APPLE HOMES CORP INC
10-Q/A, 1999-12-27
MOBILE HOME DEALERS
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QA
                                  Amendment #1

(Mark One)
( X )    Quarterly Report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 For the Quarterly Period Ended:

                               SEPTEMBER 30, 1999

                                       OR

(   )    Transition Report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934
         For the Transition Period from _____________ to ______________.

                         Commission File Number 0-22045

                             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 office)                            (Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.

                  YES   X                         NO
                      -----                          -----

As of September 30, 1999, there were 2,091,367 shares of Common Stock
outstanding.


<PAGE>



                             APPLE HOMES CORPORATION
                                    FORM 10-Q

                                      INDEX



                                                                      Page
                                                                     Number
                                                                     ------

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements
         Consolidated Balance Sheets at September 30,
         1999 and March 31, 1999 (Unaudited)                           2

         Consolidated Statements of Operations for the
         Quarter ended September 30, 1999 and 1998 and
         the Six Months ended September 30, 1999 and
         1999 (Unaudited)                                              4

         Consolidated Statements of Changes in Stockholders'
         Equity for the Six Months Ended September 30, 1999
         (Unaudited)                                                   5

         Consolidated Statements of Cash Flows for the Six
         Months ended September 30, 1999 and 1998
         (Unaudited)                                                   6

         Notes to Consolidated Financial Statements (Unaudited)        8

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                           9

PART II. OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders          16

Item 6.  Exhibits and Reports on Form 8-K                             16


<PAGE>



                         PART I - FINANCIAL INFORMATION


Item 1.  Financial Statements


APPLE HOMES CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets
      (Unaudited)

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

                                     Assets
                                                      September 30,    March 31,
                                                          1999            1999
- - --------------------------------------------------------------------------------

Current assets
      Cash                                             $   682,051   $   683,452
      Accounts receivable                                  871,198       781,723
      Rebates receivable                                   233,802       409,011
      Other receivables                                     80,455        57,645
      Inventories                                        9,306,609     8,317,210
      Other current assets                                 121,852        18,116
      Deferred taxes                                       152,584       125,560
      Notes receivable, current portion                     55,065       544,955
                                                       -----------   -----------

          Total current assets                          11,503,616    10,937,672
                                                       -----------   -----------

Property and equipment, net                              1,353,992     1,235,876
                                                       -----------   -----------

Other assets
      Notes receivable, net of current portion             276,234       184,215
      Deferred loan costs, net of accumulated
          amortization of $103,982 and $92,954              78,297        89,325
      Goodwill, net of accumulated amortization
          of $47,847 and $39,747                           450,087       434,341
      Other assets                                          12,545        43,195
                                                       -----------   -----------

          Total other assets                               817,163       751,076
                                                       -----------   -----------






      TOTAL ASSETS                                     $13,674,771   $12,924,624
                                                       ===========   ===========


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



<PAGE>

Consolidated Balance Sheets (con't.)
     (Unaudited)


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

                      Liabilities and Stockholders' Equity

                                                   September 30,      March 31,
                                                        1999             1999
- - --------------------------------------------------------------------------------

Current liabilities
      Floorplan payable                            $  8,511,624    $  7,993,154
      Accounts payable                                1,147,009         746,969
      Sales tax payable                                 130,019         170,749
      Accrued salaries and commissions                   68,589          90,926
      Other accrued liabilities                         190,680         195,640
      Customer deposits                                 157,966         132,037
      Income tax payable                                  2,892          18,826
      Due to minority stockholders                       31,061          40,407
      Notes payable, current portion                     96,559          87,933
                                                   ------------    ------------

          Total current liabilities                  10,336,399       9,476,641
                                                   ------------    ------------

Long term liabilities
      Notes payable                                   1,023,133       1,054,316
                                                   ------------    ------------

Minority interest in net assets of
      consolidated corporation                           81,837          84,517
                                                   ------------    ------------

Stockholders' equity
      Common stock, $.002 par value; authorized
          10,000,000 shares; 2,091,367 and
          2,091,539 issued and outstanding                4,183           4,183
      Additional paid-in capital                      2,772,049       2,772,909
      Retained deficit                                 (542,830)       (467,942)
                                                   ------------    ------------

          Total stockholders' equity                  2,233,402       2,309,150
                                                   ------------    ------------


      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 13,674,771    $ 12,924,624
                                                   ============    ============





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

                             See accompanying notes.


<PAGE>
<TABLE>
<CAPTION>

APPLE HOMES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

 (Unaudited)
- - --------------------------------------------------------------------------------------------------------

                                             Quarter ended September 30,  Six months ended September 30,
                                              1999               1998          1999            1998
- - --------------------------------------------------------------------------------------------------------

<S>                                        <C>               <C>          <C>             <C>
Net Sales                                $ 7,803,437       $ 10,490,304    $ 16,944,112   $  18,632,998
Cost of Sales                              6,351,317          8,812,992      13,890,745      15,210,986
                                           ---------          ---------      ----------      ----------

     Gross Profit                          1,452,120          1,677,312       3,053,367       3,422,012
                                           ---------          ---------       ---------       ---------

Operating expenses
     Compensation                            781,202            738,371       1,588,896       1,456,903
     Occupancy and vehicle                    51,180             22,825         100,625         165,406
     Advertising                             203,422            144,610         376,733         301,472
     Insurance                                51,934             70,117         141,544         124,152
     Taxes and licenses                       89,486             73,232         184,419         132,807
     Professional fees                        91,286             32,555         139,441          66,797
     Guarantee fees                           42,968             37,526          85,812          73,533
     Depreciation and amortization            38,758              5,166          69,846          34,939
     Utilities                                91,780             81,886         164,517         148,432
     Office and lot                          193,275            189,572         369,919         346,321
     Travel, training and entertainment       25,652             14,799          43,315          82,529
     Rent and maintenance                     96,294            120,524         211,358         214,055
                                           ---------          ---------       ---------       ---------

         Total operating expenses          1,757,237          1,531,183       3,476,425       3,147,346
                                           ---------          ---------       ---------       ---------

         Operating income (loss)            (305,117)           146,129        (423,058)        274,666

Other income (expense)
     Finance participation                   253,548            131,450         407,465         172,772
     Rental income                            17,864             12,036          37,861          34,399
     Interest income                           9,672             11,804          27,522          34,791
     Commissions                              67,557             22,461         172,246          54,461
     Gain(Loss) on sale of assets            (11,428)            30,657         (11,428)         30,657
     Other income (expense)                      372             77,797           8,153          (5,470)
     Interest expense                       (167,623)          (127,252)       (345,158)       (157,496)
                                          ----------         ----------      ----------      ----------

         Total other income (expense)        169,962            158,953         296,661         164,114
                                          ----------         ----------      ----------      ----------

Income (loss) before income tax provision
         and minority interest              (135,155)           305,082        (126,397)        438,780
Income tax (provision) benefit                58,129           (243,121)         51,716        (238,633)

Minority interest in net (income) loss
         of consolidated subsidiaries         10,542            (41,674)           (207)        (30,633)
                                          ----------         ----------      ----------      ----------

         NET INCOME (LOSS)                $  (66,484)        $   20,287      $  (74,888)     $  169,514
                                          ==========         ==========      ==========      ==========

Per share data:
     Weighted avg number of shares
      outstanding                          2,091,538          1,855,084       2,091,538       1,855,084

     Net income (loss) per share              (0.032)             0.011          (0.036)          0.091



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

                                        See accompanying notes.



<PAGE>
Consolidated Statements of Changes in Stockholders'  Equity
        (Unaudited)

Six months ended September 30, 1999
- - ------------------------------------------------------------------------------------------------------------

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

Balance, March 31, 1999                        2,091,539 $     4,183  $  2,772,909 $  (467,942) $  2,309,150

     Redeemption of Stock                          (172)                     (860)                     (860)

     Net loss                                                                          (74,888)     (74,888)
                                            ------------ ------------ ------------ ------------ ------------

Balance, September 30, 1999                    2,091,367 $     4,183  $  2,772,049 $  (542,830) $  2,233,402
                                            ============ ============ ============ ============ ============



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

                                                       See accompanying notes.



<PAGE>



APPLE HOMES CORPORATION AND SUBSIDIARIES


Consolidated Statements of Cash Flows
     (Unaudited)


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

                                                                      For the Six Months Ended September 30,
                                                                      --------------------------------------
                                                                              1999                    1998
- - ------------------------------------------------------------------------------------------------------------

Cash flows from operating activities:
     Net income (loss)                                                   $   (74,888)            $   169,513

     Adjustments to reconcile net income (loss) to net cash
       provided by (used in) operating activities
         Bad debt expense                                                     15,146                  33,060
         Deferred income taxes                                               (27,024)                120,633
         Depreciation and amortization                                        69,839                  34,939
         Loss on disposal of fixed assets                                     11,428                       0
         Issuance of common stock for
           professional services                                                   0                  74,000
         Issuance of common stock in lieu of
           payment of interest expense                                             0                  83,850
         Minority interest in net income of
           consolidated subsidiary                                               207                  30,633
     Change in assets and liabilities, net of effects from
       purchase of subsidiary
         Accounts receivable                                                 (89,475)               (337,230)
         Other receivables                                                   152,399                 (29,906)
         Inventories                                                        (914,094)               (957,392)
         Other current assets                                               (103,736)                 87,131
         Notes receivable                                                    276,032                (240,939)
         Other assets                                                         30,650                 (12,746)
         Floorplan payable                                                   518,470               1,361,693
         Accounts payable                                                    400,040                 108,520
         Accrued expenses                                                    (68,027)               (246,574)
         Customer deposits                                                    25,929                  73,621
         Other liabilities                                                   (15,934)                108,746
                                                                         -----------             -----------

             Net cash provided by operating activities                       206,962                 461,552
                                                                         -----------             -----------

Cash flows from investing activities:
     Additions to property and equipment                                     (27,936)               (150,077)
     Proceeds from sale of fixed assets                                          250                       0
     Purchase minority ownership from shareholder                            (28,646)                      0
                                                                         -----------             -----------

             Net cash (used in) investing activities                         (56,332)               (150,077)
                                                                         -----------             -----------


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



<PAGE>
     Consolidated Statements of Cash Flows (con't.)
         (Unaudited)



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

                                                                       For the Six Months Ended September 30,
                                                                       --------------------------------------
                                                                            1999                     1998
- - -------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
     Principal payments on notes payable                                 $  (176,796)            $   (58,972)
     Addition of note payable                                                 33,059                       0
     Repurchase of 172 shares common stock                                      (860)                      0
     Due to/from minority stockholders, net                                   (7,434)                (64,950)
                                                                         -----------             -----------

             Net cash (used) by financing activities                        (152,031)               (123,922)
                                                                         -----------             -----------

             Net increase (decrease) in cash                                  (1,401)                187,553

Cash, beginning of six months                                                683,452                 922,176
                                                                         -----------             -----------

Cash, end of six months                                                  $   682,051             $ 1,109,729
                                                                         ===========             ===========


Supplemental disclosure of cash flow information:

     Cash paid during the six months for interest                        $   332,951             $   138,007
                                                                         ===========             ===========

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

     Non-cash investing and financing activities:
         Financed property and equipment purchases                       $   121,180             $         0
         Repossessed mobile home units
           converted to inventory                                            106,693                 140,000
         Land reclassed from inventory to fixed assets                        70,000                       0
         Rental units reclassed to inventory                                  38,612                       0
         Debentures converted to common stock                                      0                  37,500
         Note payable and interest converted to common stock                       0                  83,850
         Issuance of stock for professional services                               0                  74,000



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

                                             See accompanying notes.


</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 (consisting of only normal recurring 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 interim periods shown
herein 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
have 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 year end report and the unaudited
June 30, 1999 quarterly report included in the Form 10 filed with the SEC on
July 16, 1999.


NOTE B - SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>

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

<S>                                               <C>                   <C>                  <C>                  <C>
Net sales                                    $    9,141            $    8,143           $    7,803            $   10,490
Gross Profit                                      1,601                 1,745                1,452                 1,677
Net income (loss)                                    (8)                  149                  (66)                   20
Earnings per share                                (.004)                 .007                (.032)                 .011
                                             ==========            ==========           ==========            ==========

Weighted average
   shares outstanding                         2,091,539             1,811,942            2,091,538             1,855,084
                                             ==========            ==========           ==========            ==========

Operating Data
- - --------------
Homes Sold                                          194                   198                  182                   249
Number of Retail Centers                             12                    12                   12                    12
Weighted Avg Units sold/ctr                          16                    16                   16                    21

</TABLE>



<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Conditions and
         Results of Operations

RESULTS OF OPERATIONS

Results of Operationes  Quarters ended September 30, 1999 and 1998

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

<TABLE>
<CAPTION>

                                                    QUARTER ENDED SEPTEMBER 30
DESCRIPTION                                            1999                                1998
- - -------------------------------------------------------------------------------------------------------------------

<S>                                                  <C>                 <C>             <C>                  <C>
Net Sales                                            $7,803              100.0%          $10,490              100.0%
Cost of Sales                                         6,351               81.4%            8,813               84.0%
                                                     --------------------------------------------------------------
Gross Profit                                          1,452               18.6%            1,677               16.0%

Operating Expenses:
Compensation                                            781               10.0%              738                7.0%
Occupancy and vehicle                                    51                0.7%               23                0.2%
Advertising                                             203                2.6%              145                1.4%
Insurance                                                52                0.7%               70                0.7%
Taxes and licenses                                       90                1.2%               73                0.7%
Professional fees                                        91                1.2%               33                0.3%
Guarantee fees                                           43                0.6%               37                0.4%
Depreciation and amortization                            39                0.5%                5                0.0%
Utilities                                                92                1.2%               82                0.8%
Office and lot                                          193                2.5%              190                1.8%
Travel, training and entertainment                       26                0.3%               15                0.1%
Rent and maintenance                                     96                1.2%              120                1.1%
                                                     --------------------------------------------------------------
Total Operating Expenses                              1,757               22.5%            1,531               14.6%

Other Income (Expense):
Finance participation                                   253                3.2%              131                1.2%
Rental income                                            18                0.2%               12                0.1%
Interest income                                          10                0.1%               12                0.1%
Commissions                                              68                0.9%               22                0.2%
Gain (loss) on sale of assets                           (11)              (0.1%)              31                0.3%
Other income (expense)                                    0                0.0%               78                0.7%
Interest expense                                       (168)              (2.2%)            (127)              (1.2%)
                                                     --------------------------------------------------------------
Total Other Income (Expense)                            170                2.2%              159                1.5%

Income(Loss) before Income Tax
Provision and Minority Interest                        (135)              (1.7%)             305                2.9%

Miniority interest in net income                         11                0.1%              (42)              (0.4%)
Income tax  provision                                    58                0.7%             (243)              (2.3%)
                                                     --------------------------------------------------------------
Net Income                                           $  (66)              (0.8%)              20                0.2%
                                                     ==============================================================


<PAGE>


Results of Operations - Six Months ended September 30, 1999 and 1998

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


                                                     SIX MONTHS ENDED SEPTEMBER 30
DESCRIPTION                                            1999                                1998
- - -------------------------------------------------------------------------------------------------------------------

Net Sales                                           $16,944              100.0%          $18,633              100.0%
Cost of Sales                                        13,891               82.0%           15,211               81.6%
                                                     --------------------------------------------------------------
Gross Profit                                          3,053               18.0%            3,422               18.4%

Operating Expenses:
Compensation                                          1,589                9.4%            1,457                7.8%
Occupancy and vehicle                                   101                0.6%              165                0.9%
Advertising                                             377                2.2%              301                1.6%
Insurance                                               142                0.8%              124                0.7%
Taxes and licenses                                      184                1.1%              133                0.7%
Professional fees                                       139                0.8%               67                0.4%
Guarantee fees                                           86                0.5%               74                0.4%
Depreciation and amortization                            70                0.4%               35                0.2%
Utilities                                               165                1.0%              148                0.8%
Office and lot                                          370                2.2%              346                1.9%
Travel, training and entertainment                       43                0.3%               83                0.4%
Rent and maintenance                                    211                1.2%              214                1.1%
                                                     --------------------------------------------------------------
Total Operating Expenses                              3,477               20.5%            3,147               16.9%

Other Income (Expense):
Finance participation                                   407                2.4%              173                0.9%
Rental income                                            38                0.2%               34                0.2%
Interest income                                          28                0.2%               35                0.2%
Commissions                                             172                1.0%               54                0.3%
Gain on sale of assets                                  (11)              (0.1%)              31                0.2%
Other income (expense)                                    8                0.0%               (5)              (0.0%)
Interest expense                                       (345)              (2.0%)            (157)              (0.8%)
                                                     --------------------------------------------------------------
Total Other Income (Expense)                            297                1.8%              165                0.9%

Income(Loss) before Income Tax
Provision and Minority Interest                        (127)              (0.7%)             440                2.4%

Miniority interest in net income                         --                0.0%              (31)              (0.2%)
Income tax  provision                                    52                0.3%             (239)              (1.3%)
                                                     --------------------------------------------------------------
Net Income                                          $   (75)              (0.4%)           $ 170                0.9%
                                                     ==============================================================

</TABLE>

<PAGE>


Comparison of Fiscal Quarters ended September 30, 1999 and 1998

The September 30, 1999 quarter showed a loss of $66,848 as compared with income
of $20,287 for the same quarter of 1998. This was attributable to the factors
described below.

There was a decrease in net sales being down $2.6 million (or 26%) from the same
quarter for 1998. This overall drop in sales is part of an industry-wide
softening of the manufactured housing market in our area, as described below in
our Comparison of Fiscal Quarters ended June 30, 1999 and 1998.

Compensation as a percentage of sales has increased, from 7.0% for the quarter
ended September 30, 1998 to 10.0% at September 30, 1999. This is primarily due
to the addition of five new employees in the corporate office to train and
better manage the Company, and to the bonuses being paid to sales people to
encourage the sales of older, used and repossessed inventory that can cost more
to keep on the locations. Negotiations are in progress to adjust compensation
packages of several of the Company's management and sales personnel.

Professional fees have almost tripled in comparison with the same quarter last
year, rising $58,000. This expense, which is principally caused by the Company
being forced to become a public reporting entity, is one that management had not
anticipated. The Company is making efforts to reduce these costs in the future,
however, the costs of being a public reporting company will continue.

Advertising expenses have increased to 2.6% of Net Sales for the quarter ended
September 30, 1999 as compared with 1.4% of Net Sales in the same period in
1998. Some of this increase is due to a change in classification of expenses
that are currently included in advertising, such as letterhead stationary,
display flags and newspaper advertising. In the past, these items have been
classified as "lot expense." Management has made the decision to continue
certain levels of advertising despite the downturn of sales, primarily due to

<PAGE>


the belief that keeping the Company's name in front of buyers is even more
important in these slow times. There is an ongoing review of advertising
expenses, and opportunities to get more advertising impact from the same dollars
are being actively explored.

Interest expense also went up from 1.2% of Net Sales at September 30, 1998 to
2.2% of Net Sales for the quarter ended September 30, 1999. Since our exclusive
agreements with manufacturers depend, in part, on the total volume that we sell,
a lower volume means not only a reduction in the rebates paid to us, but also a
reduction in the floor plan interest paid for us by the lenders. As is evident
from these figures, a reduction in sales costs the Company in more ways than
just the loss of revenues. Interest expense for the future could potentially be
reduced by the three Pioneer exclusive locations discussed below.

As a partial offset to these expenses, income from finance participation and
commissions has continued to rise. Finance participation (the amount that the
Company receives from retail lenders in return for our sending them customers)
has more than doubled from a year ago. For the quarter ended September 30, 1998,
finance participation represented 1.2% of Net Sales. It has increased to 3.2% of
Net Sales for the quarter ended September 30, 1999. Commission income (coming
from insurance commissions earned, sales tax commissions earned, commissions
earned on the sale of repossessed homes as a service for our retail lenders, and
other items) has more than tripled from 0.2% of Net Sales at September 30, 1998
to 0.9% of Net Sales at September 30, 1999. The Company intends to continue to
look to these areas of income to expand our profit base. It should be noted
however, that the majority of this income is related to sales volume in some
fashion. Decreases in total volume of sales will also decrease the income that
can be earned from any of these sources.

A tax benefit of $58,000 is included in the net income for the quarter ended
September 30, 1999. Management feels that this benefit will be realizable in the
future, and has decided not to record a valuation allowance against the deferred
tax asset recorded. This decision is carefully reviewed on a quarter by quarter
basis.

The Company is taking measures to return to profitability in the face of this
downturn. Training programs have been instituted for all of our sales personnel,
corporate management teams have been developed to work with each sales location,
and management has been changed on seven of the twelve locations in the last six
months. We have increased the gross retail sales prices of our homes by 5%. We
have also improved our accounting for the costs involved in each home sale,
allowing us to charge back any commission adjustments to our sales force, thus
giving them an incentive to keep the margins higher. The results of these
changes can already be seen, with our gross profit for the September 30, 1999
quarter up to 18.6% as compared to 16.0% for the quarter ended September 30,
1998.

Other steps to improve profitability in the future include completion of a
contract with Pioneer Housing to have three of our existing locations converted
to Pioneer exclusives. This program will be similar to ones that the Company

<PAGE>


presently has with General Housing and Bellcrest and will allow the Company to
have exclusive agreements on all 12 locations. Under these exclusive
arrangements, a minimum of 75% of the total inventory on a location belongs to a
specific manufacturer. That manufacturer, in turn, pays all floor plan interest
expense related to its product, as long as certain volume sales amounts are
achieved. It also allows for a higher volume rebate to be earned by the Company.
We are also entering into discussions with Palm Harbor Homes to carry more of
their line. These discussions are not final at this point.

In addition, the Company has completed a new floor plan lending contract with
John Deere Credit Company, for a floor plan line of credit of $2 million. That
contract is attached to this Report as Exhibit 10.1. Management felt that this
was important for several reasons. First, we are now in a position to begin to
expand our operations once the market picks up and sales are again on an
increasing scale. Also, management wanted new lines of credit available to
enable us to better negotiate interest rates and reduce or remove guarantees
presently required on our lending contracts. John Deere offers a lower rate for
Pioneer products (prime for the first six months) than any other lender, said
rate being lower than we are paying to our present lenders. The floor plan
contract that the Company held with Transamerica Distribution Finance, with a
line of credit of $1.2 million, was terminated on November 22, 1999. The net
effect to our total available floor plan line of these two transactions is an
increase of $800,000.

Comparison of Fiscal Quarters ended June 30, 1999 and 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. The Company also saw 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 June 30, 1999 quarter by closing an unprofitable
sales center and changing managers at another center; these moves contributed to
a reduction in the loss from operations during the second quarter of fiscal
2000. The Company is actively following the manufactured housing market in
Georgia and South Carolina. According to the Manufactured Housing Institute in
its August 1999 report, home shipments (which relate directly to sales) in
Georgia are down 15% for the month of August and 17.9% for the year to date.
Home shipments in South Carolina are down 27.2% for the month of August and
15.4% for the year to date. All of our sales centers are located in these two
states. There is no assurance that we will be able to avoid a downturn in sales
when retail locations in our areas are experiencing these problems.

<PAGE>


OUTLOOK

Most industry veterans believe this present market slowdown will continue
through December 2000. We agree that it will continue at least through our
fourth quarter ending March 2000. Whether it continues beyond that will probably
be determined to a large degree by how many sales centers go out of business
between now and the end of the first calendar quarter of the year 2000. Every
time a sales center goes out of business, that area is overloaded with
distressed inventory. The ability of the market to absorb that inventory is a
major factor in coming out of this slowdown.

One very positive area is that the ability to obtain retail financing for our
customers continues to be relatively easy. There are many more strong financial
institutions committed to the manufactured housing industry now than there were
in previous slowdowns. We don't foresee any problems relating to this vital area
of wholesale and retail financing.

Interest rates are predicted to increase slightly over the next six months;
however, our industry is not usually as interest rate sensitive as the stick
built housing industry. Management does not anticipate any further slowdown in
sales related to interest rates.

YEAR 2000 COMPLIANCE

We incorporate by reference the Year 2000 Compliance disclosure included in the
Company's Form 10 Registration Statement filed on July 15, 1999 and amended on
September 21, 1999 and October 20, 1999. A copy of that disclosure is attached
to this Report as Exhibit 99. There are no material changes to the information
contained in that disclosure since October 20, 1999.


LIQUIDITY AND CAPITAL RESOURCES

Cash flow was essentially flat for the six months ended September 30, 1999.
Although the Company is still showing positive cash flows from operating
activities, the amount is less than half of the amount from a year ago,
primarily due to the slowdown in sales. To improve cash flow, management is
working on selling more of the mortgage notes that it is presently carrying,
(amounting to $331,299 at September 30, 1999). We are also attempting to lower
the total amount of inventory that the Company has purchased, to have better use
of the capital resources.

In the first six months of the year, management bought out two minority
shareholders in our subsidiaries for $53,646. This leaves the Company with only
two remaining minority shareholders in subsidiary companies. By buying out these
two minority shareholders, the portion of profits that was formerly paid out to
them (amounting to approximately $23,000 in fiscal 1999 alone) will remain in
the Company. Since these payments were expensed in computing our profits on
operations, management believes that these buyouts will enhance the overall
profitability of the Company, and provide the opportunity for improved profits
for the common stockholders.

<PAGE>


Expenditures for capital resources are being reduced while the Company goes
through the slowdown in sales in our market area. While management realizes that
limiting growth and expansion will limit our ability to grow sales as we have
done in the past three years, current conditions in the industry warrant this
slowdown. The Company does not intend to undertake the expense of opening new
locations at the present time, unless one of our manufacturers is willing to
assist us with the capital costs associated with that project. There is one area
of capital expenditure that the Company is considering. We are looking at the
purchase of specialized computer software to allow us a better tracking system
for each sale that we make. There are several companies that make this software,
and consideration will be given to the cost savings that can be realized in the
purchase decision on this item. Neither management nor the Board of Directors
has made a decision on new computer software at this time.

FORWARD LOOKING STATEMENTS

The preceding discussion by the management of the Company contains various
forward looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent the Company's expectations or beliefs concerning
future events. When used in this document, the words "expects," "plans,"
"anticipates," and similar expressions are intended to identify forward looking
statements. Forward looking statements include, without limitation, expectations
as to results of operations and financial condition including changes in
capacity, revenues and costs, expectations of future financing needs, Year 2000
readiness, overall economic projections and the Company's overall objectives for
future operation. All forward looking statements in this report are based upon
information available to management on the date of this report. The Company
undertakes no obligation to publicly update or revise any forward looking
statement, whether as a result of new information, future events, or otherwise.
Forward looking statements are subject to a number of factors that could cause
actual results to differ materially from our expectations. The following
factors, in addition to other possible factors not listed, could cause the
Company's actual results to differ materially from those expressed in forward
looking statements: uncertainty of future sales due primarily to the slowdown in
sales the market area is now experiencing, agreements with manufacturers and
lenders related to our inventory management, ability to obtain continuing
financing for our customers at reasonable and affordable interest rates,
competition within the industry within our market area, a flooding of our market
area with reduced price inventory due primarily to other locations going out of
business, government regulations, Year 2000 readiness of our primary
manufacturers and financing companies and other economic conditions and factors
beyond our control.

Additional information concerning these and other factors is contained in the
Company's Form 10 filing with the Securities and Exchange Commission dated July
16, 1999 and amended on September 10, 1999 and October 20, 1999.


<PAGE>


                           PART II - OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders

On September 28, 1999, Apple Homes Corporation held its Annual Meeting of
Stockholders. At that meeting, two votes were held. The first vote was for the
election of Directors. The following directors were elected: Mr. E. Samuel
Evans, Mr. Robert S. Wilson, Mr. Bryce N. Batzer, Mr. Wayne Bridges and Mr.
Richard Belz. All directors were elected by a majority of the votes cast, and a
quorum was received for the meeting. Immediately following the election, Mr.
Wilson resigned from the Board, and his resignation was accepted.

The second vote was for the appointment of auditors. The firm of Gifford,
Hillegass & Ingwersen, PC was approved for the audit of the fiscal year ended
March 31, 2000 by a majority of the votes cast.

No other matters were voted on at the meeting.

The results of the votes are as follows:

                               For             Against             Abstain
                               ---             -------             -------

E. Samuel Evans             1,051,912          201,650               2,400
Robert S. Wilson              829,124           23,500             403,338
Bryce N. Batzer               996,911          156,600             102,451
Wayne Bridges               1,215,712           26,600              13,650
Richard Belz                  776,311          377,200             102,451
Appointment of Auditors     1,136,137           84,925              34,900


Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits required to be filed by Item 601 of Regulation S-K:

     10.1   Contract with John Deere Credit Company
     11.1   Earnings per Share Calculation
     27     Financial Data Schedule
     99     Year 2000 Compliance Discussion from Form 10 Registration Statement

(b)   Reports on Form 8-K

      None


<PAGE>




                                    SIGNATURE


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                          APPLE HOMES CORPORATION

December 27, 1999                         /s/ Laura H. Rollins
- - -----------------                         --------------------------------------
    (Date)                                    Laura H. Rollins
                                              Chief Financial Officer
                                              Apple Homes Corporation








                                                                    Exhibit 10.1


                     JOHN DEERE INVENTORY SECURITY AGREEMENT
                          CREDIT AND POWER OF ATTORNEY

TO: DEERE CREDIT, INC. ("Secured Party"), which has its principal place of
business at 1415 28th Street, West Des Moines, Iowa 50266-1450 as of the date
set forth in the final paragraph of this Agreement.

The undersigned entity or person ("Debtor") intends to engage or is engaged in
the business of buying, selling and generally dealing in goods of various types
at retail and, from time to time, may desire Secured Party to finance the
acquisition of such goods from manufacturers or other suppliers acceptable to
Secured Party.

Therefore, the parties agree as follows:

1.  DEFINITION OF COLLATERAL The term "Collateral," as used herein, shall mean:

1.1 Inventory. All Inventory or goods of whatever description held for sale,
rent or lease by Debtor, now or hereafter owned, or now or hereafter in the
possession, custody or control of Debtor, wherever located, together with all
attachments, accessories, additions and substitutions, including all returns and
repossessions (hereinafter called "Inventory");

1.2 Rights Against Suppliers. All of Debtor's rights to any rebates, discounts,
credits, factory holdbacks and incentive payments which may become due to Debtor
by the manufacturer or distributor with respect to any of the Inventory;

1.3 Equipment and Fixtures. All of Debtor's equipment, fixtures, accounts,
contract rights, chattel paper, instruments, documents and general intangibles,
whether now owned or hereafter acquired;

1.4 Proceeds. All proceeds from the above-described Collateral, including, but
not limited to, insurance proceeds payable by reason of loss or damage to any of
the Inventory, equipment and fixtures, cash, goods, instruments, accounts,
chattel paper, contract rights, and replacement Inventory.

2.  APPLICATION FOR CREDIT.

2.1 Request. Debtor may request financing from Secured Party for the purchase of
goods from any supplier and, if Secured Party elects, in its sole discretion, to
make such financing available, it shall be made in such amounts and upon such
conditions as Secured Party may determine. Debtor agrees that Secured Party may,
at any time and without notice, elect not to finance Inventory if the supplier
is in default of its obligations to Secured Party or Secured Party is otherwise
reasonably insecure.

2.2 Execution of Documents. As part of an application for such financing, Debtor
shall execute and deliver to Secured Party any and all additional writing that
Secured Party deems necessary or desirable to accomplish the purposes of this
Agreement, including, but not limited to Financing Statements and any amendments
thereto.

2.3 General Terms. Debtor and Secured Party agree that the financial terms of
any advance by Secured Party hereunder, such as finance charge rates, other
fees, maturities and curtailments, are not fully set forth because such terms
depend, in part, upon supplier incentives or discounts, general economic
conditions, governmental and quasi-governmental actions, Debtor's volume and
outstanding indebtedness with Secured Party and other market factors. This
Agreement provides the general terms only of Secured Party's financing program
with Debtor. Debtor shall be deemed to have accepted the specific terms of each
financing transaction hereunder unless Debtor notifies Secured Party in writing
of any objection within fifteen (15) days of receipt of Secured Party's
confirmation. If Debtor timely objects to the terms of any extension of credit
(other than the initial credit transaction which cannot be protested), and

<PAGE>



mutually agreeable terms cannot be negotiated, Debtor agrees to pay Secured
Party for such financing on the same terms and conditions as the immediately
preceding extension of credit for like Inventory from the same supplier, to
which Debtor has not objected. In this event, Debtor acknowledges that Secured
Party may then elect to suspend or terminate this Agreement. Termination for
this reason alone will not be deemed default of this Agreement, and prior
extensions of credit shall not be accelerated, unless Debtor is otherwise in
default under this Agreement. Without limiting the generality of the remainder
of this Section 2.3, the parties acknowledge that the interest rate applicable
to all notes funded under this Agreement has been determined based upon a number
of factors, including, without limitation, market conditions, usage of the
available credit facility and credit quality of Debtor. Debtor expressly agrees
that if Secured Party determines that any of these factors has changed, Secured
Party may, in the exercise of its discretion, adjust the interest rate, either
upwards or downwards, for all existing and future notes upon the delivery of
written notice to Debtor. This interest rate adjustment shall be effective
thirty (30) days subsequent to the date of such written notice.

2.4 Credit Verification. Debtor agrees Secured Party may verify any information
provided by Debtor with Debtor's references, other third parties, and through
credit reporting agencies, and Debtor agrees that Secured Party may provide to
any third party any credit, financial or other information on Debtor that
Secured Party may possess.

3. SELECTION OF INVENTORY; DISCLAIMER OF WARRANTY. Debtor has selected both the
Inventory and the supplier from whom debtor acquired the Inventory and Debtor
assumes all responsibility and risk for the existence, character, quality,
condition and value of the Inventory. This is an agreement regarding the
extension of credit and not the provision of goods and services. Debtor
irrevocably waives any claims against Secured Party with respect to the
Inventory whether for breach of warranty or otherwise and shall not assert
against Secured Party any claim or defense Debtor may have against any supplier
of Inventory to Debtor. Any such claims shall not alter, diminish or otherwise
impair Debtor's liabilities or obligations to Secured party.

4. GRANT OF SECURITY INTEREST. Debtor grants to Secured Party a security
interest in all Collateral of Debtor. The security interest granted under this
Agreement or under any other present or future agreement between Debtor and
secured Party or any of Secured Party's affiliates or subsidiaries, shall secure
the payment and performance of all debts, liabilities and obligations of Debtor
to Secured Party, its affiliates and subsidiaries, whether presently existing or
hereafter arising or created.

5. PAYMENT OF DEBTS DUE FROM SUPPLIER. Debtor assigns to Secured Party and
agrees to pay the amounts described in Paragraph 1.2 to Secured party, as soon
as the same are received, for application to Debtor's obligations hereunder.
Debtor authorizes Secured Party to collect any such amounts directly from the
manufacturer, supplier or distributor, and, upon request of Secured Party, to so
instruct the manufacturer or distributor to make payments directly to Secured
Party.

6. DOCUMENTS OF TITLE. Debtor shall promptly deliver to Secured Party any
Certificate of Title, Certificate of Origin, or manufacturer's Statement of
Origin issued for each item of Inventory, or cause any manufacturer or supplier
of Inventory or other third party which may hold such Certificate, or Statement
to deliver same to Secured party. Secured Party shall have the right to hold
such documents until such items of Inventory are sold and to have its lien or
security interest noted thereon.

7. OBLIGATIONS OF DEBTOR. Debtor shall have the following obligations to Secured
Party:

7.1 Use and location. Debtor will only display and sell Inventory to buyers in
the ordinary course of business. L Debtor shall not use (except for incidental
demonstration for sale), rent, lease, transfer or dispose of Inventory except as
provided herein, nor permit, without the written consent of Secured Party, the
Collateral to be subject to any lien, encumbrance or security interest except
that granted herein. All Inventory shall be located at the address(es) listed in
Paragraph 20. Secured Party may examine the Inventory and Debtor's books and
records regarding the Inventory, at any time.

<PAGE>


7.2 Documents. Debtor will execute all documents Secured Party requests to
evidence a credit extension and to perfect Secured Party's Inventory purchase
money security interest, or otherwise assist Secured Party to obtain any
necessary subordination agreements, waivers, or releases to ensure Secured Party
has the first priority, purchase money security interest in the Inventory.

7.3 Condition. Debtor shall keep all Inventory in good order, repair and
operating condition, and shall immediately notify Secured Party of any loss,
theft, or damage to the Inventory.

7.4 Taxes. Debtor shall pay immediately all taxes, expenses, assessments and
charges that may now or hereafter be levied or assessed against the Collateral.
If Debtor fails to pay such taxes, fees or charges, Secured party may, but shall
not be obligated to, do so on Debtor's behalf and demand from Debtor repayment
of all such amounts plus interest at the highest contract rate allowed by law.

7.5 Payment. Debtor's payments are due upon receipt of its monthly billing
statement. Payment of the Late Fee will not waive the default caused by the
failure to make such payment. Debtor shall pay Secured Party promptly when due
the amount of any extension of credit according to the terms of any floorplan
note or any other writing evidencing such extension of credit, including, but
not limited to, all accrued and unpaid interest, any required curtailments,
maturities and additional charges and fees as required in any Addendum, Terms
Schedule or other written supplement to this Agreement, all without regard to
any manufacturer or distributor rebates, credits, holdbacks or discounts.
Notwithstanding the foregoing, Debtor agrees to pay Secured Party the amount of
any extension of credit on each item of inventory financed hereunder immediately
upon the sale thereof or removal from the location listed in Paragraph 20 except
for the purposes of incidental demonstration.

Secured Party may apply payments received from Debtor toward the payment of any
obligations of Debtor in such order of application as Secured party may
determine. Secured party may apply payments to finance charges first, then to
principal, regardless of Debtor's instructions and it may apply payments to the
oldest (earliest) Inventory floorplan notes. All principal stolen, lost,
damaged, rented, leased or otherwise missing.

<PAGE>


If Secured Party determines that the aggregate outstanding credit owed by Debtor
exceeds the aggregate wholesale invoice price of the Inventory in Debtor's
possession, Debtor shall immediately upon demand pay Secured Party the
difference between the two amounts. Acceptance by Secured party of past due
amounts shall not be construed as a waiver of default or an amendment to the
terms of this Agreement. Any supplier or third party discount, rebate, bonus, or
credit paid to Secured Party will not reduce Debtor's obligations to Secured
Party until such payment becomes Secured Party's cash.

7.6 Finance Charge Calculation. All payments are due upon Debtor's receipt of
Secured Party's monthly or other billing statement. Debtor agrees to pay Secured
Party finance charges on the outstanding principal indebtedness owing for each
item of Inventory at the rate(s) provided in the Terms Schedule in effect on the
applicable floorplan note (or other evidence of debt) created related to such
Inventory, unless Debtor objects thereto as provided in Section 2.3. Finance
charges at the stated rate shall be computed based on a 360 day year and
calculated by multiplying the Daily Charge (defined below) by the actual number
of days in the applicable billing period. Such finance charges shall accrue from
the floorplan note date for the Inventory until Secured Party receives the
entire principal amount. The "Daily Charge" is the product of the Daily Rate
(defined below) multiplied by the Ending Daily Balance (defined below). The
"Daily Rate" is the quotient of the annual rate provided in the Terms Schedule
divided by 360. The "Ending Daily Balance' is the outstanding principal balance
owed at the end of each day on each floorplan note during a billing period.

Notwithstanding the above, Debtor acknowledges that Secured Party intends to
strictly comply with all applicable usury laws governing this Agreement. Should
such law other than Iowa apply and the usury rate be less than that billed, any
excess finance charges paid shall be deemed payment on the unpaid principal on
the applicable floorplan note. If an overpayment of principal results, it may be
applied to principal on any other floorplan note, and if none, refunded to
Debtor.

7.7 Additional Charges. If Secured party does not receive by the 20th day of any
given month payment of all amounts listed on the monthly billing statement,
Debtor will, to the maximum extent permitted by applicable law, pay Secured
Party a late fee in the amount equal to the greater of $25.00 or 5% of the
amount of such delinquent payments (the "Late Fee"). To the extent permitted by
applicable law, Debtor agrees to pay Secured party $100 for each check returned
unpaid for insufficient funds to cover administrative costs. In addition, Debtor
shall pay the following additional fees to Secured Party:

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

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

8. INSURANCE. Debtor shall keep the Inventory insured with an insurance company
acceptable to Secured Party for full value against all insurable risks with
Secured Party as the loss payee, and will notify Secured Party in writing ten
(10) days before changing or canceling such insurance. Debtor shall provide
Secured Party with written evidence of such coverage and loss payable and
lender's clauses. If Debtor should fail to obtain such insurance, Secured Party
may, but shall not be obligated to, do so on Debtor's behalf and demand from
Debtor repayment for all expenditures together with interest at the highest
contract rate allowed by law.

<PAGE>


9. DEBTOR'S RECORDS AND FINANCIAL INFORMATION. Debtor shall keep accurate and
complete records of the Collateral that may be examined by Secured Party upon
request. Debtor agrees to provide within 90 days of the end of Debtor's fiscal
year Financial Statements and shall provide management prepared Financial
Statements within 45 days of the end of each fiscal quarter of Debtor. For the
purposes of this Section 9, Financial Statements shall include, without
limitation, reasonably detailed balance sheets and reasonably detailed income
statements, all prepared in accordance with generally accepted statements, all
prepared in accordance with generally accepted accounting principles,
consistently applied. Debtor grants Secured Party an irrevocable license and
right to occupy Dealer's business locations during normal business hours without
notice to verify the Inventory, examine Debtor's books and records relating to
the Inventory and Collateral, and to verify Debtor's compliance with this
Agreement. Debtor shall give Secured Party at least 45 days prior written notice
of any change in Debtor's identity, name, location, form of business
organization, ownership, and additional business locations.

10. POWER OF ATTORNEY. Debtor hereby grants a Power of Attorney to Secured Party
(which may be exercised by any agents or employees of Secured Party) under which
Secured Party may execute, on behalf of Debtor, any trust receipts, floorplan
notes, chattel paper, financing statements and amendments thereto, or other
writing in connection with this Agreement as attorney-in-fact for Debtor. Debtor
hereby directs Secured Party to sign all floorplan notes on Debtor's behalf.
Secured Party agrees to furnish Debtor a copy of such notes upon written request
of Debtor. Debtor shall call any errors in such floorplan notes to Secured
Party's attention within fifteen (15) days of Debtor's receipt of such note or
receipt of Debtor's monthly statement. Secured Party will sign a corrected note
in replacement of any incorrect note. Under this Power of Attorney, Secured
Party is authorized to execute any such writings manually or by affixing a
mechanical facsimile or printed signature. Upon Debtor's request, Secured Party
will furnish Debtor with a copy of each writing executed under the Power of
Attorney.

11. EVENTS OF DEFAULT. The following events shall constitute a default under
this Agreement:

11.1 Failure to Pay. Any failure by Debtor to pay any portion of its debts to
Secured Party when due and payable hereunder.

11.2 Breach. Any breach or failure of Debtor to observe or perform any of its
other terms, obligations, representations, warranties, covenants or undertakings
hereunder.

11.3 Misrepresentation. Any misrepresentation by Debtor to Secured Party in
connection with the business and financial condition or organizational structure
of Debtor or any misrepresentation relating to the Collateral.

11.4 Death or Dissolution. Death or dissolution of Debtor or of any guarantor or
surety for Debtor" obligations hereunder.

11.5 Termination of Guaranty. The termination by any guarantor or surety of a
guaranty or suretyship with respect to Debtor.

<PAGE>


11.6 Insolvency Proceedings. Debtor or any guarantor or surety; (a) makes an
assignment for the benefit of creditors; (b) files or has filed against it a
petition in bankruptcy or for the appointment of a receiver.

11.7 Judgments/Attachment. Any other creditor, customer or tax authority obtains
a judgment or lien against Debtor or any guarantor, or any attachment, sale or
seizure issues or is executed against any assets of Debtor or any guarantor.

11.8 Collateral Impairment/Sale Out of Trust. Any material reduction in the
value of the collateral or any act of Debtor which imperils the prospect of full
performance or satisfaction of Debtor's obligations hereunder; any sale, lease,
rental, or other transfer of any Inventory by Debtor without informing Secured
Party and promptly paying off the applicable floorplan note and any other
charges.

11.9 Fraudulent Acts. Debtor has concealed, removed, transferred or permitted to
be concealed, removed or transferred, any part of its assets, so as to hinder,
delay or defraud any of its creditors or in such manner as would be fraudulent
under any bankruptcy, insolvency, fraudulent conveyance or similar law.

11.10 Loss of Right to Sell. Debtor has voluntarily or involuntarily given up or
lost any franchise, permission, license or right to sell or deal in any product
line of Inventory that represents a significant portion of Debtor's sales
volume.

11.11 Insecurity. Secured Party shall, in good faith, deem itself insecure with
respect to any of the Collateral or repayment of any of the amounts described
herein.

12. REMEDIES. In the event of a default, as defined in Paragraph 11:

12.1 Acceleration. Secured Party shall have, in addition to any and all rights
under the Uniform Commercial Code, the option to terminate this Agreement
immediately and to declare any and all indebtedness or liabilities of Debtor to
Secured Party immediately due and payable without notice or demand.

12.2 Default Finance Charge. Secured party may impose a default finance charge
to all of Debtor's outstanding principal indebtedness equal to that default
rate, if any, specified in the Terms Schedule, or if there is none specified, at
the lesser of 16% per annum on each outstanding floorplan note, or the highest
lawful contract rate of interest permitted under applicable law.

12.3 Assembly of Collateral. Debtor shall, if Secured Party so requests,
assemble the Inventory and deliver it to Secured Party, in good order and repair
at Debtor's expense, at a place designated by Secured Party.

12.4 Repossession and Sale. Secured Party shall also have the right to take
immediate and exclusive possession of all Collateral or any part thereof,
wherever it may be found, and also may enter any of the premises of Debtor, with
or without process of law, without force, wherever the said Collateral may be or
supposed to be and take possession of, and remove, sell, and dispose of, said
Collateral, or any part thereof, at public auction or private sale. Secured
Party reserves the right to bid and become the purchaser at any such sale.
Debtor acknowledges that a manufacturer's repurchase agreement may exist as to
the Collateral, and Debtor hereby agrees that, without limiting other methods of
disposition, commercially reasonable foreclosure sale under the uniform
Commercial Code. Debtor hereby specifically waives any right to judicial
proceedings prior to Secured Party's exercise of this right of "self-help"
repossession.

<PAGE>


12.5 Commercial Sale. Dealer agrees that Secured Party may, at its option,
either (i) conduct a private sale of any or all of the Collateral, (ii)
liquidate the Collateral to any supplier of Inventory or (iii) liquidate the
Collateral at a public sale. Without limiting the methodology of disposing of
the Collateral and without excluding other methods of conducting a private sale,
Debtor agrees that a private sale is a commercially reasonable sale under the
Uniform Commercial Code if Secured Party requests bids from at least three (3)
dealers, distributors or suppliers of Inventory of that type and any sale occurs
in whole or in parcels within 180 days after Secured Party obtained possession
and authority (if needed) to sell the Inventory and the sale is made to the
highest bidder making a written cash offer. Debtor agrees that any resale of
Inventory to the supplier of inventory (commonly called a Manufacturer's
Repurchase) under any agreement between the supplier and Secured Party is a
Uniform Commercial Code and no requests for bids shall be required. 12.6 Costs
and Expenses. Debtor shall pay all costs incurred by Secured party in the
collection of any indebtedness or liabilities owed Secured Party by Debtor and
the enforcement of any obligations of Debtor to Secured party, including the
costs of repossession, reasonable attorney's fees and other legal expenses, and
reasonable costs of maintenance, possession and sale of the Collateral.

12.7 Notice. Any notification of collateral disposition shall be deemed
reasonably and properly given if mailed at least ten (10) days before such
disposition, postage prepaid, addressed to Debtor.

12.8 Application of Proceeds. Any proceeds of the Collateral may be applied by
Secured Party to the payment of the reasonable expenses of retaking, holding,
preparing for sale, selling and the like, including reasonable attorney's fees
and legal expenses, and any balance of such proceeds may be applied by Secured
Party toward the satisfaction of Debtor's indebtedness or liabilities in such
order of application as Secured Party may in its sole discretion determine. Any
surplus shall be paid to Debtor, and Debtor agrees to pay any deficiency
immediately upon demand.

13. PRIOR ACTS NOT A WAIVER. Secured Party shall have the right at all times to
enforce the terms and provisions of this Agreement in strict accordance with the
terms thereof, notwithstanding the prior failure of Secured Party to take such
action.

14. ASSIGNMENT. Secured Party may assign this Agreement but Debtor may not
assign this Agreement without the prior written consent of Secured Party.

15. AMENDMENT. This Agreement and the Terms Schedule attached hereto may not be
amended except through a written instrument. Debtor agrees that Secured Party
may notify Debtor of amendments to this Agreement. These amendments shall apply
to any transactions financed by Secured Party after the date of the amendment
without the execution of the amendment by Debtor, but such amendments shall not
apply to transactions financed by Secured Party prior to the date of such
amendment without Debtor executing and delivering such amendment. Debtor agrees
that in addition to the remedies described in Section 12, upon the occurrence of
an Event of Default, Secured Party shall have the right to adjust the interest
rate for all transactions, including those entered into prior to the date of the
adjustment. If Debtor previously signed any Inventory Security Agreement
regarding the Collateral with Secured Party, this Agreement will amend and
supplement such prior agreement. If this Agreement conflicts with the terms of
any prior agreement, the terms of this Agreement shall govern.

16. CHOICE OF LAW. This Agreement is deemed to have been entered into and to be
performed at Secured Party's office in West Des Moines, Iowa. The validity,
enforceability and interpretation of this Agreement and any promissory notes
taken, charges made and sums paid in connection herewith shall be governed by
the laws of the State of Iowa. If any provision of this Agreement or its
application is deemed invalid or unenforceable, the remainder of this Agreement
will not be affected and will remain binding and enforceable.

<PAGE>


17. TERMINATION. Either Secured Party or Debtor may terminate this Agreement by
sending thirty (30) days written notice to the other, but termination of this
Agreement does not end debtor's obligations to Secured party for those
obligations which accrued prior to the effective date of the termination;
provided however, no notice of termination to Debtor will be required if Debtor
is in default of this Agreement.

18. BINDING ARBITRATION. Except for any action to recover, repossess or replevy
any collateral hereunder, and any action to recover any deficiency due Secured
Party following the disposition of such collateral, all actions, disputes,
claims and controversies under common law, statutory law or equity of any type
or nature whatsoever (including, without limitation, all torts, all contract
actions, whether regarding express terms or implied terms, such as implied
covenants of good faith, fair dealing, and the commercial reasonableness of any
Collateral disposition, or any other contract claim, all claims of deceptive
trade practices or lender liability, and all claims questioning the
reasonableness or lawfulness of any act), whether arising before or after the
date of this Agreement, and whether directly or indirectly relating to: (a) this
Agreement or any amendments and addenda hereto, or the breach, invalidity or
termination hereof; (b) any previous or subsequent agreement between Secured
Party and Debtor; or (c) any other relationship, transaction or dealing between
Secured Party and Debtor (collectively the "Disputes"), will be subject to and
resolved by binding arbitration.

18.1 Any dispute arising out of or relating to this Agreement, or the breach,
termination or validity thereof, shall be determined by arbitration in the
Division of the Federal Judicial District of Secured Party's office in
accordance with the provisions of this Section 18 and the Commercial Arbitration
Rules ("Rules") of the American Arbitration Association ("AAA") in effect on the
date of this Agreement by a single arbitrator who (I) has the qualification sand
experience set forth in paragraph 18.2 of this Section 18 and (ii) is selected
as provided in paragraph 18.3 of this Section 18; provided, however, that, if
the dispute involves more than $1 million, three arbitrators having such
qualifications and experience shall be appointed, each of whom shall be selected
in the same manner as set forth herein for the selection of a single arbitrator.
The arbitrator(s) shall base their award on this Agreement and applicable law
and judicial precedent and shall accompany their award. The arbitration shall be
governed by the substantive laws of the State of Iowa applicable to contrac6ts
made and to be performed therein and by the arbitration laws of the United
States (Title 0, U.S. Code), and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.

18.2 Every person nominated or recommended to serve as an arbitrator hereunder
shall be a lawyer with excellent academic and professional credentials and be a
partner in (or counsel to) a highly respected law firm who has had experience as
an arbitrator and at least 20 years experience as a practicing attorney
specializing in corporate, commercial and financial matters, with expertise in
interpreting contracts in the field of law involved in the subject controversy

18.3 The arbitrator shall be selected as provided in this Section 18 and
otherwise I accordance with the AAA's Commercial Arbitration Rules in effect on
the date of this Agreement, except that each party shall be entitled to strike
on a peremptory basis any or all of the names of potential arbitrators on the
list submitted to the parties by the AAA as being qualified in accordance with
the criteria set forth in paragraph 18.2 hereof. In the event the parties cannot
agree on a mutually acceptable arbitrator from the list submitted by the AAA,
the Regional Vice President of the AAA, under the supervision of the AAA's
national department of case administration, shall submit to both parties a
second list containing the names of three lawyers meeting the foregoing
qualifications, each of whom shall be a member of the AAA's Commercial Finance
Disputes Arbitration Panel, and each party shall be entitled to strike one of
such names on a peremptory basis, indicating its order of preference with
respect to the remaining names, and the selection of the arbitrator shall be
made by such Regional Vice President from among such name(s) which have not been
so stricken by either party in accordance with their designated order of mutual
preference.

18.4 Each party will, upon the written request of the other party, provide the
other with copies of documents relevant to the issues raised by any claim or
counterclaim. Other discovery may be ordered by the arbitrator. Any dispute
regarding discovery, including disputes as to the need therefor or the relevance
or scope thereof, shall be determined by the arbitrator, which determination
shall be conclusive. All expenses and fees of the arbitrator and expenses for
hearing facilities, stenographers and other expenses of the arbitration shall be
borne equally by both parties unless they agree otherwise, or unless the
arbitrator in the award assesses such expenses against one of the parties other
than equally. Each party shall bear its own counsel fees and the expenses of its
witnesses except to the extent otherwise provided in the Agreement. Any attorney

<PAGE>


who serves as an arbitrator shall be required to agree to do so for a fee based
on his or her current hourly rate for handling commercial matters. The
arbitration proceedings conducted pursuant hereto shall be confidential. Neither
party shall disclose any information about the evidence adduced by the other in
the arbitration proceedings or about documents produced by the other in
connection with the proceeding except in the course of a judicial, regulatory or
arbitration proceeding or as may be requested by governmental authority. Before
making any disclosure permitted by the preceding sentence, the party intending
to make such disclosure shall give the other party reasonable written notice of
the intended disclosure and afford the other party opportunity to protect its
interests. The arbitrator(s), expert witnesses and stenographic reporters shall
sign appropriate nondisclosure agreements in order to effectuate this agreement
of the parties as to confidentiality. The arbitrator(s) shall set forth their
findings of fact and conclusions of law and shall render an award based thereon.
Upon application to the court for an order confirming, modifying or vacating the
award, the court shall have the power to review (a) whether the findings of fact
rendered by the arbitrator(s) are supported by substantial evidence and (b)
whether, as a matter of law based on such findings of fact, the award should be
affirmed, modified or vacated. Upon such determination, judgment shall be
entered in favor of either party consistent herewith.

18.5 Nothing herein will be construed to prevent Secured Party's or Debtor's use
of bankruptcy, receivership, injunction, repossession, replevin, claim and
delivery, sequestration, seizure, attachment, foreclosure, dation or any other
prejudgment or provisional action or remedy relating to any Collateral for any
current or future debt owed by either party to the other. Any such action or
remedy will not waive Secured Party's or Debtor's right to compel arbitration of
any Dispute. If either Secured party or Debtor brings any other action for
judicial relief with respect to any Dispute, the party bringing such action will
be liable for and immediately pay all of the other party's costs and expenses
(including attorneys' fees) incurred to stay or dismiss such action and remove
or refer such Dispute to arbitration. 18.6 Any arbitration proceeding must be
instituted: (a) with respect to any Dispute for the collection of any debt owed
by either party to the other, within two (2) years after the date the last
payment was received by the instituting party; and (b) with respect to any other
Dispute, within two (2) years after the date the incident giving rise thereto
occurred, whether or not any damage was sustained or capable of ascertainment or
either party knew of such incident. Failure to institute an arbitration
proceeding within such period will constitute an absolute bar and waiver to the
institution of any proceeding with respect to such Dispute. ; Except as
otherwise stated herein, all notices, arbitration claims, responses, requests

<PAGE>


and documents will be sufficiently given or served if mailed or delivered: (i)
to Debtor's principal place of business specified herein; and (ii) to Secured
Party, 1415 28th St., West Des Moines, Iowa 50266-1450, Attention: Director,
Wholesale Credit, or such other address as the parties may specify from time to
time in writing. No arbitration hereunder will include, by consolidation,
joinder or otherwise, any third party other than a guarantor of the
indebtedness, unless such third party agrees to arbitrate pursuant to the
arbitration provisions contained herein and the Rules. 19. If Section 18 of this
Agreement or its application is invalid or unenforceable, any legal proceeding
with respect to any Dispute will be tried in a court of competent jurisdiction
by a judge without a jury. Debtor and Secured party waive any right to a jury
trial in any such proceeding.

THIS CONTRACT CONTAINS BINDING ARBITRATION AND JURY WAIVER PROVISIONS.

LOCATION.  Debtor Business and Storage Addresses:
     124 N. Belair Rd.
     Augusta, GA 30809


     To include any and all locations.

Secured Party Business Address:

Deere Credit, Inc.
1415 28th Street
West Des Moines, Iowa 50266-1450

21. MEDIA NEUTRALITY. Nothing in this Agreement shall be construed to require
the use of any particular medium of communication. A communication by any
commercially acceptable means is sufficient, provided that a communication
required to be "in writing" or "written" must be in some form other than oral.

IN WITNESS  WHEREOF,  the parties hereto have caused their names to be signed by
their proper officers/agents as of the 28th day of September, 1999.


                                              Apple Homes Corporation
                                                      (Debtor)
ATTEST:       /s/ Laura H. Rollins            BY:   /s/ E. Samuel Evans
              ---------------------------           ----------------------------
(or Witness)    Secretary or Witness                    E. Samuel Evans
                                              TITLE:    President

(Corporate Seal), if applicable

                                           ACCEPTED:   DEERE CREDIT, INC.
                                                       (Secured Party)

                                           BY:  /s/  Deb Gallagher
                                                --------------------------------
                                           TITLE: Credit Analyst/Deb Gallagher


                                           DATE:    5 October 1999
<PAGE>


                                 TERMS SCHEDULE
               INVENTORY SECURITY AGREEMENT and POWER OF ATTORNEY
                              MANUFACTURED HOUSING

The below listed terms have been established for financing your new inventory.
Interest charges are computed as provided in your Inventory Security Agreement
in which these terms are incorporated by reference.

Prime Rate will be the "base rate" quoted by Citibank, New York, on the 15th day
of the month prior to the month for which charges are billed; however, the
minimum Prime Rate used to determine the interest rate is 6.0%. All charges are
due upon receipt of the billing statement and are past due on the 21st of the
month.

The interest rates being offered are based on an average minimum monthly
receivable balance of $1,750,000.

When special programs are offered in relation to a specific manufacturer's
product, the interest rate charged will be the lower of the manufacturer's
program rate or the rate stated below.

Any notice of program or Terms Schedule changes will be given as provided in the
Inventory Security Agreement.

The Interest rate
Is as follows:        1-365 days.........................Prime Rate plus 1.75%
                      366 days until paid in full........Prime Rate plus 3.75%

Flat Charges:         A monthly flat charge per manufacturer's program schedule.

Curtailments:         The curtailment and maturity schedule varies by product
                      based on the program negotiated with each manufacturer.
                      The programs currently in effect for the manufacturers
                      you have chosen are attached.

Default Finance
Charge:               As provided in your Inventory Security Agreement.

   Apple Homes Corporation                    DEERE CREDIT, INC.
         (Debtor)                             (Secured Party)

By:  /s/ E. Samuel Evans                      [CORPORATE SEAL]
     ----------------------
         E. Samuel Evans

Title:   President

Date:    9/28/99

<PAGE>


Attachment 1

This financing statement covers the following types (or items) of property:

All types of inventory consisting of, but not limited to, recreational vehicles
and manufactured homes and equipment (and proceeds thereof) which are held for
sale, rental or lease by debtor, now or hereafter acquired, including but not
limited to: recreational vehicles, manufactured homes, mobile homes, modular
homes, motor homes, micro -mini motor homes, mini-motor homes, park models,
vans, van conversions, van campers, travel trailers, fifth wheel trailers, truck
campers, camping trailers, tent trailers, tow vehicles, and the like; as well as
parts, accessories and all other equipment used or intended to be used in
conjunction with any of the foregoing: all equipment, fixtures, accounts,
contract rights, documents, instruments, accounts receivable, general
intangibles, chattel paper and books and records, presently existing or
hereafter arising: all such property returned to or repossessed by or on behalf
of debtor, including such of the same as may be after acquired property: all
present and future accessions to substitutions for, and proceeds of the
foregoing: all reserves of any type description, or origin established at any
time by secured party.



                                                                    Exhibit 11.1
<TABLE>
<CAPTION>


11.1 Earnings per Share Calculation


                            Apple Homes Corporation
                         Earnings per share calculation

                                                   Six Months ended    Quarter ended
                                                  September 30,1999  September 30, 1999
                                                  -----------------  ------------------
Basic EPS:
<S>                                                     <C>             <C>
 Income available to common stockholders             $  (74,888)         $  (66,484)

 Weighted average # of shares outstanding             2,091,538           2,091,538
                                                     ----------          ----------

     Basic EPS                                          (0.0358)            (0.0318)
                                                     ==========          ==========

Diluted EPS:
  Income available to common stockholders            $  (74,888)         $  (66,484)

  Adjusted for 10% interest charge on
   convertible debentures                                20,708              10,625

  Adjusted for income tax effect @ 40.00%                21,672              22,344
                                                     ----------          ----------

  Diluted income available to common
   stockholders                                         (32,508)            (33,515)

  Diluted weighted average # of shares
   outstanding                                        2,312,038           2,312,038
                                                     ----------          ----------

      Diluted EPS                                       (0.0141)            (0.0145)
                                                     ==========          ==========
                                                    antidilutive        antidilutive

</TABLE>

<TABLE> <S> <C>


<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S>                                         <C>
<PERIOD-TYPE>                                 6-MOS
<FISCAL-YEAR-END>                          MAR-31-1999
<PERIOD-END>                               SEP-30-1999
<CASH>                                         682,051
<SECURITIES>                                         0
<RECEIVABLES>                                1,546,545
<ALLOWANCES>                                    29,791
<INVENTORY>                                  9,306,609
<CURRENT-ASSETS>                            11,503,616
<PP&E>                                       1,509,994
<DEPRECIATION>                                 156,002
<TOTAL-ASSETS>                              13,674,771
<CURRENT-LIABILITIES>                       10,336,398
<BONDS>                                      1,119,693
<COMMON>                                         4,183
                                0
                                          0
<OTHER-SE>                                   2,233,402
<TOTAL-LIABILITY-AND-EQUITY>                13,674,771
<SALES>                                     16,944,112
<TOTAL-REVENUES>                            17,597,359
<CGS>                                       13,890,745
<TOTAL-COSTS>                               17,723,756
<OTHER-EXPENSES>                                   207
<LOSS-PROVISION>                                15,146
<INTEREST-EXPENSE>                             345,158
<INCOME-PRETAX>                              (126,397)
<INCOME-TAX>                                  (51,716)
<INCOME-CONTINUING>                           (74,888)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                  (74,888)
<EPS-BASIC>                                  (0.035)
<EPS-DILUTED>                                        0



</TABLE>


                                                                      Exhibit 99


Exhibit 99 - Year 2000 Compliance Discussion from Form 10 Filing

Year 2000 Compliance

The following discussion of the Year 2000 issue contains numerous "forward
looking 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 we 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.

<PAGE>


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 results 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.

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 clients, 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.

<PAGE>


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 Y2K, 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.




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