owned by the
Norris Living Trust Dated 2/17/89, a family trust of which Mr. Norris and
his wife, Nancy D. Norris, serve as trustees.
(3) According to a Schedule 13D filed by Overland Opportunity Fund, LLC with
the Securities and Exchange Commission ("SEC"), which states that in its
capacity as a real estate investment company, Overland Opportunity Fund,
LLC may be deemed beneficial owner of the shares. The Schedule 13D
indicates that Overland Opportunity Fund, LLC has sole voting power and
sole dispositive power.
(4) Includes 22,500 shares of Common Stock owned by Mr. Neeley and 130,713
shares of Common Stock owned by Neeley Revocable Family Trust dated
9/15/81, as amended, of which Mr. Neeley is a co-trustee with his wife.
(5) According to a Schedule 13G filed by Wellington Management Company, LLP
with the SEC, which states that in its capacity as investment advisor, it
may be deemed beneficial owner of the shares owned by its investment-
counseling clients. The Schedule 13G indicates that Wellington Management
Company, LLP has no voting power and shared dispositive power with respect
to the shares.
(6) According to a Schedule 13G filed by First Financial Fund, Inc. with the
SEC, which states that in its capacity as an investment company, it may be
deemed beneficial owner of the shares. The Schedule 13G indicates that
First Financial Fund, Inc. has sole voting power and shared dispositive
power with respect to the shares.
(7) Includes 9,193 shares of Common Stock owned by Mr. Daskal and his wife
jointly, options held by Mr. Daskal to purchase 1,250 shares of Common
Stock currently exercisable at a price of $2.622 per share, options to
purchase 834 shares of Common Stock currently exercisable at a price of
$1.563 per share, options to purchase 834 shares of Common Stock currently
exercisable at a price of $3.625 per share, options to purchase 1,500
shares of Common Stock currently exercisable at a price of $3.250 per
share, options to purchase 5,555 shares of Common Stock currently
exercisable at a price of $2.00 per share, options to purchase 347 shares
of Common Stock exercisable in June 1999 at a per share price of $2.00 and
options to purchase 347 shares of Common Stock exercisable in July 1999 at
a per share price of $2.00.
(8) Includes 11,252 shares of Common Stock owned by Mr. Seymour, options held
by Mr. Seymour to purchase 1,250 shares of Common Stock currently
exercisable at $6.00 per share, options to purchase 834 shares of Common
Stock currently exercisable at a price of $1.563 per share, options to
purchase 834 shares of Common Stock currently exercisable at a price of
$3.625 per share and options to purchase 1,500 shares of Common Stock
currently exercisable at a price of $3.250 per share.
(9) Includes 3,591 shares of Common Stock owned directly by Mr. Hantges and
options held by Mr. Hantges to purchase 1,250 shares of Common Stock
currently exercisable at a price of $2.00 per share, and options to
purchase 1,500 shares of Common Stock currently exercisable at a price of
$3.25 per share.

35
<PAGE>

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Ira C. Norris and Entities Controlled by Ira C. Norris

For the years ended December 31, 1998 and 1997, the Company incurred
$25,500 and $45,000, respectively, in model home design fees and $152,431 and
$108,400, respectively, as reimbursement for the cost of the model home
furnishings to Nancy Orman Interiors. Nancy Norris, the wife of Ira C. Norris,
owns Nancy Orman Interiors.

From September 1996 through November 30, 1997, the Company received
advances of $2,747,000 from Ira C. Norris, of which the Company had repaid
$460,000. The advances were unsecured, bore interest at 10% and were due on
March 31, 1998. The balance of these advances at December 23, 1997 was
$2,462,000, which included accrued interest of $171,000. On that date, Mr.
Norris agreed to convert $2,340,000 of this debt into 2,340 shares of Series A
Cumulative Preferred Stock of the Company. The Company issued these shares on
December 30, 1997 to the Norris Living Trust, of which Mr. Norris is a
beneficiary and trustee. The Series A Preferred Stock has a par value of $0.01,
has no voting rights, is non-participating, and has no conversion features. The
stock is redeemable at the option of the Company for cash at the redemption
price of $1,000 per share plus accumulated but unpaid dividends. The established
dividend rate on the Preferred Stock is $100 per share per annum payable
quarterly from available working capital. An unsecured note to the Norris Living
Trust, bearing interest at 10%, evidences the balance of indebtedness not
converted in the amount of approximately $122,000. The note was due in December
1998 and has been extended until December 23, 1999. The balance owing under this
note at December 31, 1998 was $134,035, which includes accrued interest of
approximately $12,035.

Additionally, on December 11, 1998, the stockholders of the Company
approved the issuance of a warrant to purchase 200,000 shares of Common Stock to
Ira C. Norris in connection with the extension of a $1,000,000 non-revolving
line of credit made by Mr. Norris on July 15, 1998 through the living trust he
created for the benefit of himself and his family (the "Norris Living Trust") to
the Company's wholly owned subsidiary Huntington Homes LLC. The $1,000,000 non-
revolving line of credit bears interest at a variable interest rate, of which
the initial interest rate was 10.0% per annum. The note securing the line of
credit is due and payable in fully by July 2, 1999. At December 31, 1998, the
accrued interest under the note was $2,275.

Transactions with Thomas A. Hantges

Thomas A. Hantges owns approximately 67% of both USA Commercial Mortgage
Company ("USA") and USA Commercial Real Estate Group ("USA Real Estate"). USA
has provided loans and arranged for individual lenders to provide loans to the
Company secured by Company projects in cumulative amounts totaling $13,650,000
and $12,120,000 for the years ended December 31, 1998 and 1997, respectively.
USA has earned cumulative fees for these loans for the years ended December 31,
1998 and 1997 totaling $1,118,000 and $1,087,000, respectively, of which
$909,000 and $878,000, respectively, has been paid. The balance is secured by
notes and is to be paid

36
<PAGE>

from proceeds from sales of completed homes in certain of the Company's
projects. The interest rates on these loans ranged from 12.25% to 15.25% in 1998
and from 12.25% to 20.25% in 1997. The outstanding balance of these loans at
December 31, 1998 and 1997 was $5,397,700 and $6,922,000, respectively.

In June 1997, USA Real Estate arranged for an additional group of investors
to purchase the Company's Eagle Ranch project in the high desert for $2,400,000.
Funds from this sale helped the Company repay portions of matured loans secured
by this project with a commercial bank. The investors granted the Company a six-
year option to periodically repurchase portions of the property, subject to
annual minimum repurchase thresholds, for the development of single-family
homes. If the Company failed to repurchase the minimum number of lots in any
year, the option would terminate. Because of an election by the Company not to
acquire any lots under this option agreement and the failure to pay the
prerequisite real estate taxes, the Company was notified that its rights to
acquire these lots had been terminated.

In February 1999, the Company entered into an Agency Agreement with USA.
Pursuant to the Agency Agreement, upon completion of the proposed merger with
American Communities, Inc., USA shall receive a 10-year option to purchase
250,000 shares of Common Stock of the Company for $2.00 per share. In addition,
USA shall receive certain registration rights with respect to the optioned
shares. If the Company's stockholders do not approve the stock options and
registration rights, USA shall receive, upon completion of the American merger,
the sum of $600,000 payable $200,000 within two business days of approval of the
merger by the Company's stockholders, and $50,000 quarterly thereafter.

Subsequent to year end, the Company sold 53 finished lots and 4 completed
models to USA Investors II, LLC, whose manager is USA Commercial Mortgage. The
property was sold for cash consideration of $50,000 and the assumption of
approximately $1.7 million of debt and trade accounts payable, including
existing debt to USA Mortgage of approximately $1.1 million. The debt assumed is
estimated based upon current outstanding obligations minus proforma debt
paydowns from the closing of 12 units under construction. The Company is also
entitled to additional consideration of $100,000 payable from the profits upon
the sale of these properties by USA Investors II, LLC. As of December 31, 1998,
the Company has chosen to write down additional capitalized costs attributable
to these lots. These costs would have been charged to cost of sales in the
normal course of business as each house was sold had the lots been built out.
The additional charge of $974,000 was expensed to the provision for write down
of real estate.

Transactions with Overland Opportunity Fund, LLC

37
<PAGE>

ITEM 13. EXHIBITS LIST, AND REPORTS ON FORM 8-K.

(a) Exhibits.

Exhibit
Number Document Description
- ------ --------------------

3.1 Restated Certificate of Incorporation of the Registrant. (Incorporated
by reference to the Company's Form 8-K dated January 15, 1997.)

3.2 Restated Bylaws of the Registrant. (Incorporated by reference to
Exhibit 3.2 of the Company's Annual Report on Form 10-K dated December
31, 1995.)

*3.3 Certificate of Amendment of the Restated Certificate of Incorporation
of the Registrant, dated December 11, 1998.

4.1 Specimen of Common Stock Certificate. (Incorporated by reference to
Exhibit 4.1 of the Company's Annual Report on Form 10-K dated December
31, 1996.)

4.2 Preferred Stock Certificate issued to Norris Living Trust.
(Incorporated by reference to Exhibit 4.2 of the Company's Annual
Report on Form 10-KSB dated December 31, 1997.)

4.3 Certificate of Designations, Preferences and Rights of Series A
Cumulative Preferred Stock of Inco Homes Corporation. (Incorporated by
reference to Exhibit 4.3 of the Company's Annual Report on Form 10-KSB
dated December 31, 1997.)

10.1 Form of Indemnification Agreement between the Registrant and its
directors and certain officers. (Incorporated by reference to Exhibit
10.1 of the Company's registration statement under the Securities Act
on Form S-1, Registration Statement No. 33-58050.)

+10.2 Form Stock Option Agreement. (Incorporated by reference to Exhibit
10.3 of the Company's registration statement under the Securities Act
on Form S-1, Registration Statement No. 33-58050.)

+10.3 Form Stock Option Agreement (with Stock Appreciation Right.)
(Incorporated by reference to Exhibit 10.4 of the Company's
registration statement under the Securities Act on Form S-1,
Registration Statement No. 33-58050.)

+10.4 Form of Non-employee Director Option Agreement. (Incorporated by
reference to Exhibit 10.5 of the Company's registration statement
under the Securities Act on Form S-1, Registration Statement No. 33-
58050.)

+10.5 Form of Stock Issuance Agreement. (Incorporated by reference to
Exhibit 10.6 of the Company's registration statement under the
Securities Act on Form S-1, Registration Statement No. 33-58050.)

+10.6 Profit Sharing Plan. (Incorporated by reference to Exhibit 10.7 of the
Company's registration statement under the Securities Act on Form S-1,
Registration Statement No. 33-58050.)

+10.7 Cash or Deferred Profit Sharing Plan. (Incorporated by reference to
Exhibit 10.8 of the Company's registration statement under the
Securities Act on Form S-1, Registration Statement No. 33-58050.)

+10.8 Employees' Incentive Compensation Plan. (Incorporated by reference to
Exhibit 10.49 of the Company's registration statement under the
Securities Act on Form S-1, Registration Statement No. 33-58050.)

38
<PAGE>

Exhibit
Number Document Description
- ------ --------------------

+10.9 1992 Stock Option/Stock Issuance Plan. (Incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q dated
March 31, 1994.)

10.10 Tax Indemnification Agreement between the Registrant and Ira C. Norris
dated March 15, 1993. (Incorporated by reference to Exhibit 10.44 of
the Company's registration statement under the Securities Act on Form
S-1, Registration Statement No. 33-58050.)

10.11 Limited Partnership Agreement of Spirit Corona 77, L.P. by and between
ORA A&D Associates, L.P., a California Limited Partnership and Inco
Homes Corporation, a Delaware corporation, dated January 11, 1996.
(Incorporated by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q dated June 30, 1996.)

10.12 Limited Partnership Agreement of Freedom--Eagle Ranch Housing Partners
by and between Julia Construction Inc., a California corporation, Fred
E. Liao and Bob C. Chang, and Inco Homes Corporation, a Delaware
corporation, dated May 1, 1996. (Incorporated by reference to Exhibit
10.2 of the Company's Quarterly Report on Form 10-Q dated June 30,
1996.)

10.13 Limited Partnership Agreement of Triumph--Lancaster Housing Partners
by and between the Gibbs Family Trust and Inco Homes Corporation,
dated August 5, 1996. (Incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-Q dated September 30, 1996.)

10.14 Common Stock Purchase Agreement by and between Inco Homes Corporation
and Overland Opportunity Fund, LLC, a California Limited Liability
Company, dated December 23, 1996. (Incorporated by reference to
Exhibit 10.44 of the Company's Annual Report on Form 10-K dated
December 31, 1996.)

10.15 Option Agreement by and between Inco Homes Corporation and Overland
Opportunity Fund, LLC, a California Limited Liability Company, dated
December 26, 1996. (Incorporated by reference to Exhibit 10.45 of the
Company's Annual Report on Form 10-K dated December 31, 1996.)

10.16 Consulting Agreement by and between Inco Homes Corporation and
Overland Company, Inc., a California Corporation, dated December 26,
1996. (Incorporated by reference to Exhibit 10.46 of the Company's
Annual Report on Form 10-K dated December 31, 1996.)

10.17 Warrant to Purchase 1,200,000 Shares of Inco Homes Corporation Common
Stock issued to Overland Company, Inc., dated December 26, 1996.
(Incorporated by reference to Exhibit 10.47 of the Company's Annual
Report on Form 10-K dated December 31, 1996.)

10.18 Secured Participation Note by and between Hunter's Ridge Investment
Partners, a California Partnership and Inco Homes Corporation, dated
October 1996. (Incorporated by reference to Exhibit 10.49 of the
Company's Annual Report on Form 10-K dated December 31, 1996.)

10.19 Registration Rights Agreement by and between Inco Homes Corporation
and Overland Opportunity Fund, LLC, a California Limited Liability
Company, dated December 23, 1996. (Incorporated by reference to
Exhibit 10.50 of the Company's Annual Report on Form 10-K dated
December 31, 1996.)

10.20 Development and Marketing Agreement by and between Capital Mutual
Moreno Valley, LLC., a California Limited Liability Company and Inco
Homes Corporation, dated October 21, 1997. (Incorporated by reference
to Exhibit 10.8 of the Company's Annual Report on Form 10-KSB dated
December 31, 1998.)

39
<PAGE>

Exhibit
Number Document Description
- ------ --------------------

10.21 Letter Agreement by and between Overland Company, Inc. a California
Corporation and Inco Homes Corporation, dated November 4, 1997.
(Incorporated by reference to Exhibit 10.88 of the Company's Annual
Report on Form 10-KSB dated December 31, 1998.)

10.22 Common Stock Purchase Agreement by and between Thomas Hantges and
Joseph D. Milanowski and Inco Homes Corporation, dated November 14,
1997. (Incorporated by reference to Exhibit 10.89 of the Company's
Annual Report on Form 10-KSB dated December 31, 1998.)

10.23 Agreement by and between City National Bank and Inco Homes
Corporation, dated December 1, 1997. (Incorporated by reference to
Exhibit 10.99 of the Company's Annual Report on Form 10-KSB dated
December 31, 1998.)

10.24 Restructuring Agreement by and between Sara Katz, et al., Palmdale
Vistas Housing Developments, a California Limited Partnership, Inco
Development Corporation, and Inco Homes Corporation, dated December 4,
1997. (Incorporated by reference to Exhibit 10.103 of the Company's
Annual Report on Form 10-KSB dated December 31, 1998.)

10.25 Agreement and Escrow Instructions by and between Palmdale Vistas
Housing Investments, a California Limited Partnership, Palmdale Vistas
Housing Developments, a California Limited Partnership, and Inco
Development Corporation, dated December 19, 1997. (Incorporated by
reference to Exhibit 10.104 of the Company's Annual Report on Form 10-
KSB dated December 31, 1998.)

10.26 Promissory Note between the Norris Living Trust and Business Bank of
California dated July 15, 1998. (Incorporated by reference to Exhibit
10.1 of the Company's Quarterly Report on Form 10-QSB dated June 30,
1998.)

10.27 Modification of Secured Promissory Note between Ira C. Norris,
Trustee, Norris Living Trust ad Inco Homes Corporation, dated June 26,
1998. (Incorporated by reference to Exhibit 10.2 of the Company's
Quarterly Report on Form 10-QSB dated June 30, 1998.)

10.28 Modification of Secured Promissory Note between Ronald L. Neeley and
Lucille A. Neeley, Co-Trustees under the Neeley Revocable Family Trust
and Inco Homes Corporation, dated June 26, 1998. (Incorporated by
reference to Exhibit 10.3 of the Company's Quarterly Report on Form
10-QSB dated June 30, 1998.)

*+10.29 Inco Homes Corporation 1998 Incentive Stock Option Plan and
Nonstatutory Stock Option Plan.

*10.30 Warrant to Purchase 200,000 Shares of Inco Homes Corporation Common
Stock issued to Norris Living Trust, dated December 11, 1998.

*10.31 Development & Marketing Agreement by and between Harwood Palmdale
Partners I, a Limited Partnership and Inco Homes Corporation.

*10.32 Development & Marketing Agreement by and between Overland Haven, LLC,
a California Limited Liability Company and Inco Homes Corporation.

*10.33 Development & Marketing Agreement by and between Overland R.C. 29,
LLC, a California Limited Liability Company and Inco Homes
Corporation.

*10.34 Agency Agreement by and between USA Commercial Mortgage Company, a
Nevada corporation, and Inco Homes Corporation, a Delaware Corporation
dated February 26, 1999.

40
<PAGE>

Exhibit
Number Document Description
- ------ --------------------

*10.35 Purchase and Sale Agreement by and between USA Investors II, LLC, a
Nevada limited liability company and Huntington Homes, LLC, a
California limited liability company, dated June 23, 1999.

*21.1 Subsidiaries of the Registrant.

*23.1 Consent of Certified Public Accountants (PriceWaterhouseCoopers LLP).

*27.1 Financial Data Schedule

________________
* Filed herewith
+ Management contract, compensatory plan or arrangement

(b) Reports on Form 8-K.

None.

41
<PAGE>

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.

INCO HOMES CORPORATION

By /s/ Ira C. Norris
-----------------------------------------
Ira C. Norris
Chairman of the Board, President and
Chief Executive Officer
Dated: July 7, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature Title Date
--------- ----- ----
/s/ Ira C. Norris Chairman of the Board, President July 7, 1999
- ---------------------------
Ira C. Norris and Chief Executive Officer
(principal executive officer)

/s/ David A. Fogg Chief Financial Officer July 7, 1999
- ---------------------------
David A. Fogg (principal financial officer)

/s/ Robert H. Daskal Director July 7, 1999
- ---------------------------
Robert H. Daskal

/s/ Thomas A. Hantges Director July 7, 1999
- ---------------------------
Thomas A. Hantges

/s/ John F. Seymour, Jr. Director July 7, 1999
- ---------------------------
John F. Seymour, Jr.

<PAGE>

EXHIBIT 3.3

CERTIFICATE OF AMENDMENT OF
THE RESTATED CERTIFICATE OF INCORPORATION OF
INCO HOMES CORPORATION

- --------------------------------------------------------------------------------

Inco Homes Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,

DOES HEREBY CERTIFY:

FIRST: That at a meeting of the Board of Directors of Inco Homes
Corporation, resolutions were duly adopted setting forth a proposed amendment of
the Restated Certificate of Incorporation of said corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:

RESOLVED, that the Restated Certificate of Incorporation of the Company be
amended by changing the first paragraph of the Article thereof numbered
"FOURTH" so that, as amended, said paragraph shall be and read as follows:

"The Corporation is authorized to issue two classes of shares to be
designated Common Stock ("Common Stock") and Preferred Stock ("Preferred
Stock"), respectively. The total number of shares which the Corporation is
authorized to issue is six million (6,000,000). Five million (5,000,000)
shares shall be Common Stock and one million (1,000,000) shares shall be
Preferred Stock. The Common Stock shall have a par value of $0.01 per
share and the Preferred Stock shall have a par value of $0.01 per share.

SECOND: That thereafter, pursuant to resolution by its Board of Directors,
a special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.

THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.

IN WITNESS WHEREOF, Inco Homes Corporation has caused this certificate to
be signed by Ira C. Norris, its authorized officer, this 11th day of December,
1998.

INCO HOMES CORPORATION
A Delaware corporation

By: /s/ Ira C. Norris
----------------------------------------
Ira C. Norris, Chairman of the Board,
President, and Chief Executive Officer

Attest:

By: _________________________________
David A. Fogg, Secretary

STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/21/1998
981493966 - 2314102

<PAGE>

EXHIBIT 10.29

INCO HOMES CORPORATION
1998 INCENTIVE STOCK OPTION PLAN AND
NONSTATUTORY STOCK OPTION PLAN

(As adopted April 15, 1998)

1. NAME, EFFECTIVE DATE AND PURPOSE.
--------------------------------

(a) This Plan document is intended to implement and govern two
separate stock option plans of INCO HOMES CORPORATION, a Delaware corporation
(the "Company"): the Incentive Stock Option Plan ("Plan A") and the Nonstatutory
Stock Option Plan ("Plan B"). Plan A provides for the granting of options that
are intended to qualify as incentive stock options ("Incentive Stock Options")
within the meaning of Section 422(b) of the Internal Revenue Code, as amended.
Plan B provides for the granting of options that are not intended to so qualify.
Unless specified otherwise, all of the provisions of this Plan relate equally to
both Plan A and Plan B and are condensed for convenience into one Plan document.

(b) Plan A and Plan B are each established effective as of April 15,
1998. The purpose of Plan A and Plan B (sometimes together referred to as the
"Plan" or this "Plan") is to promote the growth and general prosperity of the
Company and its Affiliated Companies. This Plan will permit the Company to
grant options ("Options") to purchase shares of its common stock ("Common
Stock"). The granting of Options will help the Company attract and retain the
best available persons for positions of substantial responsibility and will
provide certain key employees with an additional incentive to contribute to the
success of the Company and its Affiliated Companies. For purposes of this Plan,
the term "Affiliated Companies" shall mean any component member of a controlled
group of corporations, as defined under Internal Revenue Code Section 1563, in
which the Company is also a component member.

2. ADMINISTRATION.
--------------

(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board").

(b) The Board shall have the sole authority, in its absolute
discretion, to determine which of the eligible persons of the Company and its
Affiliated Companies shall receive Options ("Optionees"), and, subject to the
express provisions and restrictions of this Plan, shall have sole authority, in
its absolute discretion, to determine the time when Options shall be granted,
the terms and conditions of an Option other than those terms and conditions
fixed under this Plan, the number of shares which may be issued upon exercise of
an Option and the means of payment for such shares, and shall have authority to
do everything necessary or appropriate to administer the Plan. All decisions,
determinations and interpretations of the Board shall be final and binding on
all Optionees.

(c) The Board shall have the authority to delegate some or all of the
powers granted to it pursuant to this Section 2 to a committee (the "Committee")
appointed by the Board and consisting of not less than two (2) members of the
Board, one of whom shall be the Chief Executive Officer of the Company. The
Board may from time to time remove members from, or add members to, the
Committee, and vacancies on the Committee shall be filled by the Board. All
decisions, determinations and interpretations of the Committee shall be final
and binding on all Optionees, unless otherwise determined by the Board.

(d) Definitions:

(i) Restricted Shareholder: An individual who, at the time an
Option is granted under either Plan A or Plan B, owns stock possessing more than
10% of the total combined voting power of all classes of stock of the employer
corporation or of its Parent Corporation or Subsidiary Corporation, with stock
ownership to be determined in light of the attribution rules set forth in
Section 425(d) of the Internal Revenue Code.

1
<PAGE>

(ii) Parent Corporation: A corporation as defined in Section
425(e) of the Internal Revenue Code.

(iii) Subsidiary Corporation: A corporation as defined in
Section 425(f) of the Internal Revenue Code.

(iv) Officer: The chief executive officer, president, chief
financial officer, chief accounting officer, any vice president in charge of a
principal business function (such as sales, administration, or finance) and any
other person who performs similar policy-making functions for the Company.

3. ELIGIBILITY.
-----------

(a) Plan A: The Board (or the Committee, if so authorized by the
Board) may, in its discretion, grant one or more Options under Plan A to any key
management employee of the Company or its Affiliated Companies, including any
employee who is a director of the Company or of any of its Affiliated Companies
presently existing or hereinafter organized or acquired. Such Options may be
granted to one or more such employees without being granted to other eligible
employees, as the Board may deem fit.

(b) Plan B: The Board (or the Committee, if so authorized by the
Board), may, in its discretion, grant one or more Options under Plan B to any
key management employee, any employee or non-employee director of the Company or
its Affiliated Companies, including any employee who is a Director of the
Company or of any of its Affiliated Companies presently existing or hereinafter
organized or acquired or any person who performs consulting or other services
for the Company or its Affiliated Companies and who is designated by the Board
as eligible to participate in Plan B. Such Options may be granted to one or more
such persons without being granted to other eligible persons, as the Board may
deem fit.

4. STOCK TO BE OPTIONED.
--------------------

(a) The maximum aggregate number of shares which may be optioned and
sold under Plan A and Plan B is Two Hundred Thousand (200,000) shares of
authorized Common Stock of the Company. The foregoing constitutes an absolute
cumulative limitation on the total number of shares that may be optioned under
both Plan A and B. Therefore, at any particular date the maximum aggregate
number of shares which may be optioned under Plan A is equal to Two Hundred
Thousand (200,000) minus the number of shares previously optioned under both
Plan A and Plan B and the maximum aggregate number of shares which may be
optioned under Plan B is equal to Two Hundred Thousand (200,000) minus the
number of shares which have been previously optioned under both Plan A and Plan
B. All shares to be optioned and sold under either Plan A or Plan B may be
either authorized but unissued shares or shares held in the treasury.

(b) Shares of Common Stock that: (i) are repurchased by the Company
after issuance hereunder pursuant to the exercise of an Option, or (ii) are not
purchased by the Optionee prior to the expiration or termination of the
applicable Option, shall again become available to be covered by Options to be
issued hereunder and shall not, as of the effective date of such repurchase or
expiration, be counted as covered by an outstanding Option for purposes of the
above-described maximum number of shares which may be optioned hereunder.

5. OPTION PRICE.
------------

The Option Price for shares of Common Stock to be issued under either
Plan A or Plan B shall be 100% of the fair market value of such shares on the
date on which the Option covering such shares is granted by the Board (or the
Committee, if authorized by the Board), except that if on the date on which such
Option is granted the Optionee is a Restricted Shareholder, then such Option
Price for Options granted under Plan A shall be 110% of the fair market value of
the shares of Common Stock subject to the Option on the date such Option is
granted by the Board (or the Committee, if so authorized). The fair market
value of shares of Common Stock for all purposes of this Plan is to be
determined by the Board (or the Committee, if so authorized by the Board) in its
sole discretion, exercised in good faith.

2
<PAGE>

6. TERM OF PLAN.
------------

Plan A and Plan B shall become effective on April 15, 1998; both Plan
A and Plan B shall continue in effect until April 15, 2008 unless terminated
earlier by action of the Board. No Option may be granted hereunder after April
15, 2008.

7. EXERCISE OF OPTION.
------------------

Subject to the actions, conditions and/or limitations set forth in
this Plan document and/or any applicable Stock Option Agreement entered into
hereunder, Options granted under this Plan shall be exercisable in accordance
with the following rules:

(a) No Option granted under Plan A or Plan B may be exercised in
whole or in part until six (6) months after the date on which the Option is
granted by the Board, or by the Committee if so authorized (hereinafter the
"Option Grant Date").

(b) Subject to the specific provisions of this Section 7, Options
shall become exercisable at such times and in such installments (which may be
cumulative) as the Board shall provide in the terms of each individual Option;
provided, however, each Option granted under the Plan shall become exercisable
in installments of not less than 20% of the number of shares covered by such
Option each year from the Option Grant Date; and provided, further, that by a
resolution adopted after an Option is granted the Board may, on such terms and
conditions as it may determine to be appropriate and subject to the specific
provisions of this Section 7, accelerate the time at which such Option or
installment thereof may be exercised. For purposes of this Plan, any accrued
installment of an Option granted hereunder shall be referred to as an "Accrued
Installment."

(c) Subject to the specific restrictions contained in this Section 7,
an Option may be exercised when Accrued Installments accrue, as provided in the
terms under which such Option was granted, for a period of up to ten (10) years
from the Option Grant Date with respect to Options granted under Plan A and for
a period of up to ten (10) years from the Option Grant Date with respect to
Options granted under Plan B. In no event shall any Option be exercised on or
after the expiration of said maximum applicable period, regardless of the
circumstances then existing (including but not limited to the death or
termination of employment of the Optionee).

(d) The Board (or the Committee, if so authorized by the Board) shall
fix the expiration date of the Option (the "Option Expiration Date") at the time
the Option grant is authorized.

8. RULES APPLICABLE TO CERTAIN DISPOSITIONS.
----------------------------------------

(a) Notwithstanding the foregoing provisions of Section 7, in the
event the Company or the stockholders of the Company enter into an agreement to
dispose of all or substantially all of the assets or capital stock of the
Company by means of a sale, merger, consolidation, reorganization, liquidation,
or otherwise, an Option shall become immediately exercisable with respect to the
full number of shares subject to that Option during the period commencing as of
the later of (x) date of execution of such agreement or (y) six (6) months after
the Option Grant Date, and ending as of the earlier of:

(i) the Option Expiration Date; or

(ii) the date on which the disposition of assets or capital
stock contemplated by the agreement is consummated. The exercise of any Option
that was made exercisable solely be reason of this Subsection 8(a) shall be
conditioned upon the consummation of the disposition of assets or stock under
the above referenced agreement. Upon the consummation of any such disposition of
assets or stock, this Plan and any unexercised Options issued hereunder (or any
unexercised portion thereof) shall terminate and cease to be effective.

(b) Notwithstanding the foregoing, in the event that any such
agreement shall be terminated without consummating the disposition of said stock
or assets:

3
<PAGE>

(i) any unexercised non-vested installments that had become
exercisable solely by reason of the provisions of Subsection 8(a) shall again
become non-vested and unexercisable as of said termination of such agreement,
and

(ii) the exercise of any option that had become exercisable
solely by reason of this Subsection 8(a) shall be deemed ineffective and such
installments shall again become non-vested and unexercisable as of said
termination of such agreement.

(c) Notwithstanding the provisions set forth in Subsection 8(a), the
Board (or the Committee, if so authorized by the Board) may, at its election and
subject to the approval of the corporation purchasing or acquiring the stock or
assets of the Company (the "surviving corporation"), arrange for the Optionee to
receive upon surrender of Optionee's Option a new option covering shares of the
surviving corporation in the same proportion, at an equivalent option price and
subject to the same terms and conditions as the old Option. For purposes of the
preceding sentence, the excess of the aggregate fair market value of the shares
subject to such new option immediately after consummation of such disposition of
stock or assets over the aggregate option price of such shares of the surviving
corporation shall not be no more than the excess of the aggregate fair market
value of all shares subject to the old Option immediately before consummation of
such disposition of stock or assets over the aggregate Option Price of such
shares of the Company, and the new option shall not give the Optionee additional
benefits which such Optionee did not have under the old Option or deprive the
Optionee of benefits which the Optionee had under the old Option. If such
substitution of options is effectuated, the Optionee's rights under the old
Option shall thereupon terminate.

9. MERGERS AND ACQUISITIONS.
------------------------

(a) If the Company at any time should succeed to the business of
another corporation through a merger or consolidation, or through the
acquisition of stock or assets of such corporation, Options may be granted under
the Plan to option holders of such corporation or its subsidiaries, in
substitution for options or rights to purchase stock of such corporation held by
them at the time of succession. The Board (or the Committee, if so authorized
by the Board) shall have sole and absolute discretion to determine the extent to
which such substitute Options shall be granted (if at all), the person or
persons within the eligible group to receive such substitute Options (who need
not be all option holders of such corporation), the number of Options to be
received by each such person, the Option Price of such Option, and the terms and
conditions of such substitute Options; provided, however, that the terms and
conditions of the substitute Options shall comply with the provisions of Section
425 of the Code, such that the excess of the aggregate fair market value of the
shares subject to such substitute Option immediately after the substitution or
assumption over the aggregate option price of such shares is not more that the
excess of the aggregate fair market value of all shares subject to the
substitute Option immediately before such substitution or assumption over the
aggregate option price of such shares, and the substitute Option or the
assumption of the old option does not give the holder thereof additional
benefits which he or she did not have under such old option.

(b) Notwithstanding anything to the contrary herein, no Option shall
be granted, nor any action taken, permitted or omitted, which could cause the
Plan, or any Options granted hereunder as to which Rule 16b-3 under the
Securities Exchange Act of 1934 may apply, not to comply with such Rule.

10. TERMINATION OF EMPLOYMENT.
-------------------------

(a) In the event that the Optionee's employment, directorship,
consulting or other arrangement with the Company (or Affiliated Company) is
terminated for any reason other than death or disability, any unexercised
Accrued Installments of the Option granted hereunder to such terminated Optionee
shall expire and become unexercisable as of the earlier of:

(i) the applicable Option Expiration Date; or

(ii) a date 30 days after such termination occurs, provided
however, that the Board (or the Committee, if empowered to so act) may, in the
exercise of its discretion, extend said date up to and including a date

4
<PAGE>

three months following such termination, with respect to Options granted under
Plan A, or up to and including a date two years following such termination with
respect to Options granted under Plan B.

(b) In the event that the Optionee's employment, directorship,
consulting or other arrangement with the Company is terminated due to the death
or disability of the Optionee, any unexercised Accrued Installments of the
Option granted hereunder to such Optionee shall expire and become unexercisable
as of the earlier of:

(i) the applicable Option Expiration Date; or

(ii) the first anniversary of the date of death of such
Optionee (if applicable); or

(iii) the first anniversary of the date of the termination of
employment, directorship or consulting or other arrangement by reason of
disability (if applicable). Any such Accrued Installments of a deceased
Optionee may be exercised prior to their expiration by (and only by) the person
or persons to whom the Optionee's Option right shall pass by will or by the laws
of descent and distribution, if applicable, subject, however, to all of the
terms and conditions of this Plan and the applicable Stock Option Agreement
governing the exercise of Options granted hereunder.

(c) For purposes of this Section 10, an Optionee shall be deemed
employed by the Company (or affiliated Company) during any period of leave of
absence from active employment as authorized by the Company (or Affiliated
Company).

11. EXERCISE OF OPTIONS.
-------------------

(a) An Option shall be deemed exercised when written notice of such
exercise has been given to the Company at its principal business office by the
person entitled to exercise the Option and full payment in cash or cash
equivalents (or with shares of Common Stock pursuant to Section 14) for the
shares with respect to which the Option is exercised has been received by the
Company. The Board of Directors (or the Committee, if so authorized) may cause
the Company to give or arrange for financial assistance (including without
limitation direct loans, with or without interest, secured or unsecured, or
guarantees of third party loans) to an Optionee for the purpose of providing
funds for the purchase of shares pursuant to the exercise of Options, when in
the judgment of the Board (or the Committee) such assistance may reasonably be
expected to be in the best interests of the Company, and consistent with the
Certificate of Incorporation and Bylaws of the Company and applicable laws, and
will permit the shares to be fully paid and nonassessable when issued.

(b) An Option may be exercised in accordance with this Section 11 as
to all or any portion of the shares covered by any Accrued Installment of the
Option from time to time during the applicable Option period, but shall not be
exercisable with respect to fractions of a share.

(c) As soon as practicable after any proper exercise of an Option in
accordance with the provisions of this Plan, the Company shall, without charging
transfer or issue tax to the Optionee, deliver to the Optionee at the main
office of the Company, or such other place as shall be mutually acceptable, a
certificate or certificates representing the shares of Common Stock as to which
the Option has been exercised. The time of issuance and delivery of the Common
Stock may be postponed by the Company for such period as may be required for it
with reasonable diligence to comply with any applicable listing requirements of
any national or regional securities exchange and any law or regulation
applicable to the issuance and delivery of such shares.

12. AUTHORIZATION TO ISSUE OPTIONS AND SHAREHOLDER APPROVAL.
-------------------------------------------------------

Unless in the judgment of counsel to the Company such permit is not
necessary with respect to particular grants, Options granted under the Plan
shall be conditioned upon the Company obtaining any required permit from the
California Department of Corporations and/or other appropriate governmental
agencies, free of any conditions not acceptable to the Board, authorizing the
Company to grant such Options, provided, however, such condition shall lapse as
of the effective date of issuance of such permit(s) in a form to which the
Company does not object within sixty

5
<PAGE>

(60) days. The grant of Options under the Plan also is conditioned on approval
of the Plan by the vote or consent of the holders of a majority of the
outstanding shares of the Company's Common Stock and no Option granted hereunder
shall be effective or exercisable unless and until the Plan has been so approved
within 12 months of the adoption of the Plan.

13. LIMIT ON VALUE OF OPTIONED SHARES.
---------------------------------

The aggregate fair market value (determined as of the Option Grant
Date) of the shares of Common Stock to which Options granted under Plan A are
exercisable for the first time by any employee of the Company during any
calendar year under all incentive stock option plans of the Company and its
Affiliated Companies shall not exceed $100,000. The limitation imposed by this
Section 13 shall not apply with respect to Options granted under Plan B.

14. PAYMENT OF EXERCISE PRICE WITH COMPANY STOCK.
--------------------------------------------

The Board (or the Committee, if so authorized) may provide that, upon
exercise of the Option, the Optionee may elect to pay for all or some of the
shares of Common Stock underlying the Option with shares of Common Stock of the
Company previously acquired and owned at the time of exercise by the Optionee,
subject to all restrictions and limitations of applicable laws, rules and
regulations, including Section 425(c)(3) of the Internal Revenue Code, and
provided that the Optionee will make representations and warranties satisfactory
to the Company regarding his or her title to the shares used to effect the
purchase, including without limitation representations and warranties that the
Optionee has good and marketable title to such shares free and clear of any and
all liens, encumbrances, charges, equities, claims, security interests, options
or restrictions and has full power to deliver such shares without obtaining the
consent or approval of any person or governmental authority other than those
which have already given consent or approval in a form satisfactory to the
Company. The equivalent dollar value of the shares used to effect the purchase
shall be the fair market value of the shares on the date of the purchase as
determined by the Board (or the Committee, if so authorized) in its sole
discretion, exercised in good faith.

The terms and conditions of Options granted under the Plan shall be
evidenced by a Stock Option Agreement (the "Agreement") executed by the Company
and the person to whom the Option is granted. Each agreement shall contain the
following provisions:

(a) A provision fixing the number of shares which may be issued upon
exercise of the Option;

(b) A provision establishing the Option exercise price per share;

(c) A provision establishing the times and the installments in which
Options may be exercised, provided, however, such times and installments shall
not be less than 20% of the number of shares covered by such Option each year
from the Option Grant Date;

(d) A provision incorporating therein this Plan by reference;

(e) A provision clarifying which Options are intended to be Incentive
Stock Options under Plan A and which are intended to be nonstatutory stock
options under Plan B;

(f) A provision fixing the maximum duration of the Option as not more
than ten (10) years from the Option Grant Date for Options granted under either
Plan A or Plan B;

(g) Such representations and warranties by the Optionee as may be
required by Section 24 of this Plan or as may be required by the Board (or the
Committee, if so authorized) in its discretion;

(h) Any other restriction (in addition to those established under
this Plan) as may be established by the Board (or the Committee, if so
authorized) with respect to the exercise of the Option, the transfer of the
Option, and/or the transfer of the shares purchased by exercise of the Option,
provided that such restrictions are not in conflict with this Plan; and

6
<PAGE>

(i) Such other terms and conditions not inconsistent with this Plan
as may be established by the Board (or the Committee, if so authorized).

15. TAXES, FEES AND EXPENSES.
------------------------

The Company shall pay all original issue and transfer taxes (but not
income taxes, if any) with respect to the grant of Options and/or the issue and
transfer of shares pursuant to the exercise of such Options, and all other fees
and expenses necessarily incurred by the Company in connection therewith, and
will from time to time use its best efforts to comply with all laws and
regulations which, in the opinion of counsel for the Company, shall be
applicable thereto.

16. WITHHOLDING OF TAXES.
--------------------

The grant of Options hereunder and the issuance of Common Stock
pursuant to the exercise of such Options is conditioned upon the Company's
reservation of the right to withhold, in accordance with any applicable law,
from any compensation payable to the Optionee any taxes required to be withheld
by federal, state or local law as a result of the grant or exercise of any such
Option.

17. AMENDMENT OR TERMINATION OF THE PLAN.
------------------------------------

(a) The Board may amend this Plan from time to time in such respects
as the Board may deem advisable, provided, however, that no such amendment shall
operate to (i) affect adversely an Optionee's rights under this Plan with
respect to any Option granted hereunder prior to the adoption of such amendment,
except as may be necessary, in the judgment of counsel to the Company, to comply
with any applicable law, (ii) increase the maximum aggregate number of shares
which may be optioned and sold under the Plan (unless stockholders approve such
increase), (iii) change the manner of determining the Option exercise price,
(iv) change the classes of persons eligible to receive Options under the Plan,
or (v) extend the maximum duration of the Option or the Plan.

(b) The Board may at any time terminate this Plan. Any such
termination of the Plan shall not, without the written consent of the Optionee,
alter the terms of Options already granted and such Options shall remain in full
force and effect as if this Plan had not been terminated.

18. OPTIONS NOT TRANSFERABLE.
------------------------

Options granted under this Plan may not be sold, pledged,
hypothecated, assigned, encumbered, gifted or otherwise transferred or alienated
in any manner, either voluntarily or involuntarily by operation of law, other
than by will or the laws of descent and distribution, and may be exercised
during the lifetime of an Optionee only by such Optionee.

19. NO RESTRICTIONS ON TRANSFER OF STOCK.
------------------------------------

Common Stock issued pursuant to the exercise of an Option granted
under this Plan (the "Optioned Stock"), or any interest in such Optioned Stock,
may be sold, assigned, gifted, pledged, hypothecated, encumbered or otherwise
transferred or alienated in any manner by the holder(s) thereof, subject,
however, to any representations or warranties requested under Section 24 of this
Plan and also subject to compliance with any applicable federal, state or other
local law, regulation or rule governing the sale or transfer of stock or
securities.

20. RESERVATION OF SHARES OF COMMON STOCK.
-------------------------------------

The Company, during the term of this Plan, will at all times reserve
and keep available such number of shares of its Common Stock as shall be
sufficient to satisfy the requirements of the Plan.

7
<PAGE>

21. RESTRICTIONS ON ISSUANCE OF SHARES.
----------------------------------

The Company, during the term of this Plan, will use its best efforts
to seek to obtain from the appropriate regulatory agencies any requisite
authorization in order to grant Options or issue and sell such number of shares
of its Common Stock as shall be sufficient to satisfy the requirements of the
Plan. The inability of the Company to obtain from any such regulatory agency
having jurisdiction thereof the authorization deemed by the Company's counsel to
be necessary to the lawful grant of Options or the issuance and sale of any
shares of its stock hereunder or the inability of the Company to confirm to its
satisfaction that any grant of Options or issuance and sale of any shares of
such stock will meet applicable legal requirements shall relieve the Company of
any liability in respect of the non-issuance or sale of such stock as to which
such authorization or confirmation has not been obtained.

22. NOTICES.
-------

Any notice to be given to the Company pursuant to the provisions of
this Plan shall be addressed to the Company in care of its Secretary at its
principal office, and any notice to be given to a person to whom an Option is
granted hereunder shall be addressed to him or her at the address given beneath
his or her signature on his or her Stock Option Agreement, or at such other
address as such person or his or her transferee (upon the transfer of Optioned
Stock) may hereafter designate in writing to the Company. Any such notice shall
be deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, registered or certified, and deposited, postage and
registry or certification fee prepaid, in a post office or branch post office
regularly maintained by the United States Postal Service. It shall be the
obligation of each Optionee and each transferee holding Optioned Stock to
provide the Secretary of the Company, by letter mailed as provided hereinabove,
with written notice of his or her correct mailing address.

23. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
------------------------------------------

If the outstanding shares of Common Stock of the Company are
increased, decreased, changed into or exchanged for a different number or kind
of shares of the Company through reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse stock split, then an
appropriate and proportionate adjustment shall be made in the number or kind of
shares which may be issued upon exercise of Options granted under the Plan;
provided, however that no such adjustment need be made if, upon the advice of
counsel, the Board determines that such adjustment may result in the receipt of
federally taxable income to holders of Options granted hereunder or the holders
of Common Stock or other classes of the Company's securities.

24. REPRESENTATIONS AND WARRANTIES.
------------------------------

As a condition to the grant of any Option hereunder or the exercise of
any portion of an Option, the Company may require the person to be granted or
exercising such Option to make any representation and/or warranty to the Company
as may, in the judgment of counsel to the Company, be required under any
applicable law or regulation, including, but not limited to, a representation
and warranty that the Option and/or shares issuable or issued upon exercise of
such Option are being acquired only for investment, for such person's own
account and without any present intention to sell or distribute such Option or
shares, as the case may be, if, in the opinion of counsel for the Company, such
representation is required under the Securities Act of 1933, the California
Corporate Securities Law of 1968 or any other applicable law, regulation or rule
of any governmental agency.

25. NO ENLARGEMENT OF EMPLOYEE RIGHTS.
---------------------------------

This Plan is purely voluntary on the part of the Company, and while
the Company hopes to continue it indefinitely, the continuance of the Plan shall
not be deemed to constitute a contract between the Company and any employee, or
to be consideration for or a condition of the employment of any employee.
Nothing contained in the Plan shall be deemed to give any employee the right to
be retained in the employ of the Company or its Affiliated Companies, or to
interfere with the right of the Company or an Affiliated Company to discharge or
retire any employee thereof at any time. No employee shall have any right to or
interest in Options authorized hereunder prior to the grant of such an Option to
such employee, and upon such grant he or she shall have only such rights and
interests as are expressly

8
<PAGE>

provided herein, subject, however, to all applicable provisions of the Company's
Certificate of Incorporation, as the same may be amended from time to time.

26. INFORMATION TO OPTION HOLDERS.
-----------------------------

During the period any options granted to employees of the Company
remain outstanding, such employee-option holders shall be entitled to receive,
on an annual or other periodic basis more frequent than annual, financial and
other information regarding the Company. The Board (or the Committee, if so
authorized) shall exercise its discretion with regard to the nature and extent
of the financial information so provided, giving due regard to the size and
circumstances of the Company and, if the Company provides annual reports to its
stockholders, the Company's practice in connection with such annual reports.
Notwithstanding the above, if the issuance of options under either Plan A or
Plan B is limited to key employees whose duties in connection with the Company
assure their access to equivalent information, this Section 26 shall not apply
to such employees and plan.

27. LEGENDS ON STOCK CERTIFICATES.
-----------------------------

Each certificate representing Common Stock issued under this Plan
shall bear whatever legends are required by federal or state law or by any
governmental agency. In particular, unless an appropriate registration
statement is filed pursuant to the Securities Act of 1933, as amended, with
respect to the shares of Common Stock issuable under this Plan, each certificate
representing such Common Stock shall be endorsed on its face with the following
legend or its equivalent:

"Neither the Option pursuant to which the shares represented by this
certificate are issued nor said shares have been registered under the
Securities Act of 1933, as amended (the "Act"). Transfer or sale of
such securities or any interest therein is unlawful except after
registration, or pursuant to an exemption from the registration
requirements, as provided in the Act and the regulations thereunder."

A copy of this Plan shall be delivered to the Secretary of the Company
and shall be shown by him or her to each eligible person making reasonable
inquiry concerning it. A copy of this Plan also shall be delivered to each
Optionee at the time his or her Options are granted.

28. VOTING RIGHTS OF THE OPTIONED STOCK
-----------------------------------

Upon exercise of the Options granted under this Plan, the Optioned
Stock issued pursuant to the exercise of such Options shall have the same voting
rights as all of the other shares of Common Stock then outstanding.

29. SPECIFIC PERFORMANCE.
--------------------

The Options granted under this Plan and the Optioned Stock issued
pursuant to the exercise of such Options cannot be readily purchased or sold in
the open market, and, for that reason among others, the Company and its
stockholders will be irreparably damaged in the event that this Plan is not
specifically enforced. In the event of any controversy concerning the right or
obligation to purchase or sell any such Option or Optioned Stock, such right or
obligation shall be enforceable in a court of equity by a decree of a specific
performance. Such remedy shall, however, be cumulative and not exclusive, and
shall be in addition to any other remedy which the parties may have.

30. INVALID PROVISION.
-----------------

In the event that any provision of this Plan is found to be invalid or
otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein invalid or unenforceable, and all such other provisions shall
be given full force and effect to the same extent as though the invalid or
unenforceable provision was not contained herein.

9
<PAGE>

31. APPLICABLE LAW.
--------------

This Plan shall be governed by and construed and enforced in
accordance with the laws of the State of California.

32. SUCCESSORS AND ASSIGNS.
----------------------

This Plan shall be binding on and inure to the benefit of the Company
and the employees to whom an Option is granted hereunder, and such employees'
heirs, executors, administrators, legatees, personal representatives, assignees
and transferees.

IN WITNESS WHEREOF, pursuant to the due authorization and adoption of this
plan by the Board on April 15, 1998, the Company has caused this Plan to be
duly executed by its duly authorized officer.

INCO HOMES CORPORATION

/s/ IRA C. NORRIS
--------------------------
By: Ira C. Norris
Its: President and CEO

<PAGE>

EXHIBIT 10.30

THIS WARRANT MAY BE TRANSFERRED ONLY
IN ACCORDANCE WITH SECTION 4 HEREOF

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND SHALL NOT BE (1) SOLD,
PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED FOR CONSIDERATION, BY THE
HOLDER, EXCEPT UPON THE ISSUANCE TO THE CORPORATION OF A FAVORABLE OPINION OF
ITS COUNSEL AND/OR THE SUBMISSION TO THE CORPORATION OF SUCH OTHER EVIDENCE AS
MAY BE SATISFACTORY TO COUNSEL FOR THE CORPORATION, IN EITHER CASE TO THE EFFECT
THAT ANY SUCH TRANSFER FOR CONSIDERATION SHALL NOT BE IN VIOLATION OF THE ACT OR
RULE 144 PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS; OR (2) TRANSFERRED WITHOUT CONSIDERATION BY
THE HOLDER EXCEPT UPON THE ISSUANCE TO THE CORPORATION OF A FAVORABLE OPINION OF
ITS COUNSEL OR THE SUBMISSION TO THE CORPORATION OF SUCH OTHER EVIDENCE AS MAY
BE SATISFACTORY TO COUNSEL TO THE CORPORATION, IN EITHER CASE TO THE EFFECT THAT
ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT AND APPLICABLE STATE
SECURITIES LAWS.

THIS WARRANT IS ONLY EXERCISABLE
WITHIN THREE YEARS OF THE DATE
OF ITS INITIAL ISSUANCE.

W-1 Warrant to Purchase
200,000 Shares of
Common Stock

ISSUED AS OF: DECEMBER 11, 1998 ("DATE OF THE INITIAL ISSUANCE")

INCO HOMES CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE

THIS CERTIFIES THAT for value received, the Norris Living Trust, the
registered holder hereof (the "Holder") is entitled to purchase from Inco Homes
Corporation (the "Corporation"), at the purchase price of
_____________________________ ($__________) per share (the " Exercise Price"),
within three years (36 months) from the date of the initial issuance of this
Warrant, 200,000 shares of Common Stock, $.01 par value per share, of the
Corporation ("Common Stock"). The Exercise Price per share shall be subject to
adjustment from time to time as set forth herein.

This Warrant is one of a duly authorized issue of one Warrant evidencing
the right to purchase an aggregate of up to 200,000 shares of Common Stock and
is issued in connection with arrangements by the Chairman of the Board,
President and Chief Executive Officer of the Corporation to extend a $1 million
non-revolving line of credit to the Corporation's wholly owned subsidiary. The
shares of Common Stock to be issued upon exercise of Warrants are referred to
herein as "Warrant Shares."

1. Expiration Date. The Warrants represented hereby will expire in their
entirety and no longer be exercisable after 5:00 p.m. Pacific Time on the last
day of the thirty-sixth (36) consecutive month period beginning on the date of
the initial issuance of the Warrant, unless extended ("Expiration Date").
Subject

-1-
<PAGE>

to regulatory and stockholder approval, the Board of Directors, in its sole
discretion, may establish additional periods for the exercise of the Warrants,
and may extend the Expiration Date. The appropriate terms herein shall be
applicable in the event of any such extension(s).

2. Exercisable Periods. Subject to the terms of this Warrant and approval
of the issuance of the Warrant by a majority of the Corporation's stockholders
at a meeting of Corporation's stockholders duly held pursuant to the
Corporation's Bylaws and applicable state and federal law, the Holder shall have
the right, commencing on the date of initial issuance of this Warrant and ending
on the Expiration Date (the "Exercise Period"), to purchase from the Corporation
the number of full Warrant Shares indicated on the front of this certificate,
which when fully paid by Holder, will be validly issued and non-assessable.
Upon request of the Holder, the Corporation will provide Holder with the most
current public financial information then available. For purposes of this
Warrant, "beneficial ownership" shall have the meaning set forth in Rule 13d-3
under the Securities Exchange Act of 1934, as amended.

3. Manner of Exercise. A Warrant may be exercised at the Corporation's
Office at 1282 West Arrow Highway, Upland, California 91786, upon presentation
and surrender hereof, together with the Warrant Purchase Form at the end hereof,
duly completed and signed, and upon payment to the Corporation of the Exercise
Price (subject to adjustment in accordance with the provisions of Section 9
hereof), for the number of full Warrant Shares in respect of which such Warrants
are then exercised. Payment of the aggregate Exercise Price shall only be made
in cash, or cash equivalents, or if approved by the Board of Directors at the
time of exercise, (i) in the form of unrestricted Stock already owned by the
Holder, (ii) by cancellation of any indebtedness owed by the Company to the
Holder, (iii) by requesting that the Company withhold whole shares of Common
Stock then issuable upon exercise of the Warrant (based on the Fair Market Value
of the Stock on the date the Warrant is exercised, as determined by the Board of
Directors of the Corporation in its sole discretion), (iv) by arrangement with a
broker which is acceptable to the Board of Directors whereby payment of the
Exercise Price is made pursuant to an irrevocable direction to the broker to
deliver all or part of the proceeds from the sale of the shares underlying the
Warrant to the Company, or (v) by any combination of the foregoing.

The Corporation shall not be required to issue fractional Warrant Shares on
the exercise of Warrants. When Warrants are presented for exercise in full at
the same time by the same Holder, the number of full Warrant Shares which shall
be issuable upon the exercise thereof shall be computed on the basis of the
aggregate number of Warrant Shares purchasable on exercise of the Warrants so
presented. If any fraction of a Warrant Share would be issuable on the exercise
of any Warrants in full, the Corporation shall pay an amount in cash equal to
the then current market price per Warrant Share (as determined in the sole
discretion of the Corporation's Board of Directors) multiplied by such fraction.
When Warrants are presented for exercise as to a specified portion, only full
Warrant Shares shall be issuable and a new Warrant bearing the original initial
issuance date shall be issuable evidencing the remaining Warrant or Warrants.

Upon such surrender of the Warrant and payment of the Exercise Price as
aforesaid, the Corporation shall issue and cause to be delivered with all
reasonable speed to or upon the written order of the Holder and in such name or
names as the Holder may designate, a certificate or certificates for the number
of full Warrant Shares so purchased together with payment for any fractional
shares as provided above in this Section 3, and any person so designated to be
named therein shall be deemed to have become a holder of record of such Warrant
Shares as of the date of the surrender of such Warrants and payment of the
Exercise Price, as aforesaid; provided, however, that if, at the date of
surrender of such Warrants and payment of the Exercise Price, the transfer books
for the Warrant Shares or other class of stock purchasable upon the exercise of
such Warrants shall be closed, the certificates for the Warrant Shares in
respect of which such Warrants are then exercised shall be issuable as of the
date on which such books shall next be opened (whether before or after the
Expiration Date) and until such date the Corporation shall be under no duty to

-2-
<PAGE>

deliver any certificate for such Warrant Shares. The rights of purchase
represented by the Warrants shall be exercisable, at the election of the Holder,
either in full or from time to time in part and, in the event that a Warrant is
exercised in respect of less than all of the Warrant Shares purchasable on such
exercise at any time prior to the Expiration Date of the Warrants, a new Warrant
evidencing the remaining Warrant or Warrants will be issued; provided, however,
the Corporation shall not be required to issue a Warrant to purchase fractional
shares. All Warrants surrendered in the exercise of the rights thereby
evidenced shall be canceled by the Corporation.

4. Limitations on the Transferability of Warrants. The Warrants shall not
be transferable unless the Holder complies with this paragraph. Any purported
transfer not in compliance with this paragraph shall be null and void. The
Warrant shall be transferable only on the books of the Corporation maintained at
its office at 1282 West Arrow Highway, Upland, California 91786, upon delivery
thereof duly endorsed with signatures properly guaranteed by a commercial bank
or securities brokerage firm or accompanied by proper evidence of succession,
assignment or authority to transfer. Upon any registration of transfer, the
Corporation shall deliver a new Warrant or Warrants to the persons entitled
thereto bearing the following or similar legend if such Warrant or Warrants are
not registered under the Act: THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND SHALL NOT BE (1) SOLD, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED FOR CONSIDERATION, BY THE HOLDER, EXCEPT UPON THE ISSUANCE TO THE
CORPORATION OF A FAVORABLE OPINION OF ITS COUNSEL AND/OR THE SUBMISSION TO THE
CORPORATION OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL FOR THE
CORPORATION, IN EITHER CASE TO THE EFFECT THAT ANY SUCH TRANSFER FOR
CONSIDERATION SHALL NOT BE IN VIOLATION OF THE ACT OR RULE 144 PROMULGATED BY
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS; OR (2) TRANSFERRED WITHOUT CONSIDERATION BY THE HOLDER EXCEPT
UPON THE ISSUANCE TO THE CORPORATION OF A FAVORABLE OPINION OF ITS COUNSEL OR
THE SUBMISSION TO THE CORPORATION OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY
TO COUNSEL TO THE CORPORATION, IN EITHER CASE TO THE EFFECT THAT ANY SUCH
TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT AND APPLICABLE STATE SECURITIES
LAWS.

5. Payment of Taxes. The Corporation will pay all documentary stamp
taxes, if any, attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; provided, however, that the Corporation shall not be
required to pay any tax or taxes which may be payable in respect of any
transfers involved in the issuance or delivery of any Warrants or certificates
for Warrant Shares in a name other than that of the registered Holder of the
Warrants in respect of which such Warrant Shares are issued, and in such case
the Corporation shall not be required to issue or deliver any certificate for
shares of Common Stock or any Warrant until the person requesting the same has
paid to the Corporation the amount of such tax or has established to the
Corporation's satisfaction that such tax has been paid.

6. Mutilated, Lost, Stolen or Destroyed. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Corporation may at its
discretion issue, upon cancellation of the mutilated Warrant, or in lieu of and
in substitution for the Warrant lost, stolen or destroyed, a new Warrant of like
tenor and representing an equivalent right or interest; but only upon receipt of
evidence satisfactory to the Corporation of such loss, theft or destruction of
such Warrant, and indemnity, if requested, also satisfactory to the Corporation.
An applicant for such a substitute Warrant shall also comply with such other
reasonable regulations as the Corporation may prescribe.

7. Reservation of Warrant Shares. The Corporation shall at all times,
while the Warrants are exercisable, keep reserved, out of its authorized Common
Stock, a number of shares of Common Stock

-3-
<PAGE>

sufficient to provide for the exercise of the rights of purchase represented by
the outstanding Warrants. Immediately after the Expiration Date, however, no
shares shall be subject to reservation in respect of such Warrants.

8. Cancellation of Warrants. The Corporation shall cancel any Warrants
surrendered for exchange, substitution, transfer or exercise in whole or in
part.

9. Adjustments. The Warrant Shares purchasable hereunder and the Exercise
Price shall be subject to adjustments from time to time upon the happening of
certain events, as hereinafter defined:

9.1. Mechanical Adjustments. The number of Warrant Shares purchasable
upon the exercise of each Warrant and the Exercise Price shall be subject to
adjustment as follows:

(a) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Common Stock of the Company, an adjustment will be made in
(i) the aggregate number of shares reserved for issuance under the
Warrants, and (ii) the kind, number and exercise price of shares subject to
the Warrants, provided that the number of shares subject to the Warrants
shall always be a whole number. The number of Warrant Shares purchasable
upon exercise of each Warrant immediately prior thereto shall be adjusted
so that the Holder of each Warrant shall be entitled to receive the kind
and number of Warrant Shares or other securities of the Corporation which
the Holder would have owned or would have been entitled to receive after
the happening of any of the events described above, had such Warrant been
exercised immediately prior to the happening of such event or any record
date with respect thereto. An adjustment made pursuant to this paragraph
(a) shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.

(b) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the number of Warrant
Shares purchasable upon the exercise of each Warrant; provided, however,
that any adjustments which by reason of this paragraph (b) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations shall be made to the nearest one-
hundredth of a share.

(c) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as herein provided, the Exercise
Price payable upon the exercise of each Warrant shall be adjusted by
multiplying the Exercise Price immediately prior to the adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of each Warrant immediately prior to the
adjustment, and of which the denominator shall be the number of Warrant
Shares so purchasable immediately thereafter.

(d) For the purpose of this Subsection 9.1, the term "shares of
Common Stock" shall mean (i) the class of stock designated as the Common
Stock of the Corporation at the date of this Warrant, or (ii) any other
class of stock resulting from successive changes or reclassification of
such shares consisting solely of changes in par value, or from par value to
no par value, or from no par value to par value. In the event that at any
time, as a result of an adjustment made pursuant to paragraph (a) above,
the Holder shall become entitled to purchase any shares of the Corporation
other than shares of Common Stock, thereafter the number of such other
shares so purchasable upon exercise of each warrant and the Exercise Price
of such shares shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions with

-4-
<PAGE>

respect to the Warrant Shares contained in paragraphs (a) through (c)
above, and the provisions of Sections 1, 2 and 3 and Subsections 9.2
through 9.4, with respect to the Warrant Shares, shall apply on like terms
to any such other shares.

9.2. Voluntary Adjustment by the Corporation. Subject to the approval of
the stockholders as set forth in paragraph 2 hereof, the Corporation may at any
time during the term of the Warrants, reduce the then current Exercise Price to
any amount deemed appropriate by the Board of Directors of the Corporation,
approve additional periods for exercise of the Warrants or extend the Expiration
Date to any time deemed appropriate by the Board of Directors of the
Corporation.

9.3. Notice of Adjustment. Whenever the number of Warrant Shares
purchasable upon the exercise of each Warrant or the Exercise Price of such
Warrant Shares is adjusted, as herein provided, the Corporation shall cause to
be mailed by first class mail, postage prepaid, to each Holder notice of such
adjustment or adjustments setting forth the number of Warrant Shares purchasable
upon the exercise of each Warrant and the Exercise Price of such Warrant Shares
after such adjustment, setting forth a brief statement of the facts requiring
such adjustment and setting forth the computation by which such adjustment was
made. Any failure by the Corporation to give notice to the Holder or any defect
therein shall not affect the validity of such adjustment or of the event
resulting in the adjustment, nor of the Holder's rights to such adjustment.

9.4. No Adjustment for Dividends or Distributions. Except as provided in
Subsections 9.1 and 9.6, no adjustments in respect of any dividends or
distributions shall be made during the term of a Warrant or upon the exercise of
a Warrant.

9.5. Rights Upon Consolidation, Merger, Etc.

(a) In case of any consolidation of the Corporation with or merger of
the Corporation into another corporation or in case of any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety ("Sale"), such successor or
purchasing corporation may assume the obligations hereunder, and may
execute with the Corporation an agreement that each Holder shall have the
right thereafter upon payment of the Exercise Price to purchase upon
exercise of each Warrant the kind and amount of shares and other securities
and property (including cash) which he would have owned or have been
entitled to receive after the consummation of such Sale had such Warrant
been exercised immediately prior to the Sale. The Corporation shall mail
by first class mail, postage prepaid, to each Holder notice of the
execution of any Sale agreement. Such agreement shall provide for
adjustments, which shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 9. The provisions of this
Subsection 9.5 shall similarly apply to successive consolidations, mergers,
sales or conveyances.

(b) In the event that such successor corporation does not execute an
agreement with the Corporation as provided in paragraph (a) above, then
each Holder shall be entitled to exercise outstanding Warrants upon the
payment of the Exercise Price during a period of at least thirty (30) days
(or such lesser number of days then remaining in the Exercise Period) which
period shall terminate not less than ten (10) days prior to consummation of
the Sale, and thereby receive consideration in the transaction on the same
basis as other previously outstanding shares of the same class as the
Warrant Shares acquired upon exercise. Warrants not exercised in
accordance with this paragraph (b) before consummation of the Sale will be
canceled and become null and void. The Corporation shall mail by first
class mail, postage prepaid, to each Holder, at least ten (10) days prior
to the first date on which the Warrants are exercisable pursuant to this
paragraph (b), notice of the proposed transaction setting forth the first
and last date on which the Holder may exercise

-5-
<PAGE>

outstanding Warrants and a description of the terms of this Warrant
providing for cancellation of the Warrants in the event the Warrants are
not exercised by the prescribed date.

(c) The Corporation's failure to give any notice required by this
Subsection 9.5 or any defect therein shall not affect the validity of any
Sale.

9.6. Rights Upon Liquidation. In case (i) the Corporation shall make any
distribution of its assets to holders of its shares of Common Stock as a
liquidation or partial liquidation dividend or by way of return of capital; or
(ii) the Corporation shall liquidate, dissolve or wind up its affairs (other
than in connection with a Sale); or (iii) an involuntary liquidation occurs,
then the Corporation shall cause to be mailed to each Holder, by first class
mail, at least twenty (20) days prior to the applicable record date, a notice
stating the date on which such distribution, liquidation, dissolution or winding
up is expected to become effective, and the date on which it is expected that
holders of shares of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other property or assets (including
cash) deliverable upon such distribution, liquidation, dissolution or winding
up. The Corporation's failure to give the notice required by this Subsection 9.6
or any defect therein shall not affect the validity of such distribution,
liquidation, dissolution or winding up.

9.7. Statement on Warrants. Irrespective of any adjustments in the Exercise
Price, Warrants theretofore or thereafter issued may continue to express the
same price as is stated in the Warrants initially issued.

10. No Rights as Stockholders. Nothing contained in this Warrant shall be
construed as conferring upon the Holder hereof the right to vote or to receive
dividends or to consent or to receive notice as stockholders in respect of any
meeting of stockholders called for the election of directors of the Corporation
or any other matter, or any rights whatsoever as stockholders of the
Corporation.

11. Notices. Any notice pursuant to this Warrant by any Holder to the
Corporation or by the Corporation to any Holder, shall be in writing and shall
be mailed first class, postage prepaid, or delivered: (i) to the Corporation, at
its office at 1282 West Arrow Highway, Upland, California 91786, or such other
address as the Corporation may designate in writing to the Holder; or (ii) to
the Holder, at the Holder's address on the books of the Corporation. The
Corporation's failure to give any notice required by this Warrant or any defect
therein shall not affect the validity of the action taken by the Corporation in
connection therewith.

12. Applicable Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, to the extent not preempted
by federal law without giving effect to principles of conflict of laws.

13. Securities Laws. The exercise of Warrants is prohibited unless the
issuance of the Warrant Shares has been registered or qualified under applicable
federal and state laws or unless there is an exemption available from such
requirements.

14. Captions. The captions of the sections and subsections of this
Warrant have been inserted for convenience only and shall have no substantive
effect.

15. Entire Agreement. This Warrant contains the entire Agreement of the
parties hereto with respect to the subject matter hereof and may not be amended
except by a written instrument duly executed and delivered by each party.

-6-
<PAGE>

16. Forum Designation. Any action or proceeding against any of the
parties hereto relating in any way to this Warrant or the subject matter hereof
shall be brought and enforced exclusively in the competent courts of California
and the parties hereto consent tothe exclusive jurisdiction of such courts in
respect of such action or proceeding.

WITNESS the seal of the Corporation and the signatures of its duly
authorized officers.

INCO HOMES CORPORATION
a Delaware corporation

By: /s/ David A. Fogg
----------------------------
Chief Financial Officer

Initial Date of Issuance:

December 11, 1998
(Corporate Seal)

-7-

<PAGE>

EXHIBIT 10.31

DEVELOPMENT AND MARKETING AGREEMENT
-----------------------------------

This DEVELOPMENT AND MARKETING AGREEMENT is made and entered into as of
this 12th day of March 1999 by and between HARWOOD PALMDALE PARTNERS I, LP, a
Limited Partnership, ("Owner" herein) and INCO HOMES CORPORATION, a Delaware
corporation ("Builder" herein) with reference to the following facts:

A. Owner has fee title to that certain parcel of undeveloped real
property located in Palmdale, California, the legal description of which is set
forth on Exhibit A (the "Property" herein). The Property has been subdivided
into seventy-nine (79) lots (the "Lots" herein) which Owner desires to be
developed with single family, detached homes (the "Homes" herein). The
development and construction of seventy-nine (79) single family, detached Homes
on the Lots together with all of the required on-site and off-site
infrastructure required therewith is collectively referred to as the "Project"
herein.

B. Builder is a licensed building contractor in the State of California
whose primary expertise is the construction and sale of single family, detached
homes.

C. Owner desires to engage the services of Builder to develop and
construct the Project and market the completed Homes. Such services shall
include coordinating existing and future entitlements, constructing all on-site
and off-site infrastructure improvements, constructing the Homes, marketing the
Homes, and providing warranty and customer service work for the completed and
sold Homes, all pursuant to the terms and conditions set forth in this
Agreement.

D. Provided that Owner delivers fully entitled Lots to Builder together
with all of the financing and bonding in amounts and at the time required to
develop the Project and to pay all of the costs (none of which shall be the
responsibility of Builder) to develop the Project and market the Homes, Builder
is willing to perform such development and marketing services for Owner pursuant
to the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in reliance on the facts set forth in the above recitals
and in consideration of the mutual covenants and agreements set forth herein,
the parties hereto agree as follows:

1. Engagement.
----------

Owner hereby engages the services of Builder to develop and construct the
Project and market the Homes, and Builder hereby agrees to accept such
engagement and provide said services to Owner for the consideration and upon the
terms and conditions hereinafter set forth.

2. Development of the Project and Marketing of the Homes.
-----------------------------------------------------

Builder agrees to diligently develop and construct the Project and market
the completed Homes, as more specifically provided herein. Such development
responsibilities of Builder shall generally include coordinating both the
existing and future entitlements that benefit the Property, constructing the on-
site and off-site infrastructure for the Project, constructing the Homes and
providing all warranty and customer service construction and repairs for the

1.
<PAGE>

completed and sold Homes. Such marketing responsibilities of Builder shall
generally include designing the Homes, constructing, landscaping, and decorating
the model complex, holding a Grand Opening for the Project, setting the sale
prices of the Homes, signage, advertising, developing and printing marketing
brochures, sales contracts, and material, hiring and overview of sales personnel
and managing all other pre-closing and post-closing relationships with the Home
buyers. Builder agrees to use its reasonable best efforts under the
circumstances that exist from time to time during the term hereof to perform its
services hereunder in a manner that, subject to the rights of Owner to direct
Builder and subject to the performance of Owner of its obligations (particularly
funding) hereunder, shall be intended to maximize the sales revenue from the
completed Homes.

3. Term.
----

The term of this Agreement shall commence on the date hereof and unless
earlier terminated by either Owner or Builder as provided herein, shall continue
until the close of the sale escrow of the last Home in the Project.

4. Title - Full Cooperation By Owner.
---------------------------------

Title to the Property shall remain in the name of Owner. Owner shall fully
cooperate with Builder as requested by Builder to perform its services hereunder
and Owner also agrees to promptly sign all maps, governmental forms, utility
agreements, deeds of trust, sales agreements, escrow instructions, deeds, and
all other documents required by Builder to develop the Project and market the
Homes.

5. Phase Budget.
------------

(a) Approval of Phase Budget. Prior to the commencement of any
------------------------
construction hereunder, Builder shall submit to Owner, for Owner's review and
reasonable approval, the proposed cost breakdown schedule for the development of
the first "Phase" of Homes (as defined in Paragraph 8 hereof) and related
improvements (the "Phase Budget" herein). Within Five (5) business days
following receipt by Owner of the proposed Phase Budget, Owner shall notify
Builder of Owner's approval or disapproval of the same, which approval Owner
shall not unreasonably withhold. Failure of Owner to notify Builder in writing
within five (5) business days of the disapproval of any item in the Phase
Budget, the Phase Budget as submitted by Builder shall be deemed to be approved.
If all or any portion of the proposed Phase Budget is disapproved, the parties
shall meet as soon as reasonably practicable thereafter to endeavor in good
faith to reach agreement on the Phase Budget. Builder shall not make any
commitment or contract which is materially (more than 10%) more in cost for a
line item than as set forth for said line item in the Phase Budget as it may be
amended from time to time without the prior written consent of Owner which
consent Owner shall not unreasonably withhold. Builder shall submit to Owner a
new Phase Budget for each Phase of the Project which new Phase Budget shall be
reviewed and reasonably approved by Owner and followed by Builder as provided
herein.

(b) Conformity with Phase Budget. Builder shall use its best
----------------------------
efforts to cause each Phase to be completed in all reasonable respects in
conformity with the Phase Budget. Builder shall hold monthly job cost meetings
with representatives of the Owner and shall prepare monthly updates of the phase
Budget with variance explanations and Project cost reports

2.
<PAGE>

showing actual expenditures made during such month and from the beginning of the
phase to date, by category of expenditures, and a comparison thereof to budgeted
expenses and estimated cost of completion of the improvements. Revised Phase
Budget may be submitted to Owner in order to secure additional funding to insure
subcontractor payment.

6. Phase Schedule.
--------------

(a) Approved Phase Schedule. Concurrently with the delivery of the
-----------------------
proposed Phase Budge, Builder shall submit to Owner, for Owner's review and
reasonable approval, the proposed schedule for the design and construction of
the Phase, and the proposed schedule for the marketing and sales for the Homes
in the Phase (the "Phase Schedule"). The proposed Phase Schedule shall be
subjected to Owner's prior reasonable approval, which approval Owner shall not
unreasonably withhold, and the Phase Schedule shall be approved and updated for
each Phase in the same manner as the Phase Budget.

(b) Conformity with Phase Schedule. Builder shall use its
------------------------------
reasonable best efforts to cause each Phase to be completed in all respects in
conformity with the Phase Schedule. Builder shall prepare and deliver to Owner
monthly progress reports setting forth the actual construction progress achieved
during such month and from the beginning of the Phase to date, and comparison
thereof to scheduled construction progress for the same period and sales reports
setting forth the actual sales consummated and escrows closed during such month
and from the beginning of the Phase to date.

7. Design of Homes.
---------------

Owner has provided Builder with the design of the Homes it intends to
develop on the Property. Builder has reviewed the design of the Homes and has
agreed that Builder will construct and market the Homes pursuant to the design
therefor furnished by Owner to Builder.

8. Phasing of Development.
----------------------

Owner and Builder hereby agree that to minimize the financial risk to
Owner, Builder shall develop the Project in phases, with a phase typically (but
not limited to) approximately ten (10) to twenty (20) Homes (a "Phase" herein).
Accordingly, Builder shall submit all budgets and schedules required pursuant to
this Agreement on a Phase-By-Phase basis. Budgets and schedules shall set forth
Builder's estimates of the proper allocation to particular phases of those items
which impact more than one phase of the project.

9. Builder's Development and Construction Duties.
---------------------------------------------

Subject to government restrictions and approvals (entitlements), the
physical condition of the Property, the availability from the Owner of adequate
funds/financing, the posting by the Owner of all required bonds, deposits, and
other required forms of security, and the market for new single family houses of
the type and in the price range of the Homes, Builder shall use its reasonable
best efforts to continuously and diligently to do all things necessary to cause
the Homes and other improvements in the Project to built, and the constructed
Homes to be offered for sale and sold in accordance with the Phase Schedule and
the Phase Budget. Without limiting the generality of the foregoing, Builder's
duties are described more particularly below:

3.
<PAGE>

(a) Development. Builder, at the sole cost and expense of Owner,
-----------
shall work with the Owner to obtain all appropriate governmental authorities
having jurisdiction over the Project to obtain, maintain and process all
necessary zoning, permits, approvals, licenses, entitlements and consents
required to develop the Project including without limitation, any necessary
building permits, grading permits, and development agreements regarding the
construction of or funding of the Homes with the appropriate governmental
entities. In obtaining such zoning, permits, approvals, licenses, entitlements
and consents, Builder shall, at the sole cost and Expense of Owner, work with
the Owner to prepare and process as necessary all environmental impacts reports,
bonds, utility agreements, maps, studies, drawings, applications, and other
necessary or appropriate items of every description. Applications for approval
of licenses, permits, subdivision maps, bond and utility agreements shall be in
the name of and approved by Owner. Owner and Builder shall fully cooperate with
each other to obtain all such items required to develop the Project and Owner or
Owner's authorized agent shall promptly execute all documents and agreements
required by Builder in connection therewith.

(b) Construction. Builder shall act as the general contractor for
------------
the construction of the Project and, as such shall be responsible for the
following:

(i) Builder shall furnish or arrange for all consultants,
skills labor, materials, supplies, equipment, services, machinery, tools and
other items of every description reasonably required for the prompt and
efficient construction of the Homes and other improvements in the Project in a
good and workmanlike manner and substantially in accordance with the current
Phase Budget:

(ii) Builder shall enter into contracts with such
subcontractors and material suppliers as are necessary to cause the Homes to be
constructed substantially in accordance with this Agreement. All such acts shall
be entered into by Builder and shall specifically provide (x) Owner is a third-
party beneficiary thereunder (y) at any time may request any information it
deems necessary from the contractors and such information will be provided
within five (5) business days and (z) in the event Builder's involvement in the
Project terminates, the subcontractor will, upon Owner's request, recognize
Owner as the successor-in-interest to Builder under the subcontract. Builder
shall require all subcontractors to obtain and maintain at all times during
commercial general liability policy on a primary and non-contributing basis on
which the Owner and Builder shall require all subcontractors to carry workers
compensation coverage on a basis consistent with Builder's customary practices
as may change from time to time; and

(iii) Builder shall cause the Project to be constructed,
substantially in accordance with all governmental requirements and existing
plans and specifications as are approved by Owner.

(c) Bonds and Deposits. Builder shall prepare all necessary
------------------
documents and instruments required for the posting of any bonds, letters of
credit, deposits or other forms of security required by any governmental entity
or utility in connection with the project. Builder shall prepare any and all
deposit agreements of the deposits in a timely fashion. Owner shall furnish, at
its sole cost and expense, all bonds, letters of credit, deposits or other forms
of security, required of any governmental entity or utility with respect to the
Project. Builder shall request, tack and cause any bonds, letters of credits,
deposits or other forms of security that have been posted by Owner in favor of
any governmental entity or utility in connection with the

4.
<PAGE>

Project to be exonerated when all obligations thereunder are satisfied. Builder
shall maintain a schedule of such security and assess the timing for such
exoneration and shall prepare all necessary documents and instruments required
or the timely exoneration of same.

(d) Warranties and Customer Service. Builder shall provide and
-------------------------------
administer the warranty and customer service programs with respect to the
Project and for the Homes constructed and sold hereunder. In connection
therewith, Builder shall use all reasonable efforts to enforce the warranty
provisions of any subcontractors so that the subcontractors thereunder are
required to perform warranty work in accordance with the terms of their
respective contracts. To the extent warranty work is not performed by a
subcontractor at its cost pursuant to a subcontract, Builder shall, at the sole
cost and expense of Owner, (either directly or through the engagement of
subcontractors) provide and administer all required warranty and customer
service work. The performance of such warranty work shall be conducted in
accordance with the Builder's customer service program, as such program may be
established and modified by the Builder during the term of this Agreement.

10. Builder's Sales Duties.
----------------------

(a) Development and Implementation of Sales Program. Promptly
-----------------------------------------------
following the execution of this Agreement, Builder shall develop a program for
selling the Homes and shall arrange for the construction, preparation, and
availability of such models and other marketing sales tools and materials as
shall be necessary to such program. Builder shall deliver a schedule of proposed
pricing and plotting mixes for the Homes to Owner for its prior reasonable
approval. Based on the recommendation of Builder, Owner shall approve a range of
sales prices for the Homes and Builder is authorized to sell such Homes for a
price within such range. A Home may not be sold below the established sales
price without the prior reasonable consent of Owner. Builder shall, at the sole
cost and expense of Owner, construct and maintain both the interior and exterior
of the model Homes, including all decorating and landscaping, hold a Grand
Opening for the Project, establish the sales program, advertise the Project in
such media as the Builder may determine provide appropriate signage for the
Project, and prepare all sales tools, including allowances and other public
relations activities shall be subject to Owner's prior obligations. Every cost
and expense of marketing the construction, landscaping, and decoration of the
model complex, holding a Grand Opening for the Project, signage, advertising,
developing and printing marketing brochures, sales contracts and materials, and
constructing and maintaining an on-site sales office shall be paid by Owner.
Only the cost of all brokerage fees and sales commissions to sell the Homes due
to the sales personnel of Builder shall be paid solely by Builder, but all
commissions due to third parties shall be paid by Owner. The Builder's services
shall include:

(i) Providing at its sole cost all on-site sales staffing as
required, provided, however, that Owner will permit the Builder to employ
members of Builder's existing sales staff. Builder has sole authority to
maintain (hire and fire) onsite sales staff.

(ii) Preparing at its sole cost and submitting to Owner monthly
competitor reports and other outside market studies to review pricing,
incentives, absorption rates, demographics and the like:

5.
<PAGE>

(iii) Assigning a sales manager employed by Builder to the
Project who will act as a liaison between Builder and the Owner by the Builder
at the sole expense of Builder;

(iv) Builder will strategically advertise the Project. Builder
will conduct periodic advertising meetings and coordinate, supervise, and
furnish the advertising agency with advertising direction and focus. Actual
advertising costs and expenses will be subject to Owner's prior reasonable
approval and will be Owner's sole cost and responsibility. Ad placement will be
handled by Builder's account manager through the advertising agency. A reputable
and professional advertising firm shall be retained by Builder to assist with
marketing and advertising the Project;

(v) A weekly sales report will be furnished showing daily
traffic, media origin, and sources of the sales; and

(vi) Builder will organize and handle the staffing, selection,
and purchase of all standard design center option equipment and promote the
design center sales. Builder will coordinate and provide for the installation of
all such design center equipment in the Homes.

(b) Escrow Coordination Program. Promptly following the execution of
---------------------------
this Agreement, Builder shall establish an escrow program for processing and
closing Home sale escrows in coordination with Builder's customer/homeowner
warranty service department. The escrow coordination program shall also
coordinate and/or provide sources of end loan financing for the Homebuyers.

(c) Builder's Role in Sales Activity. In addition to any duties
--------------------------------
relating to the sale of Homes set forth elsewhere in this Agreement, Builder
shall perform each of the following:

(i) Supervision of Sales Activity. Builder shall use its
-----------------------------
reasonable best efforts to ensure that all sales activities, are supervised and
conducted in a manner that complies with this Agreement and all applicable laws
and regulations;

(ii) Review and Execution of Sales Agreements. Salespersons
----------------------------------------
shall be authorized only to obtain offers from prospective buyers of the Homes
and shall have no authority to accept such offers or enter into binding
agreements for the sale of the Homes. A senior executive officer of Builder
shall be responsible for reviewing and approving each and every sales agreement,
and each sale shall be effected using only those forms of sales agreements and
other documents previously approved by both Builder and Owner. If a sales
agreement for a Home that is reviewed by Builder is in a form and contains only
those terms that have been approved by Owner, and if Builder believes in good
faith that the sale transaction proposed by such sales agreement should be
entered into by Owner, then one of the above-described senior executive officers
of Builder acting as an agent of Owner, shall execute such sales agreement on
behalf of Owner; and

(iii) Escrow Instruction. The persons who are authorized to
------------------
execute sales agreements on behalf of Owner shall also be authorized to execute
escrow instruction on behalf of Owner to effectuate the closing of sales of the
Homes to buyers. The general form of

6.
<PAGE>

escrow instructions to be used shall be approved by both Builder and Owner prior
to its use. Builder shall designate the escrow holder for all Home sales. While
Builder may recommend a title insurance company to the Homebuyer, all title
insurance policies to be issued in conjunction with the sale of Homes shall be
issued by a title company selected by the Homebuyer.

(d) Commissions Payable to Builder. Except for Builder's
------------------------------
compensation set forth in Paragraph 27(c) hereof, Builder shall not be entitled
to commission or other compensation in connection with their activities
performed pursuant to this Agreement with respect to sales.

(e) Sales Representations. Builder and any sales persons shall be
---------------------
authorized only to make representations concerning the Project or sale of the
Homes that are approved by Owner. Builder shall be responsible for closely
monitoring the activities and performance of all salespersons.

11. Coordination with Owner's Bank.
------------------------------

Builder acknowledges that Owner intends to obtain various loans from
various financial institutions (collectively "Bank" herein) in connection with
the development of the Project and Builder shall assist Owner to obtain all such
required financing but shall have no direct financial obligation with respect
thereto. Builder shall review and become familiar with the terms and
obligations of these loans and shall develop the Project in a manner which
complies with all loan covenants in order to minimize Owner's exposure under
such loans (i.e., start restrictions, accelerated payoffs, standing inventory,
etc.) At the request of Owner or Bank, Builder shall, at the sole cost of Owner,
prepare proforma and actual cost, income, cash flow and other financial
projections and reports for the Project, including product line profitability
analysis and projections of return on cost. These projections shall be
supplemented and/or updated throughout the course of development to reflect any
major changes or deviations. Builder shall obtain the approval of Owner and
Bank prior to commencing the construction of any Homes. At Owner's request,
Builder shall prepare bank loan submissions and draw requests.

12. Operation and Quarterly Review Meetings.
---------------------------------------

In addition to all other meetings to be held by Builder and Sales
Agent pursuant to this Agreement, Builder shall hold monthly operations meetings
with representatives of Owner. All meetings required hereunder between Owner and
Builder shall, unless otherwise approved by both parties, be held at the
principal executive office of Builder. Builder agreed to hold such other
meetings concerning the Project at such time as reasonably requested by Owner.

13. Compliance with Laws.
--------------------

Builder, its employees, agents, and subcontractors shall use its
reasonable best efforts to comply with all laws, ordinances and regulations,
permits, licenses and approvals, obtained from any governmental entity in
connection with the Project.

14. Inspections.
-----------

Owner shall, at its sole cost and expense, have the right, but not the
obligation, to inspect the progress and quality of all work performed by, or
under subcontract to, Builder in

7.
<PAGE>

connection with the Project, to require the replacement of any defective or
improper work, and to refuse payment of any funds until such matters have been
remedied. Inspections by Owner shall not in any manner constitute Owner's
approval or acceptance of the progress or quality of the work. The failure of
Owner to inspect shall not relieve Builder of its duties under this Agreement.

15. Approvals by Owner.
------------------

Owner shall have the right to generally review and reasonably approve
all aspects of the Project including, but not limited to, all contracts, plans,
specifications, designs and schedules and all amendments thereto and deviations
therefrom. In addition, all requests or applications, together with all
supporting documentation for governmental approvals or permits of any kind,
shall be submitted to, and approved by, Owner prior to filing with the
governmental agency, and Owner may request copies of all written communications
between Builder and the governmental agencies processing such requests or
applications. Builder shall immediately notify Owner in writing of any changes
to requirements, conditions, or entitlements being sought by any governmental
entity whether the change has been requested by the entity either orally or in
writing. Builder shall furnish all such items from time to time to Owner and, if
Owner fails to notify Builder in writing within Five (5) business days of
receipt of such item in question shall be deemed to be approved by Owner.

16. Land Maintenance and Protection.
-------------------------------

During the term of this Agreement, Builder shall, at the sole cost of
Owner, maintain the property free of weeds, debris, pests and toxic or hazardous
substances with the exception of what is legal, reasonable, sufficient, and
prudent to operate equipment to construct the contemplated improvements thereon.
In addition, Builder shall, at the sole cost and expense of Owner, at all times
take such actions as are reasonably necessary to protect the Project and all
improvements thereon, whether or not completed, from being damaged by the work
of Builder or any subcontractor or other persons or cause including, but not
limited to, vandals and the elements.

17. Liens.
-----

Provided that Owner has provided Builder with sufficient funds to
develop the Project, Builder shall not suffer or permit to be enforced against
the Property of any part thereof, any mechanics', laborers', materialmen's,
contractors', subcontractors', or any other liens, except to the extent caused
solely by a default of Owner, arising from or any claim for damages growing out
of any work or construction or improvement in connection with the Project or
except for a bona fide dispute between Builder and subcontractor which Builder
may, but is not obligated to, bond against.

18. Ownership of Plans and Materials.
--------------------------------

As between Owner and Builder, all specifications and all marketing and
sales materials, including advertising, signs, and promotional materials
prepared for and/or used in connection with the Project by or for Builder shall,
at all times, be solely the property of Builder. Plans, however, shall remain
the sole property of owner. Builder shall, however, deliver to Owner all
advertising, sales materials, and the like which relate only to the Project and
which

8.
<PAGE>

Builder cannot use on its other projects. All consultants' contracts shall
provide that Owner is entitled to received from the consultant upon demand all
work-product for the Project generated by the consultant which is not otherwise
the property of Builder. Upon the expiration or earlier termination of this
Agreement, Builder shall deliver immediately to Owner all copies in Builder's
possession of all such documents not owned by Builder for Owner's use as it
deems appropriate.

19. Builder as Agent for Limited Purposes.
-------------------------------------

Builder and Owner acknowledge and expressly agree and Builder shall
not make and representations to the contrary, that (as provided in Paragraph 20
hereof) Builder is an independent contractor, and nothing contained in this
Agreement, unless expressly to the contrary, shall be construed as making
Builder or any other person the agent or employee of Owner, whether actual,
implied or apparent, or as authorizing Builder or any other persons to bind or
obligate Owner, or as making Owner responsible or liable for any of Builder's
acts or obligations under this Agreement. Notwithstanding the provisions of the
foregoing sentence, Builder is hereby designated as the limited agent of Owner
during the term of this Agreement, specifically and only to: (I) carry out its
obligations in connection with the development of the Project and the sale of
the Homes, (ii) execute notices of completion pertaining to the work to be
completed by Builder pursuant to this Agreement, (iii) execute agreements in
connection with the marketing and sales of the Homes, provided that the terms
and conditions of all such agreements are approved in advance in writing by
Owner, and (iv) obtain any bond exonerations and utility refunds or other
deposits.

20. Builder as Independent Contractor - No Interest in Property.
-----------------------------------------------------------

Builder is entering into this Agreement not as a partner or agent
(except to the limited extent provided herein) of Owner, but as an independent
contractor to provide the services set forth in this Agreement. By entering into
this Agreement, Builder acknowledges that Builder is acquiring no rights
whatsoever in the Property and under no circumstances whatsoever will aquifer
any interest in the Property except as may result under California Civil Code
Sections 3109 through 3154 or other laws relating to the enforcement of rights
by mechanics, materialmen, contractors, and the like. In acknowledging that
Builder is acquiring nor rights whatsoever in the Property, and will, under no
circumstances acquire any interest in the Property other than under mechanics'
lien laws to the extent they are applicable, Builder shall not assert, in any
legal action or otherwise, any right or interest in the Property and will not
record any lis pendens or any similar notice or lien against the Property other
than as expressly allowed under the mechanics' lien laws. By entering into this
Agreement, Builder acknowledges that it is acquiring no rights whatsoever in the
total revenues from the Project (except to the extent to receive funds due to
Builder hereunder from the sale escrow upon the close thereof) and that Owner
has no obligation to keep and maintain such revenues in a separate account,
account for the Project revenues to Builder, deposit or invest the Project
revenues to earn interest thereon, or otherwise take any other action with
respect to the Project revenues whether or not such actions would benefit the
Builder.

21. Non-Discrimination.
------------------

Builder shall comply with all laws that require Builder to be an equal
opportunity, non-discriminatory employer and shall comply with the federal and
state laws with

9.
<PAGE>

respect to non-discrimination with respect to the sales of the Homes. The
Builder agrees that there shall be no discrimination against or segregation of
any person or group of persons on account of race, color, religion, age,
politics, physical handicap, place of residence, creed, sex, sexual preference,
marital status or national origin in connection with respect to the construction
of the Project and the sale of the Homes.

22. Competition.
-----------

Until the sale escrow for the last of the Homes is closed or until
this Agreement is terminated if such termination occurs before the sale escrow
for the last of the Homes is closed, Builder and its affiliates shall not,
without the prior written approval of Owner, have any interest nor may it engage
in any other activities of any type, including, without limitation, (I) being a
general or limited partner in any partnership or a shareholder, officer or
director of any corporation, (ii) rendering advice or services to other
investors, and (iii) investing its own capitol or revenues with the capitol or
revenues of others in any fashion in any competing single family housing project
which is situated within a one (1) mile radius from the center point of the
Project. Such competitive activity shall include, without limitation, activities
in connection with the ownership, development, operation, management, leasing,
sale. and syndication of single family detached residential houses within the
radius.

23. Owner's Responsibility for Funding.
----------------------------------

Owner shall pay all of the costs, fees, expenses, taxes, debt service,
bond premiums, deposits, insurance premiums, brokerage commissions to unrelated
third parties, and the like which are in any way directly or indirectly related
to the ownership of the Property, the development and construction of the
Project, and the sale of the Homes (except for the overhead of Builder),
including, but not limited to:

(a) All costs for architectural, legal (including the cost due to
Builder's counsel to draft this Agreement), accounting, engineering and other
consultant services.

(b) All costs for soil, geological, and toxic and hazardous waste
studies incurred by consultants and under contracts designated or approved by
Owner.

(c) All construction costs, including labor and material costs and
equipment rental and repair, and the costs to maintain the Project free of
weeds, debris, pests, toxic, or hazardous waste.

(d) All costs for on-tract construction superintendents during the
course of construction (including reasonable payroll and transportation costs,
if any).

(e) All costs of establishing, maintaining, and operating an on-
tract construction field office.

(f) All governmental licenses and fees relating to the Project.

(g) All marketing and advertising costs and cost of sale, including
but not limited to: the construction, landscaping, and decoration of the model
Home complex, holding a Grand Opening for the Project, signage, advertising
sales brochures, constructing and operating

10.
<PAGE>

an on-site sales office (exclusive of the cost of sales personnel), escrow and
title charges, and other closing costs, brokerage commissions to unrelated third
parties, but excluding any brokerage commissions to the personnel of Builder and
the cost of on-site salespersons (the cost of which shall be paid by Builder).

(h) All premiums on general liability, workers compensation, course
of construction and any other insurance required by Owner to be carried by
Builder (but excluding insurance relating to the general operation of Builder's
business, other insurance which is specified in this Agreement as a cost to be
paid by Builder, and worker's compensation insurance to cover Builder's
employees, except to the extent it covers on-tract employees), the specific
arrangements for which have been approved by Owner.

(i) All real property taxes and assessments which are due and
payable against the Property.

(j) All payments of principal, interest, loan fees, discounts, costs
and fees related to any financing obtained by Owner to fund the construction of
the Project and the sale of Homes.

(k) All bond premiums, deposits, security, and all other similar
costs or security required by any governmental entity, utility, or any other
entity which requires any such item with respect to the Project.

24. Disbursement of Funds.
---------------------

Disbursement of funds by Owner pursuant to this Agreement shall be
according to the system provided below.

(a) Application for Payment. On the first and fifteen of each month
-----------------------
during the term of this Agreement, Builder shall submit to Owner's designated
person for the Project an itemized application for payment ("Application for
Payment"). Each Application for Payment submitted to the superintendent shall
include a detailed statement of all costs and expenses incurred in connection
therewith, and copies of appropriate bills and invoices evidencing the total
amount expended, incurred or due to a subcontractor, materialmen, or laborer for
work done pursuant to this Agreement or materials furnished or incorporated in
such work. The Application for Payment shall reflect bills incurred in
accordance with the construction payment schedule. The presentation to the
superintendent of such an Application for Payment shall constitute a
representation on the part of Builder that the costs specified therein have been
incurred properly in the development of the Project and in accordance with this
Agreement, and Owner shall be entitled to rely thereon. Along with the
Application for Payment, Builder shall furnish such additional items as required
by Bank.

(b) Operating Account. Owner shall deposit funds equal to the
-----------------
amount of the Application for Payment in an account (the "Operating Account")
within ten (10) days after Owner's superintendent's receipt and approval of such
Application for Payment. Builder shall prepare and deliver to Owner monthly
reconciliations for the Operating Account.

(c) Payment from Operating Account. Owner shall fund the Operating
------------------------------
Account with at least Twenty Thousand Dollars ($20,000.00) and shall maintain
that amount in said

11.
<PAGE>

Account. Builder shall be permitted to draw checks without restriction from the
Operating Account for payment of approved outstanding bills. Builder may,
without the prior approval of Owner, pay bills for the Project provided,
however, that no single bill paid by Builder from said Account may be more than
Five Thousand Dollars ($5,000.00). Payment of bills in excess of that amount
shall require the prior approval of Owner.

25. Payment of Costs by Builder.
---------------------------

Except as otherwise provided herein, the following items of cost shall
be borne solely by Builder and shall not be deemed a Project cost, and Builder
shall hold Owner free and harmless therefrom:

(a) All overhead Expenses of Builder including, without limitation,
salaries and other payments or benefits to principals, shareholders, officers,
employees, and agents and the cost of maintaining off-site offices and operating
Builder's business.

(b) All cost of accounting and accounting personnel employed by
Builder and used to maintain the books and records of all work performed
pursuant to this Agreement.

(c) Business licenses and fees of Builder, except as required
specifically for the Project by governmental entities having jurisdiction
thereof.

(d) Builder's workers compensation and employer liability insurance
(except to the extent it covers on-tract employees which shall be a cost of
Owner) and other costs for insurance not specifically required by Owner to be
carried in connection with the Project.

(e) All brokerage commissions or sale fees paid to Builder's
employees or Sales Agent.

26. Real Property Taxes.
-------------------

During the period of this Agreement, Owner shall pay all real property
taxes imposed against the Property so long as, and to the extent, the Property
is owned by Owner. Builder shall be required to request and, if possible obtain
from the County Tax Assessor a builder inventory exclusion to preclude the
obligation to pay a supplementary tax bill during construction of the Project.

27. Builder's Compensation.
----------------------

Owner shall pay, or cause to be paid, to Builder the following
compensation which shall be the only compensation or consideration paid to
Builder for its services hereunder:

(a) Overhead Draw. To reimburse the Builder for all of the overhead
-------------
administrative expense it incurs in administering the development of the Project
and the marketing of the Homes, Owner shall pay Builder an overhead draw (the
"Overhead Draw" herein) in the amount of Two Percent (2.0%) of the gross sales
price of the Homes. Said Overhead Draw may initially be payable in advance in
equal monthly payments over Thirty (30) months commencing on the date this
document is signed, computed on the project gross sales price of the Homes.
Such Overhead Draw shall initially be paid from cash available from the

12.
<PAGE>

construction loan or other Project financing with the balance of said Overhead
Draw, if any, payable by Owner as the Homes are sold. The monthly payment of
the Overhead Draw shall be adjusted from time to time as necessary to reflect
the actual gross sale prices of the Homes.

(b) Development Fee. No development is paid on this project.
---------------

(c) Sales/Marketing Fee. As compensation for Builder selling and
-------------------
marketing the Homes, Owner shall pay Builder a sales/marketing fee (the
"Sales/Marketing Fee" herein) in the amount of Two Percent (2.0%) of the gross
sales price of the Homes. The Sales/Marketing Fee shall be paid by Owner to
Builder on a Home by Home basis at the close of escrow for the sale of each
Home. The Sales/Marketing Fee shall be paid to Builder from the net sales
proceeds of each Home otherwise payable to Owner from the sale escrow or, if
there are not sufficient proceeds available through the escrow to pay the
Sales/Marketing Fee to Builder, Owner shall concurrently with the close of the
sale escrow for each Home, pay Builder the balance of the Sales/Marketing Fee
due to Builder as a result of the sale fees due to Builder's employees or to the
Sales Agent or it's employees from the Sales/Marketing Fee and shall, except for
the costs to be paid by Owner as set forth herein, indemnify and hold Owner free
and harmless therefrom.

(d) Warranty Expense. Builder shall be responsible for all warranty
----------------
costs, including general and administrative expenses associated with the
project. Builder agrees to administer Owner's Home Warranty Program as called
for in Paragraph 37.

(e) Builder Design Center Fee to Builder. Builder will provide the
------------------------------------
services of its design center to the buyers of the Homes who may use such
services to purchase flooring upgrades and other options to their respective
Home that are not available on the standard production Home. All profits
generated by Builders Design Center shall remain with Builder.

28. Termination for Cause by Owner.
------------------------------

In the event Builder is in default of any of its covenants, duties or
obligations hereunder and Builder fails to correct such default within a
reasonable time given the nature of the covenant, duty or obligation in question
(but no less than Thirty (30) days following written notice from Owner
specifying in reasonable detail such default), Owner shall have the right, at
its option, to terminate this Agreement for "cause" upon written notice to the
Builder. In the event Owner terminates this Agreement for "cause" pursuant to
this Paragraph, the following provisions shall apply:

(a) Builder's Compensation. In the event this Agreement is
----------------------
terminated by Owner for "cause" pursuant to this Paragraph 28, Builder shall
have no right to receive any portion of the fees set forth in Paragraph 27 that
have not been paid to it as of the date of termination. Builder shall have no
right after such termination to enter upon the Property, except for the sole
purpose of collecting property of Builder and the personal effects of Builder's
employees.

(b) Right of Entry. In addition to Owner's rights pursuant to
--------------
Paragraph 33, Owner may take possession of and use, in completing the Project or
any portion thereof, such materials, machinery, tools, equipment, appliances,
and other items of personal property as may be located on the Property upon such
termination for "cause" which have been paid for by

13.
<PAGE>

Owner or which are not timely removed by Builder, free of charge and without
liability to Builder for any use or damage.

29. Termination Without Cause by Owner.
----------------------------------

Notwithstanding any other provision of this Agreement, Owner shall
have the right to terminate the Agreement without cause in Owner's sole
discretion, upon Ninety (90) days written notice to Builder. In the event Owner
terminates this Agreement pursuant to the Paragraph 29, Owner shall remain
obligated to Builder for all fees which would be earned by Builder hereunder
which fees shall be paid upon the closing of the sale escrow for each and all of
the seventy-nine (79) Homes. Owner shall pay such fees to Builder in accordance
with the terms of this Agreement, provided, however, all unpaid fees shall be
due and payable in full, irrespective if the Homes have been constructed or
sold, One (1) year from the date of termination by Owner without cause under
this Paragraph 29. Owner shall provide Builder with reasonable access to the
Property and all portions of the Project for the purposes of removing its
movable personal property as described in Paragraph 33 In the event Builder does
not remove an item of its movable personal property with Thirty (30) days
following such termination, in addition to Owner's rights pursuant to Paragraph
33, Owner shall have the right to use such property in completing the Project or
any portion thereof, free of charge and without liability to Builder for the use
thereof or damage thereto.

30. Termination for Cause by Builder.
--------------------------------

In the event Owner defaults and fails to cure the default under this
Agreement within a reasonable time after written notice from Builder specifying
in reasonable detail such default (but in no event more than Five (5) business
days for the payment of money and no more then Thirty (30) days for all other
duties of Owner), if Builder is not also in default, Builder shall have the
right, at its option, to terminate this Agreement for "cause" upon written
notice to Owner. In the event Builder terminates this Agreement for "cause"
pursuant to this Paragraph 30, the rights of Owner and Builder shall be as set
forth in Paragraph 29.

31. Termination Due to Lack or Performance.
--------------------------------------

(a) Owner and Builder acknowledge that it is in the best interest of
both parties that this Agreement remain in force provided that Builder is able
to develop and successfully market an acceptable number of Homes over a given
period of time. Accordingly, if, due to no fault of either Owner or Builder,
Builder is not able to successfully develop and close the sale escrow on at
least eighteen (18) Homes during any six calendar month period commencing with
the first full calendar month after the close of the sale escrow for the first
Home sold hereunder, then upon the written notice from one party to the other,
either party may terminate this Agreement due to lack of performance.

(b) In the event that either party cancels this Agreement for lack of
performance pursuant to Paragraph 31(a) above, Builder agrees to complete the
construction of any Homes then under construction and to market all such Homes.
Owner and Builder agree that all of the terms and conditions hereunder,
including the payment of all fees due to Builder, shall continue in full force
and effect until the close of the sale escrow for the last of such Homes. At
that time, this Agreement shall terminate and neither party shall have any
further obligation to the other hereunder.

14.
<PAGE>

32. Owner's Unfettered Right to Deal With the Property Upon Any
-----------------------------------------------------------
Termination.
-----------

Builder acknowledges that, upon any termination of this Agreement
whether with or without cause, Owner shall have the right to deal with the
Property in any way it desires including, but not limited to, selling all or a
portion of the Project or any of the Homes whether or not completed or Property
completely changing any existing plan for the development of the Property, or
postponing or terminating any development of the Property. Builder acknowledges
that it shall have no right whatsoever to dictate or provide any input regarding
the development of the Property after any termination of this Agreement.

33. Removal by Builder.
------------------

Upon termination of this Agreement, Builder shall cease and quit all
activities and entry upon the Property. Upon such termination, Builder shall,
without expense to Owner, remove or cause to be removed from the Property all
movable signs, furnishings, equipment, trade fixtures, merchandise and other
movable personal property owned by Builder and installed or placed thereon.
Builder shall repair all damage to the Property and remove debris and rubbish
resulting from such removal. If Builder fails to remove any of such signs,
furnishings, equipment, trade fixtures, merchandise or other personal property
within Thirty (30) days after such expiration or termination of this Agreement,
then Owner may, at its sole option: (I) deem any or all of such items abandoned
as the sole property of Owner, or (ii) remove any or all of such items and
dispose of same in any manner, or store same for Builder, in which event the
expense of such disposition or storage shall be borne by Builder and shall be
immediately due and payable and Owner may, at its option, deduct such expenses
from any amount due and payable to Builder.

34. Other Rights Upon Termination.
-----------------------------

In the event of any termination of this Agreement whether with or
without cause, Owner shall be free to make any changes and arrangements as Owner
deems appropriate in order to obtain completion of the duties which are the
obligation of Builder under this Agreement. Upon any termination of this
Agreement, Owner and Builder shall be relieved of further performance under this
Agreement except as expressly set forth and except that a termination shall in
no way affect Builder's indemnity obligations or other legal liability to Owner
or invalidate, reduce or restrict the rights of Builder or Owner to pursue
remedies for any branch of performance of wrongful act, error or omission
occurring prior to the termination, regardless of whether the non performance,
act, error or omission was known by the aggrieved party at the time of
termination. In addition, Builder shall perform all obligations under this
Agreement relating to the cessation and quitting of activities; entry upon the
Property; and turnover of all documents and other materials relating to the
Project or the sale of the Homes, regardless of whether Builder believes the
termination is proper or justified.

35. Insurance.
---------

(a) Owner at its sole cost and expense shall at all times hereunder
cause to be issued the insurance coverage hereinafter set forth from companies
reasonably acceptable to both Owner and Builder. If at any time such required
insurance coverage is not timely provided by Owner or such required coverage
lapses, Builder, at the sole cost and expense of Owner, may

15.
<PAGE>

cause such required insurance to be issued. Al policies of insurance shall be in
such amounts as reasonably required by Builder, and shall include Builder as an
additional insured, certificates of the required insurance coverage shall be
delivered by the insurance carrier to Builder promptly following the issuance of
an insurance policy and all such policies shall provide that the coverage
thereunder cannot be canceled or diminished upon not less than Thirty (30) days
prior written notice thereof delivered to Builder by certified mail.

(b) Owner shall provide all insurance coverage as may from time to
time be reasonably be requested by Builder or by Bank to protect the interests
of Owner, Builder, and/or Bank, or any other lender which makes a loan to the
Project, and any other person or entity who may from time to time have an
insurable interest in the Project. Such required insurance shall include, but
not be limited to:

(i) All risks insurance including, without limitation, fire,
earthquake (as may be required by a third party lender), theft, and the like
covering the full insurable value of the constructed improvements to the
Project;

(ii) General Liability insurance with coverage for any one
person or entity from one insured event of not less than Two Million Dollars
($2,000,000) and a total policy limit for all claims from all insured events of
not less than Five Million Dollars ($5,000,000);

(iii) Workman's compensation insurance; and

(iv) Non-owned automobile insurance.

(c) All insurance proceeds from any claim under an insurance policy
maintained hereunder shall be delivered to Builder which shall distribute or use
such proceeds to cover, pay, or reimburse the person or entity which suffered
the loss. Notwithstanding the foregoing, insurance proceeds from all risks
insurance shall be distributed and utilized as required by any construction
lender or other lender who has an insurable interest in the Project.

36. Builders Representations and Warranties to Owner.
------------------------------------------------

In addition to any other representations and warranties of Builder
contained in this Agreement, Builder warrants and represents that the following
facts are true and correct as of the date of this Agreement, and Builder's
making of each request for disbursement of funds by Owner pursuant to Paragraph
24 shall constitute a new representation and warranty that the following facts
remain true and correct as of the date of the request, unless previously
disclosed in writing by Builder to Owner. These representations and warranties,
and any liability of Builder arising therefrom, shall survive any termination of
this Agreement.

(a) Authority. Builder has the full right and authority to enter
---------
into this Agreement and to perform all of Builder's obligations hereunder, and
each of the persons signing this Agreement on behalf of Builder is authorized to
do so, and the signature or consent of no other person or entity is required.

(b) Licenses Held by Builder. To the extent required by law in order
------------------------
to fully perform its obligations pursuant to this Agreement, Builder is licensed
and in good standing as a

16.
<PAGE>

building contractor under the laws of the State of California and Builder holds
all other licenses and is in compliance with all other laws and regulations
which may affect Builder's ability to perform pursuant to this Agreement.
Builder is also licensed and in good standing as a real estate broker under the
laws of the State of California.

(c) Insolvency. Builder has not: (I) made a general assignment for
----------
the benefits of creditors; (ii) filed any voluntary petition in bankruptcy or
suffered the filing of an involuntary petition by Builder's creditors; (iii)
suffered the appointment of a receiver to take possession of all of
substantially all of Builder's assets; or (iv) suffered the attachment or other
judicial seizure of all, or substantially all, of Builder's assets.

(d) No Defaults by Builder. There have been no acts or omission of
----------------------
Builder which would constitute a default under this Agreement.

37. Owner's Limited Liability.
-------------------------

Owner shall not be liable to Builder for any loss, damage, injury, or
claim of any kind or character to any person or property, except to the extent
caused by the willed misconduct of Owner or its officers, directors, affiliates,
or employees, arising from or caused in connection with the development of the
Property or the construction or sale or other conveyance of Homes. A warranty
policy will be provided by Residential Warranty Corporation to be paid for
through escrow by owner.

38. Builder's Liability Indemnity.
-----------------------------

Builder hereby indemnifies and shall defend and hold harmless Owner,
and its officers, directors, affiliates, partners, agents, employees, licensees,
invitees, and contractors against all lost, expense (including, but not limited
to, attorneys fees and court costs), damage, injury, liability, cause of action
or claim of any kind or character to any person or property due in any part to
the gross negligence, willful misconduct, or material breach of any agreement by
Builder with respect to the obligations of Builder to develop the Project and
market the Homes as provided herein. The indemnity and agreement to defend and
hold harmless by Builder are intended to apply with respect to loss, expense,
damage, injury, or claim arising during the terms of this Agreement, or
following any expiration or other termination of this Agreement and shall
survive the expiration or other termination of this Agreement.

39. Confidentiality and Restrictions on Disclosure.
----------------------------------------------

Builder and Owner shall not, unless it has obtained the prior written
consent of the other party, release, publish or otherwise distribute, and shall
not authorize or permit any person or entity to release, publish or distribute,
any information regarding the financial arrangements between Owner and Builder
pursuant to this Agreement, any marketing studies for the Project, and financial
information regarding the construction of the Project or the sale of the homes,
and this Agreement, except as shall be required to perform the disclosing
party's obligations hereunder or as may be required by law. Owner acknowledges
that Builder may have to file this Agreement with the Securities and Exchange
Commission.

17.
<PAGE>

40. Assignment.
----------

Builder may not encumber, assign, or otherwise transfer this Agreement
or any right or interest hereunder without the prior written consent of Owner.
Builder acknowledges that in entering into this Agreement, Owner has bargained
for the services specifically of Builder, and therefore, Builder agrees that
Owner may for any reason on Owner's sole discretion, withhold its consent to any
assignment or other transfer of any rights of Builder hereunder except the right
to received the monies set forth in Paragraph 27 hereof which Builder may assign
without restriction.

41. Notices.
-------

All notices, requests, demands, and other communications required to
or permitted to be given under this Agreement shall be in writing and shall be
conclusively deemed to have been duly given (I) when hand delivered to the other
party; or (ii) when received when sent by facsimile to the facsimile number set
forth below (provided, however, that notices given by facsimile shall not be
effective unless either (x) a duplicate copy of such facsimile notice is
promptly given by depositing same in a United States post office with first-
class postage prepaid and addressed to each party hereto as set forth below, or
(y) the receiving party delivers a written confirmation of receipt for such
notice either by facsimile or any other method permitted hereunder;
additionally, any notice given by facsimile shall be deemed received on the next
business day if such notice is received after 5:00 p.m. (recipients time) or on
a non-business day); or (iii) three (3) business days after the same have been
deposited in a United States post office with first-class or certified mail
return receipt requested with postage prepaid and addressed to each other party
hereto as set forth below; or (iv) the next business day after same have been
deposited with a national overnight delivery service delivery charge prepaid,
addressed to each other party as set forth below with next-business-day delivery
guaranteed. Each party shall make an ordinary, good faith effort to ensure that
any person to be given notice actually receives such notice. A party may change
or supplement the addressees and facsimile numbers given below, or designate
additional addresses and facsimile numbers, by giving each other party hereto
written notice of the new address and/or facsimile number in the manner set
forth below. All such communications shall be addressed as follows:

<TABLE>
<S> <C> <C>
To Builder: Inco Homes Corporation
P.O. Box 970
Upland, CA 91785
Attn: Ira C. Norris, Chairman
Telephone: (909) 981-8989
Facsimile: (909) 982-9784

With a copy to:

To Owner: Harwood Palmdale Partners I, LP Harwood Homes, Inc.
c/o Fred E. Liao c/o Herbert Hirsh
147 E. Olive Avenue 14044 Ventura Blvd., Suite 206
Monrovia, CA 91016 Sherman Oaks, CA 91423
Telephone: (626) 358-5888 Telephone: (818) 981-7085
Facsimile: (626) 358-0338 Facsimile: (818) 981-7969
</TABLE>

18.
<PAGE>

42. Applicable Law - Consent to Jurisdiction and Venue.
--------------------------------------------------

This Agreement shall in all respects be governed by the laws of the
State of California which are applicable to agreements executed and to be fully
performed therein. The parties further agree that all actions or proceedings
arising in connection with this Agreement shall be litigated or arbitrated
exclusively either in the State or the Federal Courts or by an arbitrator, as
appropriate, located in the County of San Bernardino, State of California which
courts shall have personal jurisdiction over the parties hereto.

43. Severability.
------------

No term, condition or provision of this Agreement shall be interpreted
or construed to require the performance of any act, duty or obligation that is
contrary to law. If any term, condition or provision of this Agreement is
determined to be illegal, unenforceable or invalid in whole or part for any
reason, such provision shall be stricken from this Agreement to the limited
extent necessary to bring this Agreement within the requirements of the law and
this Agreement to the fullest extent practical shall otherwise be deemed legal
and valid and shall continue in full force and effect.

44. Further Assurances.
------------------

Each of the parties hereto shall execute and deliver any and all
additional papers, documents and other assurances, and shall do any and all acts
and things reasonably necessary in connection with the performance of their
respective obligations hereunder and to carry out the intent of the parties
hereto.

45. Successors and Assigns.
----------------------

All of the terms and provisions contained herein shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
heirs personal representatives, successors and assigns.

46. Entire Agreement.
----------------

This Agreement constitutes the entire understanding and agreement of
the parties and any and all prior agreements, understandings, or representations
and/or warranties of any kind are hereby terminated and canceled in their
entirety and are of no further force or effect. No amendment, change or
modification of this Agreement shall be valid unless such document is in writing
and signed by all of the parties hereto.

47. Attorney's Fees.
---------------

In the event any action of any type, including, but not limited to,
suit, collection, counterclaim, appeal, arbitration and/or mediation, is
instituted or brought by a party to enforce any of the terms and provisions
hereof and/or to obtain a declaratory judgment with respect to the status of his
rights hereunder (collectively and "Action" herein), the losing party shall pay
the prevailing party all costs, expenses and fees whatsoever incurred by the
prevailing party with respect to bringing and prosecuting such Action (including
and appeal) and enforcing and

19.
<PAGE>

judgment, order ruling, or award granted thereunder, including reasonable
attorney's fees and court costs as the Court or the arbitrator may award.

48. Captions.
--------

The captions appearing at the commencement of the paragraphs hereof
are descriptive only and for convenience in reference. Should there be any
conflict between any such caption and the paragraph at the head of which it
appears, the paragraph and not such caption shall control and govern in the
construction of this Agreement.

49. Incorporation of Exhibits.
-------------------------

All exhibits attached hereto and referred to herein are incorporated
in this Agreement as though fully set forth in the body hereof.

50. Waiver.
------

No consent to any action, waiver of any provision, or waiver of any
breach of any duty or obligation hereunder shall constitute a waiver of any
other provision or consent to any other action or subsequent breach, whether or
not similar. No waiver or consent shall constitute a continuing waiver or
consent or commit a party to provide a waiver in the future except to the extent
specifically set forth in writing. Any waiver given by a party shall be null and
void if the party requesting such waiver has not provided to the waiving party a
full and complete disclosure of all material facts relevant to the waiver
requested.

51. Third Party Beneficiaries.
-------------------------

This Agreement and every provision herein is made exclusively for the
benefit of the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement is intended to confer any rights or remedies
under or by reason of this Agreement on any persons other than the parties to it
and their respective successors and permitted assigns; provided, however,
nothing in this Agreement is intended to relieve or discharge the obligations or
liability of any third person to any party to this Agreement.

52. Time of the Essence.
-------------------

Time is of the essence with respect to the performance of all of the
duties and obligations set forth in this Agreement.

53. General Interpretation.
----------------------

The terms of this Agreement have been negotiated by the parties hereto
and the language used in this Agreement shall be deemed to be the language
chosen by the parties hereto to express their mutual intent. No rule of strict
construction will be applied against any party hereto. This Agreement shall be
construed equally against all parties hereto without regard to any presumption
or rule requiring construction against the party who drafted this Agreement or
any portion thereof.

20.
<PAGE>

54. Representation of Authority of Signatories.
------------------------------------------

Each person signing this Agreement represents and warrants to each
other party hereto that he or she is duly authorized and has legal capacity to
execute and deliver this Agreement. Each party further represents and warrants
to each other party hereto that the execution and delivery of this Agreement and
the performance of such party's obligation hereunder have been duly authorized
and that the Agreement is a valid and legal agreement binding on such party and
enforceable in accordance with its terms.

55. Execution of Agreement.
----------------------

Each party has been represented by counsel in the negotiation and
execution of this Agreement. This Agreement was executed voluntarily without any
duress or undue influence on the part of or on behalf of the parties hereto. The
parties acknowledge that they have read and understood this Agreement and its
legal effect. Each party acknowledges that it has had a reasonable opportunity
to obtain independent legal counsel for advice and representation in connection
with this Agreement.

56. Arbitration.
-----------

The parties shall, at the request of wither party, submit any dispute
concerning the interpretation of or the enforcement of rights and duties under
this Agreement to final and binding arbitration pursuant to the rules of the
American Arbitration Association. At the request of any party, the arbitrators,
attorneys, parties to the arbitration, witnesses, experts, court reporters, or
other persons present at the arbitration shall agree in writing to maintain the
strict confidentiality of the arbitration proceedings. Arbitration shall be
conducted by a single, neutral arbitrator, or, at the election of any party,
three neutral arbitrators, appointed in accordance with the rules of the
American Arbitration Association. The award of the arbitrator(s) shall be
enforceable according to the applicable provisions of the California Code of
Civil Procedure. The arbitrator(s) may award damages and/or permanent
injunctive relief, but in no event shall the arbitrator(s) have the authority to
award punitive or exemplary damages. If proper notice of any hearing has been
given, the arbitrator(s) will have full power to proceed to take evidence or to
perform any other acts necessary to arbitrate the matter in the absence of any
party who fails to appear.

21.
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Development and Marketing Agreement as of the day and year first above written.

("Builder") ("Owner")

GENERAL PARTNER:

Huntington Homes, LLC GTB Development Co.
a Delaware Limited Liability Company a California Corporation

By: Inco Homes Corporation,
a Delaware Corporation, By: /s/ HERBERT HIRSH
--------------------------
as Managing Member Herbert Hirsh
President

By: /s/ IRA C. NORRIS LIMITED PARTNER:
-----------------------------
Ira C. Norris,
Chairman of the Board Overland Company, Inc.

By: /s/ FREDERICK E. LIAO
--------------------------
Frederick E. Liao
President

Ephram Investment, Inc.

By:
--------------------------
Andrew Hsu
President

22.

<PAGE>

EXHIBIT 10.32

DEVELOPMENT AND MARKETING AGREEMENT
-----------------------------------

This DEVELOPMENT AND MARKETING AGREEMENT is made and entered into as of
this 12th day of March 1999 by and between OVERLAND HAVEN, LLC, a California
Limited Liability Company, ("Owner" herein) and INCO HOMES CORPORATION, a
Delaware corporation ("Builder" herein) with reference to the following facts:

A. Owner has fee title to that certain parcel of undeveloped real
property located in Rancho Cucamonga, California, the legal description of which
is set forth on Exhibit A (the "Property" herein). The Property has been
subdivided into fifty-six (56) lots (the "Lots" herein) which Owner desires to
be developed with single family, detached homes (the "Homes" herein). The
development and construction of fifty-six (56) single family, detached Homes on
the Lots together with all of the required on-site and off-site infrastructure
required therewith is collectively referred to as the "Project" herein.

B. Builder is a licensed building contractor in the State of California
whose primary expertise is the construction and sale of single family, detached
homes.

NOW, THEREFORE, in reliance on the facts set forth in the above recitals
and in consideration of the mutual covenants and agreements set forth herein,
the parties hereto agree as follows:

1. Engagement.
----------

Owner hereby engages the services of Builder to develop and construct
the Project and market the Homes, and Builder hereby agrees to accept such
engagement and provide said services to Owner for the consideration and upon the
terms and conditions hereinafter set forth.

2. Development of the Project and Marketing of the Homes.
-----------------------------------------------------

Builder agrees to diligently develop and construct the Project and
market the completed Homes, as more specifically provided herein. Such
development responsibilities of Builder shall generally include coordinating
both the existing and future entitlements that benefit the Property,
constructing the on-site and off-site infrastructure for the Project,
constructing the Homes and providing all warranty and customer service
construction and repairs for the

1.
<PAGE>

completed and sold Homes. Such marketing responsibilities of Builder shall
generally include designing the Homes, constructing, landscaping, and
decorating the model complex, holding a Grand Opening for the Project, setting
the sale prices of the Homes, signage, advertising, developing and printing
marketing brochures, sales contracts, and material, hiring and overview of sales
personnel and managing all other pre-closing and post-closing relationships
with the Home buyers. Builder agrees to use its reasonable best efforts under
the circumstances that exist from time to time during the term hereof to perform
its services hereunder in a manner that, subject to the rights of Owner to
direct Builder and subject to the performance of Owner of its obligations
(particularly funding) hereunder, shall be intended to maximize the sales
revenue from the completed Homes.

3. Term.
----

4. Title - Full Cooperation By Owner.
---------------------------------

Title to the Property shall remain in the name of Owner. Owner shall
fully cooperate with Builder as requested by Builder to perform its services
hereunder and Owner also agrees to promptly sign all maps, governmental forms,
utility agreements, deeds of trust, sales agreements, escrow instructions,
deeds, and all other documents required by Builder to develop the Project and
market the Homes.

5. Phase Budget.
------------

(b) Conformity with Phase Budget. Builder shall use its best efforts
to cause each Phase to be completed in all reasonable respects in conformity
with the Phase Budget. Builder shall hold monthly job cost meetings with
representatives of the Owner and shall prepare monthly updates of the phase
Budget with variance explanations and Project cost reports

2.
<PAGE>

6. Phase Schedule.
--------------

(b) Conformity with Phase Schedule. Builder shall use its reasonable
------------------------------
best efforts to cause each Phase to be completed in all respects in conformity
with the Phase Schedule. Builder shall prepare and deliver to Owner monthly
progress reports setting forth the actual construction progress achieved during
such month and from the beginning of the Phase to date, and comparison thereof
to scheduled construction progress for the same period and sales reports setting
forth the actual sales consummated and escrows closed during such month and from
the beginning of the Phase to date.

7. Design of Homes.
---------------

8. Phasing of Development.
----------------------

9. Builder's Development and Construction Duties.
---------------------------------------------

3.
<PAGE>

(a) Development. Builder, at the sole cost and expense of Owner,
-----------
shall work with the Owner to obtain all appropriate governmental authorities
having jurisdiction over the Project to obtain, maintain and process all
necessary zoning, permits, approvals, licenses, entitlements and consents
required to develop the Project including without limitation, any necessary
building permits, grading permits, and development agreements regarding the
construction of or funding of the Homes with the appropriate governmental
entities. In obtaining such zoning, permits, approvals, licenses, entitlements
and consents, Builder shall , at the sole cost and Expense of Owner, work with
the Owner to prepare and process as necessary all environmental impacts reports,
bonds, utility agreements, maps, studies, drawings, applications, and other
necessary or appropriate items of every description. Applications for approval
of licenses, permits, subdivision maps, bond and utility agreements shall be in
the name of and approved by Owner. Owner and Builder shall fully cooperate with
each other to obtain all such items required to develop the Project and Owner or
Owner's authorized agent shall promptly execute all documents and agreements
required by Builder in connection therewith.

(b) Construction. Builder shall act as the general contractor for the
------------
construction of the Project and, as such shall be responsible for the following:

(iii) Builder shall cause the Project to be constructed,
substantially in accordance with all governmental requirements and existing
plans and specifications as are approved by Owner.

(c) Bonds and Deposits. Builder shall prepare all necessary documents
------------------
and instruments required for the posting of any bonds, letters of credit,
deposits or other forms of security required by any governmental entity or
utility in connection with the project. Builder shall prepare any and all
deposit agreements of the deposits in a timely fashion. Owner shall furnish, at
its sole cost and expense, all bonds, letters of credit, deposits or other forms
of security, required of any governmental entity or utility with respect to the
Project. Builder shall request, tack and cause any bonds, letters of credits,
deposits or other forms of security that have been posted by Owner in favor of
any governmental entity or utility in connection with the

4.
<PAGE>

10. Builder's Sales Duties.
----------------------

(a) Development and Implementation of Sales Program. Promptly
following the execution of this Agreement, Builder shall develop a program for
selling the Homes and shall arrange for the construction, preparation, and
availability of such models and other marketing sales tools and materials as
shall be necessary to such program. Builder shall deliver a schedule of proposed
pricing and plotting mixes for the Homes to Owner for its prior reasonable
approval. Based on the recommendation of Builder, Owner shall approve a range of
sales prices for the Homes and Builder is authorized to sell such Homes for a
price within such range. A Home may not be sold below the established sales
price without the prior reasonable consent of Owner. Builder shall, at the sole
cost and expense of Owner, construct and maintain both the interior and exterior
of the model Homes, including all decorating and landscaping, hold a Grand
Opening for the Project, establish the sales program, advertise the Project in
such media as the Builder may determine provide appropriate signage for the
Project, and prepare all sales tools, including allowances and other public
relations activities shall be subject to Owner's prior obligations. Every cost
and expense of marketing the construction, landscaping, and decoration of the
model complex, holding a Grand Opening for the Project, signage, advertising,
developing and printing marketing brochures, sales contracts and materials, and
constructing and maintaining an on-site sales office shall be paid by Owner.
Only the cost of all brokerage fees and sales commissions to sell the Homes due
to the sales personnel of Builder shall be paid solely by Builder, but all
commissions due to third parties shall be paid by Owner. The Builder's services
shall include:

(ii) Preparing at its sole cost and submitting to Owner monthly
competitor reports and other outside market studies to review pricing,
incentives, absorption rates, demographics and the like:

5.
<PAGE>

(iii) Assigning a sales manager employed by Builder to the
Project who will act as a liaison between Builder and the Owner by the Builder
at the sole expense of Builder;

(v) A weekly sales report will be furnished showing daily
traffic, media origin, and sources of the sales; and

6.
<PAGE>

(d) Commissions Payable to Builder. Except for Builder's compensation
------------------------------
set forth in Paragraph 27(c) hereof, Builder shall not be entitled to commission
or other compensation in connection with their activities performed pursuant to
this Agreement with respect to sales.

11. Coordination with Owner's Bank.
------------------------------

Builder acknowledges that Owner intends to obtain various loans from
various financial institutions (collectively "Bank" herein) in connection with
the development of the Project and Builder shall assist Owner to obtain all such
required financing but shall have no direct financial obligation with respect
thereto. Builder shall review and become familiar with the terms and obligations
of these loans and shall develop the Project in a manner which complies with all
loan covenants in order to minimize Owner's exposure under such loans (i.e.,
start restrictions, accelerated payoffs, standing inventory, etc.) At the
request of Owner or Bank, Builder shall, at the sole cost of Owner, prepare
proforma and actual cost, income, cash flow and other financial projections and
reports for the Project, including product line profitability analysis and
projections of return on cost. These projections shall be supplemented and/or
updated throughout the course of development to reflect any major changes or
deviations. Builder shall obtain the approval of Owner and Bank prior to
commencing the construction of any Homes. At Owner's request, Builder shall
prepare bank loan submissions and draw requests.

12. Operation and Quarterly Review Meetings.
---------------------------------------

In addition to all other meetings to be held by Builder and Sales Agent
pursuant to this Agreement, Builder shall hold monthly operations meetings with
representatives of Owner. All meetings required hereunder between Owner and
Builder shall, unless otherwise approved by both parties, be held at the
principal executive office of Builder. Builder agreed to hold such other
meetings concerning the Project at such time as reasonably requested by Owner.

13. Compliance with Laws.
--------------------

14. Inspections.
-----------

Owner shall, at its sole cost and expense, have the right, but not the
obligation, to inspect the progress and quality of all work performed by, or
under subcontract to, Builder in

7.
<PAGE>

15. Approvals by Owner.
------------------

16. Land Maintenance and Protection.
-------------------------------

17. Liens.
-----

18. Ownership of Plans and Materials.
--------------------------------

8.
<PAGE>

19. Builder as Agent for Limited Purposes.
-------------------------------------

Builder and Owner acknowledge and expressly agree and Builder shall not
make and representations to the contrary, that (as provided in Paragraph 20
hereof) Builder is an independent contractor, and nothing contained in this
Agreement, unless expressly to the contrary, shall be construed as making
Builder or any other person the agent or employee of Owner, whether actual,
implied or apparent, or as authorizing Builder or any other persons to bind or
obligate Owner, or as making Owner responsible or liable for any of Builder's
acts or obligations under this Agreement. Notwithstanding the provisions of the
foregoing sentence, Builder is hereby designated as the limited agent of Owner
during the term of this Agreement, specifically and only to: (I) carry out its
obligations in connection with the development of the Project and the sale of
the Homes, (ii) execute notices of completion pertaining to the work to be
completed by Builder pursuant to this Agreement, (iii) execute agreements in
connection with the marketing and sales of the Homes, provided that the terms
and conditions of all such agreements are approved in advance in writing by
Owner, and (iv) obtain any bond exonerations and utility refunds or other
deposits.

20. Builder as Independent Contractor - No Interest in Property.
-----------------------------------------------------------

21. Non-Discrimination.
------------------

Builder shall comply with all laws that require Builder to be an equal
opportunity, non-discriminatory employer and shall comply with the federal and
state laws with

9.
<PAGE>

22. Competition.
-----------

Until the sale escrow for the last of the Homes is closed or until this
Agreement is terminated if such termination occurs before the sale escrow for
the last of the Homes is closed, Builder and its affiliates shall not, without
the prior written approval of Owner, have any interest nor may it engage in any
other activities of any type, including, without limitation, (I) being a general
or limited partner in any partnership or a shareholder, officer or director of
any corporation, (ii) rendering advice or services to other investors, and (iii)
investing its own capitol or revenues with the capitol or revenues of others in
any fashion in any competing single family housing project which is situated
within a one (1) mile radius from the center point of the Project. Such
competitive activity shall include, without limitation, activities in connection
with the ownership, development, operation, management, leasing, sale. and
syndication of single family detached residential houses within the radius.

23. Owner's Responsibility for Funding.
----------------------------------

(a) All costs for architectural, legal (including the cost due to
Builder's counsel to draft this Agreement), accounting, engineering and other
consultant services.

(b) All costs for soil, geological, and toxic and hazardous waste
studies incurred by consultants and under contracts designated or approved by
Owner.

(c) All construction costs, including labor and material costs and
equipment rental and repair, and the costs to maintain the Project free of
weeds, debris, pests, toxic, or hazardous waste.

(d) All costs for on-tract construction superintendents during the
course of construction (including reasonable payroll and transportation costs,
if any).

(e) All costs of establishing, maintaining, and operating an on-tract
construction field office.

(f) All governmental licenses and fees relating to the Project.

10.
<PAGE>

(i) All real property taxes and assessments which are due and payable
against the Property.

(j) All payments of principal, interest, loan fees, discounts, costs
and fees related to any financing obtained by Owner to fund the construction of
the Project and the sale of Homes.

24. Disbursement of Funds.
---------------------

Disbursement of funds by Owner pursuant to this Agreement shall be
according to the system provided below.

(b) Operating Account. Owner shall deposit funds equal to the amount
-----------------
of the Application for Payment in an account (the "Operating Account") within
ten (10) days after Owner's superintendent's receipt and approval of such
Application for Payment. Builder shall prepare and deliver to Owner monthly
reconciliations for the Operating Account.

(c) Payment from Operating Account. Owner shall fund the Operating
------------------------------
Account with at least Twenty Thousand Dollars ($20,000.00) and shall maintain
that amount in said

11.
<PAGE>

25. Payment of Costs by Builder.
---------------------------

Except as otherwise provided herein, the following items of cost shall
be borne solely by Builder and shall not be deemed a Project cost, and Builder
shall hold Owner free and harmless therefrom:

(b) All cost of accounting and accounting personnel employed by
Builder and used to maintain the books and records of all work performed
pursuant to this Agreement.

(c) Business licenses and fees of Builder, except as required
specifically for the Project by governmental entities having jurisdiction
thereof.

(e) All brokerage commissions or sale fees paid to Builder's
employees or Sales Agent.

26. Real Property Taxes.
-------------------

During the period of this Agreement, Owner shall pay all real property
taxes imposed against the Property so long as, and to the extent, the Property
is owned by Owner. Builder shall be required to request and, if possible.
obtain from the County Tax Assessor a builder inventory exclusion to preclude
the obligation to pay a supplementary tax bill during construction of the
Project.

27. Builder's Compensation.
----------------------

Owner shall pay, or cause to be paid, to Builder the following
compensation which shall be the only compensation or consideration paid to
Builder for its services hereunder:

(a) Overhead Draw. To reimburse the Builder for all of the overhead
-------------
administrative expense it incurs in administering the development of the Project
and the marketing of the Homes, Owner shall pay Builder an overhead draw (the
"Overhead Draw" herein) in the amount of Two Percent (2.0%) of the gross sales
price of the Homes. Said Overhead Draw may initially be payable in advance in
equal monthly payments over Thirty (30) months commencing on the date this
document is signed, computed on the project gross sales price of the Homes. Such
Overhead Draw shall initially be paid from cash available from the

12.
<PAGE>

construction loan or other Project financing with the balance of said Overhead
Draw, if any, payable by Owner as the Homes are sold. The monthly payment of the
Overhead Draw shall be adjusted from time to time as necessary to reflect the
actual gross sale prices of the Homes.

(b) Development Fee. No development is paid on this project.
---------------

(d) Warranty Fee. Builder shall be responsible for all warranty costs,
------------
including general and administrative expenses associated with the project.
Builder agrees to administer Owner's Home Warranty Program as called for in
Paragraph 37.

28. Termination for Cause by Owner.
------------------------------

(a) Builder's Compensation. In the event this Agreement is terminated
----------------------
by Owner for "cause" pursuant to this Paragraph 28, Builder shall have no right
to receive any portion of the fees set forth in Paragraph 27 that have not been
paid to it as of the date of termination. Builder shall have no right after such
termination to enter upon the Property, except for the sole purpose of
collecting property of Builder and the personal effects of Builder's employees.

13.
<PAGE>

Owner or which are not timely removed by Builder, free of charge and without
liability to Builder for any use or damage.

29. Termination Without Cause by Owner.
----------------------------------

Notwithstanding any other provision of this Agreement, Owner shall
have the right to terminate the Agreement without cause in Owner's sole
discretion, upon Ninety (90) days written notice to Builder. In the event Owner
terminates this Agreement pursuant to the Paragraph 29, Owner shall remain
obligated to Builder for all fees which would be earned by Builder hereunder
which fees shall be paid upon the closing of the sale escrow for each and all of
the fifty-six (56) Homes. Owner shall pay such fees to Builder in accordance
with the terms of this Agreement, provided, however, all unpaid fees shall be
due and payable in full, irrespective if the Homes have been constructed or
sold, One (1) year from the date of termination by Owner without cause under
this Paragraph 29. Owner shall provide Builder with reasonable access to the
Property and all portions of the Project for the purposes of removing its
movable personal property as described in Paragraph 33 In the event Builder does
not remove an item of its movable personal property with Thirty (30) days
following such termination, in addition to Owner's rights pursuant to Paragraph
33, Owner shall have the right to use such property in completing the Project or
any portion thereof, free of charge and without liability to Builder for the use
thereof or damage thereto.

30. Termination for Cause by Builder.
--------------------------------

31. Termination Due to Lack or Performance.
--------------------------------------

14.
<PAGE>

32. Owner's Unfettered Right to Deal With the Property Upon Any
-----------------------------------------------------------
Termination.
- -----------

33. Removal by Builder.
------------------

34. Other Rights Upon Termination.
-----------------------------

35. Insurance.
---------

15.
<PAGE>

cause such required insurance to be issued. All policies of insurance shall be
in such amounts as reasonably required by Builder, and shall include Builder as
an additional insured, certificates of the required insurance coverage shall be
delivered by the insurance carrier to Builder promptly following the issuance of
an insurance policy and all such policies shall provide that the coverage
thereunder cannot be canceled or diminished upon not less than Thirty (30) days
prior written notice thereof delivered to Builder by certified mail.

(iii) Workman's compensation insurance; and

(iv) Non-owned automobile insurance.

36. Builders Representations and Warranties to Owner.
------------------------------------------------

(a) Authority. Builder has the full right and authority to enter into
---------
this Agreement and to perform all of Builder's obligations hereunder, and each
of the persons signing this Agreement on behalf of Builder is authorized to do
so, and the signature or consent of no other person or entity is required.

16.
<PAGE>

(d) No Defaults by Builder. There have been no acts or omission of
----------------------
Builder which would constitute a default under this Agreement.

37. Owner's Limited Liability.
-------------------------

38. Builder's Liability Indemnity.
-----------------------------

39. Confidentiality and Restrictions on Disclosure.
----------------------------------------------

17.
<PAGE>

40. Assignment
----------

41. Notices.
-------

All notices, requests, demands, and other communications required to or
permitted to be given under this Agreement shall be in writing and shall be
conclusively deemed to have been duly given (I) when hand delivered to the other
party; or (ii) when received when sent by facsimile to the facsimile number set
forth below (provided, however, that notices given by facsimile shall not be
effective unless either (x) a duplicate copy of such facsimile notice is
promptly given by depositing same in a United States post office with first-
class postage prepaid and addressed to each party hereto as set forth below, or
(y) the receiving party delivers a written confirmation of receipt for such
notice either by facsimile or any other method permitted hereunder;
additionally, any notice given by facsimile shall be deemed received on the next
business day if such notice is received after 5:00 p.m. (recipients time) or on
a non-business day); or (iii) three (3) business days after the same have been
deposited in a United States post office with first-class or certified mail
return receipt requested with postage prepaid and addressed to each other party
hereto as set forth below; or (iv) the next business day after same have been
deposited with a national overnight delivery service delivery charge prepaid,
addressed to each other party as set forth below with next-business-day delivery
guaranteed. Each party shall make an ordinary, good faith effort to ensure that
any person to be given notice actually receives such notice. A party may change
or supplement the addressees and facsimile numbers given below, or designate
additional addresses and facsimile numbers, by giving each other party hereto
written notice of the new address and/or facsimile number in the manner set
forth below. All such communications shall be addressed as follows:

To Builder: Inco Homes Corporation
P.O. Box 970
Upland, CA 91785
Attn: Ira C. Norris, Chairman
Telephone: (909) 981-8989
Facsimile: (909) 982-9784

With a copy to:

To Owner: Overland Haven, LLC Harwood Homes, Inc.
c/o Fred E. Liao c/o Herbert Hirsh
147 E. Olive Avenue 14044 Ventura Blvd., Suite 206
Monrovia, CA 91016 Sherman Oaks, CA 91423
Telephone: (626) 358-5888 Telephone: (818) 981-7085
Facsimile: (626) 358-0338 Facsimile: (818) 981-7969

18.
<PAGE>

42. Applicable Law - Consent to Jurisdiction and Venue.
--------------------------------------------------

43. Severability.
------------

44. Further Assurances.
------------------

45. Successors and Assigns.
----------------------

46. Entire Agreement.
----------------

47. Attorney's Fees.
---------------

19.
<PAGE>

judgment, order ruling, or award granted thereunder, including reasonable
attorney's fees and court costs as the Court or the arbitrator may award.

48. Captions.
--------

The captions appearing at the commencement of the paragraphs hereof are
descriptive only and for convenience in reference. Should there be any conflict
between any such caption and the paragraph at the head of which it appears, the
paragraph and not such caption shall control and govern in the construction of
this Agreement.

49. Incorporation of Exhibits.
-------------------------

All exhibits attached hereto and referred to herein are incorporated in
this Agreement as though fully set forth in the body hereof.

50. Waiver.
------

51. Third Party Beneficiaries.
-------------------------

52. Time of the Essence.
-------------------

Time is of the essence with respect to the performance of all of the
duties and obligations set forth in this Agreement.

53. General Interpretation.
----------------------

20.
<PAGE>

54. Representation of Authority of Signatories.
------------------------------------------

55. Execution of Agreement.
----------------------

56. Arbitration.
-----------

The parties shall, at the request of wither party, submit any dispute
concerning the interpretation of or the enforcement of rights and duties under
this Agreement to final and binding arbitration pursuant to the rules of the
American Arbitration Association. At the request of any party, the arbitrators,
attorneys, parties to the arbitration, witnesses, experts, court reporters, or
other persons present at the arbitration shall agree in writing to maintain the
strict confidentiality of the arbitration proceedings. Arbitration shall be
conducted by a single, neutral arbitrator, or, at the election of any party,
three neutral arbitrators, appointed in accordance with the rules of the
American Arbitration Association. The award of the arbitrator(s) shall be
enforceable according to the applicable provisions of the California Code of
Civil Procedure. The arbitrator(s) may award damages and/or permanent injunctive
relief, but in no event shall the arbitrator(s) have the authority to award
punitive or exemplary damages. If proper notice of any hearing has been given,
the arbitrator(s) will have full power to proceed to take evidence or to perform
any other acts necessary to arbitrate the matter in the absence of any party who
fails to appear.

21.
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Development and Marketing Agreement as of the day and year first above written.

("Builder") ("Owner")

Huntington Homes, LLC Overland Homes, Inc.
a Delaware Limited Liability Company

By: Inco Homes Corporation,
a Delaware Corporation, By: /s/ FRED E. LIAO
as Managing Member ----------------
Fred E. Liao
President

By: /s/ IRA C. NORRIS
-----------------
Ira C. Norris
Chairman of the Board

22.
<PAGE>

EXHIBIT "A"

LEGAL DESCRIPTION
OF THE
PROPERTY

THE LAND REFERRED TO IN THIS REPORT IS LEGALLY DESCRIBED AS FOLLOWS:

Lots 1 through 56 inclusive of Tract No. 13759, in the County of San Bernardino,
State of California, as per map recorded in Book 251, pages 93 through 96
inclusive, of Maps, in the Office of the County Recorder of said County.

23.

<PAGE>

EXHIBIT 10.33

DEVELOPMENT AND MARKETING AGREEMENT
-----------------------------------

This DEVELOPMENT AND MARKETING AGREEMENT is made and entered into as of
this 12th day of March 1999 by and between OVERLAND R.C. 29, LLC, a California
Limited Liability Company, ("Owner" herein) and INCO HOMES CORPORATION, a
Delaware corporation ("Builder" herein) with reference to the following facts:

A. Owner has fee title to that certain parcel of undeveloped real
property located in Rancho Cucamonga, California, the legal description of which
is set forth on Exhibit A (the "Property" herein). The Property has been
subdivided into twenty-nine (29) lots (the "Lots" herein) which Owner desires to
be developed with single family, detached homes (the "Homes" herein). The
development and construction of twenty-nine (29) single family, detached Homes
on the Lots together with all of the required on-site and off-site
infrastructure required therewith is collectively referred to as the "Project"
herein.

B. Builder is a licensed building contractor in the State of California
whose primary expertise is the construction and sale of single family, detached
homes.

NOW, THEREFORE, in reliance on the facts set forth in the above recitals
and in consideration of the mutual covenants and agreements set forth herein,
the parties hereto agree as follows:

1. Engagement.
----------

Owner hereby engages the services of Builder to develop and construct
the Project and market the Homes, and Builder hereby agrees to accept such
engagement and provide said services to Owner for the consideration and upon the
terms and conditions hereinafter set forth.

2. Development of the Project and Marketing of the Homes.
-----------------------------------------------------

Builder agrees to diligently develop and construct the Project and
market the completed Homes, as more specifically provided herein. Such
development responsibilities of Builder shall generally include coordinating
both the existing and future entitlements that benefit the Property,
constructing the on-site and off-site infrastructure for the Project,
constructing the Homes and providing all warranty and customer service
construction and repairs for the

1.
<PAGE>

3. Term.
----

The term of this Agreement shall commence on the date hereof and
unless earlier terminated by either Owner or Builder as provided herein, shall
continue until the close of the sale escrow of the last Home in the Project.

4. Title - Full Cooperation By Owner.
---------------------------------

Title to the Property shall remain in the name of Owner. Owner shall
fully cooperate with Builder as requested by Builder to perform its services
hereunder and Owner also agrees to promptly sign all maps, governmental forms,
utility agreements, deeds of trust, sales agreements, escrow instructions,
deeds, and all other documents required by Builder to develop the Project and
market the Homes.

5. Phase Budget.
------------

2.
<PAGE>

6. Phase Schedule.
--------------

7. Design of Homes.
---------------

8. Phasing of Development.
----------------------

9. Builder's Development and Construction Duties.
---------------------------------------------

3.
<PAGE>

(b) Construction. Builder shall act as the general contractor for
------------
the construction of the Project and, as such shall be responsible for the
following:

(iii) Builder shall cause the Project to be constructed,
substantially in accordance with all governmental requirements and existing
plans and specifications as are approved by Owner.

4.
<PAGE>

10. Builder's Sales Duties.
----------------------

(ii) Preparing at its sole cost and submitting to Owner monthly
competitor reports and other outside market studies to review pricing,
incentives, absorption rates, demographics and the like:

5.
<PAGE>

(iii) Assigning a sales manager employed by Builder to the
Project who will act as a liaison between Builder and the Owner by the Builder
at the sole expense of Builder;

(v) A weekly sales report will be furnished showing daily
traffic, media origin, and sources of the sales; and

6.
<PAGE>

11. Coordination with Owner's Bank.
------------------------------

Builder acknowledges that Owner intends to obtain various loans from
various financial institutions (collectively "Bank" herein) in connection with
the development of the Project and Builder shall assist Owner to obtain all such
required financing but shall have no direct financial obligation with respect
thereto. Builder shall review and become familiar with the terms and obligations
of these loans and shall develop the Project in a manner which complies with all
loan covenants in order to minimize Owner's exposure under such loans (i.e.,
start restrictions, accelerated payoffs, standing inventory, etc.) At the
request of Owner or Bank, Builder shall, at the sole cost of Owner, prepare
proforma and actual cost, income, cash flow and other financial projections and
reports for the Project, including product line profitability analysis and
projections of return on cost. These projections shall be supplemented and/or
updated throughout the course of development to reflect any major changes or
deviations. Builder shall obtain the approval of Owner and Bank prior to
commencing the construction of any Homes. At Owner's request, Builder shall
prepare bank loan submissions and draw requests.

12. Operation and Quarterly Review Meetings.
---------------------------------------

13. Compliance with Laws.
--------------------

14. Inspections.
-----------

Owner shall, at its sole cost and expense, have the right, but not the
obligation, to inspect the progress and quality of all work performed by, or
under subcontract to, Builder in

7.
<PAGE>

15. Approvals by Owner.
------------------

16. Land Maintenance and Protection.
-------------------------------

17. Liens.
-----

18. Ownership of Plans and Materials.
--------------------------------

8.
<PAGE>

19. Builder as Agent for Limited Purposes.
-------------------------------------

20. Builder as Independent Contractor - No Interest in Property.
-----------------------------------------------------------

21. Non-Discrimination.
------------------

Builder shall comply with all laws that require Builder to be an equal
opportunity, non-discriminatory employer and shall comply with the federal and
state laws with

9.
<PAGE>

22. Competition.
-----------

Until the sale escrow for the last of the Homes is closed or until
this Agreement is terminated if such termination occurs before the sale escrow
for the last of the Homes is closed, Builder and its affiliates shall not,
without the prior written approval of Owner, have any interest nor may it engage
in any other activities of any type, including, without limitation, (I) being a
general or limited partner in any partnership or a shareholder, officer or
director of any corporation, (ii) rendering advice or services to other
investors, and (iii) investing its own capitol or revenues with the capitol or
revenues of others in any fashion in any competing single family housing project
which is situated within a one (1) mile radius from the center point of the
Project. Such competitive activity shall include, without limitation, activities
in connection with the ownership, development, operation, management, leasing,
sale and syndication of single family detached residential houses within the
radius.

23. Owner's Responsibility for Funding.
----------------------------------

(a) All costs for architectural, legal (including the cost due to
Builder's counsel to draft this Agreement), accounting, engineering and other
consultant services.

(b) All costs for soil, geological, and toxic and hazardous waste
studies incurred by consultants and under contracts designated or approved by
Owner.

(c) All construction costs, including labor and material costs and
equipment rental and repair, and the costs to maintain the Project free of
weeds, debris, pests, toxic, or hazardous waste.

(d) All costs for on-tract construction superintendents during the
course of construction (including reasonable payroll and transportation costs,
if any).

(e) All costs of establishing, maintaining, and operating an on-
tract construction field office.

(f) All governmental licenses and fees relating to the Project.

10.
<PAGE>

(i) All real property taxes and assessments which are due and
payable against the Property.

(j) All payments of principal, interest, loan fees, discounts, costs
and fees related to any financing obtained by Owner to fund the construction of
the Project and the sale of Homes.

24. Disbursement of Funds.
---------------------

Disbursement of funds by Owner pursuant to this Agreement shall be
according to the system provided below.

(c) Payment from Operating Account. Owner shall fund the Operating
Account with at least Twenty Thousand Dollars ($20,000.00) and shall maintain
that amount in said

11.
<PAGE>

25. Payment of Costs by Builder.
---------------------------

Except as otherwise provided herein, the following items of cost shall
be borne solely by Builder and shall not be deemed a Project cost, and Builder
shall hold Owner free and harmless therefrom:

(b) All cost of accounting and accounting personnel employed by
Builder and used to maintain the books and records of all work performed
pursuant to this Agreement.

(c) Business licenses and fees of Builder, except as required
specifically for the Project by governmental entities having jurisdiction
thereof.

(e) All brokerage commissions or sale fees paid to Builder's
employees or Sales Agent.

26. Real Property Taxes.
-------------------

27. Builder's Compensation.
----------------------

Owner shall pay, or cause to be paid, to Builder the following
compensation which shall be the only compensation or consideration paid to
Builder for its services hereunder:

(a) Overhead Draw. To reimburse the Builder for all of the overhead
-------------
administrative expense it incurs in administering the development of the Project
and the marketing of the Homes, Owner shall pay Builder an overhead draw (the
"Overhead Draw" herein) in the amount of Two Percent (2.0%) of the gross sales
price of the Homes. Said Overhead Draw may initially be payable in advance in
equal monthly payments over Thirty (30) months commencing on the date this
document is signed, computed on the project gross sales price of the Homes. Such
Overhead Draw shall initially be paid from cash available from the

12.
<PAGE>

construction loan or other Project financing with the balance of said Overhead
Draw, if any, payable by Owner as the Homes are sold. The monthly payment of the
Overhead Draw shall be adjusted from time to time as necessary to reflect the
actual gross sale prices of the Homes.

(b) Development Fee. No development is paid on this project.
---------------

(d) Warranty Fee. Builder shall be responsible for all warranty
------------
costs, including general and administrative expenses associated with the
project. Builder agrees to administer Owner's Home Warranty Program as called
for in Paragraph 37.

28. Termination for Cause by Owner.
------------------------------

13.
<PAGE>

Owner or which are not timely removed by Builder, free of charge and without
liability to Builder for any use or damage.

29. Termination Without Cause by Owner.
----------------------------------

Notwithstanding any other provision of this Agreement, Owner shall
have the right to terminate the Agreement without cause in Owner's sole
discretion, upon Ninety (90) days written notice to Builder. In the event Owner
terminates this Agreement pursuant to the Paragraph 29, Owner shall remain
obligated to Builder for all fees which would be earned by Builder hereunder
which fees shall be paid upon the closing of the sale escrow for each and all of
the twenty-nine (29) Homes. Owner shall pay such fees to Builder in accordance
with the terms of this Agreement, provided, however, all unpaid fees shall be
due and payable in full, irrespective if the Homes have been constructed or
sold, One (1) year from the date of termination by Owner without cause under
this Paragraph 29. Owner shall provide Builder with reasonable access to the
Property and all portions of the Project for the purposes of removing its
movable personal property as described in Paragraph 33 In the event Builder does
not remove an item of its movable personal property with Thirty (30) days
following such termination, in addition to Owner's rights pursuant to Paragraph
33, Owner shall have the right to use such property in completing the Project or
any portion thereof, free of charge and without liability to Builder for the use
thereof or damage thereto.

30. Termination for Cause by Builder.
--------------------------------

31. Termination Due to Lack or Performance.
--------------------------------------

(b) In the event that either party cancels this Agreement for lack
of performance pursuant to Paragraph 31(a) above, Builder agrees to complete the
construction of any Homes then under construction and to market all such Homes.
Owner and Builder agree that all of the terms and conditions hereunder,
including the payment of all fees due to Builder, shall continue in full force
and effect until the close of the sale escrow for the last of such Homes. At
that time, this Agreement shall terminate and neither party shall have any
further obligation to the other hereunder.

14.
<PAGE>

32. Owner's Unfettered Right to Deal With the Property Upon Any
-----------------------------------------------------------
Termination.
- -----------

33. Removal by Builder.
------------------

34. Other Rights Upon Termination.
-----------------------------

35. Insurance.
---------

15.
<PAGE>

(iii) Workman's compensation insurance; and

(iv) Non-owned automobile insurance.

36. Builders Representations and Warranties to Owner.
------------------------------------------------

16.
<PAGE>

(d) No Defaults by Builder. There have been no acts or omission of
----------------------
Builder which would constitute a default under this Agreement.

37. Owner's Limited Liability.
-------------------------

38. Builder's Liability Indemnity.
-----------------------------

39. Confidentiality and Restrictions on Disclosure.
----------------------------------------------

17.
<PAGE>

40. Assignment
----------

41. Notices.
-------

To Builder: Inco Homes Corporation
P.O. Box 970
Upland, CA 91785
Attn: Ira C. Norris, Chairman
Telephone: (909) 981-8989
Facsimile: (909) 982-9784

With a copy to:

To Owner: Overland R.C. 29, LLC Harwood Homes, Inc.
c/o Fred E. Liao c/o Herbert Hirsh
147 E. Olive Avenue 14044 Ventura Blvd., Suite 206
Monrovia, CA 91016 Sherman Oaks, CA 91423
Telephone: (626) 358-5888 Telephone: (818) 981-7085
Facsimile: (626) 358-0338 Facsimile: (818) 981-7969

18.
<PAGE>

42. Applicable Law - Consent to Jurisdiction and Venue.
--------------------------------------------------

43. Severability.
------------

44. Further Assurances.
------------------

45. Successors and Assigns.
----------------------

46. Entire Agreement.
----------------

47. Attorney's Fees.
---------------

19.
<PAGE>

judgment, order ruling, or award granted thereunder, including reasonable
attorney's fees and court costs as the Court or the arbitrator may award.

48. Captions.
--------

49. Incorporation of Exhibits.
-------------------------

All exhibits attached hereto and referred to herein are incorporated
in this Agreement as though fully set forth in the body hereof.

50. Waiver.
------

51. Third Party Beneficiaries.
-------------------------

52. Time of the Essence.
-------------------

Time is of the essence with respect to the performance of all of the
duties and obligations set forth in this Agreement.

53. General Interpretation.
----------------------

20.
<PAGE>

54. Representation of Authority of Signatories.
------------------------------------------

55. Execution of Agreement.
----------------------

56. Arbitration.
-----------

The parties shall, at the request of wither party, submit any dispute
concerning the interpretation of or the enforcement of rights and duties under
this Agreement to final and binding arbitration pursuant to the rules of the
American Arbitration Association. At the request of any party, the arbitrators,
attorneys, parties to the arbitration, witnesses, experts, court reporters, or
other persons present at the arbitration shall agree in writing to maintain the
strict confidentiality of the arbitration proceedings. Arbitration shall be
conducted by a single, neutral arbitrator, or, at the election of any party,
three neutral arbitrators, appointed in accordance with the rules of the
American Arbitration Association. The award of the arbitrator(s) shall be
enforceable according to the applicable provisions of the California Code of
Civil Procedure. The arbitrator(s) may award damages and/or permanent injunctive
relief, but in no event shall the arbitrator(s) have the authority to award
punitive or exemplary damages. If proper notice of any hearing has been given,
the arbitrator(s) will have full power to proceed to take evidence or to perform
any other acts necessary to arbitrate the matter in the absence of any party who
fails to appear.

21.
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Development and Marketing Agreement as of the day and year first above written.

("Builder") ("Owner")

Huntington Homes, LLC Overland Company, Inc.
a Delaware Limited Liability Company a California Corporation

By: Inco Homes Corporation,
a Delaware Corporation, By: /s/ FRED E. LIAO
as Managing Member -----------------------
Fred E. Liao, President
Managing Member

By: /s/ IRA C. NORRIS GTB Development Co.
------------------ a California Corporation
Ira C. Norris
Chairman of the Board

/s/ Herbert Hirsh
------------------------
Herbert Hirsh, President
Managing Member

22.
<PAGE>

EXHIBIT "A"

LEGAL DESCRIPTION
OF THE
PROPERTY

THE LAND REFERRED TO IN THIS REPORT IS LEGALLY DESCRIBED AS FOLLOWS:

Lots 1 through 29 inclusive of Tract No. 15531, in the County of San Bernardino,
State of California, as per plat recorded in Book 266 of maps, pages 92 through
95, inclusive, records of said county.

23.

<PAGE>

EXHIBIT 10.34

AGENCY AGREEMENT

USA Commercial Mortgage Company, a Nevada corporation, ("USA"), and INCO
Homes Corporation, a Delaware corporation ("Inco) hereby agree that USA shall
provide financial advisory and consulting services to Inco in connection with
the proposed merger (the "Merger") between Inco and American Communities Inc., a
Nevada corporation ("AmCom"). In connection therewith, the parties further
agree as follows:

1. Scope of Services. USA has located AmCom to merge with Inco, and will
------------------
assist Inco in structuring the transaction required to accomplish the Merger.
USA has no obligation hereunder to raise any money. Should Inco desire that USA
raise money to accomplish the Merger, or for any other reason, then a separate
agreement between the parties shall be prepared, which shall include appropriate
provisions for the compensation of USA.

2. Information on Inco. In connection with USA's activities hereunder,
-------------------
Inco will, at USA's request, furnish USA with all material and information
regarding its business and financial conditions (all such information so
furnished being the "Information") and with an information memorandum with
respect to Inco and the Merger (such memorandum, including all exhibits or
supplements thereto, the "Offering Materials"). Inco recognizes and confirms
that USA: (a) will use and rely solely on the Information, the Offering
Materials and on information available from generally recognized public sources
in performing the services contemplated by this Agreement without having
independently verified the same; (b) is authorized as Inco's financial advisor
to transmit to AmCom a copy or copies of the Information, Offering Materials and
other legal documentation necessary or advisable in connection with the
transaction contemplated hereby; (c) does not assume responsibility for the
accuracy or completeness of the information; (d) will not make an appraisal of
any assets or liabilities of Inco; and (e) retains the right to continue to
perform due diligence on Inco during the course of the engagement.

3. Structure of Deal. Inco acknowledges that the structure of the
-----------------
Merger as presently contemplated will result in Inco's being the surviving
company. Inco will acquire AmCom in exchange for cash or other commercial paper
and/or securities, with the securities being either debt or equity instruments,
or a combination of both. The parties understand, however, that a different
form of combination may ultimately occur.

4. Conflicts of Interest. USA shall use its best judgment to fully,
---------------------
fairly, and honestly advise Inco regarding methods, procedures, sources and
structuring of the financing to accomplish the Merger (or other form of
combination, if a different form is ultimately deemed appropriate). USA
represents, however, that its expertise is in developing financing strategies
and plans, and in understanding the financial markets, not in the legal
ramifications, whether regarding conflicts or otherwise, of any particular

1
<PAGE>

plan. Inco represents that it is sophisticated, and has independent, competent
legal counsel with whom it is consulting with respect to all aspects of the
Merger.

5. Use of Name. Inco agrees that any reference to USA in any release,
-----------
communication, or material distributed to prospective financiers of Inco or the
Merger is subject to USA's prior written approval, which may be given or
withheld in its sole discretion. If USA resigns prior to the dissemination of
any such release, communication or material, no reference shall be made therein
to USA, despite any prior written approval that may have been given therefor.

6. Use of Advice. No statements made or advice rendered by USA in
-------------
connection with the services performed by USA pursuant to this Agreement will be
quoted by, nor will any such statements or advice be referred to in, any report,
document, release or other communication, whether written or oral, prepared,
issued or transmitted by Inco or by any person or corporation controlling,
controlled by or under common control with Inco, or by any director, officer,
employee, agent or representative of any such person, without the prior written
authorization of USA, which may be given or withheld in its sole discretion,
except to the extent required by law ( in which case the appropriate party shall
so advise USA in writing prior to such use and shall consult with USA with
respect to the form and timing of disclosure).

7. Compensation. In full payment for services rendered and to be
------------
rendered hereunder by USA, Inco agrees to compensate USA, upon completion of the
Merger contemplated herein, as follows:

(a) Subject to shareholder approval, USA shall receive an option to
purchase up to 250,000 shares of common stock in the merged Company, adjusted
for stock splits and stock dividends, for $2.00 per share, which option shall be
exercisable for ten years, and which shall permit USA to purchase, at its
option, any or all of the shares at any time or times during the ten year
period. This shall be the sole compensation for USA's services hereunder, and
USA shall be completely liable for all of its out-of-pocket costs and expenses,
time and overhead in connection with performing its services hereunder.

(b) In addition to the foregoing, USA shall have the right to demand and
receive registration rights for the stock underlying its option at any time
until February 1, 2000. USA and its affiliates, including International Equity
Partners, agree to a lockup of their shares until February 1, 2000.

described above, then USA shall receive for its services rendered hereunder the
sum of $400,000, payable as follows: (1) $200,000 within two business days of
the day that Inco's shareholder's approve the transaction, in whatever form the
companies finally agree upon, combining AmCom and Inco; and (2) $50,000
quarterly thereafter.

2
<PAGE>

(d) USA may resign at any time, and Inco may terminate USA's services
at any time, each by giving written notice to the other. If Inco terminates
USA's services hereunder, Inco completes the Merger contemplated herein within
one year of such termination, then Inco shall grant to USA concurrently with the
closing of such transaction the option described in Section 7(a).

8. Representations and Warranties. Inco represents and warrants to USA
------------------------------
that (a) this Agreement has been duly authorized, executed and delivered by
Inco; and, assuming the due execution by USA, constitutes a legal, valid and
binding agreement of Inco, enforceable against it in accordance with its terms,
and (b) the Information and the Offering Materials will not, when delivered nor
at the closing of the Merger contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. Inco shall
advise USA promptly of the occurrence of any event or any other change prior to
the closing which results in the Information or Offering Materials containing
any untrue statement of a material fact or omitting to state any material fact
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. Inco shall deliver to
USA an appropriate resolution of its Board of Directors approving this contract,
it being understood that Thomas Hantges will not participate in the vote on that
resolution. Inco further agrees to jointly issue a disclosure statement
regarding the relationship between itself and USA in connection with this
Agreement.

9. Survival of Certain Provisions. The provisions of Section 2, 3, 4, 5,
------------------------------
6, 7, 8, 9, 15 and 16 of this Agreement shall remain operative and in full force
and effect regardless of (a) any investigation made by or on behalf of USA, or
by or on behalf of any affiliate of USA or any person controlling either, (b)
completion of the Merger, (c) the resignation of USA or any termination of USA's
services or (d) any amendment, expiration or termination of this Agreement, and
shall be binding upon, and shall inure to the benefit of, any successors,
assigns, heirs and personal representatives of Inco, USA, and the Indemnified
Persons.

10. Notices. Notice given pursuant to any of the provisions of this
-------
Agreement shall be in writing and shall be mailed or delivered (a) if to Inco,
at 1282 West Upland Highway, Upland, California 91786, Attention: Ira Norris;
and (b) if to USA, at 3900 Paradise Road, Suite 263, Las Vegas, Nevada 89109,
Attention: Thomas Hantges.

11. Counterparts. This Agreement may be executed simultaneously in two
------------
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.

12. Assignment. This Agreement may not be assigned by any party hereto
----------
without prior written consent of the others, to be given in the sole discretion
of the parties from whom such consent is being requested. Any attempted
assignment of this

3
<PAGE>

Agreement made without such consent may be void, at the option of the non-
assigning parties.

13. Third Party Beneficiaries. This Agreement has been and is made solely
-------------------------
for the benefit of Inco, USA and the other Indemnified Persons referred to in
schedule A hereof and their respective successors and assigns, and no other
person shall acquire or have any right under or by virtue of this Agreement.

14. Construction and Choice of Law. This Agreement incorporates the
------------------------------
entire understanding of the parties and supersedes all previous agreements
relating to the subject matter hereof should they exist and shall be governed
by, and construed in accordance with, the laws of the State of Nevada, without
regard to principles of conflicts of law.

15. Jurisdiction and Venue. Each party hereto consents specifically
----------------------
to the exclusive jurisdiction of the courts of the State of California, sitting
in the County of San Bernardino, and any court to which an appeal may be taken
in connection with any action filed pursuant to this agreement, for the purposes
of all legal proceedings arising out of or relating to this Agreement. In
connection with the foregoing consent, each party irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the court's exercise of personal jurisdiction over each party to this
Agreement or the laying of venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum. Each party further irrevocably waives its right to a
trial by jury and consents that service of process may be effected in any manner
permitted under the laws of the State of California.

16. Headings. The section headings in this Agreement have been inserted
--------
as a matter of convenience of reference and are not part of this Agreement.

17. Amendment. This Agreement may not be modified or amended except
---------
in a writing duly executed by the parties hereto.

18. Term. Except as provided herein, this Agreement shall run from the
----
date of this Agreement to a date of one year thereafter, unless extended by
mutual consent of the parties (the "Term").

Dated this ___ day of February, 1999.

USA COMMERCIAL MORTGAGE COMPANY INCO HOMES CORPORATION

By:__________________________________ By:__________________________
Joseph D. Milanowski, President Ira Norris, President

<PAGE>

EXHIBIT 10.35

PURCHASE AND SALE AGREEMENT
---------------------------

USA Investors II, LLC, a Nevada limited liability company, or nominee
("Buyer") hereby agrees to purchase from Huntington Homes, LLC, a Delaware
limited liability company, ("Seller"), who agrees to sell to Buyer, certain real
property located in Riverside County, California, along with certain personalty
appurtenant thereto, as more particularly described on Exhibit "A" hereto (the
"Property"), upon the terms and conditions set out herein. The term "Property"
as used herein shall refer to the real property or the real and personal
property as the context requires.

1 Price and Payment. The total price for the Property shall be Fifty
-----------------
Thousand Dollars ($50,000), plus the assumption of the existing debt encumbering
the Property. In addition, Seller shall be entitled to up to an additional One
Hundred Thousand Dollars ($100,000) payable from the profits upon the sale of
the Property by Buyer. For the purpose of this paragraph, the term "profits"
means income from the sale of the Property by Buyer less (1) all commissions and
closing costs incurred in connection with the purchase or sale of the Property
by Buyer, or any part thereof; (2) the repayment of all amounts necessary to
clear or reconvey all liens or encumbrances of record against the Property; (3)
the payment of all bona fide amounts owed to contractors, subcontractors,
materialmen and suppliers who provided goods, labor, materials, equipment or
supplies in connection with the construction of the improvements on the
Property; (4) the payment to Buyer of three percent (3%) of the gross sale price
of the Property, or any part thereof, as and for general and administrative
expenses; and (5) the next $50,000 of proceeds net of items 1, 2, 3 and 4 above.
The $50,000 and so much of the additional $100,000 as becomes due are
collectively referred to herein as the "Purchase Price." The $50,000 is payable
in cash by certified funds. Buyer has loaned Seller $100,000, which loan is
evidenced by a note (the "Note"). The balance of the Note shall be adjusted as
more particularly described in Section 18, below.

2. Escrow. Escrow shall be opened at Orange Coast Title Company in
------
Riverside, California ("Escrow") by depositing therein a copy of this Agreement,
fully executed, and payment of the full the Purchase Price to Seller.

3. Closing. Close of escrow shall occur as soon as possible, but not
-------
later than thirty days after the date Seller signs this Agreement, contingent
only upon those matters described in paragraph 4, below (the "Closing Date").
There shall be no extensions of the Closing Date unless the parties subsequently
execute a separate writing to extend the Closing Date.

Buyer shall be responsible at closing for all accrued but unpaid taxes and
assessments, including interest and penalties, the real property transfer tax,
all of the escrow fees and closing costs, and the title insurance policy.

4. Contingencies. Buyer is familiar with the Property, and accepts
-------------
it in its "as-is" condition. Nevertheless, Seller shall promptly deliver to
Buyer all documents, including but not limited to all insurance policies on the
Property of any kind whatsoever, all easement agreements, and contracts or
subcontracts with anyone providing materials or services in connection with the
construction of the improvements on the Property (including assignments of such
contracts and subcontracts in a form acceptable to Buyer), that Buyer shall
reasonably request during the contingency period. Seller shall also make
available to Buyer or Buyer's agent for inspection

1
<PAGE>

Seller's books and records concerning the Property, and any other documents that
Buyer reasonably requests.

For the purpose of this paragraph, the term "deliver" means hand delivery,
confirmed facsimile transmission, or three days after deposit in the US Mail,
first class postage prepaid.

5. Seller's Representations. Seller makes the following representations
------------------------
and warranties to Buyer for the purpose of inducing Buyer to execute and deliver
this Agreement and to consummate the transaction contemplated by this Agreement,
each of which representations and warranties are true and correct as of the date
hereof:

(A) Seller is vested with fee simple title to the Property, has
full authority to sell it to Buyer, and will violate no law, rule, regulation,
judgment, or contract by Selling the Property to Buyer.

(B) Seller is a Delaware limited liability company in good
standing, duly qualified to do business in California, and the sale contemplated
hereby has been approved by Seller's Manager. The person signing this Agreement
is authorized to execute it on behalf of Seller. All representations and
warranties made herein shall be binding upon all persons who govern the affairs
of Seller, as well as Seller.

(C) Seller has not made, and is not aware of any existing
contract of sale, option to purchase or right of first refusal with respect to
the Property, except for contracts of sale to homebuyers in the ordinary course
of business.

(D) Seller has taken no action with respect to the Property that
violates the current zoning of the Property.

(E) To the best of Seller's knowledge, Seller has not
discharged, or suffered anyone else to discharge any hazardous material on the
Property, as that term is defined under any applicable federal or state law, nor
is Seller aware of any condition on, in, or under the Property that would that
would constitute a violation under any such law. To the best of Seller's
knowledge, there are no underground storage tanks beneath the Property.

(F) Seller is aware of no pending or threatened action by any
person or governmental agency that would prevent or materially impair the
ability of Buyer to complete the improvements on the Property as per the
contracts and subcontracts therefor, including any notice or threat of
condemnation.

(G) Seller is a "United States person" within the meaning of
Sections 1445(f) and 7701(a)(30) of the Internal Revenue Code of 1986, as
amended.

(H) Neither Seller, any trustee of Seller, nor any member of
Seller, if applicable, has commenced (within the meaning of any applicable law
regarding bankruptcy or insolvency) a voluntary case, consented to the entry of
an order for relief against it in an involuntary case, or consented to the
appointment of a receiver of it or for all or any substantial portion of its
property, nor has a court of competent jurisdiction entered an order or decree
under any such law that is for relief against Seller or any of its trustees or
members, if applicable, in an involuntary case, or has appointed a receiver of
Seller or any of its trustees or members, or for all or any substantial portion
of its property.

2
<PAGE>

(I) Seller acquired its title to the Property from Inco Homes
Corporation, which is the sole member and 100% owner of Seller. Other than that,
Seller's title to the Property is not derived, directly or indirectly, from any
foreclosure proceeding, tax sale, adverse possession, or any other proceeding
that would affect the marketability of its title to the Property. Seller is not
in default in complying with the terms and provisions of any of the covenants,
conditions, restrictions, rights-of-way or easements constituting one or more of
the Permitted Exceptions which are to be performed of complied with by the owner
of the Property.

(J) Seller shall maintain such policies of fire, liability, and
other forms of insurance with respect to the Property as it presently has at all
times up to and through the Closing Date. Seller has not received from any
insurance company which carries insurance on the Property any notice of default
or any notice threatening to terminate any of the insurance policies. Seller has
not received any notice from any insurance company or inspection or rating
bureau setting forth any requirements as a condition to the continuation of any
insurance coverage on or with respect to the Property or the continuation
thereof at premium rates existing at present which has not been remedied or
satisfied.

6. Survival. All or the Seller's representations and warranties
--------
contained in this Agreement shall survive the close of escrow, and execution and
delivery of the deed, for a period of one year after the Closing Date, and shall
not be merged in the deed.

7. Seller's Indemnity. If Closing occurs, Seller agrees to indemnify,
------------------
hold harmless and defend Buyer from and against:

(A) any loss, liability or damage suffered or incurred by Buyer
arising out of or resulting from injury or death to individuals or damage to
property sustained on the Property before the closing and caused by the willful
or negligent act or omission (where applicable law imposes a duty to act) of
Seller;

(B) any loss, liability or damage suffered or incurred by Buyer
because any representation or warranty made by Seller in this Agreement, or in
any document furnished to Buyer in connection with the Closing, is false or
misleading in any material respect;

(C) any loss, liability or damage suffered or incurred by Buyer
because of the nonfulfillment of any covenant or agreement on the part of Seller
under this Agreement; and

(D) all reasonable costs and expenses, including attorney's
fees, which Buyer incurs in connection with any action, suit, proceeding,
demand, assessment or judgment incident to any of the matters indemnified
against in this Section.

The foregoing notwithstanding, Buyer acknowledges that this indemnity does
not extend to any lien that might attach to the Property by reason of Seller's
failure to pay anyone who provided labor, materials, equipment, or supplies that
were use in the construction of any improvements to the Property.

8. Buyer's Representations.
-----------------------

(A) Buyer is a Nevada limited liability company in good standing
with the authority to make this Agreement. The purchase of the Property has been
duly authorized by the manager of Buyer.

3
<PAGE>

(B) Buyer's execution and delivery of, and performance and
compliance with the terms and conditions of this Agreement do not violate any of
the terms, conditions or provisions of (i) Buyer's organizational documents,
(ii) any judgment, order, injunction decree, regulation or ruling of any court
of other governmental authority to which Buyer is subject, or (iii) any
agreement or contract to which Buyer is a party or to which Buyer is subject.

9. Additional Obligations of Seller.
--------------------------------

(A) Seller agrees to give full, complete and actual possession
of the Property to Buyer at the Closing Date.

(B) Between the date of this Agreement and the Closing Date,
Seller agrees that it will:

(i) manage and operate the Property only in the ordinary
course of business and maintain in full force and effect the insurance policies
described in Section 5(K);

(ii) at its expense, maintain the Property in its present
order and condition and deliver the Property at the Closing Date in
substantially the same condition it is in as of the date of this Agreement,
reasonable wear and tear and damage by fire or other casualty excepted;

(iii) give prompt notice of any fire or casualty affecting
the Property after the date hereof;

(iv) after the date hereof, deliver to Buyer promptly after
receipt by Seller a copy of notices of violation issued by any governmental
authority with respect to the Property and, at its sole cost and expense, remedy
before the Closing Date all violations thereby noticed, as well as any other
violation of any law, ordinance, rule or regulation affecting the Property, and
any outstanding work orders and requirements of any company insuring the
Property against casualty;

(v) promptly notify Buyer in writing of any facts or
events that Seller learns of which would cause any of Seller's representations
and warranties to be untrue or incorrect;

(vi) perform, observe and comply with all the terms and
conditions of any agreement or contract concerning or relating to the Property
which Seller is obligated to perform or observe.

(i) voluntarily grant, create, assume or permit to exist
any Mortgage, lien, lease, encumbrance, easement, covenant, condition, right-of-
way or restriction upon the Property other than the Permitted Exceptions, or
voluntarily take or permit any action adversely affecting the title to the
Property as it exists as of the date of this Agreement; or

(ii) enter into a contract for the sale of the Property to
any other person.

(D) Seller agrees that it will, at any time and from time to
time after the Close of Escrow, at the request of Buyer, do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged, or
delivered all such further acts, deeds, assignments, transfers,

4
<PAGE>

conveyances and assurances as may reasonably be required for the better
assigning, transferring, granting, assuring and confirming to Buyer, or to its
successors and assigns, or for aiding and assisting in collecting and reducing
to possession, any or all of the assets or property being sold to Buyer pursuant
to this Agreement.

(E) Seller agrees to obtain a commitment for issuance to Buyer
for a CLTA Form B owner's title insurance policy insuring the fee simple title
to the real property in an amount equal to the Purchase Price, subject to the
Permitted Exceptions.

10. Conditions Precedent to Buyer's Obligations. The obligations of
-------------------------------------------
Buyer to close escrow and to perform the other covenants and obligations to be
performed by it on the Closing Date shall be subject to the following conditions
(any of which Buyer may waive, in whole or in part). If Buyer does not waive any
of the following conditions, Buyer may, at its option, extend the Closing Date
for such period of time as may be necessary to allow for the satisfaction of
such condition(s), not to exceed ninety (90) days after the closing contemplated
hereby:

(A) As of the Closing Date, (i) Seller shall be the sole
owner of the Property in fee simple, and Seller's title shall be marketable,
good of record and in fact, and free and clear of all liens, mortgages,
encumbrances, easements, or any other condition affecting title, recorded or
unrecorded, other than the Permitted Exceptions; (ii) Seller shall have cured
any title defects as may be required by this Agreement; and (iii) subject to the
payment by Buyer of the applicable premium, Buyer shall receive from one or more
title companies reasonably satisfactory to Buyer a current CLTA owner's policy
of title insurance in form satisfactory to Buyer, or an unconditional binder to
receive the same, in an amount equal to the Purchase Price, dated as of the
Closing Date, insuring, or committing to insure, at standard rates, Buyer's
marketable fee simple title to the real property in the condition required by
clause (i) above, without any defect to be cured by Seller as provided herein.
Such title insurance policy, or commitment to issue same, shall provide extended
coverage, including protection against (a) parties in possession, (b) unrecorded
easements, (c) taxes and special assessments not shown on the public records,
and (d) exceptions which an accurate survey of the real property would disclose.

(B) As of the Closing Date, no action or proceeding shall
have been commenced or threatened before any court to restrain or prohibit, or
to obtain substantial damages in respect of, or which is related to or arises
out of, this Agreement, or the consummation of the transactions contemplated
herein which in the reasonable opinion of Buyer makes it inadvisable to
consummate such transactions.

(C) As of the Closing Date, no part of the Property shall
be about to be acquired, or shall have previously been acquired (other than
portions dedicated for streets or other public purposes on the subdivision map),
by authority of any governmental agency in the exercise of its power of eminent
domain or by private purchase in lieu thereof; nor as of the Closing Date shall
there be any threat or imminence of any such acquisition or purchase.

11. Obligations at Closing.
----------------------

The closing shall occur at Escrow's office on the Closing Date. The
Purchase Price shall be paid pursuant to Sections 1, 17 and 18 hereof. After
Escrow's receipt of said funds and after recordation of the deed required
hereby:

(A) Seller shall deliver to Buyer at the close of Escrow, as
appropriate:

5
<PAGE>

(i) the Deed of the real property to Buyer or its designee,
signed by the Seller;

(ii) all original insurance policies with respect to which
premiums are to be apportioned as of the Closing Date or, if unobtainable, true
copies or certificates thereof;

(iii) an affidavit of title signed by Seller, addressed and in a
form acceptable to the title insurance company designated by Buyer with respect
to the absence of parties in possession of the real property, and the absence of
unrecorded easements granted by Seller to eliminate the exceptions for those
matters from the Buyer's title insurance company;

(iv) a certification as to Seller's non-foreign status in a form
which complies with the provisions of Section 1445(b)(2) of the Internal Revenue
Code of 1986, as amended;

(v) a certificate signed by Seller that all representations and
warranties made by Seller herein are true and correct on the Closing Date with
the same force and effect as if made as of such date; and

(vi) all additional documents and instruments which Escrow and
Buyer's counsel may reasonably determine are necessary to the proper
consummation of this transaction.

12. Remedies. If Seller fails to close, Buyer may seek specific
--------
performance or damages, or both, to the extent permitted by law. If Buyer fails
to close, Seller may pursue an action for specific performance or damages, or
any other common law remedy.

13. Termination. At Buyer's option, this Agreement will terminate upon
-----------
the occurrence of one or more of the following events:

(A) Buyer timely objects to the condition of title, and the
objection is not removed by the Closing Date.

(B) Seller shall not have performed all covenants and
obligations that this Agreement requires it to perform on or before the Closing
Date.

(D) The closing does not take place by the Closing Date and the
closing has not been extended by a written amendment executed by the parties
hereto; but in that case, the party not at fault may exercise the remedies
provided herein.

14 Brokers. Seller and Buyer agree to pay their broker(s), if any, with
-------
their own funds, and hereby indemnify the other from and against any claim for a
broker's fee.

15. Miscellaneous.
-------------

(A) The laws of the State of California shall govern this
Agreement. Should

6
<PAGE>

suit be brought to construe or enforce any provision hereof, venue shall lie in
Riverside County, California, and the prevailing party shall recover its
attorney's fees incurred therein.

(B) This Agreement has been negotiated by the parties, both of
whom have had the advice of competent counsel. The rule of construction that
construes language against the drafter shall have no application to this
Agreement.

(C) If a court rules that any part of this Agreement
unenforceable, then the remainder shall, to the greatest extent possible, remain
binding on the parties.

(D) Time is of the essence of this Agreement.

(E) This Agreement is binding on the parties' successors and
assigns.

(F) This Agreement represents the entire agreement of the
parties with respect to the subject matter hereof. All prior negotiations and
discussions between the parties concerning the subject matter of this Agreement
have been incorporated herein

16. Notices. Any notices shall be deemed validly delivered if hand
-------
delivered, if mailed, postage prepaid, via certified mail, or if sent via a
courier service to:

Seller: Huntington Homes, LLC
1282 West Arrow Highway,
Upland, California 91785

Buyer: USA Investors II, LLC
3900 Paradise Road, Suite 263
Las Vegas, Nevada 89109
Attn. Joseph D. Milanowski

17. Release of Funds. Notwithstanding anything contained herein to the
----------------
contrary, $50,000 of the Purchase Price shall be released to Seller by noon on
June 15, 1999 (Pacific Daylight Time), whether or not the transaction has
closed. The released funds must be used by Seller to pay its obligations arising
in the ordinary course of its business. Failure to release the said funds within
the time stated will result in the automatic and immediate termination of this
Agreement.

18. The amount of the Note shall be reduced pro tanto for each dollar of
--- ------
profits applicable to the contingent portion of the Purchase Price (the
$100,000) as defined in Section 1 of this Agreement.

In agreement herewith the parties have set their hands this 23rd day of June,
1999.

SELLER: Huntington Homes, LLC BUYER: USA Investors II, LLC

By: Inco Homes Corporation, its Managing By: USA Commercial Mortgage
Member Company, its Managing Member

By:______________________________ By:___________________________
Ira C. Norris, President Joseph D. Milanowski,
President

7
<PAGE>

EXHIBIT "A"

Description of the Property
---------------------------

All of that real property located in Riverside County, California (the "Land")
generally known as Desert Pride, and legally described as:

Parcel 1:
- --------

Lots 32 through 40, inclusive, of Tract 23995-1 in the City of La Quinta, County
of Riverside, State of California, as per map recorded in Book 249 of Maps,
pages 84-87, in the Office of the County Recorder of said County.

Parcel 2:
- --------

Lots 1 through 27, inclusive, of Tract 23995-4 in the City of La Quinta, County
of Riverside, State of California, as per map recorded in Book 280 of Maps,
pages 69-72, in the Office of the County Recorder of said County.

Parcel 3:
- --------

Lots 1 through 21, inclusive, of Tract 23995-5 in the City of La Quinta, County
of Riverside, State of California, as per map recorded in Book 280 of Maps,
pages 73-75, in the Office of the County Recorder of said County.

including:

(a) all right, title and interest of Seller, if any, in any land lying in
the bed of any street, road, avenue, or alley, open or closed, adjacent to or
abutting the Land, to the centerline thereof;

(b) all easement agreements, if any, and other easements, covenants and
other rights appurtenant to , and all the estate and rights of Seller in and to
the Land;

(c) all right, title and interest of Seller in and to the proceeds of, or
any award made for, a taking of all or any part of the Property by and
governmental authority pursuant to the exercise of its power of eminent domain;
all rights of Seller against any prior owner of the Property who may have caused
or be otherwise responsible for any contamination of the Property with Hazardous
Materials. For the purpose of this Agreement, the term "Hazardous Material"
shall refer to any substance the use, storage, or disposal of which is regulated
by or subject to any environmental law, state, local, or federal, including, but
not limited to Chapter 459 of the Nevada Revised Statutes, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 USC Sections 9601, et
seq., the Toxic Substance Control Act, 15 USC Sections 2601 et seq., the
Resource Conservation and Recovery Act, 42 USC Sections 6901 et seq., the Clean
Water Act, 33 USC Sections 1251 et seq., and the Hazardous Materials
Transportation Act, 49 USC Section 1802, as amended or supplemented;

<PAGE>

EXHIBIT 21.1

Inco Homes Corporation

Subsidiaries of the Registrant

State of Incorporation
Name or Organization
- ---- ---------------

Norris Homes, Inc. (formerly Inco Homes) California
Inco Development Corporation California
Inco Homes Sales Group, Inc. California
Freedom Mortgage, Inc. California
Inco Insurance Services, Inc. California
Huntington Homes, LLC Delaware

<PAGE>

EXHIBIT 23.1

Report of Independent Accountants

To the Board of Directors and Shareholders of
Inco Homes Corporation

/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP

Newport Beach, California
June 8, 1999

<PAGE>

<ARTICLE> 5
<CIK> 0000897432
<NAME> INCO HOMES CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 712
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 30,238
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 32,006
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
2,340
<COMMON> 21
<OTHER-SE> (4,570)
<TOTAL-LIABILITY-AND-EQUITY> 32,006
<SALES> 29,241
<TOTAL-REVENUES> 29,241
<CGS> 27,262
<TOTAL-COSTS> 27,262
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,461)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,461)
<DISCONTINUED> 0
<EXTRAORDINARY> (68)
<CHANGES> 0
<NET-INCOME> (6,963)
<EPS-BASIC> (3.51)
<EPS-DILUTED> (3.51)

</TABLE>