APPLE HOMES CORP INC
10-12G/A, 1999-10-20
MOBILE HOME DEALERS
Previous: STAR MARKETS CO INC, 8-K, 1999-10-20
Next: PAPER WAREHOUSE INC, 8-K/A, 1999-10-20






                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549



                             AMENDMENT NUMBER 2 TO


                                     FORM 10

                   GENERAL FORM FOR REGISTRATION OF SECURITIES

     Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934


                             Apple Homes Corporation
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)


         Delaware                                             13-3525328
         --------                                             ----------
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                            Identification No.)

         124 North Belair Road
         Evans, Georgia                                        30809
 --------------------------------------                       --------
(Address of principal executive offices                      (Zip Code)

Registrant's telephone number, including area code  706-650-2015

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

                                      None

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


                          Common Stock, $.002 Par Value



<PAGE>

Item 1.  Business

General Information

     Apple Homes Corporation (the "Company") is a retailer of factory built
manufactured homes, known in the industry as manufactured housing. It presently
operates 12 retail sales locations-four in Augusta, Georgia, two in Thomson,
Georgia, and one each in Wrens, Washington, Statesboro and Waynesboro, Georgia
and Aiken and Anderson, South Carolina. It also operates a reconditioning and
used sales lot in Augusta, this lot houses its Mobile Air Systems subsidiary
offering air conditioning sales and service to manufactured home owners. All of
the Company's retail sales locations and other mobile home operations use the
trade name "Apple Homes".

     The Company presently purchases homes for resale from six manufacturers
located in the southeastern United States. Purchases are financed through
wholesale floor plan financing lines totaling $10,275,000 provided by three
major financial institutions and three local banks. To promote retail sales and
generate additional fee income, the Company assists its customers in finding
mortgage financing for the purchase of homes and also places homeowners
insurance for home buyers.


     The Company is also involved in development and sale of two adjoining real
estate subdivisions in Richmond County, Georgia. The sites, known as Mayfair
Acres and The Timbers, consist of 47 developed lots, of which the Company still
owns seven lots and 10 rental homes. The Company also owns 6.3 acres of
undeveloped land in the area which it is presently considering developing by
installing roads and utilities and obtaining the necessary zoning approval. The
Company believes that the property may be subdivided into approximately 40 lots
for sale to retail purchasers of its manufactured homes.

     The Company was organized as a Delaware corporation on April 17, 1989 under
the name PLAM Properties, Inc. It changed its name to Mayfair Homes Corporation
in 1993 to reflect the name of its principal residential development and again
to Apple Homes Corporation in 1997 to reflect the trade name under which it
operates its mobile home sales centers. It presently operates three of its
retail sales centers and its used sales lot under its own name and the remaining
nine retail sales centers through six wholly or partially owned subsidiaries:
Augusta Housing Center, Inc., which is 100% owned and operates one center; Big
Daddy's Mobile Homes, Inc., 80% owned and operating two centers; Evans-Lanier,
Inc., 80% owned and operating two centers; Apple Homes, Inc., 100% owned and
operating one center; J.C. Homes, Inc., 80% owned and operating one center; and
Tim Phillips Homes, Inc., 100% owned and operating two centers.



                                      (2)
<PAGE>


Industry Overview


     Manufactured homes are complete single family residences built in a factory
and transported to the site on which they are to be located. They are built on a
chassis and may be transported by tow trucks to their designation. Once setup, a
manufactured home may or may not have a permanent foundation added, is connected
to the required utilities and meets the certification standards required by the
Secretary of HUD. Substantially all of the Company's sales are of manufactured
homes. Manufactured homes offer most of the amenities of and are generally built
with the same materials as site-built homes. They are produced in sections, also
referred to as "floors;" finished homes may consist of one or more sections.


     Because of their lower costs of construction when compared to costs of
site-built homes, manufactured homes have historically served as one of the most
affordable alternatives for the home buyer. According to statistics compiled by
the Georgia Manufactured Housing Institute for 1998, the average cost per square
foot of a single-section manufactured home in the state of Georgia (where 84% of
the Company's sales originated in that year) averaged $23 for a manufactured
home, compared to an average cost of $55 per square foot for a site-built home
(in each case excluding land costs).

     Since they are relatively less expensive than traditional housing,
manufactured homes have been an attractive means for home buyers to overcome the
obstacle of large down payments and high monthly mortgage payments. According to
the Manufactured Housing Institute, industry wide domestic shipments accounted
for 29.6% of the overall new housing market in the United States during 1998.
The use of manufactured housing in the southeastern United States, in which the
Company's primary market area is located, is even greater than for the nation as
a whole. The Georgia Manufactured Housing Association has reported that the
State of Georgia alone has more than 30 plants manufacturing housing and over
1,000 manufactured home retail sales locations. During 1997, according to the
National Conference of States on Building Codes and Standards, the states of
Georgia and South Carolina (which now comprise the principal market area for the
Company) ranked third and fifth in manufactured home shipments, and Georgia was
the leading producer of manufactured homes, a ranking it has held since 1984.


     The manufactured housing industry is cyclical and is affected by many of
the same factors that influence the housing industry generally, including
inflation, interest rates, availability of financing, regional economic and

                                      (3)

<PAGE>

demographic conditions and consumer confidence levels, as well as the
affordability and availability of alternative housing such as apartments,
condominiums and conventional site-built homes. While the Company has been able
to expand its revenues and operations in recent years, the industry is presently
suffering from difficult market conditions, including lessened demand for its
products and strong price competition. There can be no assurance that the
Company's current expansion of revenues and profitability can be sustained.


     Sales of manufactured homes are typically conducted in retail sales centers
whose operators range from small proprietors to large regional or national
dealerships, many of whom manufacture their own retail products. Because of
economies of scale, the ability to obtain larger rebates and discounts from
manufacturers and better financing for inventory and customers, these large
retail dealerships have a distinct advantage over small single location
operators. The Company's goal is to move its operations toward the level of
these large dealership networks.

The Company's Retail Operations

     Commencing in 1992 with the acquisition of its first two retail sales
centers, the Company's sales operations have expanded substantially over the
past five years. Sales during this period, which are not necessarily indicative
of future performance by the Company, have been as follows:


                                                                   Quarter Ended
                                    Year Ended March 31,              June 30
                          ---------------------------------------   -----------
                          1999   1998   1997   1996   1995   1994   1999   1998
                          ----   ----   ----   ----   ----   ----   ----   ----

Home Units Sold (1)        792    639    399    278    195    112    194    198

Retail Sales                12      9      6      3      3      2     12     12
 Centers Owned (2)

Weighted Average            66     71     67     93     65     56     16     16
 Unit Sales per
 Center


                                      (4)

<PAGE>


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

(1)  Sales are divided between single-section and multi-section homes, with
     single-section homes accounting for 34% and multi-section homes accounting
     for 66% of sales in fiscal 1999. The range of home sale prices during
     fiscal 1999 was $16,500 for the least expensive single-section unit to
     $94,000 for the most expensive multi-section home, excluding land costs.


     A single section home is a home transported in one section, which cannot
     exceed 16 feet in width and 80 feet in length, and which is built on a
     permanent chassis and designed to be used as a single family dwelling when
     connected to the required utilities. It also includes the plumbing, heating
     and electrical systems contained in it.

     A multi section home is a home transported in multiple sections, of which
     each section cannot exceed 16 feet in width and 80 feet in length, and
     which is built on a permanent chassis and designed to be inter-connected to
     form a single family dwelling when connected to the required utilities. It
     also includes the plumbing, heating and electrical systems contained in it.



(2)  Based on number of centers open at least three months during the period.

The Company believes that these statistics are typical for retail sales
dealerships in its primary market area. In addition to sales of new manufactured
homes, the Company also deals in used homes acquired in trade-ins, which account
for approximately 4% of sales.

Sales are conducted through commissioned retail sales representatives located at
each sales center. Each sales center typically has onsite at any given time from
15 to 20 manufactured home units in a variety of models and price ranges,
although some sales centers carry a smaller inventory. All units are equipped
with basic appliances and some are furnished, and every unit is ready to move
onto the customer's site on purchase.


To enhance sales, the Company provides assistance to its customers in locating
purchase money financing. The Company has agreements with several large retail
finance companies including Green Point, Bergen, Bombardier, Deutsche Bank and
Dynex, under which it introduces its customers who require purchase money
financing. The Company receives fees from lenders for these services. Revenues
from this source were $136,460 for fiscal 1998 and $430,000 for fiscal 1999.


As part of its placement of retail financing for its customers, applications and
supporting documentation required by the lenders are submitted by the Company.
In certain cases, if a lender discovers a loan has been made on the basis of an
erroneous application, it will look to the Company for recourse. This practice,
which is common in the industry, has resulted in contingent recourse liability
to the Company that, at March 31, 1999 amounted to $859,000. Industry statistics
and Company performance indicate that an average loss of 10-15% of this amount
can be expected if the Company has to repossess a home. The Company does not
believe that this contingent liabilty is significant to its operations or
financial condition, however, as it is in a position to relieve itself of this
liability in any given case by repossessing and reselling the home in question.


The Company also receives significant revenues from various commissions and
rebates. The sources of these revenues include the placement of homeowner's
insurance for American Modern Insurance Company, rebates on freight contracts
for the delivery of its inventory, the sale of repossessed homes for lending
institutions, furniture sales, discounts for prompt payment of sales taxes and
small rebates earned in connection with purchases of furniture and appliances in
bulk quantities. Total commission and rebate income was $107,000 for fiscal 1998
and $231,000 for fiscal 1999.


                                      (5)

<PAGE>



The Company's retail sales centers each consist of a tract of land ranging from
one to six acres on which 15 to 20 manufactured home units are displayed, and a
sales office. The land on which all centers are located is leased by the Company
with the exception of one lot in Thomson Georgia which it purchased in March
1999 for $275,000 paid by a purchase money mortgage, and one lot formerly
operated in Pelzer South Carolina which it purchased in September 1998 for a
price of $50,000. The sales offices on the lots are manufactured homes used for
that purpose. The Company owns or has financed 7 offices, rents 2 offices from
unrelated parties, rents 3 offices from individuals who are minority
shareholders in subsidiaries of the Company and rents 3 offices from the Company
President The Company also owns three tow trucks and two escort vehicles to
transport units sold to customer sites, as well as other necessary equipment.


Each sales center has personnel available to transport each purchased home to
the customer's site and to install and make it fully operational at the site.
Some of these personnel are Company employees, while others are independent
contractors who supply their own transportation equipment. The equipment and
personnel used for these activities typically service more than one location,
thus reducing overall costs of installation and transportation. The Company
believes that by expanding its retail sales network to new locations, it will be
able to enhance its profitability per inventory unit by emphasizing integration
of these activities among these new and existing sales centers.

In addition to its retail sales activities, the Company went into the air
conditioning sales and service business in January 1999 with the purchase of
Mobile Air Systems, Inc.("MAS"). The subsidiary was purchased from Robert Steed
for a price of $257,500, of which $10,000 was paid in cash, $20,000 was a short
term note and the balance was paid by issuing the owner 130,000 shares of
Company Common Stock at its then market price of $1.75 per share. Gross revenues
for MAS during calendar 1998 were $595,500 and its profit for the year was
$76,349. As of the date of its purchase by the Company, MAS had a net worth per
its books of $76,449.

Real Estate Development Activities

The Company's original business, commenced in 1989, involved a real estate
subdivision and development in the Augusta, Georgia area known as Mayfair Acres.
The first phase of this development, which consists of 11 acres, contains 29
developed lots, the remaining 6.7 acres are not yet developed. The developed
lots were acquired by the Company in 1989 for $30,000 and were developed at a
cost of $160,000. The Company is presently marketing the remaining seven
developed lots on the site, four of which include a manufactured home installed



                                      (6)

<PAGE>

on the lot. It is considering the development of the remaining 6.7 acres in
Mayfair Acres into a subdivision with approximately 40 lots for sale to
prospective retail purchasers.


In addition to its Mayfair Acres subdivision, the Company purchased 18 homes in
The Timbers, a subdivision located near Mayfair Acres. Nine of the homes were
purchased in April, 1996 from Robert S. Wilson, a Company director and promoter,
and Ted C. Smith, a stockholder of the Company, for a purchase price of $200,000
(approximately the cost of these housing units to the sellers). The other nine
houses were acquired in June, 1997 from LEAP Associates, a partnership of which
Mr. Wilson is an owner, for 70,500 shares of Common Stock. Ten of the 18 houses
are rented and eight have been sold under installment sales contracts for prices
ranging from $30,000 to $42,000.


In May 1999, the Company sold installment contracts on 18 of the homes in
Mayfair Acres and The Timbers for $320,000, leaving it with a total of 7 homes
and/or lots and the undeveloped acreage owned in the two sites.

Suppliers

The Company currently purchases manufactured homes from six manufacturers, all
located in the Southeastern United States. Two of these suppliers, General
Housing of Waycross, Georgia and Bellcrest Homes of Millen, Georgia accounted
for over 75% of inventory purchased in fiscal 1999. Eight of the Company's
retail sales centers sell General Housing homes exclusively, and the inventory
costs at those centers are borne by that supplier. The Company purchases
inventory units on a deal-by-deal basis and has one year contracts with each
supplier, the terms of which are reviewed annually. While the Company does not
anticipate any problems in continued supply of product from these suppliers and
believes that it can replace any of them by substituting the products of other
manufacturers located in the Southeastern region, the loss of any of its major
suppliers may have a material adverse effect on the Company's operations. Each
supplier offers incentive payments to the Company based upon its volume of
purchases. During fiscal 1999 these incentives amounted to an average of $2,150
per unit.

Dealer Financing

The Company finances purchases of manufactured housing units through "floor
plan" financing. Under these financing arrangements, the Company borrows the
purchase price for each manufactured home it acquires from a bank or other

                                      (7)

<PAGE>

lending institution pursuant to a master contract, each loan being secured by
the unit purchased with its proceeds. When the unit is sold to a retail
customer, the Company must pay off the loan and obtain a release of the lender's
security interest, in order to give the buyer free and clear title to the
property.


The Company now has floor plan financing contracts with six lenders, three of
whom, Bombardier Capital, TransAmerica Distribution Finance and Deutsche
Financial Services, are major financial institutions and three, Regions
Financial Corp. of Thompson Georgia, First National Bank & Trust of Louisville
Georgia and First Bank of Thomson Georgia are local financial institutions. The
Company's floor plan financing lines now total $10.275 million, of which
$7,993,154 was outstanding at March 31, 1999 and $8,158,969 was outstanding at
June 30, 1999. The applicable interest rates run from 1% to 2% over prime. The
lines are reviewed and extended on an annual basis. E. Samuel Evans, the
Company's President, has personally guaranteed all of this financing for which
he receives an annual fee from the Company.


The Company believes that its lines of credit are sufficient to finance
purchases of inventory in its existing locations for the foreseeable future.
However, if its retail operations continue to increase, it may have to increase
them, as each retail sales center typically requires up to $500,000 to finance
inventory units on hand. The Company believes that new floor plan financing will
be available as needed to cover the requirements for its proposed new sales
centers, but there can be no assurance that this availability will continue to
exist or that the present interest rates and other credit terms it now enjoys
(which are subject to changes in lending practices of its present lenders and
other general economic conditions) will continue to be available. The Company
has no present commitments for any expanded dealer financing.

Competition


The retail manufactured home sales business is highly competitive, as capital
requirements for entry are relatively small. Competition is based primarily on
price, reputation for service and quality, depth of field inventory, sales
promotion and merchandising and terms and availability of retail customer
financing. In its existing sales areas (the 150 mile radius around Augusta,
Georgia) there are many manufactured home retail sales centers with which the
Company competes. The Company generally expects that any areas in which it opens
new retail sales centers will have similar numbers of competitors in the market
place. While the Company is larger than most of the over 30 competitors in the
Augusta, GA area, one company, South Atlantic Homes, is substantially larger

                                      (8)

<PAGE>


than Apple Homes. In addition, many national and regional manufactured home
producers operate their own retail sales locations throughout the country. At
least two of these producers, Oakwood Homes and Fleetwood Homes, are currently
operating in the Company's primary marketing areas and other companies (which
because of their size and integrated operations may offer better pricing and
terms of financing than the Company has available) may become competitors in the
future.


Government Regulation

There are a number of federal, state and local laws and regulations affecting
the manufacture, sale and financing of manufactured homes. Manufacturers are
governed by federal laws including the Department of Housing and Urban
Development's comprehensive national construction standards, affecting such
items as structural integrity, fire, safety, thermal protection and ventilation.
State and local building and zoning codes may also affect the quality, type and
number of manufactured homes the Company is permitted to sell within any given
geographic area. The Company believes that the homes it is currently selling
meet all of these federal, state and local laws and regulations.

The sale and financing of manufactured homes are also the subject of extensive
federal and local regulation. These include Federal Trade Commission rules
involving unfair credit and collection practices, Federal Reserve rules
requiring written disclosure of financing terms and information used as a basis
for denial of credit, and laws prohibiting discrimination in sales and lending
practices. In addition, the Company's activities as a mortgage broker and
insurance agent require licenses from state agencies which also govern allowable
charges and sales practices. The Company believes that it is currently in
compliance with all such governmental regulations.

Federal, state and local legislation and regulations are proposed from time to
time that, if enacted, could significantly affect the regulatory climate for
sales and financing of manufactured homes. It is not possible at this time to
predict what if any changes such legislation and regulations may have upon the
Company's business in the future.

Employees


At June 30, 1999, the Company had 97 full time employees, including 41 in sales,
14 in transportation, installation and repair, and 42 in general or
administrative positions, as well as 110 independent contractors who are used
for site preparation and installation of homes. The Company has no collective
bargaining agreement with its employees and has not experienced any work
stoppages as a result of labor disputes. It considers that its relations with
its employees are good. All employees with the exception of sales personnel are
salaried; sales employees are paid by commission based upon their production.


                                      (9)

<PAGE>

Item 2. Financial Information

A. Summary Financial and Operating Data


Summary operating and financial data for the Company's five fiscal years ended
March 31,1995 through March 31, 1999 and the fiscal quarters ended June 30, 1998
and 1999 and balance sheets as of those dates are as follows:


<TABLE>
<CAPTION>

                                                                        YEAR ENDED MARCH 31
                                           1995             1996             1997           1998               1999
STMT OF OPERATIONS                     ------------------------------------------------------------------------------
- - ------------------
<S>                                     <C>               <C>             <C>             <C>              <C>
NET SALES (REVENUES)                  $ 6,768,965       $ 8,442,228     $ 15,549,376    $ 25,615,535     $ 33,776,250
INCOME (LOSS) FROM OPERATIONS             244,334           179,296          116,538          34,962         (247,196)
OTHER INCOME (LOSS)                      (137,835)         (274,399)        (518,346)         37,785          434,228
NET INCOME (LOSS)                         106,499           (93,434)        (439,526)        (51,531)         104,304
INCOME (LOSS) PER COMMON SHARE               0.08             (0.10)           (0.40)          (0.03)            0.05
WEIGHTED AVG SHARES O/S                 1,269,087           946,264        1,109,669       1,491,423        1,925,012

OPERATING DATA
- - --------------
HOMES SOLD                                    195               278              399             639              792
NUMBER OF RETAIL CENTERS                        3                 3                6               9               12
WEIGHTED AVG UNITS SOLD / CTR                  65                93               67              71               66

BALANCE SHEET DATA
- - ------------------
WORKING CAPITAL
 (CURR ASSETS LESS CURR LIAB)         $  (103,648)      $   (36,090)     $  (143,743)     $  640,812     $  1,442,991
TOTAL ASSETS                            3,804,957         3,442,001        6,628,919       8,331,753       12,906,584
LONG TERM OBLIGATIONS                     510,769           528,485        1,085,323         491,508        1,054,316
SHAREHOLDERS' EQUITY                      568,923           723,296          333,427       1,609,056        2,291,110


                                                        QUARTER ENDED JUNE 30,
                                                     ---------------------------
STMT OF OPERATIONS                                     1999               1998
- - ------------------                                     ----               ----
NET SALES (REVENUES)                                 9,140,675         8,142,694
INCOME (LOSS) FROM OPERATIONS                         (117,941)          128,537
OTHER INCOME (LOSS)                                    126,699             5,161
NET INCOME (LOSS)                                       (8,404)          149,227
INCOME (LOSS) PER COMMON SHARE                           (.004)             0.07
WEIGHTED AVG SHARES O/S                              2,091,539         1,811,942

OPERATING DATA
- - --------------
HOMES SOLD                                                 194               198
NUMBER OF RETAIL CENTERS                                    12                12
WEIGHTED AVG UNITS SOLD / CTR                               16                16

BALANCE SHEET DATA
- - ------------------
WORKING CAPITAL                                      1,231,437           909,880
TOTAL ASSETS                                        12,966,393         9,830,128
LONG TERM OBLIGATIONS                                  988,330           510,656
SHAREHOLDERS' EQUITY                                 2,282,706         1,872,033


</TABLE>

B. Management's Discussion and Analysis of Financial Condition and Results of
   Operations


The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes thereto included
elsewhere in this Registration Statement. The discussions of results, causes and
trends should not be construed to imply any conclusion that such results or
trends will necessarily continue in the future.

                                      (10)
<PAGE>


Results of Operations -- Fiscal Years ended March 31, 1997, March 31, 1998 and
March 31, 1999 and three month periods ended June 30, 1998 and 1999

The following table shows the components of the results of operations for fiscal
years 1997, 1998 and 1999 and the first quarters of fiscal 1999 and fiscal 2000
in amounts and percentage of revenues (000 omitted):


Results of Operations  Quarters ended June 30, 1998 and 1999

The following table shows the components of the results of operations for fiscal
quarters ended June 30, 1999 and 1998 in amounts and percentages of revenues
(000 omitted)

                                               QUARTER ENDED JUNE 30
                                      ----------------------------------------
DESCRIPTION                                  1999                  1998
- - -----------                           ------------------    ------------------

Sales                                  9,140      100.0%     8,143      100.0%
Cost of Sales                          7,539       82.5%     6,398       78.6%
                                      ------      ------    ------      ------
Gross Profit                           1,601       17.5%     1,745       21.4%


Operating Expenses:
Compensation                             808        8.8%       719        8.8%
Advertising                              173        1.9%       157        1.9%
Occupancy and vehicle                     49        0.5%       142        1.7%
Depreciation and amortization             31        0.3%        30        0.4%
Insurance                                 90        1.0%        54        0.7%
Professional fees                         48        0.5%        34        0.4%
Taxes and licenses                        95        1.0%        60        0.7%
Guarantee fees                            43        0.5%        36        0.4%
Utilities                                 73        0.8%        66        0.8%
Office and lot                           176        1.9%       157        1.9%
Travel, training and entertainment        18        0.2%        68        0.8%
Rent and maintenance                     115        1.3%        93        1.1%
                                      ------      ------    ------      ------
Total Operating Expenses               1,719       18.7%     1,616       19.8%

Other Income (Expense):
Commissions earned                       105        1.0%        32        0.4%
Rental income                             20        0.2%        22        0.3%
Interest income                           18        0.2%        23        0.3%
Other income (expense)                     8        0.1%       (83)      -1.0%
Finance participation                    154        1.7%        41        0.5%
Interest expense                        (178)      -1.9%       (30)      -0.4%
                                      ------      ------    ------      ------
Total Other Income (Expense)             127        1.3%         5        0.1%

Income (Loss) Before Income Tax
  Provision and Minority Interest          9        0.1%       134        1.6%

Income tax provision                      (6)      -0.1%         4        0.0%
Minority interest in net income          (11)      -0.1%        11        0.1%
                                      ------      ------    ------      ------

Net Income                                (8)      -0.1%       149        1.8%
                                      ======      ======    ======      ======


                                      (11)
<PAGE>
<TABLE>
<CAPTION>
                                                             YEAR ENDED MARCH 31
DESCRIPTION                               1997                        1998                         1999
- - -------------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>          <C>            <C>          <C>           <C>
Sales                              15,549        100.0%       25,616         100.0%       33,776        100.0%
Cost of Sales                      12,327         79.3%       20,544          80.2%       27,849         82.5%
                                   --------------------------------------------------------------------------
Gross Profit                        3,222         20.7%        5,072          19.8%        5,927         17.5%

Operating Expenses:
Compensation                        1,416          9.2%        2,355           9.2%        2,949          8.7%
Advertising                           194          1.2%          353           1.4%          639          1.9%
Occupancy and vehicle                 240          1.6%          358           1.4%          269          0.8%
Depreciation and amortization          38          0.2%           70           0.3%           98          0.3%
Insurance                             101          0.6%          196           0.8%          223          0.7%
Professional fees                     147          1.0%          219           0.9%          126          0.4%
Taxes and licenses                    141          0.9%          296           1.2%          301          0.9%
Miscellaneous                         829          5.3%        1,190           4.6%        1,569          4.6%
                                   --------------------------------------------------------------------------
Total Operating Expenses            3,106         20.0%        5,037          19.7%        6,174         18.2%

Other Income (Expense):
Commissions earned                     37          0.2%          108           0.5%          231          0.6%
Rental income                                                                                 92          0.3%
Interest income                        49          0.3%           27           0.1%           88          0.3%
Other income (expense)                 (5)         0.0%          380           1.5%           18          0.1%
Finance participation                                            137           0.5%          430          1.3%
Interest expense                     (599)        (3.8%)        (614)         (2.4%)        (425)       (1.3%)
                                   --------------------------------------------------------------------------
Total Other Income (Expense)         (518)        (3.3%)          38           0.2%          434         1.3%

Income (Loss) Before Income Tax
  Provision and Minority Interest    (402)        (2.6%)          73           0.3%          187          0.5%

Income tax provision                   33          0.2%          116           0.4%          (73)        (0.2%)
Minority interest in net income       (71)        (0.5%)        (240)         (0.9%)         (10)        (0.0%)
                                   ---------------------------------------------------------------------------

Net Income                           (440)        (2.9%)         (51)         (0.2%)          104         0.3%
                                   ===========================================================================
</TABLE>



Comparison of Fiscal Quarters ended June 30, 1999 and June 30, 1998
- - -------------------------------------------------------------------
Revenues for the 1999 quarter continued the trend of increased sales by the
Company, showing a 12% increase over the corresponding 1998 quarter. However,
there was a significant decrease in earnings, with the 1999 quarter showing a
loss of $8404 as opposed to a profit for the corresponding 1998 quarter of
$149,227. This was caused by a reduction in gross profit margin of $143,453,
from 21.4% of sales for the 1998 quarter to 17.5% of sales in the 1999 quarter.
This reduction was attributable to a general softening in the manufactured
housing market and a corresponding increase in price competition among
manufactured home dealers. This was somewhat offset by a tightening control over
operating expenses, which reduced these costs to 18.7% of revenues in the 1999
quarter from 19.8% in the 1998 quarter, and by increased commissions and fees
which contributed (after interest expense) $126,699 to income in 1999 as opposed
to $5,161 in 1998. The Company took steps to further bring its costs in line in
the 1999 quarter by closing an unprofitable sales center and changing managers
at another center, moves which it believes will contribute to improved earnings
in the second quarter of fiscal 2000.


Comparison of Fiscal 1999 to Fiscal 1998. Sales in 1999 rose by approximately $8
million, or 32%, on an increase of 153 units sold, or 24%, primarily due to a
net increase of three sales lots in 1999, with the Company opening a total of
four new centers during the year while selling one. However, these greater sales
did not result in an increase in gross profit margin, which decreased as a
percentage of sales to 17.5% in 1999 from 19.8% in 1998. This decrease was due
primarily to a more competitive market which demands a decreased sales price per
unit. Another factor is the additional costs to implement governmental
restrictions related to the set-up and placement of homes. The Company is using
inventory management methods in an effort to address these conditions in fiscal
2000. Despite this adverse condition, net profit for 1999 increased by $155,000
in 1999, or over 300%, due to two primary factors which offset the decrease in
gross margin. These were a reduction in operating costs from 19.7% of sales in
1998 to 18.2% of sales in 1999 and an increase in other income from .2% of sales
in 1998 to 1.3% of sales in 1999. These resulted from the following factors: (i)
spreading the operating costs over a greater sales base: (ii) an increase in
commission, rental, interest and finance participation income (fees earned based
on the volume of loans that we refer to retail finance companies); and (iii) a
large decrease in interest expense due to the assumption of floor plan expense
by manufacturers at a number of retail sales centers featuring their products


                                      (11-a)
<PAGE>

exclusively. Minority Interest in Net Income decreased from $240,392 in Fiscal
1998 to $9,989 in Fiscal 1999, due to an agreement between the Company and the
minority shareholders to pay them bonuses based on performance rather than to
pay dividends to them. As a result of this new plan, the Company paid $193,460
to the minority shareholders, which was recorded as compensation. The effect of
this was to reduce the profits in the minority ownership subsidiaries, resulting
in a reduction in the amount recorded as Minority Interest in Net Income of
Consolidated Subsidiaries.

Comparison of Fiscal 1998 to Fiscal 1997. Sales rose by approximately $10
million, or 65%, in 1998 on increased unit sales of 260, or 60%. This increase
was primarily attributable to a net increase of three sales lots in that year,
with the Company opening five new sales centers and closing two. Gross margin
dropped in 1998 by .9% from 20.7% in 1997 to 19.8% in 1998 due to the same
factors adversely affecting gross margin in 1999, although the effect of these
conditions was not as severe as in the later year. The net loss was reduced from
$440,000 in 1997 to $51,000 in 1998 due almost entirely to a very substantial
increase in commission, interest and finance participation income from $86,000
in 1997 to $642,000 in 1998. This increase resulted from better terms the
Company was able to negotiate with its suppliers because of the very large
increase in Company purchases from them. As reported in the Consolidated
Statements of Operations, income (loss) before income tax provision and minority
interest amounted to $72,747 for the year ended March 31, 1998, compared to a
loss of $(401,808) for the year ended March 31, 1997. As a result of this
significant improvement in operations and the probable realization of net
operating loss carryforwards for income tax purposes, management considered it
appropriate to reduce the valuation allowance recorded against deferred income
tax assets in prior years. In 1998 a reduction in the valuation allowance of
$143,663 was recorded, which resulted in a net income tax benefit of $116,114
being recognized for 1998.


Liquidity and Capital Resources

Since its formation in 1990, the Company has funded its operations and capital
expenditures primarily through contributions from its founders and private
placements of its equity securities and debt, including convertible notes. In
the most recent placements of securities made by the Company (i) in 1997, it
received a total of $ 485,000 in capital contributions through the conversion of
notes originally sold in 1996 and the sale of 200,000 shares of common stock in
a private offering, and (ii) in fiscal 1999 it received $202,500 from the sale
of convertible debentures and $100,000 from the sale of warrants in another
private placement.

As an addition source of capital, the Company recently sold to a local finance
company for $565,204 a total of 34 retail installment sales contracts held
received from the sale of lots and homes.


The Company has used these proceeds to open and supply inventory to new retail
locations and to improve its working capital position. The Company believes that
the proceeds from these placements, together with cash flow from its operations
and its present lines of floor plan financing, should provide it with sufficient
liquidity to conduct operations and maintain its expansion of sales for the next
twelve months. There can be no assurance that such will be the case, however,
particularly if general economic conditions result in a downturn in the sale of
housing in the Augusta Georgia market. The Company has no plans for any major
capital expenditures for the next 12 months based on its determination that for
the next year it will suspend its expansion of operations and will not open any
new sales centers except with the use of capital provided by its mobile home
suppliers. While the Company has had a negative cash flow of $240,709 from
operations for the period including the past two fiscal years and the first
quarter of the current fiscal year, management believes that this is
attributable to its concentration of the expansion of operations during that
period, with a net increase of six new sales centers. With the program to expand
suspended for the time being and an emphasis on improving profitability during
the current year, the Company believes that it will return to positive cash flow
from this source. This cannot be assured, however, particularly if the current
strong price competition in the local mobile home market in the Augusta Georgia
continues to prevail.
                                      (12)

<PAGE>

Year 2000 Compliance

The following discussion of the Year 2000 issue contains numerous "forward
1ooking statements." See "Forward-Looking Statements and Other Safe Harbor
Applications," below, for a discussion of factors to be considered in reading
forward-looking statements.

Year 2000 (or "Y2K") Compliance relates to the possibility that certain
computers, hardware or software, may not perform properly because of the
inability to read dates after December 31, 1999. This discussion includes
consequences of this failure as it relates to the Company, not just from our
internal computer systems, but also from our suppliers and vendors. It is
conceivable that computer system failures could temporarily disrupt our ability
to (i) obtain financing and financing information for our customers, (ii)
maintain a current inventory with appropriate floorplan financing, (iii) process
accounting transactions, including payroll, and other normal business
activities.

The Company's State of Readiness
- - --------------------------------

The Company has identified three information technology (IT) and non-IT areas
for which Y2K compliance is critical to normal and routine operations. These
areas are: (1) commercial software (including accounting and financial systems)
used in the corporate and sales offices, (2) computer hardware within the
Company, and (3) facilities-related applications and processes, such as
telecommunications and equipment with embedded chips.

The Company has no software in use at this time that is not "off-the-shelf"
software. We have contacted each of our third party suppliers and the
manufacturers of these programs, and have installed any updates required to be
compliant with Y2K readiness. We have received assurances from these third
parties that they are as fully prepared as possible in this area.

Due to the recent expansion that has occurred in the Company, we do not own any
computer hardware that is more than two years old. We hired a computer
consultant to come in and evaluate all of our equipment with Y2K in mind, and
have received assurances that we are fully prepared in this area, also.

The expansion that we have experienced has also helped us in the area of
telecommunications equipment and other embedded software, non-IT problems. The
corporate office moved to a new location in April 1999. At that time, all new
phone systems and wiring were installed. All of these systems come with Y2K
compliant warranties. The majority of our sales locations have also obtained new
phone systems and lines within the last two years, either because they are new
locations or because our business has grown to a level that new equipment became
necessary. Our computer consultants have assured us that all of this equipment
should operate smoothly through the new year.


The biggest concern for the Company relates to the Y2K readiness of our vendors
and suppliers. We have addressed this in each of the following three areas: (1)
Manufacturers, (2) Floorplan Lenders and (3) Retail Finance Companies. The homes
that we carry in inventory come from six manufacturing companies; however, we
purchase a significant amount of our inventory from two of these, General
Housing and Pioneer Homes. We have contacted both of these companies and they
have assured us of their readiness with regard to Y2K issues. Our three main
floorplan lenders, Bombardier Capital, Deutsche Financial Services and
Transamerica Distribution Finance are all public companies, and have addressed
Y2K concerns in their annual reports to the SEC. Our main retail finance
company, GreenPoint Credit, is also a public company with the same reporting
requirements to the SEC. These public disclosures do not reveal any potential
material Year 2000 problems. In addition to relying on their SEC filings for
information about Y2K concerns, we have also written to each of the above named
companies and received replies that they do not anticipate any significant
problems in their financing of the Company and its customers as a result of Y2K
potential failures. On this basis, the Company believes that it is in a good
state of readiness so far as Y2K compliance is concerned.


Cost of the Year 2000 Program
- - -----------------------------

Since the majority of our Y2K compliance was done in conjunction with our
expansion, the Company has not recognized any additional cost on our books that
relates to Y2K compliance. We also do not anticipate any additional costs, over
and above our normal operating costs, related to this problem. It is possible,
since we have relied on new equipment and computer hardware manufacturer's
assurances, that we could have to purchase replacement equipment in the event of
a failure. We have not accrued any of these potential costs, and do not have any
way of predicting what they may be. We do not, however, anticipate that there
will be costs that are significantly outside the range of normal operations. Any
equipment purchased would be capitalized and depreciated over the usual life
expected.

                                      (13)
<PAGE>

Risks of the Company's Year 2000 Issues
- - ---------------------------------------

The failure to identify and correct a Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. The Company does not expect such failures to have an adverse effect
on its results of operations or financial condition. However, because of the
general uncertainty about Year 2000 readiness throughout the world economy,
which results in uncertainties regarding the readiness of the Company's vendors,
contractor and customers, the Company is currently unable to determine whether
Year 2000 problems may have a materially adverse effect on its results of
operations or financial condition.

Worst Case Scenario

It is not possible for the Company to describe a reasonably likely "worst case
scenario" at this time without making numerous assumptions. The Company
presently believes that a most likely scenario would be the failure of our
retail finance companies to continue to finance loans for our customers. This
would slow down the cash flow within the Company and is the event most likely to
cause us harm. We understand that we could be required to change some vendors,
rearrange some work plans or perhaps interrupt some sales activities. Assuming
this is correct, the Company does not believe that such circumstances would have
a materially adverse effect on its operations, even if it is necessary to incur
additional costs to correct unanticipated compliance failures.

The Company's Contingency Plans
- - -------------------------------

The Company has developed relationships with twelve retail finance companies to
help assure that our worst case scenario does not have an impact on us. Also, in
the event that one or more of our manufacturers has problems, we have other
companies that we can turn to for inventory. We also are in the process of
developing relationships with another floorplan lending source for the same
reason. We maintain a three month inventory at all times, making the impact of a
loss of manufacturers much less. The Company feels that with any other suppliers
and contractors that may have problems related to YSK, we would be in a position
to rearrange some work plans or otherwise replace the products required with
comparable products. However, there can be no assurance that these assumptions
or estimates will have been correctly made, or that the Company will have
anticipated all relevant factors, or that there will not be delays or increased
costs associated with the Company's implementation of final Y2K preparations as
the end of 1999 draws nearer. Specific factors that might cause the actual
outcome to differ from the projected outcome include, without limitation, the
continued availability of personnel and consultants trained in the computer
programming skills necessary for remediation of Year 2000 problems, the ability
to locate and correct all relevant computer codes and embedded software, timely
responses by third parties, including suppliers, contractors and customers, and
the ability to implement interfaces between new systems and systems not being
replaced.

Forward Looking Statements

The discussion contained in this Section and elsewhere in this Registration
Statement contain certain "forward looking statements" (within the meaning of
that term as defined in the Securities Act and the Exchange Act), about the
Company's future operations. The likelihood of the Company's success is based
upon a number of assumptions and estimates which are inherently subject to
significant uncertainties and contingencies, many of which are beyond the
control of the Company and which reflect business conditions that are subject to
change. These include adverse changes in the financial markets, which may in
turn adversely affect the Company's ability to borrow funds and the price at
which those funds will be available, changes in the mortgage market, which may
adversely affect the ability of the Company's customers to finance the purchase
of new homes, and in economic conditions in those areas in which the Company's
retail sales centers are located. As a result of these uncertainties, actual
results may vary substantially from these forward looking statements contained
herein and prospective investors should not place undue reliance on any of them.

C. Qualitative and Quantitative Disclosures about Market Risk.

The Company does not hold and has not held any derivative securities such as
options or other market risk sensitive instruments and, accordingly, is not
presently subject to the risks of investment in such vehicles.

Item 3. Properties

The Company's principal offices are located in building at 124 North Belair
Road, Evans, Georgia which it acquired in January 1999 for a price of $285,000.
The property has 3,340 square feet of modern office space and is adequate for
the Company's requirements for the foreseeable future. It was financed by a
$230,000 mortgage loan from Suntrust Bank personally guaranteed by E. Samuel
Evans, the Company's President and Robert S. Wilson, one of its directors and
original promoters. The mortgage is due in monthly installments of $2,115,
including interest at 7.25% per annum, with the balance of the principal due on
December 5, 2001.
                                      (13-a)
<PAGE>


The Company holds a continuing interest in the Mayfair Acres and Timbers
properties consisting of seven lots for sale (four with mobile homes installed
on them), 10 rental units and 6.7 acres of undeveloped land.

Eleven of the Company's retail mobile home sales lots, consisting of
approximately two to five acres each, are leased for a total rental of $260,852
per year. One lot at Thomson Georgia, consisting of 1.5 acres, was purchased by
the Company in March 1999 for a price of $275,000, payable in monthly
installments of $2,663 each, or the same amount the Company was formerly paying
as rent for the property to its owner. The Company also owns a lot in Pelzer
South Carolina formerly used a sales center. The property was acquired in 1998
for a price of $50,000.

The sales offices on the lots are manufactured homes used for that purpose.
Three of these offices are leased from E. Samuel Evans, the Company's president
and three are leased from other shareholders. The Company owns three tow trucks
and two escort vehicles to transport units sold to customer sites, as well as
five service trucks and other necessary sales and office equipment. Total book
value of these vehicles and equipment was $120,898 at March 31, 1999 against
outstanding financing owing by the Company of $114,962.

Item 4. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth information regarding the beneficial ownership of
the Company's Common Stock at June 1, 1999, of (i) each person who is known by
the Company to own beneficially more than five percent of its Common Stock, (ii)
each executive officer and director of the Company, and (iii) all officers and
directors of the Company as a group. The Company has been advised by each
stockholder identified in the table that he possesses all voting and investment
power with respect to the stock beneficially owned by him.

                                      (14)

<PAGE>
<TABLE>
<CAPTION>



Name, Address                   Shares       Percentage of                      Percentage of
and Affiliation              Beneficially     Outstanding     Shares Covered     Outstanding
with Company                    Owned           Shares         By Warrants        Shares (1)
- - ---------------              ------------    --------------    -----------        ----------

<S>                           <C>                <C>             <C>                <C>
E. Samuel Evans,              195,000            9.3%            200,000            14.4%
President and Director
845 Vivian Court
Evans GA 30809

Robert S. Wilson,             247,951(2)        11.9%            328,000            21.0%
Director
4715 Lake Front Drive
Martinez, Georgia 30907

Richard Belz, Director          9,900            0.4%             70,000             2.9%
101 Fairchild Avenue
Plainview NY 11803

Laura Rollins, Chief            3,000            0.1%                -0-             0.1%
Financial Officer,
Secretary and Treasurer
3690 Inverness Way
Martinez GA 30907

Bryce N. Batzer,              161,672(3)         7.7%            50,000              7.7%
Director
2263 N.E. 26th Street
Lighthouse Point, FL
33064

All officers and              614,523           29.4%           648,000             46.1%
directors as a group
(five persons)

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

(1)  This percentage is derived by dividing the sum of the shares owned plus
     shares covered by warrants by the total number of outstanding shares of the
     Company's Common Stock (2,091,539) plus the total number of shares covered
     by the warrants held only by the officers and directors (648,000). As the
     warrants are exercisable at a price (6.50 per share) that is far above the
     current market price for the Common Stock, there is no possibility that the
     warrants will be exercisable in the foreseeable future.

(2)  This table includes 51,000 shares held by Mr. Wilson's wife, and 2,813
     shares held by Stock Builders Corp., a corporation of which Mr. Wilson and
     members of his immediate family own 41.67%.

(3)  The table includes 128,672 shares held in trust by Mr. Batzer, as trustee,
     for the benefit of members of his family, and 33,000 shares issuable on
     conversion of $90,000 in Convertible Debentures.


                                      (15)
</TABLE>
<PAGE>



Item 5. Directors and Executive Officers

The directors and executive officers of the Company are:


Name                         Age                        Position
- - ----                         ---                        --------

E. Samuel Evans              50                         President, CEO and
                                                        Director

Robert S. Wilson             76                         Director

Bryce N. Batzer              78                         Director

Richard Belz                 43                         Director

Cynthia D. Holley            36                         Vice President-
                                                        Operations


Chester C. Helmick           57                         Vice President- Sales


Laura H. Rollins             43                         CFO, Secretary and
                                                        Treasurer


E. Samuel Evans has served as president and a director of the Company since
1992. Prior to that date his principal occupation was as president and owner of
Augusta Housing Center Inc. from its formation in 1982 until its sale to the
Company in 1992. Mr. Evans is a graduate of Augusta College with a degree in
business administration in 1971 and a graduate of Woodrow Wilson College of Law
in Atlanta, Georgia in 1979. He is licensed to practice law in the State of
Georgia.

Robert S. Wilson has been chairman of the board of the Company since its
founding in 1989. He has resigned as Chairman effective June 30. 1999. He served
as its president and chief executive officer until 1992 and as secretary and
treasurer until 1998. Prior to his founding of the Company, Mr. Wilson was
active for 34 years in the securities industry as an executive with S.D. Cohn &
Company, a retail broker/dealer in New York City from 1981 to 1984 and, prior to
that date, as a sales representative or wholesaler of mutual funds with several
other firms. From 1986 to 1989, he was self-employed as a real estate broker and
from 1984 to 1986, he was an employee of Lease/Purchase Corporation, a real
estate dealer and developer. Until 1999, he held a real estate sales license in
the State of New York and is a 1947 graduate of Cornell University.

Bryce N. Batzer has been a director of the Company since 1994. He is currently
the owner of Cedarbrook Development Company Inc., a Florida land and home
developer which he organized in 1987. He is also vice president of American
Marine Products Inc., a manufacturer of marine windows, boat windshields and
other marine products. Mr. Batzer was the president of Plastiline Inc., a
publicly held company, from 1955 through 1976, and until 1996 he served Florida
Coast Banks Inc. for over 25 years as a member of the executive committee,
chairman of the loan committee and chairman of the compensation committee. Mr.
Batzer was a founder and board member of the Broward Manufacturers Association

                                      (16)

<PAGE>

and a founder, director and chairman of the Broward Industrial Development
Board, both of which are instrumental in developing an industrial economic base
for Broward County, Florida. He is a graduate of Syracuse University, holding a
bachelor's degree in industrial engineering.

Laura H. Rollins joined the Company as Comptroller in August, 1998. She
previously worked for the Company's auditors, Serotta, Maddox, Evans & Co. for
one year and for C. C. McGregor & Co. of Columbia, South Carolina for the prior
two and one-half years. She is a certified public accountant licensed in South
Carolina and Georgia and a graduate of the University of North Carolina. She is
a member of the AICPA and the South Carolina and Georgia Societies of CPA's.

Richard Belz was elected a director of the Company in November 1998. He has been
a principal and officer of Redstone Securities, Inc. since 1989. He is a
licensed securities representative and certified public accountant.

Cynthia D. Holley has been an employee of the Company since October 1995 as
office manager and administrative assistant and was promoted to her present
position in April 1999. She is a graduate of Mercer University with a BBA in
marketing management and holds certificates as human relations specialist and
GMHA housing consultant.

Chester C. Helmick joined Augusta Housing Center, one of the Company's
subsidiaries, in 1984 as a housing consultant and has served the Company in
various managerial positions since its acquisition of that subsidiary. He was
elected to his present position with the Company in March 1999. Mr. Helmick is
retired from the United States Army in which he served for 20 years.

Mr. Wilson and Mr. Evans may be deemed promoters of the Company. They, members
of their families, and Mr. Batzer have been involved in several transactions
with the Company, described in "Certain Transactions".

Each director serves for a term of one year and is elected at the annual meeting
of shareholders. The Company's officers are appointed by its Directors and hold
office at their discretion.

                                      (17)

<PAGE>


Item 6. Executive Compensation

  The following table sets forth information  concerning total compensation paid
by the  Company  during  its last  three  fiscal  years to the  Company's  chief
executive officer and its officers and directors as a group:

                                   Year Ended
Name                         Position       March 31           Compensation
- - ----                         --------      --------            ------------


E. Samuel Evans              President       1999              $   110,332
                                             1998              $   123,741 (1)
                                             1997              $    94,259


All directors and officers                   1999              $   307,182
as a group (6 in number)                     1998              $   277,211
                                             1997              $   156,759
- - ----------------


(1)  Includes automobile allowances in the amount of $18,000 paid to Mr. Evans
     in fiscal 1998, but does not include guarantee fee paid annually to Mr.
     Evans for his personal guarantee of the Company's floor plan financing. See
     "Certain Relationships and Related Transactions".

In June 1997, the Company granted 200,000 Class A Warrants each to Messrs.
Wilson and Evans and 50,000 Class A Warrants to Mr. Batzer. The Warrants had no
significant value at the dates they were issued.


Mr. Batzer and Mr. Belz serve as directors for a fee of $100.00 per meeting, and
are reimbursed for out-of-pocket expenses in attending to the affairs of the
Company.



The Company has entered into an employment agreement terminating on March 31,
2000 with Mr. Evans calling for compensation of $96,000 per year plus bonuses to
be determined by the Board of Directors based upon profitability of the
Company's operations. The employment contract also contains a covenant not to
compete with the Company for a period of one year following termination of
employment.

Equity Incentive Plan
- - ---------------------

On April 26, 1996 the Company adopted an Equity Incentive Plan and reserved 1
million shares for issuance pursuant to options and awards granted under the
Plan. All full time employees are eligible for participation in the Plan,
including senior management and directors. All awards and options issued under
the Plan must be approved by a committee of the Board of Directors not including
members of senior management, which will fix the terms of the options and awards
granted. At this date no such awards or options remain in effect.

                                      (18)

<PAGE>


Item 7. Certain Relationships and Related Transactions

The Company and its subsidiaries have engaged in the following transactions with
officers and directors of the Company and members of their immediate families
since April 1, 1998:

1.   On May 24, 1999, the Company paid off a mortgage loan in the amount of
     $114,424 from McDuffie Bank & Trust Co. of Thomson, Georgia, the proceeds
     of which were used to repay a loan of $40,000 made to purchase the Mayfair
     Acres property and to pay for the development of the lots and site
     improvements on the property. This bank loan had been personally guaranteed
     by Messrs. Evans and Wilson, and in consideration for giving their personal
     guarantees, the Company had issued to each of them 20,000 shares of Common
     Stock in March 1994.

2.   Mr. Evans has personally guaranteed payment of the Company's obligations
     under its existing floor plan lines of credit. For these guarantees, the
     Company pays him a fee equal to 2% of the average floor plan financing used
     by the Company each month. During fiscal 1999 these fees amounted to
     $147,560.

3.   The Company employs Sheryl Evans, wife of Mr. Evans, as consultant in the
     decoration and furnishing of mobile homes it sells to its retail customers.
     During fiscal 1999, Mrs. Evans received $152,725 for her services to the
     Company in this capacity, and incurred approximately $24,000 in expenses
     for the purchase of materials used in Company displays.

4.   On April 28, 1999, the Company purchased two manufactured homes from Bryce
     Batzer, a director of the Company, for a total purchase price of $62,349,
     which was approximately his cost in the homes. On that day, Mr. Batzer used
     the proceeds from the sale to acquire a $65,000 convertible debenture of
     the Company. The remaining $2,651 was treated as a miscellaneous expense of
     the Company.

5.   The Company rents three mobile homes from Mr. Evans for use as sales
     offices on its lots in Augusta and Statesboro, Georgia and Anderson, South
     Carolina. Total rental for these homes is $33,446 per year.


6.   On October 1, 1998, Apple Homes acquired Southern States Lenders, Inc., a
     recently organized Augusta Georgia mortgage lender and servicer, from that
     company's founders for $35,000. The Company subsequently came to the
     conclusion that the acquisition would not serve its best interests as
     Southern States had larger capital requirements than the Company could
     afford to meet. The Company then sold all of its stock in Southern States
     back to that company for the sum of $35,000 plus an additional amount (some
     $25,000) equal to funds the Company had advanced to Southern States. For
     accounting purposes, the sale of the stock back to Southern States happened
     on October 1, 1998 also, and no transactions undertaken by Southern States
     have been recorded on the Company's books. Southern States raised the funds
     to purchase its stock back and to have additional working capital by sales
     of stock to a group of investors, including Messrs. Wilson and Batzer. To
     give the benefit of ownership in Southern States to each of the Company's
     stockholders, Southern States Lenders, Inc. then distributed to the Apple
     Homes stockholders approximately 200,000 shares of Southern States stock,
     or 1 share for every 10 Apple Homes shares, representing 18% of Southern
     States' outstanding stock) on April 1, 1999. There is no remaining
     connection between the companies.


The Company believes that these transactions with its officers and shareholders
have been and will be on terms no less favorable to the Company than those
available from unaffiliated parties.

                                      (19)

<PAGE>

Item 8. Legal Proceedings

The Company is currently a defendant in several lawsuits, none of which is
material to its operations or would, in the event of an adverse decision, be
materially adverse to its business.

Item 9. Market Price and Dividends on the Registrant's Common Equity and
Related Stockholder Matters

The Company's Common Stock have traded on the OTC Bulletin Board since May 11,
1998. The following table sets forth the high and low bid and asked prices for
both securities and the volume of trading on a quarterly basis since that date.

    Quarter Ended                   Bid                    Asked
    -------------                   ---                    -----

   June 30, 1998                3.00--9.12               4.00--9.62
   September 30, 1998           3.50--5.62               3.62--6.00
   December 31, 1998            0.94--3.68               1.75--4.50
   March 31, 1999               1.75--3.25               1.75--4.00
   June 30 1999                 1.62--2.37               1.87--3.00
   July 1, 1999 -
   August 24, 1999             1.125--1.75               1.50--2.25

On August 24, 1999 the Common Stock was quoted at 1.125 bid and 1.50 asked.

Item 10 Recent Sales of Unregistered Securities

Since April 1, 1996, the Company has issued shares of Common Stock, warrants to
purchase Common Stock and debentures convertible into Common Stock in the
following transactions. None of these securities was registered under the
Securities Act of 1933 on the basis of the exemptions stated below.


1.   On June 30, 1996 the Company issued in a private placement to 19 purchasers
     a total of $600,000 in debentures; the purchasers also acquired for no
     additional consideration Class A warrants to purchase 600,000 shares of
     Common Stock for an exercise price of $6.50 per share. A list of those
     purchasers is as follows:

                                                                       Warrants
Name of Subscriber                       Amount of Debenture           Received
- - ------------------                       -------------------           --------

Ira Poolin                                 $   2,500.00                  2,500
Bay Associated Services Limited               35,000.00                 35,000
Edward C. Fernbach                             2,500.00                  2,500
Phyllis H. Kramer                             10,000.00                 10,000
Mitchell H. Shapiro                            2,500.00                  2,500
Catherine H. Kim                              30,000.00                 30,000
LA International Acquisition, Ltd.            10,000.00                 10,000
Romilda Abramo                                20,000.00                 20,000
Alan J. Longo                                 20,000.00                 20,000
JPS International Holdings, Inc.              50,000.00                 50,000
VJS International Holdings, Inc.             200,000.00                200,000
Bonnie Piccirillo                             10,000.00                 10,000
Margo Ziegler                                 50,000.00                 50,000
Steven Altman                                 50,000.00                 50,000
Vera Juchnowicz                               15,000.00                 15,000
Mark Soloff                                   25,000.00                 25,000
Nelson Gautier                                25,000.00                 25,000
David Miller                                  12,500.00                 12,500
Charles O'Rourke                              30,000.00                 30,000
                                           ------------                -------
TOTAL                                      $ 600,000.00                600,000


     As part of the transaction, 500,000 warrants were issued to Charles M.
     O'Rourke, an attorney for the Company, for his efforts in introducing the
     Company to R. T. G. Richards & Co., the brokerage firm which acted as
     placement agent for the Company in securing the investors participating in
     the offering. Each of the investors represented himself to the Company to
     be an "accredited investor" (within the meaning of that term, as defined in
     SEC Regulation D). This issuance was made pursuant to the provisions of the
     Rules of Regulation D, including Rule 504,and was consequently exempt from
     registration.

                                      (20)

<PAGE>


2.   The Company agreed in June 1996 to pay fees owed to Mr. O'Rourke amounting
     to $43,657 for legal services performed by him in the placement and in
     prior transactions by issuing to him 87,118 shares of stock. At the same
     time, the Company agreed with OTC Corporate Transfer Service Co., its stock
     transfer agent, to pay it $6,000 in fees by issuing it 12,000 shares of
     stock. The certificates for these shares were issued in October 1996 and
     were legended to reflect their status as "restricted securities"
     transferrable only pursuant to SEC Rule 144. Their issuance was exempt from
     registration under the Act by reason of the provisions of Section 4(2) of
     the Act.

3.   During June 1997 $481,500 of the debentures referred to in paragraph 1 were
     converted into 240,750 shares of Common Stock at the conversion price of
     $2.00 per share, determined at the time of conversion to be the fair value
     of the stock issued. This issuance was exempt from registration pursuant to
     Section 3(a)9 of the Act.

4.   During 1998 a total of $77,500 in debentures issued by the Company in a
     private offering in 1993 were converted into 62,000 shares of Common Stock
     in accordance with their terms. The issuance of these shares was also
     exempt from registration by reason of the provisions of Section 3(a)9 of
     the Act.




<PAGE>


5.   In a private offering conducted from August to December 1997, the Company
     issued to the following 10 purchasers introduced to it by an employee of
     Redstone Securities, Inc., a registered broker dealer, who acted as
     placement agent, a total of 200,000 units (each unit consisting of one
     share of common stock and one warrant) for a unit price of $5.00, of a
     total of $1,000,000.00:

     Name of Purchaser                   Number of Units       Date of Purchase
     -----------------                   ---------------       ----------------

     Case Paper Co Profit Sharing             20,000           December 15, 1997
     David Doran                               2,600           October 30, 1997
     Debbie Dedes                              1,000           October 30, 1997
     Dental Art Training, Louis Cole          40,000           December 15, 1997
     Ed Tyler                                  8,772           October 30, 1997
     Emile Mimran                             50,000           October 30, 1997
     Hans Kaemmlein                            9,688           October 30, 1997
     Hans Kaemmlein                              312           December 15, 1997
     Peter Schaffer                            8,000           October 30, 1997
     Peter Schaffer                           20,000           December 15, 1997
     Ron Suster                               24,800           October 30, 1997
     Seco Corp                                15,000           December 15, 1997

     The offering was exempt from registration under the Act pursuant to Rule
     504 of SEC Regulation D. In the offering, however, the Company
     inadvertently issued 172 shares and warrants to one of the purchasers who
     mistakenly paid $860 too much for his units. These securities have been
     cancelled and the payment for them returned to the purchaser. This mistake
     may have caused a violation of law for failure to register the units under
     the Act, in that Rule 504 limits the amount of securities that may be sold
     during any 12 month period to a total of $1,000,000. The Company believes
     that no such violation occurred, because the issuance of the units was not
     properly authorized and is thus invalid and may be cancelled under
     applicable state law. In any event, any contingent liability in damages or
     rescission to the purchasers of the units for failure to register the units
     is remote, as claims made by the purchasers for any purported improper
     issuance of securities without registration is now extinguished by the
     applicable statute of limitations under the Act.

6.   As part of the placement of units in paragraph 5 above, the Company issued
     on February 20, 1998 to the placement agent 75,000 shares of common stock,
     pursuant to agreement reached at the time of his engagement in August 1997.
     At that time, it also granted him the right to purchase up to 750,000
     (later revised to 1,000,000) warrants for a price of $0.10 per warrant.
     This right was exercised in December 1998 at which time the 1 million
     warrants were issued to 11 designees of the placement agent for a total
     price of $100,000. These warrants were legended as "restricted securities"
     under SEC Rule 144 and they and the shares underlying them are
     transferrable only in compliance with that Rule. The sale of the warrants
     was therefore exempt from registration under the Act pursuant to Section
     4(2) thereof.



7.   In June 1997, the Company engaged in three transactions involving the
     issuance of shares to affiliates to clear debt from its balance sheet and
     acquire property it was then using. These included:

          (i) the issuance of 70,500 shares to LEAP Associates, a partnership of
     which Robert Wilson, his son and other investors were partners, in exchange
     for 18 houses in The Timbers subdivision in which the Company also owned
     houses.

          (ii) the issuance to Bryce Batzer and Robert Wilson of 43,125 shares
     and 5,625 shares, respectively, in payment for debt the Company then owed
     them and the acquisition from Mr. Batzer of land in one of the Company
     subdivisions.

          (iii) the sale of 1,000 shares to two employees.

                                      (21)

<PAGE>


     The shares issued in the above transactions were treated as "restricted
     securities", transferrable only pursuant to the provisions of SEC Rule 144.
     The transactions were exempt from registration under the Act by reason of
     Section 4(2) thereof.


8.   From January to April 1999, the Company offered for sale in a private
     offering, debentures convertible into Common Stock at a price of $5.00 per
     share. The sales were part of a private placement arranged by Redstone
     Securities in which debentures were sold to Mr. Batzer and purchasers
     introduced to the Company by Redstone Securities, by Mr. Wilson, and by Mr.
     Batzer. A list of these purchasers is as follows:

     Name of Subscriber              Value of Debenture        Date of Purchase
     ------------------              ------------------        ----------------

     Frances Pupillo                    $  40,000.00           January 26, 1999
     Julian Osbon                          50,000.00           March 4, 1999
     Fredereick Schorr                     10,000.00           February 3, 1999
     Jeanne Russack                         2,500.00           February 23, 1999
     Frank Tuifel                          10,000.00           March 3, 1999
     Phillip Snoberger Trust               15,000.00           March 6, 1999
     M. Schamroth & Sons                   10,000.00           March 9, 1999
     Bryce Batzer                          65,000.00           April 26, 1999
                                        ------------
     TOTAL                              $ 202,500.00
                                        ============

     Each of the purchasers signed representations that they were accredited
     investors. This issuance was conducted pursuant to the provisions of
     Regulation D, Rule 504, and was thus exempt from registration under the
     Act.



9.   During February 1999 the Company issued a total of 12,000 shares to Wayne
     Bridges, former CFO of the Company, and his employer, R.W. Allen & Co., for
     the performance of internal financial reporting services. In addition, in
     June 1998, it issued 25,000 shares to WCBN, Inc., a financial public
     relations firm for assistance in preparing press releases and reports to
     stockholders. These shares were issued as "restricted shares" under Section
     4(2) of the Act and Rule 144, are legended as such and may not be sold or
     trasferred except in compliance with Rule 144.


10.  In June 1998, the Company issued to Warren Bagatelle, a stockholder of the
     Company who had lent money to the Company in January, 1994 and December,
     1995, a total of 41,925 shares in payment of $38,750 in accrued interest on
     the debt it owed him. In December 1998, it paid $60,000 of this debt by the
     issuance of 30,000 additional shares to Mr. Bagatelle. The number of shares
     issued was based on negotiations between the parties at the time of
     issuance and the shares were treated as restricted securities, transferable
     only pursuant to SEC Rule 144. The transaction was exempt from registration
     under the Act by reason of Section 4(2) thereof.


11.  In February 1999, the Company acquired Mobile Air Systems Inc. from its
     owner, Robert Steed in part for 130,000 shares valued at $1.75, deemed by
     the parties to be their then fair market value. These shares were treated
     as restricted securities transferable only pursuant to SEC Rule 144. The
     transaction was exempt from registration under the Act by reason of Section
     4(2) thereof.

Item 11. Description of Registrant's Securities to be Registered

Common Stock

The Company is authorized to issue 10,000,000 shares of Common Stock, $.002 par
value. At June 30, 1999, there were 2,091,539 shares of Common Stock issued and
outstanding, owned by 61 stockholders of record. Based on its inquiries with the
market makers for the Common Stock, the Company believes there to be at least
250 beneficial owners holding their shares in brokerage accounts. The following
description of the Company's securities does not purport to be complete and is
subject to and qualified in its entirety by reference to the Certificate of
Incorporation and By-laws of the Company and the provisions of applicable law.

Each holder of Common Stock is entitled to all rights and privileges of holders
of common stock under Delaware law, which provides that: (1) such holders are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of legally available funds; (2) in the

                                      (22)
<PAGE>

event of the liquidation, dissolution or winding up of a corporation, such
holders are entitled to share ratably in all assets remaining after the payment
of liabilities and (3) such holders do not have preemptive rights or other

rights to subscribe for additional shares. There are no redemption or sinking
fund provisions applicable to the Common Stock. Each Common Stock holder has the
right to one vote for each share he owns. As there is no cumulative voting for
the election of directors or any other purpose, the persons holding a majority
of the outstanding shares voted in any election of directors will be able to
elect all directors. All outstanding shares of Common Stock are duly authorized,
validly issued, fully paid and non-assessable. All shares of Common Stock are
issued in registered form and are freely transferable, subject to applicable
securities laws and to restrictive agreements between the Company and the
holders of such shares.

Transfer Agent

The Transfer Agent for the Common Stock and Class A Warrants is OTC Corporate
Transfer Service Company, P.O. Box 501, Hicksville, New York 11801
(516-433-6503).

Item 12. Indemnification of Directors and Officers

Section 102(b)(7) of the Delaware General Corporation Law grants corporations
the right to limit or eliminate the personal liability of their directors for
monetary damages for breach of their fiduciary duty except for breaches of the
director's duty of loyalty to the corporation or its stockholders, for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, for certain transactions involving unlawful payments on
account of dividends or repurchase or redemption of the corporation's stock, and
for transactions in which the directors derive an improper personal benefit. The
Company's Certificate of Incorporation provides for the elimination of personal
liability of a director to the Company and its stockholders for monetary damages
for the breach of the director's fiduciary duty to the full extent allowable
under Section 102(b)(7).

Section 145 of the Delaware General Corporation Law grants corporations the
right to indemnify their directors, officers, employees and agents against
expenses, judgment, fines and other amounts paid pursuant to settlement of any
pending, completed or threatened legal action to which any of such persons
becomes a party by reason of the fact that he is or was a director, officer,
employee or agent of the corporation so long as the indemnity has acted in good
faith and in a manner he reasonably believes to be or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, has had no reasonable cause to believe that his conduct was
unlawful. The Company's Certificate of Incorporation provides for
indemnification of such persons to the full extent allowable under applicable
law.

                                      (23)
<PAGE>


Item 13. Financial Statements and Supplementary Data

See the attached financial statements listed in Item 15.

Item 14. Changes in Registrant's Certifying Accountants

The Company's consolidated financial statements were previously audited by
Cherry Bekaert & Holland LLP as of and for the year ended March 31, 1997 and by
Serotta Maddocks Evans & Co. as of and for the year ended March 31, 1998. The
Company in March, 1998 decided, with approval by the Board of Directors, to
dismiss Cherry Bekaert & Holland LLP and change to Serotta Maddocks Evans & Co.
On March 18, 1999, the Company, with the approval by the Board of Directors,
decided to change audit services from Serotta Maddocks Evans & Co. to Gifford,
Hillegass & Ingwersen, P.C. This decision was based on the fact that Serotta
Maddocks Evans & Co. does not provide audit services to SEC reporting entities.

The reports of Cherry Bekaert & Holland LLP and Serotta Maddocks Evans & Co.
over the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.

In connection with the audits for the two most recent fiscal years and through
March 18, 1999, there have been no disagreements with Cherry Bekaert & Holland
LLP or Serotta Maddocks Evans & Co. on any matter of accounting principles or
practices, financial statements disclosure, or auditing scope or procedure,
which disagreements if not resolved to the satisfaction of Cherry Bekaert &
Holland LLP and Serotta Maddocks Evans & Co. would have caused them to make
reference thereto in their report on the financial statements for such years.
There have been no reportable events during the two most recent fiscal years and
through March 18, 1999.








                                      (24)

<PAGE>

Item 15. Financial Statements and Exhibits

Financial Statements

Item                                                                    Page No.
- - ----                                                                    --------

Consolidated Balance Sheets as of June 30, 1999 and March 31, 1999        F-1
Consolidated Statement of Operations
  for the quarters ended June 30, 1999 and 1998                           F-3
Consolidated Statement of Cash Flows
  for the quarters ended June 30, 1999 and 1998                           F-4
Notes to Financial Statements                                             F-6
Report of Gifford Hillegass & Ingwersen, P.C.
  Independent Accountants                                                 F-7
Consolidated Balance Sheets as of March 31, 1998
  and March 31, 1999                                                      F-8
Consolidated Statement of Operations for the
  years ended March 31, 1997,  March 31, 1998 and March 31, 1999          F-10
Consolidated Statement of Changes in
  Shareholders' Equity for the years ended
  March 31, 1997, March 31, 1998 and March 31, 1999                       F-11
Consolidated Statement of Cash Flows for the year
  ended March 31, 1997, March 31, 1998 and March 31, 1999                 F-12
Notes to Financial Statements                                             F-14

Report of Serotta Maddocks Evans & Co., CPA's
  Independent Accountants                                                 F-28
Consolidated Balance Sheet as of March 31, 1998                           F-29
Consolidated Statement of Operations for the year ended March 31, 1998    F-30
Consolidated Statement of Changes in Shareholders' Equity
  for the year ended March 31, 1998                                       F-31
Consolidated Statements of Cash Flows for the year ended
  March 31, 1998                                                          F-32
Notes to Financial Statements                                             F-33

Report of Cherry Bekaert & Holland LLP, Independent Accountants           F-40
Consolidated Balance Sheet as of March 31, 1997                           F-41
Consolidated Statement of Operations for the year ended March 31, 1997    F-43
Consolidated Statement of Changes in Shareholders' Equity
  for the year ended March 31, 1997                                       F-44
Consolidated Statements of Cash Flows for the year ended
  March 31, 1997                                                          F-45
Notes to Financial Statements                                             F-46

Exhibits
- - --------

  2     * Mobile Air Systems, Inc., Purchase Agreement
  3(i)  * Certificate of Incorporation of the Company, as amended
  3(ii) * By-laws of the Company
   4.1  * Common Stock Certificate
   4.2  * Warrant Certificate
  10.1  * Employment Agreement between the Company and E.
           Samuel Evans dated April 26, 1996
  10.2.1* Rental  Agreement  between the Company and E.
           Samuel Evans dated  February  15, 1995
           covering the rental of manufactured home sales office
  10.2.2* Rental Agreement between the Company and
           E. Samuel Evans dated January 1, 1997 covering
           the rental of a manufactured home sales office
  10.3.1* Floorplan Contract - Transamerica
  10.3.2* Floorplan Contract - Bombardier Capital
  10.3.3* Floorplan Contract - Deutsche Finance
  10.3.4* Floorplan Contract - Regions Financial Corp.
  10.3.5* Floorplan Contract - First National Bank
  10.3.6* Floorplan Contract - First Bank
  10.4  * Equity Incentive Plan
  10.5  * Employee 401(k) Plan
  10.6.1* Minority Shareholder Agreement - Hardy Lanier
  10.6.2* Minority Shareholder Agreement - Chad Aycock
  10.6.3* Minority Shareholder Agreement - Carol Stratton
  11.1     Computation of Basic and Diluted EPS
  16.1  * Letter re changes in certifying accountants
           from Cherry, Bekaert & Holland, LLP
  16.2  * Letter re changes in certifying accountants
           from Serotta Maddocks Evans & Co., CPA'S
  21    * List of subsidiaries of the Company
  23.1  * Consent of Independent Accountants Cherry Bekaert & Holland, LLP
  23.2  * Consent of Independent Accountants
           Serotta Maddocks Evans & Co., CPA'S
  23.3  * Consent of Independent Accountants
           Gifford Hillegass & Ingwersen, P.C.
  27    * Financial Data Schedule - 3/31/99
  27.2  * Financial Data Schedule - 6/30/99

- - ----------
        * Previously Filed

                                      (24)
<PAGE>

<TABLE>
<CAPTION>


APPLE HOMES CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets
(Unaudited)

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

                               Assets
                                                                June 30, 1999            March 31, 1999
- - --------------------------------------------------------------------------------------------------------
<S>                                                              <C>                     <C>
Current assets
          Cash                                                   $   618,808              $   683,452
          Accounts receivable                                        933,080                  781,723
          Rebates receivable                                         454,915                  409,011
          Other receivables                                           76,442                   57,645
          Inventories                                              8,504,912                8,317,210
          Other current assets                                        87,107                   18,116
          Deferred taxes                                             101,431                  107,520
          Notes receivable, current portion                           57,720                  544,955
                                                                 -----------              -----------

                Total current assets                              10,834,415               10,919,632
                                                                 -----------              -----------

Property and equipment, net                                        1,332,540                1,235,876
                                                                 -----------              -----------

Other assets
          Notes receivable, net of current portion                   248,820                  184,215
          Deferred loan costs, net of accumulated
                amortization of $98,468 and $92,954                   83,811                   89,325
          Goodwill, net of accumulated amortization
                of $43,698 and $39,747                               454,237                  434,341
          Other assets                                                12,570                   43,195
                                                                 -----------              -----------

                Total other assets                                   799,438                  751,076
                                                                 -----------              -----------



          TOTAL ASSETS                                           $12,966,393              $12,906,584
                                                                 ===========              ===========


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

                                                     F-1
<PAGE>

APPLE HOMES CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets (Continued)
(Unaudited)


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

                      Liabilities and Stockholders' Equity
                                                                 June 30, 1999            March 31, 1999
- - --------------------------------------------------------------------------------------------------------

Current liabilities
          Floorplan payable                                     $  8,185,969              $  7,993,154
          Accounts payable                                           764,742                   746,969
          Sales tax payable                                          167,623                   170,749
          Accrued salaries and commissions                            82,819                    90,926
          Other accrued liabilities                                  180,372                   195,640
          Customer deposits                                          105,976                   132,037
          Income tax payable                                                                    18,826
          Due to minority stockholders                                30,980                    40,407
          Notes payable, current portion                              84,497                    87,933
                                                                ------------              ------------

                Total current liabilities                          9,602,978                 9,476,641
                                                                ------------              ------------

Long term liabilities
          Notes payable                                              988,330                 1,054,316
                                                                ------------              ------------

Minority interest in net assets of
          consolidated corporation                                    92,379                    84,517
                                                                ------------              ------------

Stockholders' equity
          Common stock, $.002 par value; authorized
                10,000,000 shares; 2,091,539
                 issued and outstanding                                4,183                     4,183
          Additional paid-in capital                               2,727,809                 2,727,809
          Retained deficit                                          (449,286)                 (440,882)
                                                                ------------              ------------

                Total stockholders' equity                         2,282,706                 2,291,110
                                                                ------------              ------------


          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY            $ 12,966,393              $ 12,906,584
                                                                ============              ============


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

                                           See accompanying notes
 .
                                                     F-2
<PAGE>


APPLE HOMES CORPORATION AND SUBSIDIARIES


Consolidated Statements of Operations
           (Unaudited)

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

                                                                                   Quarter ended June 30,
                                                                                 1999                  1998
- - ---------------------------------------------------------------------------------------------------------------

Net Sales                                                                     $ 9,140,675           $ 8,142,694
Cost of Sales                                                                   7,539,428             6,397,994
                                                                              -----------           -----------

      Gross Profit                                                              1,601,247             1,744,700
                                                                              -----------           -----------

Operating expenses
      Compensation                                                                807,694               718,532
      Occupancy and vehicle                                                        49,445               142,581
      Advertising                                                                 173,311               156,862
      Insurance                                                                    89,610                54,035
      Taxes and licenses                                                           94,933                59,575
      Professional fees                                                            48,155                34,242
      Guarantee Fees                                                               42,844                36,007
      Depreciation and amortization                                                31,008                29,773
      Utilities                                                                    72,737                66,546
      Office and lot                                                              176,644               156,749
      Travel, training and entertainment                                           17,663                67,730
      Rent and maintenance                                                        115,064                93,531
                                                                              -----------           -----------

             Total operating expenses                                           1,719,188             1,616,163
                                                                              -----------           -----------

             Operating income (loss)                                             (117,941)              128,537

Other income (expense)
      Finance participation                                                       153,917                41,322
      Rental income                                                                19,997                22,363
      Interest income                                                              17,850                22,987
      Commissions                                                                 104,689                32,000
      Other income (expense)                                                        7,781               (83,267)
      Interest expense                                                           (177,535)              (30,244)
                                                                              -----------           -----------

             Total other income (expense)                                         126,699                 5,161
                                                                              -----------           -----------

Income (loss) before income tax provision and minority interest                     8,758               133,698

Income tax (provision) benefit                                                     (6,413)                4,488

Minority interest in net (income) loss of consolidated subsidiaries               (10,749)               11,041
                                                                              -----------           -----------

             NET INCOME (LOSS)                                                $    (8,404)          $   149,227
                                                                              ===========           ===========




Per share data:
      Weighted average number of shares outstanding                             2,091,539             1,811,942

      Net income (loss) per share                                                  (0.004)                 0.07


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

                                               See accompanying notes.

                                                          F-3

<PAGE>


APPLE HOMES CORPORAITON AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)

Quarter ended June 30, 1999
- - ------------------------------------------------------------------------------------------------------

                                                         Additional           Retained
                              Number of     Common        Paid-in             Earnings
                               Shares        Stock        Capital             (Deficit)      Total
- - ------------------------------------------------------------------------------------------------------

Balance, March 31, 1999       2,091,539     $ 4,183      $2,727,809          $ (440,882)    $2,291,110

   Net loss                                                                      (8,404)        (8,404)
                              ---------     -------      ----------          ----------     ----------

Balance, June 30, 1999        2,091,539     $ 4,183      $2,727,809          $ (449,286)    $2,282,706
                              =========     =======      ==========          ==========     ==========




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



                                                See accompanying notes.

                                                        F-3(a)

</TABLE>
<PAGE>
<TABLE>
<CAPTION>


APPLE HOMES CORPORATION AND SUBSIDIARIES


Consolidated Statements of Cash Flows
           (Unaudited)


                                                             For the Quarter Ended June 30,
                                                             ------------------------------
                                                                    1999          1998
                                                                    ----          ----
<S>                                                              <C>          <C>
Cash flows from operating activities:
     Net income (loss)                                           $  (8,404)   $   149,227

     Adjustments to reconcile net income (loss) to net cash
       provided by (used in) operating activities
          Bad debt expense                                          14,374         24,040
          Deferred income taxes                                      6,089         17,715
          Depreciation and amortization                             31,088         29,773
          Issuance of common stock for
            professional services                                        0         74,000
          Issuance of common stock in lieu of
            payment of interest expense                                  0         38,750
          Minority interest in net income of
            consolidated subsidiary                                 10,749        (11,041)
     Change in assets and liabilities, net of effects from
       purchase of subsidiary
          Accounts receivable                                     (151,357)      (282,451)
          Other receivables                                        (64,701)       (17,832)
          Inventories                                             (103,062)    (1,083,549)
          Other current assets                                     (68,991)        87,131
          Notes receivable                                         323,616       (120,494)
          Other assets                                              30,625        (11,799)
          Floorplan payable                                        192,815      1,378,979
          Accounts payable                                          17,773        133,797
          Accrued expenses                                         (26,501)      (219,301)
          Customer deposits                                        (26,061)        76,456
          Other liabilities                                        (18,834)       (30,136)
                                                               -----------    -----------

               Net cash provided by operating activities           159,218        233,265
                                                               -----------    -----------

Cash flows from investing activities:
     Additions to property and equipment                           (30,373)       (76,682)
     Purchase minority ownership from shareholder                  (28,646)             0
                                                               -----------    -----------

               Net cash (used in) investing activities             (59,019)       (76,682)
                                                               -----------    -----------


                                          F-4
<PAGE>

                                                            For the Quarter Ended June 30,
                                                            ------------------------------
                                                                   1999         1998
                                                                   ----         ----

Cash flows from financing activities:
     Principal payments on notes payable                        $(157,328)   $ (38,101)
     Due to/from minority stockholders, net                        (7,515)     (54,225)
                                                                ---------    ---------

               Net cash (used) by financing activities           (164,843)     (92,356)
                                                                ---------    ---------

               Net increase (decrease) in cash                    (64,644)      64,227

Cash, beginning of quarter                                        683,452      922,176
                                                                ---------    ---------

Cash, end of quarter                                            $ 618,808    $ 986,403
                                                                =========    =========


Supplemental disclosure of cash flow information:

     Cash paid during the quarter for interest                  $ 175,634    $  40,999
                                                                =========    =========

     Cash paid during the quarter for income taxes              $  19,150    $       0
                                                                =========    =========

     Non cash investing and financing activities:
          Financed property and equipment purchases             $  87,906
          Repossessed mobile home units
            converted to inventory                                 84,640    $  70,000
          Note payable and interest converted to common stock           0       39,750
          Issuance of stock for professional services                   0       74,000


                               See accompanying notes



                                         F-5
</TABLE>
<PAGE>


                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - BASIS OF PRESENTATION

The unaudited financial information included in this report includes all
adjustments which are, in the opinion of management, necessary to reflect a fair
statement of the results for the interim periods presented. The operations for
the three months ended June 30, 1999 are not necessarily indicative of the
results of the full fiscal year. While certain information and footnote
disclosure normally included in financial statements prepared in accordance with
generally accepted accounting principles has been condensed or omitted pursuant
to the Securities and Exchange Commission rules and regulations governing Form
10-Q, the Company believes that the disclosures herein are adequate to make the
information presented not misleading. The condensed financial statements
included in this report should be read in conjunction with the audited financial
statements and notes thereto included in the Registrant's March 31, 1999 yearend
report included in the Form 10 filed with the SEC on July 16, 1999.

NOTE B - PURCHASE OF MINORITY INTEREST

In May, the Company purchased the minority ownership in one of its entities, Tim
Phillips Homes, Inc. The purchase price of $28,646 reduced the minority
ownership of the consolidated company and resulted in goodwill being recorded on
the books of $23,847. The Company now has three entities with minority ownership
still included in the consolidated corporation, and anticipates the buyout of
another minority owner in the near future.

NOTE C - NOTES RECEIVABLE

Notes receivable result from Company financial sales of manufactured homes. The
notes have remaining terms of one to thirty years and interest rates range from
8% to 15%. In May, 1999, the Company sold notes receivable with a face value of
$596,717 to a financing company for $481,605. The discount of $115,112 was
written off against the allowance for doubtful accounts of $148,277. Remaining
notes receivable at June 30, 1999 are net of an allowance for doubtful accounts
of $29,791.

Of the thirty-two notes, which were sold by the Company, nineteen notes have
recourse for twelve months, and thirteen notes were sold without recourse. The
conditions of the recourse allow the Company the option to make any payments on
the owners' behalf to avoid defaults in the loan and give the Company the right
to collect directly from the owners for any such payments made. No reserve has
been recorded for this recourse, as management believes the Company will be able
to collect on any outstanding payments.

NOTE D - SELECTED QUARTERLY FINANCIAL DATA

                        Quarter Ended June 30,
                         1999           1998
                         ----           ----
                  (in thousands except per share data)

Net sales                   9,141         8,143
Gross profit                1,601         1,745
Net income (Loss)              (8)          149
Earnings per share          (.004)         .007
                       ==========    ==========
Weighted average
  shares outstanding    2,091,539     1,811,942


                                      F-6
<PAGE>



                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors
Apple Homes Corporation and Subsidiaries
Evans, Georgia


     We have audited the accompanying  consolidated balance sheet of Apple Homes
Corporation  and  Subsidiaries  at March 31, 1999, and the related  consolidated
statements of operations,  changes in stockholders'  equity,  and cash flows for
the  year  then  ended.   These  consolidated   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  based on our  audit.  The
consolidated  financial  statements of Apple Homes  Corporation  as of March 31,
1998 were audited by other auditors whose report dated June 15, 1998 (except for
Notes 13 and 16, dated June 23, 1999) expressed an unqualified  opinion on those
statements.  The consolidated financial statements of Apple Homes Corporation as
of March 31, 1997 were audited by other auditors, whose report dated January 26,
1998 (except for Note 20, dated June 23, 1999) expressed an unqualified  opinion
on those  statements.  As  discussed in Note M to these  consolidated  financial
statements,  the consolidated  financial  statements for March 31, 1998 and 1997
have been adjusted to reflect correction of errors related to these years.

     We conducted  our audit in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects,  the financial position of Apple Homes
Corporation  and  Subsidiaries  as of March 31,  1999,  and the results of their
operations  and their  cash  flows for the year then  ended in  conformity  with
generally accepted accounting principles.




                                       /s/  Gifford, Hillegass & Ingwersen, P.C.
                                       -----------------------------------------
                                            GIFFORD, HILLEGASS & INGWERSEN, P.C.

Atlanta, GA
June 23, 1999

                                      F-7
<PAGE>
<TABLE>
<CAPTION>


APPLE HOMES CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets


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

                                         Assets
                                                                    March 31,
                                                           -------------------------
                                                              1999           1998
- - ------------------------------------------------------------------------------------

<S>                                                         <C>          <C>
Current assets
       Cash and cash equivalents                           $   683,452   $   922,176
       Accounts receivable                                     781,723       240,445
       Rebates receivable                                      409,011          --
       Other receivable                                         57,645       165,766
       Inventories (Notes C and F)                           8,317,210     5,251,617
       Other current assets                                     18,116        95,087
       Deferred taxes (Note J)                                 107,520        74,531
       Notes receivable, current portion (Note E)              544,955        42,883

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

            Total current assets                            10,919,632     6,792,505
                                                           -----------   -----------

Property and equipment, net (Notes D and H)                  1,235,876       402,160
                                                           -----------   -----------

Other assets
       Notes receivable, net of current portion (Note E)       184,215       679,761
       Deferred taxes (Note J)                                    --          78,102
       Deferred loan costs, net of accumulated
         amortization of $92,954 and $74,954                    89,325        87,050
       Goodwill, net of accumulated amortization
         of $39,747 and $29,979 (Note P)                       434,341       292,175
       Other assets                                             43,195          --
                                                           -----------   -----------

            Total other assets                                 751,076     1,137,088
                                                           -----------   -----------

       TOTAL ASSETS                                        $12,906,584   $ 8,331,753
                                                           ===========   ===========


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


                                       F-8
<PAGE>





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

                            Liabilities and Stockholders' Equity
                                                                  March 31,
                                                       -----------------------------
                                                            1999             1998
- - ------------------------------------------------------------------------------------

Current liabilities
       Floorplan payable (Note F)                       $  7,993,154    $  4,641,509
       Accounts payable                                      746,969         421,493
       Sales tax payable                                     170,749         207,009
       Accrued salaries and commissions                       90,926         230,799
       Other accrued liabilities                             195,640         309,490
       Customer deposits                                     132,037          96,704
       Income tax payable                                     18,826            --
       Due to minority stockholders                           40,407         128,440
       Notes payable, current portion (Notes G and H)         87,933         116,249
                                                        ------------    ------------

            Total current liabilities                      9,476,641       6,151,693
                                                        ------------    ------------

Long term liabilities
       Notes payable (Notes G and H)                       1,054,316         491,508
                                                        ------------    ------------

Minority interest in net assets of
       consolidated corporation                               84,517          79,496
                                                        ------------    ------------
Commitments and contingencies (Note O)

Stockholders' equity
       Common stock, $.002 par value; authorized
            10,000,000 shares; 2,091,539 and
            1,790,614 issued and outstanding                   4,183           3,581
       Additional paid-in capital                          2,727,809       2,150,661
       Retained deficit                                     (440,882)       (545,186)
                                                        ------------    ------------

            Total stockholders' equity                     2,291,110       1,609,056
                                                        ------------    ------------


       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $ 12,906,584    $  8,331,753
                                                        ============    ============




=====================================================================================
      The accompanying notes are an integral part of these financial statements.


                                       F-9

</TABLE>
<PAGE>
<TABLE>


APPLE HOMES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

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

                                                                                   Year ended March 31,
                                                                        1999               1998               1997
- - ----------------------------------------------------------------------------------------------------------------------

<S>                                                                 <C>                <C>                <C>
Net Sales                                                           $ 33,776,250       $ 25,615,535       $ 15,549,376
Cost of Sales                                                         27,849,088         20,543,498         12,327,352
                                                                    ------------       ------------       ------------

      Gross Profit                                                     5,927,162          5,072,037          3,222,024
                                                                    ------------       ------------       ------------

Operating expenses
      Compensation                                                     2,948,697          2,354,711          1,416,052
      Occupancy and vehicle                                              269,482            357,735            239,413
      Advertising                                                        639,072            352,610            194,151
      Insurance                                                          223,001            196,223            101,373
      Taxes and licenses                                                 301,447            296,081            140,489
      Professional fees                                                  125,805            219,417            147,383
      Depreciation and amortization                                       97,562             70,059             37,980
      Guarantee Fee                                                      147,560            159,019               --
      Utilities                                                          284,010            215,740            106,672
      Office and lot                                                     617,044            220,523            155,494
      Travel, training and entertainment                                 121,668             92,337             61,959
      Rent and maintenance                                               399,010            112,811              7,422
      Miscellaneous                                                         --              389,809            497,098
                                                                    ------------       ------------       ------------

           Total operating expenses                                    6,174,358          5,037,075          3,105,486
                                                                    ------------       ------------       ------------

           Operating income (loss)                                      (247,196)            34,962            116,538

Other income (expense)
      Finance participation                                              429,814            136,460               --
      Rental income                                                       92,200               --                 --
      Interest income                                                     88,140             27,137             49,457
      Commissions                                                        231,183            107,666             36,851
      Other income (expense)                                              17,528            380,082             (5,332)
      Interest expense                                                  (424,637)          (613,560)          (599,322)
                                                                    ------------       ------------       ------------

           Total other income (expense)                                  434,228             37,785           (518,346)
                                                                    ------------       ------------       ------------

Income (loss) before income tax provision and minority interest          187,032             72,747           (401,808)

Income tax (provision) benefit                                           (72,739)           116,114             33,333

Minority interest in net income of consolidated subsidiaries              (9,989)          (240,392)           (71,051)
                                                                    ------------       ------------       ------------

           NET INCOME (LOSS)                                        $    104,304       $    (51,531)      $   (439,526)
                                                                    ============       ============       ============


Per share data: (Note I)
      Weighted average number of shares outstanding                    1,925,012          1,491,423          1,109,669


      Net income (loss) per share                                   $       0.05       $      (0.03)      $      (0.40)




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

                  The accompanying notes are an integral part of these financial statements.

                                                                 F-10

</TABLE>
<PAGE>
<TABLE>


APPLE HOMES CORPORATION AND SUBSIDIARIES


Consolidated Statements of Changes in Stockholders'  Equity


Years Ended March 31, 1999, 1998, and 1997
===================================================================================================================================

                                                                                            Additional     Retained
                                                                 Number of      Common       Paid-in       Earnings
                                                                  Shares         Stock       Capital       (Deficit)       Total
- - -----------------------------------------------------------------------------------------------------------------------------------

<S>                                                              <C>         <C>           <C>           <C>            <C>
Balance, March 31, 1996                                          1,067,849   $     2,136   $   775,289   $   (54,129)   $   723,296

       Issuance of common stock                                     99,118           198        49,459          --           49,657

       Net loss                                                       --            --            --        (439,526)      (439,526)
                                                               -----------   -----------   -----------   -----------    -----------

Balance, March 31, 1997, as restated (a)                         1,166,967         2,334       824,748      (493,655)       333,427

       Issuance of common stock:
            Stock offering / services, as restated (a)             268,672           537       597,697          --          598,234
            Debt disposition                                       266,475           533       527,374          --          527,907
            Residential land and manufactured homes                 88,500           177       129,859          --          130,036
       Contributed Capital                                                                      70,983                       70,983

       Net loss, as restated (a)                                      --            --            --         (51,531)       (51,531)
                                                               -----------   -----------   -----------   -----------    -----------

Balance, March 31, 1998, as restated (a)                         1,790,614         3,581     2,150,661      (545,186)     1,609,056

       Issuance of common stock:
            Professional services                                   37,000            74        73,926          --           74,000
            Debt disposition                                       133,925           268       175,982          --          176,250
            Purchase of subsidiary                                 130,000           260       227,240          --          227,500

       Sale of warrants                                               --            --         100,000          --          100,000

       Net income                                                     --            --            --         104,304        104,304
                                                               -----------   -----------   -----------   -----------    -----------

Balance, March 31, 1999                                          2,091,539   $     4,183   $ 2,727,809   $  (440,882)   $ 2,291,110
                                                               ===========   ===========   ===========   ===========    ===========




(a)  Reference  Note M for  explanation  of restated  balances  and prior period adjustments.



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

                      The accompanying notes are an integral part of these financial statements.



                                                              F-11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


APPLE HOMES CORPORATION AND SUBSIDIARIES


Consolidated Statements of Cash Flows


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

                                                                                          For the Year Ended March 31,
                                                                             -----------------------------------------------
                                                                                 1999             1998              1997
- - ----------------------------------------------------------------------------------------------------------------------------

Cash flows from operating activities:
<S>                                                                          <C>               <C>               <C>
       Net income (loss)                                                     $   104,304       $   (51,531)      $  (439,526)

       Adjustments to reconcile net income (loss) to net cash
       provided by (used in) operating activities
            Bad debt expense                                                      51,101            21,324              --
            Bad debt recovery                                                       --             (76,602)             --
            Deferred income taxes                                                 45,113          (116,114)          (29,933)
            Depreciation and amortization                                         97,562            61,044            37,980
            Issuance of common stock for
              professional services                                               74,000              --              49,657
            Issuance of common stock in lieu of
              payment of interest expense                                         38,750              --                --
            Gain on sale of assets                                                  --            (190,137)           (2,500)
            Minority interest in net income of
              consolidated subsidiary                                              9,989           240,392            71,051
       Changes in assets and liabilities, net of effects
         from purchase of subsidiary:
            Accounts receivable                                                 (505,536)         (195,431)           73,726
            Other receivables                                                   (289,790)           98,686          (180,080)
            Inventories                                                       (2,767,830)         (830,859)       (2,215,125)
            Other current assets                                                  76,971           (86,250)           (1,988)
            Notes receivable                                                    (337,627)         (393,507)         (127,748)
            Other assets                                                         (15,356)           14,435            57,995
            Floorplan payable                                                  3,351,645           747,384         2,168,133
            Accounts payable                                                     310,524           (78,766)          359,826
            Accrued expenses                                                    (317,992)          458,980           182,533
            Customer deposits                                                     35,333            (9,968)           75,223
            Other liabilities                                                     18,826            (2,009)           27,009
                                                                             -----------       -----------       -----------

                  Net cash provided by (used in) operating activities            (20,013)         (388,929)          106,233
                                                                             -----------       -----------       -----------

Cash flows from investing activities:
       Additions to property and equipment                                      (257,783)         (144,986)         (161,803)
       Excess of cash acquired over cash paid for
         purchsed subsidiary                                                      44,805              --                --
       Proceeds from the sale of developed
         residential land and manufactured homes                                    --             292,000             2,500
       Advances to related entities                                                 --             132,999           (64,099)
                                                                             -----------       -----------       -----------

                  Net cash provided by (used in) investing activities           (212,978)          280,013          (223,402)
                                                                             -----------       -----------       -----------


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

                                                           F-12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>



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

                                                                                        For the Year Ended March 31,
                                                                            -----------------------------------------------
                                                                               1999               1998            1997
- - ---------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
<S>                                                                         <C>                <C>              <C>
     Principal payments on notes payable                                    $  (181,346)       $ (359,984)      $   (68,461)
     Proceeds from issuance of notes payable                                    188,889              --             907,555
     Payments made for loan cost                                                (20,275)             --                --
     Additions to deferred underwriting cost                                       --             (49,459)         (200,926)
     Proceeds from issuance of common stock and warrants                        100,000         1,002,860                 0
     Distributions paid to minority stockholders                                   --            (185,393)         (111,499)
     Due to/from minority stockholders, net                                     (93,001)          128,440              --
     Repayments on advances from officers                                          --             (19,000)          (34,082)
     Capital Contributions                                                         --              70,983              --
                                                                            -----------       -----------       -----------

                Net cash provided (used) by financing activities                 (5,733)          588,447           492,587
                                                                            -----------       -----------       -----------

                Net increase (decrease) in cash                                (238,724)          479,531           375,418

Cash, beginning of year                                                         922,176           442,645            67,227
                                                                            -----------       -----------       -----------

Cash, end of year                                                           $   683,452       $   922,176       $   442,645
                                                                            ===========       ===========       ===========



Supplemental disclosure of cash flow information:

     Cash paid during the year for interest                                 $   533,881       $   602,000       $   503,982
                                                                            ===========       ===========       ===========

     Cash paid during the year for income taxes                             $     8,770       $      --         $      --
                                                                            ===========       ===========       ===========

     Non cash investing and financing activities:

                Financed property and equipment purchases                   $   644,449       $    35,036       $      --
                Purchased subsidiary through
                  Issuance of common stock                                      227,500              --                --
                  Seller financing                                               20,000              --                --
                Repossessed mobile home units
                  converted to inventory                                        280,000              --                --
                Converted developed residential land to:
                     Inventory                                                     --             449,314              --
                     Property and equipment                                        --             132,477              --
                Note payable and interest converted to common stock              98,750            46,407              --
                Debentures converted to common stock                             77,500           481,500              --
                Issuance of stock for professional services                      74,000                 0            49,657
                Issuance of stock for services in connection with offering         --             150,000              --
                Developed residential land received in exchange for:
                     Accounts receivable                                           --              51,134              --
                     Notes receivable                                              --             210,591              --
                     Common stock                                                  --             130,036            54,700
                Transfer of deferred underwriting cost against
                  related capital contributio                                      --             404,611              --



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

                          The accompanying notes are an integral part of these financial statements.


                                                              F-13
</TABLE>
<PAGE>


                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------


NOTE A - NATURE OF BUSINESS

The principal  operations of Apple Homes  Corporation and its subsidiaries  (the
"Company") consist of the sale and installation of manufactured homes, primarily
in the southeastern  United States.  The subsidiaries of Apple Homes Corporation
consist of the following:


Name                                      Location             Percent Ownership
- - --------------------------------------------------------------------------------

Augusta Housing Center, Inc.          Augusta, Georgia                100%
Big Daddy's Mobile Homes, Inc.        Augusta, Georgia                 80%
Evans-Lanier, Inc.                    Thomson, Georgia                 80%
Apple Homes, Inc.                     Waynesboro, Georgia             100%
J. C. Homes, Inc.                     Augusta, Georgia                 80%
Tim Phillips Homes, Inc.              Thomson, Georgia                 80%
Mobile Air Systems, Inc.              Augusta, Georgia                100%

All  subsidiaries  conduct  business  in the name of Apple  Homes.  The  Company
extends customary trade terms to some of its customers,  all of whom are located
in the southeastern United States.


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation
The consolidated  financial  statements  include the accounts of the Company and
its wholly  owned and majority  owned  subsidiaries.  All material  intercompany
accounts and transactions are eliminated in consolidation.

Management Estimates
The  preparation of the  consolidated  financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and  assumptions  that affect the reported  amount of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and reported  amounts of revenues and expenses  during the reporting
period. Actual results could differ from those estimates.

Cash and Cash Equivalents
The Company considers all highly liquid investments with maturity dates of three
months or less to be cash equivalents.

Accounts Receivable
The Company uses the allowance method to provide for recognition of bad debt. As
of March 31, 1999 and 1998, there was no allowance  considered necessary against
accounts receivable.

                                      F-14

<PAGE>


                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventories
Inventories  are stated at the lower of cost or market and are determined  using
the specific  identification  method.  As referenced in Note C,  inventories are
inclusive of land held for resale.  Land and land  improvements  are recorded at
cost and are allocated to lots as land is subdivided.

Property and Equipment
Property and equipment are stated at cost.  Maintenance  and repairs are charged
to expense as incurred, and renewals and betterments are capitalized. Provisions
for  depreciation  are charged to income over the estimated  useful lives of the
assets using accelerated  methods of depreciation.

Deferred Loan Costs
Deferred loan costs related to the private placements of subordinated debentures
described in Note G are being  amortized  over the expected  life of the related
debt using a method that approximates the interest method.

Goodwill
Goodwill  represents the excess of acquisition  costs over the fair market value
of the net assets of acquired  subsidiaries.  Goodwill is being  amortized  on a
straight-line  basis over a period of thirty years.  In accordance  with APB 17,
"Intangible  Assets," the Company continues to evaluate the amortization  period
to  determine  whether  events or  circumstances  warrant  revised  amortization
periods.  The  Company  also  evaluates  goodwill  in  reference  to  SFAS  121,
"Accounting for the Impairment of Long-Lived Assets".

Customer Deposits
Customer  deposits  represent amounts received from customers in connection with
the sale of manufactured homes for which the closing of the sale transaction has
not been finalized.

Revenue Recognitions
The  Company  recognizes  revenue  on the sale of a  manufactured  home once the
customer is approved for credit and all closing documents have been executed and
any waiting period expired.

Rebates Receivable
The Company is eligible to participate in various  volume  incentive  plans with
manufacturers.  Once the Company meets the requirement of the incentive plan and
qualifies for the rebate, the receivable is recognized.

Advertising Costs
The Company expenses advertising costs as they are incurred.

Income Taxes
Income taxes are allocated among Apple Homes  Corporation  and its  subsidiaries
based upon their respective  separate taxable income or loss. Deferred taxes are
recognized  for  differences  between  the basis of assets and  liabilities  for
financial statement and income tax purposes. The differences relate primarily to
allowance for doubtful receivables  (deductible for financial statement purposes
but not for  income  tax  purposes),  inventory  capitalization  for  income tax
reporting,  and the  value of net  operating  losses  for tax  purposes  carried
forward from prior  years.  The  deferred  tax assets  represent  the future tax
return  consequences  of these  differences,  which will be deductible  when the
assets are recovered or settled.

                                      F-15

<PAGE>


                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Common Stock
As of March  31,  1999  the  Company  had  10,000,000  shares  of  common  stock
authorized of which  2,091,539 is issued and  outstanding.  Each share of common
stock is entitled to one vote. There are no restrictions or preferred provisions
regarding  dividends.  Reference  Note  N  regarding  stock  warrants  currently
outstanding.

Fair Value of Financial Instruments
The carrying amounts of cash,  receivables,  and payables approximate fair value
because  of the short  maturity,  generally  less than  three  months,  of these
instruments.  The carrying value of the Company's notes receivable  approximates
fair value because the majority of the  outstanding  balance was adjusted to the
sales price of the notes sold subsequent to year end as described in Note E. The
carrying value of the Company's  long-term debt  approximates fair value because
current market prices and the Company's current  incremental  borrowing rate are
not significantly different from the terms in the Company's debt portfolio.

Concentration of Credit Risk
The Company is subject to credit risk  through  trade and note  receivables  and
uninsured cash balances.  The majority of the Company's  business is from retail
trade of manufactured homes in the southeastern United States. Consideration was
given to this  concentration and the financial  position of these customers when
determining  the allowance  for doubtful  accounts.  Reference  Note O regarding
potential recourse liability. Cash is  placed in well capitalized,  high quality
financial  institutions.  The Federal Insurance  Corporation insures accounts at
each  institution  up to $100,000.  At March 31, 1999  balances in excess of the
$100,000 limit amounted to approximately $285,000.

Reclassifications
Certain 1998 and 1997 amounts  have been  reclassified  to conform with the 1999
presentation.  These  reclassifications  had no effect on net income or loss for
the years.


                                      F-16

<PAGE>



                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------


NOTE C - INVENTORIES

At March 31, 1999 and 1998, inventories consisted of:

                                                 1999                  1998
                                            ---------------      --------------
         New Manufactured Homes             $     7,377,858      $    4,537,876
         Repossessed Homes                          191,513                 -0-
         Used Manufactured Homes                    194,233             264,427
         Air Conditioning Units                      89,088                 -0-
         Land and Home Packages                     464,518             449,314
                                            ---------------      --------------
                                            $     8,317,210      $    5,251,617
                                            ===============      ==============


NOTE D - PROPERTY AND EQUIPMENT

At March 31, 1999 and 1998, property and equipment consisted of:

                                                  1999                1998
                                             -------------       -------------
         Land                                $     325,000       $         -0-
         Buildings                                 416,930             200,477
         Furniture and Fixtures                     86,194              56,604
         Vehicles                                  176,250              73,559
         Leasehold Improvements                    173,594                 -0-
         Machinery and Equipment                    34,337                 -0-
         Rental Units                              134,186             132,477
                                             -------------       -------------
                                                 1,346,491             463,117
         Less Accumulated Depreciation            (110,615)            (60,957)
                                             -------------       -------------
                                             $   1,235,876       $     402,160
                                             =============       =============

Property  and  equipment  are  depreciated  over  estimated  useful  lives using
accelerated  methods of depreciation.  The range of estimated useful lives is as
follows:

                                                  Years
                                                  -----

                        Buildings                 15-39
                        Furniture and Fixtures     5-7
                        Vehicles                    5
                        Leasehold Improvements    10-15
                        Machinery and Equipment    5-7
                        Rental Units              15-39


NOTE E - NOTES RECEIVABLE

Notes receivable result from Company financial sales of manufactured  homes. The
Company uses the allowance method to provide for recognition of bad debt related
to notes  receivable.  The notes have remaining terms of one to thirty years and
interest  rates range from 8% to 15%.  Subsequent to March 31, 1999, the Company
sold notes  receivable with a face value of $596,717 to a financing  company for
$481,605. The discount of $115,112 was recorded at March 31, 1999 and is part of
the  allowance  for  doubtful  accounts  of $148,277  at March 31,  1999.  Notes
receivable  at March 31, 1998 are net of an allowance  for doubtful  accounts of
$97,041.

Of the thirty-two  notes which were sold by the Company  subsequent to year end,
nineteen  notes have recourse for twelve  months,  and thirteen  notes were sold
without recourse. The

                                      F-17

<PAGE>


                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------


NOTE E - NOTES RECEIVABLE (continued)

conditions of the recourse  allow the Company the option to make any payments on
the owners'  behalf to avoid defaults in the loan and give the Company the right
to collect  directly from the owners for any such payments  made. No reserve has
been recorded for this recourse, as management believes the Company will be able
to collect on any outstanding payments.


NOTE F - FLOORPLAN PAYABLE

The Company has  maintained  a floorplan  line of credit of  $10,275,000  during
1999 and  $7,150,000  during 1998 with several  finance  companies for new homes
inventory. These credit lines are collateralized by the homes and are guaranteed
by an officer of the  Company.  Interest  rates  range from prime to prime + 2%,
depending on several factors,  including the number of days a home is on a sales
lot.  Of the  available  line,  $7,993,154  was  utilized  on March 31, 1999 and
$4,641,509 was utilized on March 31, 1998.

For the years  ended  March 31,  1999 and  1998 floorplan  interest  expense was
$385,394 and $404,814, respectively.


NOTE G - SUBORDINATED DEBENTURES

During the year ended March 31, 1994, the Company  completed a private placement
of seventeen debentures in the principal amount of $300,000.  The debentures are
due in 2003, pay interest  semi-annually  at 10.0%,  and are  convertible by the
holders  after  two  years  into  shares  of the  Company's  common  stock  at a
conversion  ratio of $1.25 per  share.  As of March  31,  1999,  $77,500  of the
original  debenture amount had been converted into 62,000 shares of stock.  None
of the debentures were converted during the year ended March 31, 1998.

In December 1998, the Company offered convertible  subordinated  debentures as a
private  placement  pursuant to Rule 504 of Regulation D of the 1933  Securities
Act. The offering is not to exceed $900,000.  As of March 31, 1999, $137,500 had
been issued to investors.  In April, 1999, an additional $65,000 was issued. The
debentures  are due five years from  their  date of issue.  They bear  interest,
payable  semiannually,  at a rate of 10% per annum.  They are  convertible  into
common stock of the Company at the conversion price of $5.00 per share.

The debentures are  subordinated  in right of payment to holders of senior debt,
including bank borrowings and floorplan financing.

                                      F-18

<PAGE>

                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------


NOTE H - NOTES PAYABLE

At March 31 1999, and 1998, notes payable consisted of the following:

                                                       1999             1998
                                                    ----------      -----------

Subordinated debentures (see Note G)                $  360,000       $  300,000

Note payable to Sun Trust with  interest
at 7.25%, monthly payments of $2,115 due
through  December  2001;  secured  by an
office building and personal guarantees
of the Company president and a director.               228,802              -0-

Note payable to  Southeastern  at 9.50%,
monthly  payments  of $2,663 due through
November 2013;  secured by land.                       252,393              -0-

Note payable to McDuffie  Bank &Trust at
10.25%,  monthly  payments of $1,830 due
through September 2000;  secured by land
and personal  guarantees  of the Company
president  and a  director.                            116,247          126,335

Note  payable  to a  stockholder  at 10%
interest, principal and accrued interest
of  $38,749  due  in   September   1998;
unsecured.                                                 -0-           85,000

Other  notes  payable  to banks  bearing
interest ranging from prime plus .85% to
18%  fixed,  monthly  payments  totaling
$4,566,  maturing between April 1999 and
November  2002;   secured  primarily  by
automobiles.                                           114,489           66,690


Other  notes  payable  bearing  interest
rates   ranging  from  4.9%  to  11.08%,
monthly payments  totaling $708 maturing
between November 2001 and February 2002;
secured by various equipment.                           22,111              -0-



                                      F-19

<PAGE>

                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------


NOTE H - NOTES PAYABLE (continued)

                                                       1999             1998
                                                    ----------       ----------
Unsecured note payable to an individual;
principal  and  interest at 10%,  due in
monthly  installments  of $1,062 through
November 2000                                       $   20,389       $   29,732

Other  unsecured  notes  payable  due in
full over the next year.                                27,818              -0-
                                                    ----------       ----------

                                                     1,142,249          607,757
Less current portion                                   (87,933)        (116,249)
                                                    ----------       ----------
                                                    $1,054,316       $  491,508
                                                    ==========       ==========


As of March 31, 1999 future maturities are as follows:

Year ending March 31, 1999

          2000                                      $   87,933
          2001                                          80,022
          2002                                         264,745
          2003                                          35,427
          2004                                         254,986
          2005 and thereafter                          419,136
                                                    ----------

                                                    $1,142,249
                                                    ==========


NOTE I - EARNINGS PER SHARE

Basic  earnings  (loss) per share is  computed  by  dividing  net income or loss
attributable  to  common  shares  by  the  weighted  average  of  common  shares
outstanding during the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were  exercised or  converted  into common  stock.  The  accompanying  financial
statements do not include diluted  earnings per share because  conversion of the
subordinated  debentures  described in Note G and exercise of the stock warrants
described in Note N are antidilutive for the years presented.


                                      F-20

<PAGE>

                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------

NOTE J - INCOME TAXES

For the years ended March 31, 1999,  1998,  and 1997 the income tax  (provision)
benefit consisted of:

                                   1999          1998             1997
                               -----------    ------------    -----------
       Current:
            Federal            $       -0-    $      -0-      $     -0-
            State                  (27,596)          -0-            -0-
                               -----------    ------------    -----------
                                   (27,596)          -0-            -0-
                               -----------    ------------    -----------
       Deferred:
            Federal                (38,372)         98,697         28,333
            State                   (6,771)         17,417          5,000
                               -----------    ------------    -----------
                                   (45,143)        116,114         33,333
                               -----------    ------------    -----------

                               $   (72,739)   $    116,114    $    33,333
                               ===========    ============    ===========

The  reconciliation  of reported  income tax (expense)  benefit to the amount of
income tax (expense)  benefit that would result from applying federal  statutory
tax rates to pretax income is as follows:





                                      F-21

<PAGE>

                   APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------


NOTE J - INCOME TAXES (continued)
<TABLE>
<CAPTION>

                                                            Year ended March 31,
                                       ------------------------------------------------------------------------
                                                 1999                      1998                       1997
                                       ----------------------     ---------------------      ------------------
                                        Balance          %         Balance          %         Balance       %
                                       ----------------------     ---------------------      ------------------
<S>                                    <C>             <C>        <C>             <C>        <C>           <C>
Statutory federal income tax           $ (63,891)      (34.0)     $ (24,734)      (34.0)     $ 136,615     34.0
State income tax, net of
    federal tax benefit                  (27,596)       (14.8)          -0-         -0-           -0-       -0-
Non deductible expenses                  (36,252)       (19.4)       (2,815)       (3.9)          -0-       -0-
Valuation allowance change                55,000         29.3       143,663       197.5       (103,282)    (25.7)
                                       ---------       ------     ---------    --------       --------    ------
                                       $ (72,739)       (38.9)    $ 116,114       159.6       $ 33,333       8.3
                                       =========       ======     =========    ========       ========    ======

The components of deferred tax assets were as follows:

                                                                  March 31,
                                               ----------------------------------------------
                                                    1999            1998            1997
                                               -------------   --------------  --------------
       Net operating loss carryforward         $      35,495   $      150,063  $      198,663
       Allowance for doubtful accounts                59,311           38,816          36,519
       Inventory capitalization                       12,714           18,754             -0-
                                               -------------   --------------  --------------
                                                     107,520          207,633         235,182
       Less valuation allowance                          -0-         (55,000)        (198,663)
                                               -------------   -------------   --------------
                                               $     107,520   $      152,633  $       36,519
                                               =============   ==============  ==============
</TABLE>

SFAS No. 109  requires a  valuation  allowance  to be  recorded  when it is more
likely  than  not  that  some or all of the  deferred  tax  assets  will  not be
realized.  At March 31,  1999,  due to improved  profitability  of the  Company,
management  determined  that it was more  likely  than not that  future  taxable
income would be  sufficient to enable the Company to realize all of its deferred
tax assets.  Accordingly,  no valuation allowance has been recorded at March 31,
1999. As of March 31, 1999,  the remaining net operating  loss  carryforward  of
approximately $88,000 will expire in varying amounts through 2012.


NOTE K - RELATED PARTY TRANSACTIONS

During the years ended March 31, 1999, 1998, and 1997 rent of $33,445,  $33,000,
and  $21,444,   respectively,  was  paid  to  an  officer  of  the  Company  for
month-to-month  leasing arrangements.  In addition,  the Company paid floor plan
guaranty  fees of $147,560  and  $159,019  during the years ended 1999 and 1998,
respectively,  to an officer.  The guarantee fees are based on 2% annual rate on
the  outstanding  floor plan balance each month and will continue as long as the
personal guarantee is required.

During the year ended March 31, 1999, the Company  employed the president's wife
in a consulting  capacity.  She decorated and furnished  manufactured homes that
the Company  sells to its retail  customers.  Related  compensation  amounted to
approximately  $153,000,  which included reimbursement of her direct expenses of
approximately $24,000.

The Company currently has four subsidiaries with minority shareholder  ownership
of 20%  each.  An  agreement  exists  which  allows  bonuses  to be  paid at the
discretion of  management.  There is no requirement to pay bonuses or dividends.
There is also a provision which allows for and encourages the buildup of working
capital.

                                      F-22

<PAGE>

                   APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------


NOTE K - RELATED PARTY TRANSACTIONS (continued)

During the year ended March 31, 1998 the Company received developed  residential
land from related parties,  (directors in the Company), in exchange for accounts
receivable of $51,134,  notes receivable of $210,591, and the issuance of common
stock of $130,036.


NOTE L - EQUITY INCENTIVE PLAN

In a prior year,  the  Company  approved an Equity  Incentive  Plan  designed to
attract  and  retain  key  employees.  The  Plan,  administered  by a  committee
appointed by the Board of Directors,  provides for stock options and other stock
based  awards to reward  employees,  as the  Committee  deems  appropriate.  The
Company  approved the allocation of up to 1,000,000 shares of common stock to be
used in the Plan. No stock has been awarded under this Plan.


NOTE M -- PRIOR PERIOD ADJUSTMENTS

The balance of retained  earnings  (deficit) at March 31, 1997 has been restated
to  correct  an  error  in  accounting.  The  retained  earnings  (deficit),  as
previously   reported  at  March  31,  1997  of  $(605,154)   was  inclusive  of
distributions  of $111,499  paid to minority  stockholders  of  partially  owned
subsidiaries  during  1997  which  should  have been  applied  against  minority
interest liability and not retained earnings. The effect of the correction is to
reduce the  retained  earnings  (deficit) at March 31, 1997 from  $(605,154)  to
$(493,655). This correction does not impact the previously reported net loss for
the year ended March 31, 1997.

The balances of retained earnings  (deficit),  paid-in capital and net income as
of and for the year ended March 31,  1998,  as  previously  reported,  have been
restated  to  correct  errors  in  accounting.  These  corrections  are based on
information  discovered subsequent to the original release of the March 31, 1998
financial statements. The corrections are summarized as follows:

                                      F-23


<PAGE>

                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>


NOTE M -- PRIOR PERIOD ADJUSTMENTS (continued)

                                                          Additional         Retained             Net
           Year Ended March 31, 1998                       Paid-in           Earnings            Income
           -------------------------                       Capital           (Deficit)           (Loss)
                                                         -----------       ------------       -------------
<S>                                                      <C>               <C>                <C>
Balance at beginning of year, as previously              $   824,748       $   (605,154)
   reported

   As previously reported:
        Prior period adjustment                                    -             93,145
        Issuance of common stock
            Stock offering/other cash                        659,306                  -
                                                                   -
            Debt disposition                                 484,467                  -
            Residential land and manufactured
                homes                                        129,859                  -

   Distributions paid to minority interest                         -           (240,392)

   Net income                                                      -            202,982        $ 202,982
                                                            ---------          --------        ---------
Balance at March 31, 1998, as previously
   reported                                                 2,098,380          (549,419)

   Correction of classification of 1997
        distributions to minority stockholders                      -           111,499

     Correction of:
        Prior period adjustment                                     -           (93,145)          (93,145)
        Valuation of stock issued for services,
             offering cost and contributions to
             capital                                           52,281                 -           (52,281)
        Revenue cut off, accrued expenses and
             minority interest                                      -                 -          (205,036)
        Income tax provision                                        -                 -            95,949
        Classification of 1998 distributions to
              minority stockholders                                 -           240,392                 -
                                                                                                ----------
              Total 1998 net income adjustments                                (254,513)         (254,513)
                                                           -----------       ----------         ----------
Balances at March 31, 1998, as restated                    $ 2,150,661       $ (545,186)        $ (51,531)
                                                           ===========       ==========         ==========
</TABLE>


                                                   F-24

<PAGE>



                   APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------


NOTE M -- PRIOR PERIOD ADJUSTMENTS (continued)

The net  effect  of the  adjustments  to net  income  noted  above was to change
earnings  per  share of  $0.14,  as  previously  reported,  to loss per share of
$(0.03).


NOTE N - WARRANTS

At March 31,  1999,  the  Company had  outstanding  Class A Warrants to purchase
2,913,872  shares of the Company's common stock at $6.50 per share. The warrants
expire on December 31, 2001.


NOTE O - COMMITMENTS AND CONTINGENCIES

At March 31, 1999, the Company was contingently liable for outstanding mortgages
placed with third party lenders on several homes that were  previously sold with
recourse for various limited periods of time. The original mortgages at the time
of sale were approximately $859,000.  Management estimates that the range of any
future possible loss if the owners default on these mortgages is between $86,000
and $129,000.  These  estimates are based on the Company's past  performance and
industry  averages for manufactured  homes that are repossessed and then resold.
These losses are expensed when incurred as normal operating cost.

The Company has several operating leases that are month to month contracts. Rent
expense for the years ended March 31, 1999, 1998 and 1997 totaled  approximately
$366,000, $213,000 and $82,000 respectively.


NOTE P -- ACQUISITIONS

On January 1, 1999, the Company acquired 100% of the issued outstanding stock of
Mobile Air Systems,  Inc. for $10,000 cash,  $20,000 note  payable,  and 130,000
shares of common  stock of Apple  Homes  Corporation  valued  at  $227,500.  The
transaction  was  accounted  for as a  purchase,  and  goodwill in the amount of
$181,051 was  recognized,  which is being  amortized over 30 years for financial
reporting.  The pro forma results on the  operations of the Company for the past
two years is insignificant.


NOTE Q - EMPLOYEE BENEFIT PLAN

The Company  sponsors a 401(k) Profit Sharing Plan. All individuals  employed on
March 15, 1999 were eligible to participate in the plan immediately. Individuals
employed  after  March 15,  1999 must  complete  six months of service  and have
attained  the  age of 21.  Eligible  employees  are  allowed  to  make  elective
deferrals of compensation to the plan in accordance with the 401(k)  provisions.
The Company may elect to make additional  contributions under the profit sharing
provisions of the plan. There were no Company contributions made to the plan for
the year ended March 31, 1999.

                                      F-25

<PAGE>



                   APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------


NOTE R - PENDING ACCOUNTING PRONOUNCEMENTS

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is effective
for all fiscal  quarters of all fiscal years beginning after June 15, 1999. This
Statement   establishes   accounting  and  reporting  standards  for  derivative
instruments  and  hedging  activities.  Management  does  not  believe  that the
adoption  of this  statement  will be  material  to the  consolidated  financial
statements.

In March 1998, the American  Institute of Certified  Public  Accountants  issued
Statement of Position ("SOP") 98-1, Accounting for the Cost of Computer Software
Developed  or Obtained  for  Internal  Use.  This SOP gives  guidelines  for the
capitalization or expensing of certain external and internal costs incurred when
developing  computer software for internal use. The SOP also gives guidelines as
to the amortization of the capitalized  cost. The SOP is effective for financial
statements for fiscal years beginning  after December 15, 1998.  Management does
not believe that the  adoption of this SOP will be material to the  consolidated
financial statements.

In April 1998, the American  Institute of Certified  Public  Accountants  issued
Statement  of  Position  ("SOP")  98-5,  Reporting  on  the  Costs  of  Start-Up
Activities.  This SOP provides  guidance on the financial  reporting of start-up
costs and  organizational  costs.  It requires costs of start-up  activities and
organization  costs  to be  expensed  as  incurred.  This SOP is  effective  for
financial  statements  for  fiscal  years beginning  after  December  15,  1998.
Management  does not believe  that the  adoption of this SOP will be material to
the consolidated financial statements.




                                      F-26

<PAGE>


                   APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------


NOTE S - SELECTED QUARTERLY FINANCIAL DATA  (UNAUDITED)
<TABLE>
<CAPTION>

                                                                   Quarter
                                      -------------------------------------------------------------
                                           1st              2nd              3rd             4th
                                      ------------     ------------    -------------    ------------
                                                    (In thousands except per share data)
       Year ended March 31, 1999

<S>                                   <C>              <C>             <C>              <C>
            Net sales                 $      8,143     $     10,490    $       7,307    $       7,836
            Gross profit                     1,745            1,677            1,109            1,396
            Net income (loss)                  149               20             (81)               16
            Earnings per share        $       0.07     $       0.01    $      (0.04)    $        0.01
                                      ============     ============    ============     =============
            Weighted average
              shares outstanding         1,811,942        1,897,756       1,913,517         2,077,506

       Year ended March 31, 1998

            Net sales                 $      5,957     $      6,408    $       5,794    $       7,457
            Gross profit                     1,196            1,163            1,037            1,676
            Net income (loss)                   61             (84)            (159)              130
            Earnings per share        $       0.05     $     (0.06)    $      (0.10)    $        0.07
                                      ============     ===========     ============     =============
            Weighted average
              shares outstanding         1,166,967       1,446,218        1,599,668         1,748,114


Earnings per share is computed independently for each of the quarters presented.
Therefore,  the sum of the quarterly earnings per share do not necessarily equal
the total for the year.


                                      F-27

</TABLE>
<PAGE>


                                                                             SME
                                                      --------------------------
                                                      SEROTTA
                                                      --------------------------
Report of Independent Certified Public Accountants    MADDOCKS
                                                      --------------------------
                                                      EVANS & CO., CPA'S
                                                      --------------------------
                                                      A Professional Corporation
                                                      --------------------------

The Board of Directors
Apple Homes Corporation
Augusta, Georgia

We have  audited  the  accompanying  consolidated  balance  sheet of Apple Homes
Corporation  and  Subsidiaries  (the  "Company")  as of March 31, 1998,  and the
related consolidated  statements of operations,  changes in stockholders' equity
and cash flows for the year then ended. These consolidated  financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of  Apple  Homes
Corporation  and  Subsidiaries  as of March 31,  1998,  and the  results  of its
operations  and cash flows for the year then ended in conformity  with generally
accepted accounting principles.

As discussed in Note 16 to the financial statements,  certain errors in reported
amounts  were  discovered  by  management  of  the  Company  subsequent  to  our
previously  issued  1998  report  dated  June 15,  1998.  Accordingly,  the 1998
financial statements have been restated to correct these errors.



/s/  Serotta Maddocks Evans & Co.
- - -----------------------------------
SEROTTA MADDOCKS EVANS & CO., CPA'S

Augusta, Georgia
June 15, 1998, except for Notes 13
and 16, as to which the date is June 23, 1999




- - --------------------------------------------------------------------------------
             701 Greene Street, Suite 200 / Augusta, GA 30901-2322
             Telephone (706) 722-5337 Telefax (706) 724-FAXX (3299)

                                      F-28

<PAGE>
                    APPLE HOMES CORPORATION AND SUBSIDIAREIS
                           CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 1998


ASSETS
CURRENT ASSETS
     Cash                                                           $   922,176
     Accounts receivable                                                240,445
     Other receivables                                                  165,766
     Inventories                                                      5,251,617
     Other current assets                                                95,087
     Deferred taxes                                                      74,531
     Notes receivable, current portion                                   42,883
                                                                    -----------
         Total Current Assets                                         6,792,505
                                                                    -----------
PROPERTY AND EQUIPMENT, NET                                             402,160
                                                                    -----------
OTHER ASSETS
     Notes receivable, net of allowance
      for bad debt of $97,041                                           679,761
     Deferred taxes                                                      78,102
     Deferred loan acquisition costs,
      net of accumulated amortization of $74,954                         87,050
     Goodwill, net of accumulated
      amortization of $29,979                                           292,175
                                                                    -----------
         Total Other Assets                                           1,137,088
                                                                    -----------
                                                                    $ 8,331,753
                                                                    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Floorplan payable                                              $ 4,641,509
     Accounts payable                                                   421,493
     Sales tax payable                                                  207,009
     Accrued salaries and commissions                                   230,799
     Other accrued liabilities                                          309,490
     Customer deposits                                                   96,704
     Due to minority stockholders                                       128,440
     Notes payable, current portion                                     116,249
                                                                    -----------
         Total Current Liabilities                                    6,151,693
                                                                    -----------
LONG-TERM LIABILITIES
     Notes payable                                                      491,508
                                                                    -----------
MINORITY INTEREST IN NET ASSETS
 OF CONSOLIDATED SUBSIDIARY                                              79,496
                                                                    -----------
STOCKHOLDERS' EQUITY
     Common stock, $.002 par value;
      authorized 10,000,000 shares;
      1,790,614 issued and outstanding                                    3,581
     Additional paid-in capital                                       2,150,661
     Retained deficit                                                  (545,186)
                                                                    -----------
         Total Stockholders' Equity                                   1,609,056
                                                                    -----------
                                                                    $ 8,331,753
                                                                    ===========

See notes to consolidated financial statements

                                       F-29

<PAGE>

                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                            YEAR ENDED MARCH 31, 1998


NET SALES                                                          $ 25,615,535
COST OF SALES                                                        20,543,498
                                                                   ------------
        Gross Profit                                                  5,072,037
                                                                   ------------

OPERATING EXPENSES
     Compensation                                                     2,354,711
     Occupancy and vehicle                                              357,735
     Advertising                                                        352,610
     Insurance                                                          196,223
     Taxes and licenses                                                 296,081
     Professional fees                                                  219,417
     Depreciation and amortization                                       70,059
     Utilities                                                          215,740
     Office and lot                                                     220,523
     Travel and entertainment                                            92,337
     Guaranty fees                                                      159,019
     Rent and maintenance                                               112,811
     Other                                                              389,809
                                                                   ------------
     Total Operating Expenses                                         5,037,075
                                                                   ------------
        Operating Income                                                 34,962
                                                                   ------------

OTHER INCOME (EXPENSE)
     Finance participation and other                                    516,542
     Interest income                                                     27,137
     Commissions                                                        107,666
     Interest expense                                                  (613,560)
                                                                   ------------
     Total Other Income (Expense)                                        37,785
                                                                   ------------
        Income Before Income Tax Provision
          and Minority Interest                                          72,747

INCOME TAX BENEFIT                                                      116,114

MINORITY INTEREST IN NET INCOME
OF CONSOLIDATED SUBSIDIARY                                             (240,392)
                                                                   ------------
        Net Loss                                                    $   (51,531)
                                                                   ============

Per share data:
    Weighted average number of shares outstanding                     1,491,423
    Net loss per share                                              $     (0.03)



See notes to consolidated financial statements


                                       F-30

<PAGE>
<TABLE>
<CAPTION>
                                             APPLE HOMES CORPORATION AND SUBSIDIARIES
                                                CONSOLIDATED STATEMENT OF CHANGES
                                                       IN STOCKHOLDERS' EQUITY
                                                      YEAR ENDED MARCH 31, 1998

                                                                                    Retained
                                                 Common            Paid-in           Earnings
                                                  Stock            Capital          (Deficit)             Total
                                                  -----            -------          ---------             -----

<S>                                             <C>               <C>               <C>                <C>
Balance, March 31, 1997                         $    2,334        $  824,748        $ (493,655)        $  333,427

Issuance of common stock:
  Stock offering/other cash                            537           597,697              --              598,234
  Debt disposition                                     533           527,374              --              527,907
  Residential land and manufactured homes              177           129,859              --              130,036
  Contribution of capital                                             70,893                               70,893

Net loss                                              --                --             (51,531)           (51,531)
                                                ----------        ----------        ----------         ----------

Balance, March 31, 1998                         $    3,581        $2,150,661        $ (545,186)        $1,609.056
                                                ==========        ==========        ==========         ==========
</TABLE>




See notes to consolidated financial statements


                                                          F-31

<PAGE>
                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                           YEAR ENDED MARCH 31, 1998


CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                       $   (51,531)
     Adjustments to reconcile net loss to net cash
       provided by (used in) operating activities
        Bad debt expense                                                 21,324
        Bad debt recovery                                               (76,602)
        Deferred income taxes                                          (116,114)
        Depreciation and amortization                                    61,044
        Gain on sale of developed residential
         land and manufactured homes                                   (190,137)
        Minority interest in net income of
         consolidated subsidiary                                        240,392
        Cash provided by (used in):
            Accounts receivables                                       (195,431)
            Rebates receivables                                          98,686
            Inventories                                                (830,859)
            Notes receivable                                           (393,507)
            Other assets                                                (71,815)
            Floorplan payable                                           747,384
            Accounts payable                                            (78,766)
            Accrued expenses                                            458,980
            Customer deposits                                            (9,968)
            Other liabilities                                            (2,009)
                                                                    -----------
                Net cash used in operating activities                  (388,929)
                                                                    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Additions to property and equipment                               (144,986)
     Proceeds from the sale of developed
      residential land and manufactured homes                           292,000
     Advances to related entities                                       132,999
                                                                    -----------
                Net cash provided by investing activities               280,013
                                                                    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Principal payments on notes payable                               (359,984)
     Proceeds from issuance of common stock                           1,022,860
     Additions to deferred underwriting cost                            (49,459)
     Capital contribution                                                70,983
     Distributions paid to minority stockholders                       (185,393)
     Due to minority stockholders                                       128,440
     Repayments on advances from officers                               (19,000)
                                                                    -----------
                Net cash provided by financing activities               588,447
                                                                    -----------

                Net increase in cash and cash equivalents               479,531

Cash and cash equivalents, beginning of year                            442,645
                                                                    ===========
Cash and cash equivalents, end of year                              $   922,176
                                                                    ===========

See notes to consolidated financial statements


                                      F-32
<PAGE>


                                                                             SME

                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 1 - NATURE OF BUSINESS
- - ---------------------------

The principal operations of Apple Homes Corporation and its subsidiaries (the
"Company") consist of the sale and installation of manufactured homes primarily
in the southeastern United States. The subsidiaries of Apple Homes Corporation
consist of the following:

Name                                    Location               Percent Ownership
- - --------------------------------------------------------------------------------
Augusta Housing Center. Inc.            Augusta, Georgia             100%
Big Daddy's Mobile Homes, Inc.          Augusta, Georgia              80
Evans-Lanier, Inc.                      Thomson, Georgia              80
Apple Homes, Inc.                       Waynesboro, Georgia           80
J. C. Homes, Inc.                       Augusta, Georgia              80
Tim Phillips Housing, Inc.              Thompson, Georgia             80
New Century Homes, Inc.                 Augusta, Georgia              80


All  subsidiaries  conduct  business  in the name of Apple  Homes.  The  Company
extends customary trade terms to some of its customers,  all of whom are located
in the southeastern United States.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ---------------------------------------------------

Consolidation
The consolidated  financial  statements  include the accounts of the Company and
its wholly  owned and majority  owned  subsidiaries.  All material  intercompany
accounts and transactions are eliminated in consolidation.

Management Estimates
The  preparation of the  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
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents
For purposes of the  statement of cash flows,  the Company  considers all highly
liquid  investments with original  maturities of three months or less to be cash
equivalents.

Receivables
The Company uses the allowance method to provide for recognition of bad debt.


                                       F-33
<PAGE>


                                                                             SME

                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- - ---------------------------------------------------

Inventory
Inventory is stated at the lower of cost or market and is  determined  using the
specific identification method.

Property and Equipment
Property and equipment are stated at cost.  Maintenance  and repairs are charged
to expense as incurred, and renewals and betterments are capitalized. Provisions
for  depreciation  are charged to income over the estimated  useful lives of the
assets using methods  applicable  for income tax  purposes,  which do not differ
significantly from generally accepted accounting principles.

Advertising Costs
The Company expenses advertising costs as they are incurred.

Income Taxes
Income  taxes are  accounted  for using the  asset and  liability  approach  for
financial  accounting and reporting  purposes.  Under that method,  deferred tax
assets and  liabilities  are  recognized for temporary  differences  between the
financial  statement  carrying  amounts  of  assets  and  liabilities  and their
respective  tax bases.  Deferred tax assets and  liabilities  are measured using
enacted  tax rates  expected  to apply to  taxable  income in the years in which
those temporary  differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

Net Income Per Share
Net income per share is computed by dividing net income by the weighted  average
number of shares  outstanding  during the year.  The weighted  average number of
shares used in the calculation of net income per share was computed based on the
actual  time  such  shares  were  outstanding  during  the year.  The  Company's
convertible  debentures  (see Note 8) meet the  criteria for  classification  as
common stock  equivalents.  Therefore,  they were included in the calculation of
weighted  average number of shares.  The Company's  Class A warrants do not meet
the criteria for  classification as common stock  equivalents.  Therefore,  they
were excluded from the calculation of weighted average number of shares.


NOTE 3 - INVENTORY
- - ------------------

At March 31, 1998, inventory consists of:

     New manufactured homes                       $ 4,537,876
     Used manufactured homes                          264,427
     Land and mobile home packages                    449,314
                                                  -----------
                                                  $ 5,251,617
                                                  ===========


                                       F-34


<PAGE>


                                                                             SME

                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 4 - PROPERTY AND EQUIPMENT
- - -------------------------------

At March 31, 1998, property and equipment consists of:

     Buildings  and  improvements                    $ 200,477
     Rental  mobile home units                         132,477
     Furniture  and  fixtures                           56,604
     Vehicles                                           73,559
                                                     ---------
                                                       463,117
     Less accumulated depreciation                     (60,957)
                                                     ---------
                                                     $ 402,160
                                                     =========


NOTE 5 - DEFERRED LOAN ACQUISITION COSTS
- - ----------------------------------------

The Company  incurred  costs related to the private  placement of its debentures
and the acquisition of bridge loans,  principally  during 1994. These costs have
been deferred and are being amortized over the expected life of the related debt
using a method that approximates the interest method.


NOTE 6 - GOODWILL
- - -----------------

Goodwill  is  being   amortized   over  a  period  of  thirty  years  using  the
straight-line method.


NOTE 7 - FLOORPLAN PAYABLE
- - --------------------------

The Company  maintains a $7.15  million  floorplan  line of credit with  several
finance companies for new homes inventory. These credit lines are collateralized
by the homes and personal  guarantee  from an officer of the  Company.  Interest
rates range from prime to prime + 4%,  depending on several  factors,  including
the  number  of  days a home  is on a lot.  The  finance  companies  also  offer
incentive packages back to the Company based on the volume of homes financed and
the turnover of inventory  financed.  Of the available line,  approximately $4.6
million was utilized on March 31, 1998.

For the year ended March 31, 1998,  floor plan interest  expense and  incentives
received were $404,814 and $136,460, respectively.




                                       F-35
<PAGE>


                                                                             SME

                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 8 - SUBORDINATED DEBENTURES
- - --------------------------------

During 1994, the Company  completed a private  placement of 17 debentures in the
principal  amount  of  $300,000.  The  debentures  are due  2003,  pay  interest
semi-annually  at 10.0%, and are convertible by the holders after two years into
shares of the Company's common stock at a conversion ratio of $l.25 per share.


NOTE 9 - NOTES PAYABLE
- - ----------------------

At March 31, 1998, notes payable consists of the following:

Note payable to First Union with interest at prime
  plus  1.50%,  payments  of $640.86 are due monthly
  through April 2000; secured by an automobile.                    $ 20,634


Note payable to First Union with interest at prime
  plus  1.50%,  payments  of $471.63 are due monthly
  through April 1999; secured by an automobile.                       6,133

Note  payable  to  an  individual;  principal  and
  interest at 10%,  due in monthly  installments  of
  $1,062 through November 2000; unsecured.                           29,732

Note  payable  to  McDuffie  Bank &  Trust  at 10%
  interest,  payments  of  $515.14  are due  monthly
  through  February 2002;  secured by a manufactured
  home.                                                              19,803

Note  payable  to  Regions  Bank at 10%  interest,
  payments  of  $552.56  are  due  monthly   through
  December 2001; secured by a vehicle.                               20,120

Note  payable to  McDuffie  Bank & Trust at 10.25%
  interest,  payments  of  $1,830  are  due  monthly
  through  September  2000;   secured  by  land  and
  personal guarantees of the Company president and a
  minority shareholder.                                             126,335

Debentures (See Note 8)                                             300,000

Note  payable to a  stockholder  at 10%  interest,
  principal  and accrued  interest of $38,749 due in
  September  1998;  unsecured.                                       85,000
                                                                  ---------
                                                                    607,757
Less current portion                                               (116,249)
                                                                  ---------
                                                                  $ 491,508
                                                                  =========


                                      F-36
<PAGE>


                                                                             SME

                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 9 - NOTES PAYABLE (continued)
- - ----------------------

Maturities are as follows:

            Year ending March 31,
            ---------------------
                    1999                                $ 116,249
                    2000                                   28,877
                    2001                                  153,392
                    2002                                    9,239
                    2003                                    --
             2004 and thereafter                          300,000
                                                        ---------
                                                        $ 607,757
                                                        =========


NOTE 10 - INCOME TAXES
- - ----------------------

At March 31, 1998, the income tax benefit consists of:

Current:
   Federal                                             $     --
   State                                                     --

Deferred:
   Federal                                                (98,697)
   State                                                  (17,417)
                                                       ----------
   Total                                               $ (116,114)
                                                       ==========

     The  reconciliation  of  reported  net income tax  benefit to the amount of
income tax expense that would result from applying  federal  statutory tax rates
to pretax income is as follows:

                                                 Amount              Percent
                                                 ------              -------

     Statutory federal income tax expense      $  24,734               34.0
     Valuation allowance change                 (143,663)            (197.5)
     Other                                         2,815                3.9
                                               ---------             ------
                                               $(116,114)            (159.6)
                                               =========             ======

     At March 31, 1998, the components of deferred tax assets were as follows:

     Net operating loss carryforward                     $150,063
     Allowance for uncollectible accounts                  38,816
     Inventory capitalization                              18,754
                                                         --------
                                                          207,633
     Less valuation allowance                             (55,000)
                                                         --------
                                                         $152,633
                                                         ========

     SFAS No. 109 requires a valuation  allowance to be recorded when it is more
likely  than  not  that  some or all of the  deferred  tax  assets  will  not be
realized.  At March 31,  1998,  management  has  determined  that a  reserve  is
necessary  until future  taxable  income is  sufficient to enable the Company to
realize all of its deferred tax assets.  At March 31, 1998,  the  remaining  net
operating loss  carryforward  of  approximately  $370,000 will expire in varying
amounts through 2012.

                                      F-37
<PAGE>


                                                                             SME

                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 11 - RELATED PARTY TRANSACTIONS
- - ------------------------------------

During the year ended March 31, 1998, rent of approximately  $33,000 was paid to
an officer of the Company for month-to-month leasing arrangements.  In addition,
floorplan guaranty fees of $159,019 were paid to an officer of the Company.


NOTE 12 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- - ----------------------------------------------------------

During the year ended March 31, 1998,  cash paid for interest was  approximately
$602,000.

During the year  ending  March 31,  1998,  the  following  noncash  transactions
occurred:
                                                                   Related
                                                  Amount       Party Transaction
- - --------------------------------------------------------------------------------

Received  developed  residential land in         $  51,134           Yes
  exchange for write-off of accounts
  receivable
Received developed residential land in             210,591           Yes
  exchange for write-off of notes
  receivable
Received  developed  residential land in           130,036           Yes
  exchange for issuance of common stock
Write-off  of a note payable in exchange            46,407           Yes
  for issuance of common stock
Write-off  prepaid  expense  to  related           404,611           No
  cash addition to paid-in capital
Assets purchased through financing                  35,036           No
  arrangements
Received underwriting services in exchange for
  issuance of common stock                         150,000           No
Converted developed residential land
  to inventory                                     449,314           No
Converted developed residental land
  to property and equipment                        132,477           No
Debentures converted to common stock               481,500           No


NOTE 13 - EQUITY INCENTIVE PLAN
- - -------------------------------

In a prior year,  the  Company  approved an Equity  Incentive  Plan  designed to
attract  and  retain  key  employees.  The  Plan,  administered  by a  committee
appointed by the Board of Directors,  provides for stock options and other stock
based awards to reward employees as the Committee deems appropriate. The Company
approved the allocation of up to 1,000,000  shares of common stock to be used in
the Plan. No stock has been awarded under this Plan.


NOTE 14 - CONCENTRATION OF CREDIT RISK
- - ---------------------------------------

The  Company  maintains  its cash  balances at several  financial  institutions.
Accounts at each institution are insured up to $100,000 by the Federal Insurance
Corporation.  At March 31, 1998, the Company's  uninsured cash balances  totaled
approximately $525,000.


                                       F-38
<PAGE>


                                                                             SME

                    APPLE HOMES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 15 - WARRANTS
- - ------------------

At March 31,  1998,  the  Company had  outstanding  Class A warrants to purchase
1,913,872  shares of the Company's common stock at $6.50 per share. The warrants
expire on December 31, 2001.


NOTE 16 - RESTATEMENTS
- - ----------------------

Certain  reclassifications  and errors of reported  amounts were  discovered  by
management of the Company  subsequent to our previously issued 1998 report dated
June 15,  1998.  Therefore,  the  financial  statements  have been  restated  as
follows:
<TABLE>
<CAPTION>

                                     March 31, 1998,                             March 31, 1998,
                                 as previously reported       Restatement         as restated
                                 ---------------------------------------------------------------
<S>                                  <C>                      <C>                 <C>
Assets                               $   8,148,089            $   183,664         $   8,331,753
Liabilities                              6,228,863                414,338             6,643,201
Minority interest in net assets
 of consolidated corporations              366,684               (287,188)               79,496
Stockholders' Equity                     1,552,542                 56,514             1,609,056
Sales                                   25,522,390                 93,145            25,615,535
Other operating expenses                 4,685,190                351,885             5,037,075
Interest expense                           521,838                 91,722               613,560
Income tax benefit                          20,165                 95,949               116,114

</TABLE>

                                      F-39

<PAGE>




               Report of Independent Certified Public Accountants


The Board of Directors
Mayfair Homes Corporation
Augusta, Georgia


We have audited the  accompanying  consolidated  balance sheets of Mayfair Homes
Corporation and Subsidiaries  (the "Company") as of March 31, 1997 and 1996, and
the related  consolidated  statements of  operations,  changes in  stockholders'
equity, and cash flows for the years then ended.  These  consolidated  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  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of Mayfair  Homes
Corporation  and  Subsidiaries as of March 31, 1997 and 1996, and the results of
their  operations  and their cash  flows for the years then ended in  conformity
with generally accepted accounting principles.

As discussed in Note 20 to the financial statements,  certain errors in reported
amounts  were  discovered  by  management  of  the  Company  subsequent  to  our
previously issued 1997 and 1996 report dated January 26, 1998. Accordingly,  the
1997 financial statements have been restated to correct these errors.



/s/  Cherry, Bekaert & Holland, LLP
- - -----------------------------------
Cherry, Bekaert & Holland, LLP

Augusta, Georgia
January 26, 1998, except for Note 20,
as to which the date is June 23, 1999

                                       F-40
<PAGE>



                   MAYFAIR HOMES CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                             March 31, 1997 and 1996


                                     ASSETS

                                                          1997           1996
                                                       ----------     ----------
Current assets
     Cash                                              $  442,645     $   67,227
     Trade receivables, net                                19,546         93,272
     Other receivables                                    245,497         65,417
     Inventory                                          3,971,444      1,790,894
     Advances to related entities                         132,999         68,900
     Current portion of notes receivable                  191,852         38,467
     Prepaid and other current assets                       8,837          6,849
     Deferred income taxes                                 29,109          3,186
                                                       ----------     ----------

              Total current assets                      5,041,929      2,134,212
                                                       ----------     ----------

Property and equipment
     Building and improvements                            172,859         74,792
     Vehicles                                              51,803          4,923
     Furniture and equipment                               48,517         31,661
                                                       ----------     ----------
                                                          273,179        111,376
     Less accumulated depreciation                         33,202         23,360
                                                       ----------     ----------

              Net property and equipment                  239,977         88,016
                                                       ----------     ----------

Developed residential land                                207,118        172,543
                                                       ----------     ----------

Other assets
     Notes receivable, net                                369,200        394,837
     Finance participation receivable, net                 18,955         23,055
     Deferred loan acquisition costs                      105,049        126,050
     Deferred underwriting costs                          355,152        154,226
     Goodwill                                             269,694        277,332
     Deferred income taxes                                  7,410          3,400
     Other                                                 14,435         68,330
                                                       ----------     ----------

              Total other assets                        1,139,895      1,047,230
                                                       ----------     ----------

              Total assets                             $6,628,919     $3,442,001
                                                       ==========     ==========





See notes to consolidated financial statements.



                                       F-41
<PAGE>




                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                       1997            1996
                                                   -----------      -----------

Current liabilities
     Floor plan payable                            $ 3,894,125      $ 1,725,992
     Accounts payable                                  500,259          140,433
     Accrued expenses                                  263,318           80,785
     Customer deposits                                 106,672           31,449
     Advances from officers                             19,000           53,082
     Current portion of notes payable                   52,085          113,561
     Short-term notes payable                          323,204           25,000
     Other liabilities                                  27,009             --
                                                   -----------      -----------

              Total current liabilities              5,185,672        2,170,302
                                                   -----------      -----------

Long-term liabilities
     Subordinated debentures                           300,000          300,000
     Notes payable                                     785,323          228,485
                                                   -----------      -----------

              Total long-term liabilities            1,085,323          528,485
                                                   -----------      -----------


Minority interest in net assets of
  consolidated subsidiary                               24,497           19,918
                                                   -----------      -----------



Stockholders' equity
     Common stock, $.002 par value;
      authorized 5,000,000 shares;
      issued and outstanding:
      1997 - 1,166,967; 1996
      1,067,849 shares                                   2,334            2,136
     Additional paid-in capital                        824,748          775,289
     Retained deficit                                 (493,655)         (54,129)
                                                   -----------      -----------

              Total stockholders' equity               333,427          723,296
                                                   -----------      -----------


              Total liabilities and
                stockholders' equity               $ 6,628,919      $ 3,442,001
                                                   ===========      ===========

                                       F-42
<PAGE>

                  MAYFAIR HOMES CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                       Years Ended March 31, 1997 and 1996


                                                      1997             1996
                                                  ------------     ------------

Net Sales                                         $ 15,549,376     $  8,442,228
     Less cost of sales                             12,327,352        7,028,488
                                                  ------------     ------------
              Gross profit                           3,222,024        1,413,740
                                                  ------------     ------------

Operating expenses
     Compensation                                    1,416,052          600,807
     Occupancy and vehicle                             239,413          133,931
     Advertising                                       194,151          101,667
     Insurance                                         101,373           60,779
     Taxes and licenses                                140,489           47,458
     Professional fees                                 147,383           42,510
     Depreciation and amortization                      37,980           35,982
     Other                                             828,645          211,310
                                                  ------------     ------------

              Total operating expenses               3,105,486        1,234,444
                                                  ------------     ------------

              Operating income                         116,538          179,296

Other income (expense)
     Commissions                                        36,851           30,004
     Rental and other                                   (5,332)           6,316
     Interest income                                    49,457           12,343
     Interest expense                                 (599,322)        (323,062)
                                                  ------------     ------------

              Other expense, net                      (518,346)        (274,399)
                                                  ------------     ------------

              Loss before income taxes and
                minority interest                     (401,808)         (95,103)

Income tax benefit                                      33,333            6,586

Minority interest in net income of
  consolidated subsidiary                              (71,051)          (4,917)
                                                  ------------     ------------

              Net loss                            $   (439,526)    $    (93,434)
                                                  ============     ============

Per share data:
     Weighted average number of
       shares outstanding                            1,109,669          946,264
     Net loss per share                           $       (.40)    $       (.10)
                                                  ============     ============


See notes to consolidated financial statements.

                                       F-43
<PAGE>
<TABLE>
<CAPTION>


                                    MAYFAIR HOMES CORPORATION AND SUBSIDIARIES

                                       CONSOLIDATED STATEMENTS OF CHANGES IN
                                               STOCKHOLDERS' EQUITY

                                        Years ended March 31, 1997 and 1996


                                                                                Retained
                                         Common              Paid-in            Earnings
                                          Stock              Capital            (Deficit               Total
                                          -----              -------            --------               -----

<S>                                     <C>                 <C>                 <C>                  <C>
Balance, March 31, 1994                 $   1,193           $ 315,425           $ (67,194)           $ 249,424
     Issuance of common stock                 510             212,490                --                213,000
     Net income                              --                  --               106,499              106,499
                                        ---------           ---------           ---------            ---------

Balance, March 31, 1995                     1,703             527,915              39,305              568,923
     Issuance of common stock                 433             247,374                --                247,807
     Net loss                                --                  --               (93,434)             (93,434)
                                        ---------           ---------           ---------            ---------

Balance, March 31, 1996                     2,136             775,289             (54,129)             723,296
     Issuance of common stock                 198              49,459              49,657
     Net loss                                --                  --              (439,526)            (439,526)
                                        ---------           ---------           ---------            ---------

Balance, March 31, 1997                 $   2,334           $ 824,748           $(493,655)           $ 333,427
                                        =========           =========           =========            =========

</TABLE>





See notes to consolidated financial statements.

                                                  F-44
<PAGE>
<TABLE>
<CAPTION>



                                    MAYFAIR HOMES CORPORATION AND SUBSIDIARIES

                                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   For the Years Ended March 31, 1997 and 1996

                                                                                 1997                 1996
                                                                             -----------          -----------
<S>                                                                          <C>                   <C>
Cash flows from operating activities
     Net loss                                                                $  (439,526)         $   (93,434)
     Adjustments to reconcile net loss to net cash
      provided by (used in) operating activities
         Minority interest in net income of consolidated subsidiary               71,051                4,918
         Depreciation and amortization                                            37,980               35,982
         Deferred income taxes                                                   (29,933)              (6,586)
         (Gain) loss on disposition of assets                                     (2,500)               6,055
         Professional services contributed                                        49,657                 --
         Cash provided by (used in):
              Trade receivables, net                                              73,726              (56,201)
              Other receivables                                                 (180,080)              (4,755)
              Inventory                                                       (2,180,550)             541,679
              Notes receivable, net                                             (127,748)             (25,699)
              Prepaid and other current assets                                    (1,988)              15,557
              Developed residential land                                         (34,575)                --
              Other assets, net                                                   57,995               15,321
              Floor plan payable                                               2,168,133             (634,273)
              Accounts payable                                                   359,826               31,407
              Accrued expenses                                                   182,533               12,139
              Customer deposits                                                   75,223                8,085
              Other liabilities                                                   27,009                 --
                                                                             -----------          -----------
              Net cash provided by (used in) operating activities                106,233             (149,805)
                                                                             -----------          -----------

Cash flows from investing activities
     Additions to property and equipment                                        (161,803)             (24,673)
     Advances to related entities                                                (64,099)             (64,176)
     Proceeds from disposition of property and equipment                           2,500               30,346
     Investment in sales locations opened subsequent to March 31, 1997              --                (25,000)
                                                                             -----------          -----------
              Net cash used in investing activities                             (223,402)             (83,503)
                                                                             -----------          -----------

Cash flows from financing activities
     Proceeds from issuance of common stock                                         --                108,000
     Proceeds from issuance of common stock of subsidiaries                            0               15,000
     Proceeds from issuance of notes payable                                     907,555              101,723
     Principal payments on notes payable                                         (68,461)             (73,102)
     Distributions paid to minority stockholders                                (111,499)                --
     Additions to deferred underwriting costs                                   (200,926)             (46,477)
     Proceeds from advances from officers                                           --                 49,515
     Repayments on advances from officers                                        (34,082)              (4,983)
                                                                             -----------          -----------
              Net cash provided by financing activities                          492,587              149,676
                                                                             -----------          -----------

              Net increase (decrease) in cash                                    375,418              (83,632)

Cash at beginning of year                                                         67,227              150,859
                                                                             -----------          -----------

Cash at end of year                                                          $   442,645          $    67,227
                                                                             ===========          ===========
See notes to consolidated financial statements.


                                                            F-45
</TABLE>

<PAGE>



                  MAYFAIR HOMES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             March 31, 1997 and 1996


Note 1 - The Company and Basis of Presentation

The principal  operations of Mayfair Homes Corporation and its subsidiaries (the
"Company")  consist of the sale and  installation of manufactured  homes and the
development of  residential  property for resale  primarily in the  southeastern
United  States.  The Company began  operations in October 1990. The wholly owned
subsidiaries  of Mayfair Homes  Corporation  consist of Augusta  Housing Center,
Inc. and Big Daddy's Mobile Homes,  Inc. During 1996,  Mayfair Homes Corporation
completed  the  purchase  of an 80%  interest  in  Evans-Lanier,  Inc.,  a sales
location in Thomson,  Georgia. During 1997, the Company began operations with an
80% interest in four new subsidiaries,  Apple Homes, Inc. (Augusta, Georgia), J.
C. Homes, Inc. (Augusta, Georgia), Deneaux Housing, Inc. (Waynesboro,  Georgia),
and Apple Homes of Tennessee,  Inc. (Johnson City, Tennessee).  All subsidiaries
conduct business in the name of Apple Homes. The Company extends customary trade
terms to some of its  customers,  all of whom are  located  in the  southeastern
United States.

Note 2 - Summary of Significant Accounting Policies

Consolidation
The consolidated  financial  statements  include the accounts of the Company and
its wholly  owned and majority  owned  subsidiaries.  All material  intercompany
accounts  and  transactions  are  eliminated  in  consolidation.  For 1996,  the
accounts of  Evans-Lanier,  Inc.  are  included  for the period from its date of
incorporation,  February 1, 1995,  through its year end,  December 31, 1995. The
effect on the  consolidated  financial  statements  of using a calendar year for
Evans-Lanier is not considered material.

During 1997, Evans-Lanier,  Inc. changed its fiscal year end from December 31 to
March 31 to coincide with the Company's  fiscal year end. For 1997, the accounts
of  Evans-Lanier,  Inc.  are  included for its fiscal year ended March 31, 1997.
Operations  of  Evans-Lanier,  Inc.  for the three month  period ended March 31,
1996, presented in summary form below, are immaterial and unaudited.



                               Evans-Lanier, Inc.
                             Selected Financial Data
                 For the Three Month Period Ended March 31, 1996
                 -----------------------------------------------

         Sales                                                   $691,892
         Cost of sales                                            568,364
                                                                 --------
              Gross profit                                        123,528
         Operating expenses                                        71,105
                                                                 --------

         Operating income                                          52,423
         Other expense, net                                        13,179
                                                                 --------

         Net income                                              $ 39,244
                                                                 ========

Management Estimates
The  preparation of the  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
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

                                       F-46
<PAGE>



                  MAYFAIR HOMES CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements - Continued

                             March 31, 1997 and 1996


Note 2 - Summary of Significant Accounting Policies (Continued)

Fair Value of Financial Instruments
Financial  instruments  held by the  Company  at March 31,  1997  include  cash,
accounts and notes receivable,  related party advances, floor plan, accounts and
notes payable and customer deposits.  Management believes that, based on current
interest rates and terms for  comparable  financial  instruments,  the estimated
fair value of the Company's  financial  instruments  approximated their carrying
values at March 31, 1997.

Receivables
The Company uses the allowance  method to provide for  recognition  of bad debt.
The Company's  allowance  for doubtful  accounts was $76,602 and $9,371 at March
31, 1997 and 1996, respectively.

Inventory
Inventory is stated at the lower of cost or market and is  determined  using the
specific identification method.

Property and Equipment
Property and equipment are stated at cost.  Maintenance  and repairs are charged
to expense as incurred, and renewals and betterments are capitalized.  Gains and
losses on disposals are credited or charged to operations.

Depreciation and Amortization
Provisions  for  depreciation  are charged to income over the  estimated  useful
lives of the assets  using  methods  applicable  for income  tax  purposes.  The
estimated useful lives of depreciable and amortizable assets are as follows:

                                                               Years
                                                               -----
     Building and improvements                                   15
     Vehicles                                                  3 - 5
     Furniture and equipment                                   3 - 7
     Goodwill                                                    40
     Deferred loan acquisition costs                              9
     Other intangible assets                                      5

Depreciation expense for the years ended March 31, 1997 and 1996 was $21,330 and
$9,007, respectively.

Income Taxes
Income  taxes are  accounted  for using the  asset and  liability  approach  for
financial  accounting and reporting  purposes.  Under that method,  deferred tax
assets and  liabilities  are  recognized for temporary  differences  between the
financial  statement  carrying  amounts  of  assets  and  liabilities  and their
respective  tax bases.  Deferred tax assets and  liabilities  are measured using
enacted  tax rates  expected  to apply to  taxable  income in the years in which
those temporary  differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

Net Loss Per Share
Net loss per share is  computed  by dividing  net loss by the  weighted  average
number of shares  outstanding  during the year.  The weighted  average number of
shares used in the  calculation  of net loss per share was computed based on the
actual  time  such  shares  were  outstanding  during  the year.  The  Company's
convertible debentures (see Note 10) do not meet the criteria for classification
as common stock equivalents.  Therefore, they were excluded from the calculation
of weighted average number of shares.

                                       F-47
<PAGE>



                  MAYFAIR HOMES CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements - Continued

                             March 31, 1997 and 1996


Note 2 - Summary of Significant Accounting Policies (Continued)

Future Impact of Recently Issued Accounting Standards
The  Financial  Accounting  Standards  Board  (FASB) has  issued two  accounting
standards  which the Company  will adopt during its fiscal year ending March 31,
1998.

Statement of Financial  Accounting Standards (SFAS) 128, "Earnings per Share" is
effective  for fiscal  years  ending after  December  15,  1997.  The  Statement
requires the presentation of basic earnings per share, which is calculated using
the weighted average number of outstanding  common shares,  and diluted earnings
per share,  which  incorporates  the  potential  dilution  from all  potentially
dilutive securities outstanding.

SFAS 129,  "Disclosure of Information about Capital Structure" is also effective
for fiscal years ending after December 15, 1997. This  Statement,  which applies
to all entities,  requires the disclosure of information  related to an entity's
securities, liquidation preference of preferred stock, and redeemable stock.

Management  has  determined  that  the  impact  on  the  Company's  consolidated
financial  statements  of adopting the  standards  discussed  above would not be
material.

Reclassifications
Certain  1996  amounts  have  been   reclassified   to  conform  with  the  1997
presentation. These reclassifications had no effect on net loss.

Note 3 - Notes Receivable

Notes receivable consists of the following:
                                                          1997           1996
                                                        --------      ---------

Receivable  from  individuals;   secured  by  real
estate;  due in monthly  installments of principal
and  interest at rates  ranging from 8.25% to 8.5%
with terms of 360 months                               $104,674      $    --

Receivable  from  minority  shareholders;  due  in
quarterly  payments  based on minority  interests'
share of net profits                                     56,830           --

Receivable  from an  individual;  secured  by real
estate;  due in monthly  installments of principal
and interest at 11.0% through December 19, 2006           --            50,000

Receivable  from  individuals;  secured  by mobile
homes;  due in monthly  installments  of principal
and interest at rates  ranging from 6.36% to 26.61
with terms from 12 to 240 months                        264,808        174,665



                                       F-48
<PAGE>



                  MAYFAIR HOMES CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements - Continued

                             March 31, 1997 and 1996


Note 3 - Notes Receivable (Continued)
                                                         1997          1996
                                                       --------      --------

Receivable from a company owned by a Director;
  secured by developed residential lots.
  Payments are in the form of lot releases
  upon sales of lots                                   $210,592      $218,010
                                                       --------      --------
              Total                                     636,904       442,675

     Less current portion                               191,852        38,467
                                                       --------      --------

     Long-term notes receivable                         445,052       404,208

     Less allowance for doubtful accounts              ( 75,852)     (  9,371)
                                                       --------      --------

              Net long-term notes receivable           $369,200      $394,837
                                                       ========      ========

Note 4 - Developed Residential Land

Developed  residential land primarily  consists of approximately 7 acres located
within Mayfair Acres subdivision in Richmond County, Georgia.

Note 5 - Finance Participation Receivable

The Company sold, in prior years, a portion of its mobile homes under a recourse
financing  plan. In doing so, it  participated in finance charges which are held
in reserve by the financing agent.  Payment of this reserve is contingent on the
customers  paying their  obligations.  The March 31, 1997 and 1996 receivable of
$18,955 and $23,055, respectively, is presented net of an allowance for doubtful
accounts of $19,500 and $15,990 at March 31, 1997 and 1996, respectively.

Note 6 - Deferred Loan Acquisition Costs

The Company  incurred  costs related to the private  placement of its debentures
and the acquisition of bridge loans  principally  during 1994.  These costs have
been deferred and are being amortized over the expected life of the related debt
using a method that approximates the interest method.

Note 7 - Deferred Underwriting Costs

The Company  incurred  certain  administrative  costs  related to its efforts to
raise capital, which culminated in a Rule 504 offering of common stock completed
subsequent  to year-end - See Note 19.  These  costs will be  deducted  from the
proceeds of the related offering.

Note 8 - Goodwill

Goodwill relates to the purchase of Augusta Housing Center, Inc. and Big Daddy's
Mobile Homes, Inc., the Company's wholly owned  subsidiaries,  and Evans-Lanier,
Inc., a majority owned subsidiary, and is being amortized over a period of forty
years using the straight-line method.

                                       F-49
<PAGE>

                  MAYFAIR HOMES CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements - Continued

                             March 31, 1997 and 1996


Note 8 - Goodwill (Continued)

At March 31, 1997 and 1996, goodwill and related amortization is as follows:

                                                           1997         1996
                                                         --------     --------
     Goodwill:
         Augusta Housing Center, Inc.                    $104,632     $104,632
         Big Daddy's Mobile Homes, Inc.                   138,405      138,405
         Evans-Lanier, Inc.                                50,000       50,000
                                                         --------     --------
                                                          293,037      293,037
                                                         --------     --------
     Accumulated amortization:
         Augusta Housing Center, Inc.                      10,463        7,847
         Big Daddy's Mobile Homes, Inc.                    10,380        6,920
         Evans-Lanier, Inc.                                 2,500          938
                                                         --------     --------
                                                           23,343       15,705
                                                         --------     --------

                                                         $269,694     $277,332
                                                         ========     ========
Note 9 - Other Assets

     Other assets consists of the following:  1997
     1996 Option to purchase 10 houses and lots in
     The  Timbers  subdivision,  acquired  through
     issuance of 136,000  shares of the  Company's
     stock.  Purchase  price  for the 10  homes is
     $200,000,  with  closing  to  occur  upon the
     successful completion of the public offering.       $   --       $ 39,984

     Investment   in   sales   locations    opened
     subsequent to March 31, 1996                                       25,000

     Other miscellaneous                                   14,435        3,346
                                                         --------     --------

                                                         $ 14,435     $ 68,330
                                                         ========     ========
Note 10 - Subordinated Debentures

During 1994 the Company  completed a private  placement of 17  debentures in the
principal  amount  of  $300,000.  The  debentures  are due  2003,  pay  interest
semi-annually  at 10.0%, and are convertible by the holders after two years into
shares of the Company's common stock at a conversion ratio of $1.25 per share.

Note 11 - Notes Payable

Short-term notes payable consists of the following:
                                                           1997        1996
                                                         --------   ----------

     Promissory   notes  payable  to  individuals;
     principal  and  interest  at 10% due June 30,
     1997.                                               $115,000   $     --

     Bridge loan from a  shareholder;  interest at
     10%; due on demand; unsecured.                        85,000         --

     Payable on demand to a shareholder;  interest
     at 10%; unsecured.                                    25,000       25,000

     Note payable to a shareholder;  principal and
     interest at 10% due May 14, 1997; unsecured.          25,000         --

                                       F-50
<PAGE>



                  MAYFAIR HOMES CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements - Continued

                             March 31, 1997 and 1996


Note 11 - Notes Payable (Continued)
                                                          1997         1996
                                                       ----------   ----------

     Note  payable to a bank;  due  September  24,
     1997;   interest  at  11%;  secured  by  real
     estate.                                           $   25,085    $   --

     Note  payable at a bank;  due  September  25,
     1997; interest at 9.25%; unsecured.                   48,119        --
                                                       ----------    ---------

         Short-term notes payable                      $  323,204    $  25,000
                                                       ==========    =========

Long-term liabilities consists of the following:
                                                          1997          1996
                                                       ----------    ---------
Promissory notes payable to individuals; principal
   and  interest  at 10% due  originally  June 30,
   1997.  Amount  was  subsequently  converted  to
   common stock. See Note 19.                         $   485,000    $   --
Payable  to  a  financial   institution  at  rates
   ranging  from 10.25% to 10.75%;  due in monthly
   installments through March 1998; unsecured               3,478      10,776
Bridge loan from a  shareholder;  interest at 10%;
   $50,000 due March 31, 1997; $35,000 convertible
   into common stock at $2 per share, due December
   27, 1997; unsecured                                      --         85,000
Bridge loan from a bank; principal and interest at
   10.25% payable  monthly  beginning  April 1994;
   balloon   payment   extended  to  August  1997;
   secured by land                                        146,550     173,328
Subordinated  debentures  payable to  individuals;
   interest at 10% payable semi-annually; due 2003        300,000     300,000
Mortgages to a financial institution;  interest at
   11%; due in monthly installments through August
   1997; secured by a mobile home                         117,597       8,508

Note  payable  to  an  individual;  principal  and
   interest at 10%; due in monthly installments of
   $1,062 through November 2000; unsecured                 39,729      47,711
Payable to a financial institution;  principal and
   interest  at prime  plus 1.5%  payable  monthly
   beginning May 1997 through April 2001;  secured
   by a vehicle                                            25,018        --

Payable to a financial institution;  principal and
   interest  at prime  plus 1.5%  payable  monthly
   beginning May 1997 through April 1999;  secured
   by vehicles                                             20,036        --


Payable  to a  bank;  principal  and  interest  at
   9.25%;  due  in  monthly  installments  through
   February 2001; secured by model home in Mayfair
   Acres subdivision                                        --         16,723
                                                        ---------    --------
         Total                                          1,137,408     642,046
     Less current portion                                  52,085     113,561
                                                        ---------    --------

     Long-term notes payable and
      subordinated debentures                          $1,085,323    $528,485
                                                       ==========    ========

                                       F-51
<PAGE>



                  MAYFAIR HOMES CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements - Continued

                             March 31, 1997 and 1996


Note 11 - Notes Payable (Continued)

The Company's long-term liabilities mature as follows:

     Year ending March 31,
     ---------------------
              1998                                     $   52,085
              1999                                         52,236
              2000                                         46,338
              2001                                        187,016
              2002                                         14,733
         2003 and thereafter                              785,000
                                                       ----------

                                                       $1,137,408
                                                       ==========
Note 12 - Income Taxes

Income tax expense (benefit) in 1997 and 1996 is summarized as follows:

                                                     1997             1996
                                                   --------         --------
         Current taxes:
           Federal                                $     --         $    --
           State                                        --              --
                                                  ----------       ----------
                                                        --              --
                                                  ----------       ----------
         Deferred taxes                            (  33,333)        (  6,586)
                                                  ----------       -----------

            Total income tax benefit              $(  33,333)      $ (  6,586)
                                                   =========        =========

The following is a  reconciliation  of Federal income taxes for 1997 and 1996 at
the Federal statutory rate with Federal income taxes recorded by the Company:

                                                      1997            1996
                                                   ---------        --------

     Computed income taxes at the
      Federal statutory rate                       $(136,615)       $(20,585)
     Losses not available for carryback              136,615          20,585
                                                   ---------        --------

     Income tax expense (benefit)                  $   --           $  --
                                                   =========        ========

Deferred tax assets at March 31, 1997 and 1996 consist of the following:

                                                     1997              1996
                                                   ---------        ---------

    Operating loss carryforwards                   $ 198,663        $  46,681
    Allowance for uncollectible accounts              36,519            6,586
                                                   ---------        ---------
                                                     235,182           53,267
    Less valuation allowance                        (198,663)       (  46,681)
                                                   ---------        ---------

    Net deferred tax asset                         $  36,519        $   6,586
                                                   =========        =========

At  March  31,  1997,  the  Company  had net  operating  loss  carryforwards  of
approximately $522,800, which will expire in various periods through 2012.

                                       F-52
<PAGE>



                  MAYFAIR HOMES CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements - Continued

                             March 31, 1997 and 1996


Note 13 - Operating Leases

The  Company  leases  office  space,  lot  space  and  certain  equipment  under
short-term  operating  leases.  Rent  expense  under  these  leases  amounted to
$239,413 and $110,366 in 1997 and 1996, respectively.

Note 14 - Related Party Transactions

Related party advances consist of the following:

<TABLE>
<CAPTION>
                                                                             1997                       1996
                                                                    ----------------------    -----------------------
                                                                    Receivables    Payables   Receivables    Payables
                                                                    -----------    --------   -----------    --------

<S>                                                                  <C>            <C>
     Receivable from a company owned by a Director of
      the Company                                                     $  51,134    $   --      $ 37,448      $   --
     Receivable from a partnership in which the Chairman
      of the Company owns a 50% interest                                 77,311        --        26,728          --
     Receivable from the President of the Company                         4,554        --         4,724          --
     Payable to a partnership in which the Company owns a
      minority interest                                                    --          --           --         8,165
     Payable to the wife of the Chairman of the Company                    --         9,000         --        24,917
     Payable to the President of the Company                               --        10,000         --        20,000
                                                                      ---------    --------    ---------     -------

         Total related party advances                                  $132,999    $ 19,000    $  68,900     $53,082
                                                                      =========    ========    =========     =======
</TABLE>

During  1995 the  Chairman's  wife  purchased  the  sales  office  at one of the
locations  and leases the sales office back to the Company for $625 per month on
a month-to-month basis.

Two of the  Company's  sales  offices  are owned by the  President.  The Company
leases the offices on a month-to-month basis for $1,787 per month.

Note 15 - Reverse Stock Split

On March 6, 1996 the Company's Board of Directors approved a one-for-two reverse
split of the Company's outstanding common stock. The effect of the reverse split
was to  decrease  the number of  outstanding  common  shares from  2,135,694  to
1,067,849 and to increase the par value from $.001 to $.002.

Note 16 - Supplemental Disclosure of Cash Flow Information

Cash paid for  interest  was $503,982 and $300,029 for the years ended March 31,
1997 and 1996, respectively.

During the year ended March 31, 1996,  the Company  recorded a receivable in the
amount of $4,724 related to the sale of a vehicle to the Company's President.

Asset additions through financing  arrangements  totaled $22,242 during the year
ended March 31, 1996. There were no such arrangements during 1997.

The Company recognized  goodwill in the amount of $50,000 in 1996 related to its
purchase of an 80% interest in Evans-Lanier, Inc. (see Note 1).

                                       F-53
<PAGE>


                  MAYFAIR HOMES CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements - Continued

                             March 31, 1997 and 1996


Note 16 - Supplemental Disclosure of Cash Flow Information (Continued)

During the year ended March 31, 1996, the Company  purchased a model home in its
Mayfair  Acres  subdivision  from a Director  in exchange  for 46,147  shares of
stock. The home is carried in the Company's consolidated financial statements at
March 31, 1996 at the purchase price of $54,700.  During 1997, the home was sold
to a third party.

Note 17 - Amendment of Certificate of Incorporation

On April 26,  1996 the Company  amended  its  Certificate  of  Incorporation  to
increase the authorized  capitalization to 10,000,000 shares of common stock and
to increase the par value to $.002.

Note 18 - Equity Incentive Plan

On April 26, 1996 the Company  rescinded its 1993 Stock Option Plan and approved
a new Equity  Incentive Plan designed to attract and retain key  employees.  The
Plan, administered by a committee appointed by the Board of Directors,  provides
for stock  options  and other  stock  based  awards to reward  employees  as the
Committee  deems  appropriate.  The Company  approved  the  allocation  of up to
1,000,000 shares of common stock to be used in the Plan. No shares of stock were
used in the 1993 Stock Option Plan.

Note 19 - Subsequent Events

Subsequent  to March 31, 1997 the  Company  converted  $485,000 of its  $600,000
short-term  promissory  notes to  common  stock at a rate of $2 per  share.  The
remaining $115,000 plus accrued interest was repaid by the Company.

Subsequent to March 31, 1996 the Company  completed the sale of 200,000 Units of
$5 per Unit.  Each Unit  consisted  of one share of common  stock and one Common
Stock Purchase Warrant, each to purchase one share of the Company's common stock
at $6.50 per share. The warrants are exercisable until December 31, 2001.

Note 20 - Retained earnings and minority interest

In  previously  issued  financial  statements,  dividends  of  $111,499  paid to
minority  interest  shareholders  during  the year  ended  March  31,  1997 were
incorrectly  shown as a reduction  of  retained  earnings.  In the  accompanying
financial  statements,  retained  earnings  has been  restated  to  exclude  the
minority  interest  dividends,  and  the  dividends  have  been  charged  to the
liability account "Minority interest in net assets of consolidated subsidiary."

                                       F-54

<PAGE>

                                   SIGNATURES


     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment Number 1 to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized.




                                             APPLE HOMES CORPORATION

                                             By: /s/  E. Samuel Evans
                                                 -------------------------------
                                                 E. Samuel Evans, President

                                             Date: September 10, 1999
                                                   -----------------------------



                                      (25)




                                                                    Exhibit 11.1

                            Apple Homes Corporation
                         Earnings per share calculation
                                 June 30, 1999


Basic EPS:
  Income available to common stockholders                             (8,404)

  Weighted average # of shares outstanding                         2,091,539
                                                                   ---------

      Basic EPS                                                       (0.004)
                                                                   =========

Diluted EPS:
  Income available to common stockholders                             (8,404)

  Adjusted for 10% interest charge on
    convertible debentures                                            10,083

  Adjusted for income tax effect @ 40.00%                               (672)
                                                                   ---------

  Diluted income available to common stockholders                      1,007

  Diluted weighted average # of shares outstanding                 2,312,039
                                                                   =========

       Diluted EPS                                                    0.0004
                                                                   =========
                                                                 antidilutive



© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission