Registration of Securities (General Form) · Form 10
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-12G Form 10 74 327K
2: EX-3.I Certificate of Incorporation 10 34K
3: EX-3.II Bylaws of Apple Homes Corporation 10 43K
4: EX-10.1 Employment Agreement 5 31K
5: EX-10.2.1 Agreement 1 8K
6: EX-10.2.2 Agreement 1 8K
7: EX-16.1 Letter From Accountant 1 10K
8: EX-16.2 Letter of Serotta Maddocks Evans & Co., Cpa's 1 8K
9: EX-21 Subsidiaries 1 6K
10: EX-23.1 Consent 1 7K
11: EX-23.2 Consent 1 8K
12: EX-23.3 Consent 1 7K
13: EX-27 Financial Data Schedule 1 10K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
Apple Homes Corporation
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(Exact name of registrant as specified in its charter)
Delaware 13-3525328
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
124 North Belair Road
Evans Georgia 30809
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(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code 706-650-2015
Securities to be registered pursuant to Section 12(b) of the Act
None
Securities to be registered pursuant to Section 12(g) of the Act
Common Stock, $.002 Par Value
Item 1. Business
General Information
Apple Homes Corporation (the "Company") is a retailer of factory built
manufactured homes, known in the industry as manufactured housing. It presently
operates 12 retail sales locations-four in Augusta, Georgia, two in Thomson,
Georgia, and one each in Wrens, Washington, Statesboro and Waynesboro, Georgia
and Aiken and Anderson, South Carolina. It also operates a reconditioning and
used sales lot in Augusta, this lot houses its Mobile Air Systems subsidiary
offering air conditioning sales and service to manufactured home owners. All of
the Company's retail sales locations and other mobile home operations use the
trade name "Apple Homes".
The Company presently purchases homes for resale from six manufacturers
located in the southeastern United States. Purchases are financed through
wholesale floor plan financing lines totaling $10,275,000 provided by three
major financial institutions and three local banks. To promote retail sales and
generate additional fee income, the Company assists its customers in finding
mortgage financing for the purchase of homes and also places homeowners
insurance for home buyers.
The Company is also involved in development and sale of two adjoining real
estate subdivisions in Richmond County, Georgia. The sites, known as Mayfair
Acres and The Timbers, consist of 47 developed lots, of which seven lots remain
available for sale, and 10 rental homes owned by the Company. The Company also
owns 6.3 acres of undeveloped land in the area which it is presently considering
developing by installing roads and utilities and obtaining the necessary zoning
approval. The Company believes that the property may be subdivided into
approximately 40 lots for sale to retail purchasers of its manufactured homes.
The Company was organized as a Delaware corporation on April 17, 1989 under
the name PLAM Properties, Inc. It changed its name to Mayfair Homes Corporation
in 1993 and again to Apple Homes Corporation in 1997. It presently operates
three of its retail sales centers and its used sales lot under its own name and
the remaining nine retail sales centers through six wholly or partially owned
subsidiaries: Augusta Housing Center, Inc., which is 100% owned and operates one
center; Big Daddy's Mobile Homes, Inc., 80% owned and operating two centers;
Evans-Lanier, Inc., 80% owned and operating two centers; Apple Homes, Inc., 100%
owned and operating one center; J.C. Homes, Inc., 80% owned and operating one
center; and Tim Phillips Homes, Inc., 100% owned and operating two centers.
(2)
Industry Overview
Manufactured homes are complete single family residences built in a factory
and transported to the site on which they are to be located. These homes consist
of two types: manufactured homes, which are constructed on a chassis equipped
with wheels and are transported by tow trucks to their destination; and modular
homes, which are not equipped with a chassis and are transported on flat bed
trailers. Substantially all of the Company's sales are of manufactured homes.
Manufactured homes offer most of the amenities of and are generally built with
the same materials as site-built homes. They are produced in sections, also
referred to as "floors;" finished homes may consist of one or more sections.
Because of their lower costs of construction when compared to costs of
site-built homes, manufactured homes have historically served as one of the most
affordable alternatives for the home buyer. According to statistics compiled by
the Georgia Manufactured Housing Institute for 1998, the average cost per square
foot of a single-section manufactured home in the state of Georgia (where 84% of
the Company's sales originated in that year) averaged $23 for a manufactured
home, compared to an average cost of $55 per square foot for a site-built home
(in each case excluding land costs).
Since they are relatively less expensive than traditional housing,
manufactured homes have been an attractive means for home buyers to overcome the
obstacle of large down payments and high monthly mortgage payments. According to
the Manufactured Housing Institute, industry wide domestic shipments accounted
for 29.6% of the overall new housing market in the United States during 1998.
The use of manufactured housing in the southeastern United States, in which the
Company's primary market area is located, is even greater than for the nation as
a whole. The Georgia Manufactured Housing Association has reported that the
State of Georgia alone has more than 30 plants manufacturing housing and over
1,000 manufactured home retail sales locations. During 1997, according to the
National Conference of States on Building Codes and Standards, the states of
Georgia and South Carolina (which now comprise the principal market area for the
Company) ranked third and fifth in manufactured home shipments, and Georgia was
the leading producer of manufactured homes, a ranking it has held since 1984.
Notwithstanding the increase in demand in recent years, the manufactured
housing industry is cyclical and is affected by many of the same factors that
influence the housing industry generally, including inflation, interest rates,
availability of financing, regional economic and demographic conditions and
(3)
consumer confidence levels, as well as the affordability and availability of
alternative housing such as apartments, condominiums and conventional site-built
homes. Accordingly, there can be no assurance that demand will continue at
present levels or that the Company's plans of capitalizing upon it by expanding
the size of its retail sales operations will be successful.
Sales of manufactured homes are typically conducted in retail sales centers
whose operators range from small proprietors to large regional or national
dealerships, many of whom manufacture their own retail products. Because of
economies of scale, the ability to obtain larger rebates and discounts from
manufacturers and better financing for inventory and customers, these large
retail dealerships have a distinct advantage over small single location
operators. The Company's goal is to move its operations toward the level of
these large dealership networks.
The Company's Retail Operations
Commencing in 1992 with the acquisition of its first two retail sales
centers, the Company's sales operations have expanded substantially over the
past five years. Sales during this period, which are not necessarily indicative
of future performance by the Company, have been as follows:
· Download Table
Year Ended March 31,
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1999 1998 1997 1996 1995 1994
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Home Units Sold (1) 792 639 399 278 195 112
Retail Sales 12 9 6 3 3 2
Centers Owned (2)
Weighted Average 66 71 67 93 65 56
Unit Sales per
Center
(4)
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(1) Sales are divided between single-section and multi-section homes, with
single-section homes accounting for 34% and multi-section homes accounting
for 66% of sales in fiscal 1999. The range of home sale prices during
fiscal 1999 was $16,500 for the least expensive single-section unit to
$94,000 for the most expensive multi-section home, excluding land costs.
(2) Based on number of centers open at least three months during the period.
The Company believes that these statistics are typical for retail sales
dealerships in its primary market area. In addition to sales of new manufactured
homes, the Company also deals in used homes acquired in trade-ins, which account
for approximately 4% of sales.
Sales are conducted through commissioned retail sales representatives located at
each sales center. Each sales center typically has onsite at any given time from
15 to 20 manufactured home units in a variety of models and price ranges,
although some sales centers carry a smaller inventory. All units are equipped
with basic appliances and some are furnished, and every unit is ready to move
onto the customer's site on purchase.
To enhance sales, the Company provides assistance to its customers in locating
purchase money financing. The Company has agreements with several large retail
finance companies including Green Point, Bergen, Bombardier, Deutsche Bank and
Dynex, under which it introduces its customers who require purchase money
financing. The Company receives fees for these services in the form of financial
participation. Revenues from this source were $136,460 for fiscal 1998 and
$430,000 for fiscal 1999.
As part of its placement of retail financing for its customers, applications and
supporting documentation required by the lenders are submitted by the Company.
In certain cases, if a lender discovers a loan has been made on the basis of an
erroneous application, it will look to the Company for recourse. This practice,
which is common in the industry, has resulted in contingent recourse liability
to the Company that, at March 31, 1999 amounted to $859,000. Industry statistics
and Company performance indicate that an average loss of 10-15% of this amount
can be expected if the Company has to repossess a home. The Company does not
believe that this contingent liabilty is significant to its operations or
financial condition, however, as it is in a position to relieve itself of this
liability in any given case by repossessing and reselling the home in question.
The Company also receives significant revenues from various commissions and
rebates. The sources of these revenues include the placement of homeowner's
insurance for American Modern Insurance Company, the placement of advertising
in-house (which commenced in fiscal 1999), rebates on freight contracts for the
delivery of its inventory, the sale of repossessed homes for lending
institutions, furniture sales and other miscellaneous items. Total commission
and rebate income was $107,000 for fiscal 1998 and $231,000 for fiscal 1999.
(5)
The Company's retail sales centers each consist of a tract of land ranging from
one to six acres on which 15 to 20 manufactured home units are displayed, and a
sales office. The land on which all centers are located is leased by the Company
with the exception of one lot in Thomson Georgia which it purchased in March
1999 for $275,000 paid by a purchase money mortgage, and one lot formerly
operated in Pelzer South Carolina which it purchased in September 1998 for a
price of $50,000. The sales offices on the lots are manufactured homes used for
that purpose. The Company owns or has financed 7 offices, rents 2 offices from
unrelated parties, rents 3 offices from minority shareholders and rents 3
offices from the Company President The Company also owns three tow trucks and
two escort vehicles to transport units sold to customer sites, as well as other
necessary equipment.
Each sales center has personnel available to transport each purchased home to
the customer's site and to install and make it fully operational at the site.
Some of these personnel are Company employees, while others are independent
contractors who supply their own transportation equipment. The equipment and
personnel used for these activities typically service more than one location,
thus reducing overall costs of installation and transportation. The Company
believes that by expanding its retail sales network to new locations, it will be
able to enhance its profitability per inventory unit by emphasizing integration
of these activities among these new and existing sales centers.
In addition to its retail sales activities, the Company went into the air
conditioning sales and service business in January 1999 with the purchase of
Mobile Air Systems, Inc.("MAS"). The subsidiary was purchased from Robert Steed
for a price of $257,500, of which $30,000 was paid in cash and the balance by
issuing the owner 130,000 shares of Company Common Stock at its then market
price of $1.75 per share. Gross revenues for MAS during calendar 1998 were
$595,500 and its profit for the year was $76,349. As of the date of its purchase
by the Company, MAS had a net worth per its books of $76,449.
Real Estate Development Activities
The Company's original business, commenced in 1989, involved a real estate
subdivision and development in the Augusta, Georgia area known as Mayfair Acres.
The first phase of this development, which consists of 11 acres, contains 29
developed lots, and the remaining 6.7 acres are not yet developed. The developed
lots were acquired by the Company in 1989 for $30,000 and were developed at a
cost of $160,000. The Company is presently marketing the remaining seven
developed lots on the site, four of which include a manufactured home installed
(6)
on the lot. It is considering the development of the remaining 6.7 acres in
Mayfair Acres into a subdivision with approximately 40 lots for sale to
prospective retail purchasers.
In addition to its Mayfair Acres subdivision, the Company purchased 18 homes in
The Timbers, a subdivision located near Mayfair Acres. Nine of the homes were
purchased from Robert S. Wilson, a Company director and promoter, and Ted C.
Smith, a stockholder of the Company, for a purchase price of $200,000
(approximately the cost of these housing units to the sellers). The other nine
houses were acquired from LEAP Associates, a partnership of which Mr. Wilson is
an owner, for 70,500 shares of Common Stock. Ten of the 18 houses are rented and
eight have been sold under installment sales contracts for prices ranging from
$30,000 to $42,000.
In May 1999, the Company sold installment contracts on 18 of the homes in
Mayfair Acres and The Timbers for $320,000, leaving it with a total of 7 homes
and/or lots and the undeveloped acreage owned in the two sites.
Suppliers
The Company currently purchases manufactured homes from six manufacturers, all
located in the Southeastern United States. Two of these suppliers, General
Housing of Waycross, Georgia and Bellcrest Homes of Millen, Georgia accounted
for over 75% of inventory purchased in fiscal 1999. Eight of the Company's
retail sales centers sell General Housing homes exclusively, and the inventory
costs at those centers are borne by that supplier. The Company purchases
inventory units on a deal-by-deal basis and has one year contracts with each
supplier, the terms of which are reviewed annually. While the Company does not
anticipate any problems in continued supply of product from these suppliers and
believes that it can replace any of them by substituting the products of other
manufacturers located in the Southeastern region, the loss of any of its major
suppliers may have a material adverse effect on the Company's operations. Each
supplier offers incentive payments to the Company based upon its volume of
purchases. During fiscal 1999 these incentives amounted to an average of $2,150
per unit.
Dealer Financing
The Company finances purchases of manufactured housing units through "floor
plan" financing. Under these financing arrangements, the Company borrows the
purchase price for each manufactured home it acquires from a bank or other
(7)
lending institution pursuant to a master contract, each loan being secured by
the unit purchased with its proceeds. When the unit is sold to a retail
customer, the Company must pay off the loan and obtain a release of the lender's
security interest, in order to give the buyer free and clear title to the
property.
The Company now has floor plan financing contracts with six lenders, three of
whom are major financial institutions and three are local banks. The Company's
floor plan financing lines now total $10.275 million at interest rates of 1% to
2% over prime. The lines are reviewed and extended on an annual basis. E. Samuel
Evans, the Company's President, has personally guaranteed all of this financing
for which he receives an annual fee from the Company.
The Company believes that its lines of credit are sufficient to finance
purchases of inventory in its existing locations for the foreseeable future.
However, if its retail operations continue to increase, it may have to increase
them, as each retail sales center typically requires up to $500,000 to finance
inventory units on hand. The Company believes that new floor plan financing will
be available as needed to cover the requirements for its proposed new sales
centers, but there can be no assurance that this availability will continue to
exist or that the present interest rates and other credit terms it now enjoys
(which are subject to changes in lending practices of its present lenders and
other general economic conditions) will continue to be available. The Company
has no present commitments for any expanded dealer financing.
Competition
The retail manufactured home sales business is highly competitive, as capital
requirements for entry are relatively small. Competition is based primarily on
price, reputation for service and quality, depth of field inventory, sales
promotion and merchandising and terms and availability of retail customer
financing. In its existing sales areas (the 150 mile radius around Augusta,
Georgia) there are many manufactured home retail sales centers with which the
Company competes. The Company generally expects that any areas in which it opens
new retail sales centers will have similar numbers of competitors in the market
place. While the Company is larger than most of its competitors, at least one
competitor in the Augusta, Georgia area is substantially larger than the
Company, now operating over 30 retail sales locations. In addition, many
(8)
national and regional manufactured home producers operate their own retail sales
locations throughout the country. At least two of these producers are currently
operating in the Company's primary marketing areas and other companies (which
because of their size and integrated operations may offer better pricing and
terms of financing than the Company has available) may become competitors in the
future.
Government Regulation
There are a number of federal, state and local laws and regulations affecting
the manufacture, sale and financing of manufactured homes. Manufacturers are
governed by federal laws including the Department of Housing and Urban
Development's comprehensive national construction standards, affecting such
items as structural integrity, fire, safety, thermal protection and ventilation.
State and local building and zoning codes may also affect the quality, type and
number of manufactured homes the Company is permitted to sell within any given
geographic area. The Company believes that the homes it is currently selling
meet all of these federal, state and local laws and regulations.
The sale and financing of manufactured homes are also the subject of extensive
federal and local regulation. These include Federal Trade Commission rules
involving unfair credit and collection practices, Federal Reserve rules
requiring written disclosure of financing terms and information used as a basis
for denial of credit, and laws prohibiting discrimination in sales and lending
practices. In addition, the Company's activities as a mortgage broker and
insurance agent require licenses from state agencies which also govern allowable
charges and sales practices. The Company believes that it is currently in
compliance with all such governmental regulations.
Federal, state and local legislation and regulations are proposed from time to
time that, if enacted, could significantly affect the regulatory climate for
sales and financing of manufactured homes. It is not possible at this time to
predict what if any changes such legislation and regulations may have upon the
Company's business in the future.
Employees
At March 31, 1999, the Company had 94 full time employees, including 39 in
sales, 13 in transportation, installation and repair, and 42 in general or
administrative positions, as well as 110 independent contractors who are used
for site preparation and installation of homes. The Company has no collective
bargaining agreement with its employees and has not experienced any work
stoppages as a result of labor disputes. It considers that its relations with
its employees are good. All employees with the exception of sales personnel are
salaried; sales employees are paid by commission based upon their production.
(9)
Item 2. Financial Information
A. Summary Financial and Operating Data
Summary operating and financial data for the Company's five fiscal years ended
March 31,1995 through March 31, 1999 and balance sheets as of those dates are as
follows:
· Enlarge/Download Table
YEAR ENDED MARCH 31
1995 1996 1997 1998 1999
STMT OF OPERATIONS ------------------------------------------------------------------------------
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NET SALES (REVENUES) $ 6,768,965 $ 8,442,228 $ 15,549,376 $ 25,615,535 $ 33,776,250
INCOME (LOSS) FROM OPERATIONS 244,334 179,296 116,538 34,962 (247,196)
OTHER INCOME (LOSS) (137,835) (274,399) (518,346) 37,785 434,228
NET INCOME (LOSS) 106,499 (93,434) (439,526) (51,531) 104,304
INCOME (LOSS) PER COMMON SHARE 0.08 (0.10) (0.40) (0.03) 0.05
WEIGHTED AVG SHARES O/S 1,269,087 946,264 1,109,669 1,491,423 1,925,012
OPERATING DATA
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HOMES SOLD 195 278 399 639 792
NUMBER OF RETAIL CENTERS 3 3 6 9 12
WEIGHTED AVG UNITS SOLD / CTR 65 93 67 71 66
BALANCE SHEET DATA
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WORKING CAPITAL
(CURR ASSETS LESS CURR LIAB) $ (103,648) $ (36,090) $ (143,743) $ 640,812 $ 1,442,991
TOTAL ASSETS 3,804,957 3,442,001 6,628,919 8,331,753 12,906,584
LONG TERM OBLIGATIONS 510,769 528,485 1,085,323 491,508 1,054,316
SHAREHOLDERS' EQUITY 568,923 723,296 333,427 1,609,056 2,291,110
B. Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes thereto included
elsewhere in this Memorandum. The discussions of results, causes and trends
should not be construed to imply any conclusion that such results or trends will
necessarily continue in the future.
(10)
Results of Operations -- Fiscal Years ended March 31, 1997, March 31, 1998
and March 31, 1999
The following table shows the components of the results of operations for fiscal
years 1997, 1998 and 1999 in amounts and percentage of revenues (000 omitted):
· Enlarge/Download Table
YEAR ENDED MARCH 31
DESCRIPTION 1997 1998 1999
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Sales 15,549 100.0% 25,616 100.0% 33,776 100.0%
Cost of Sales 12,327 79.3% 20,544 80.2% 27,849 82.5%
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Gross Profit 3,222 20.7% 5,072 19.8% 5,927 17.5%
Operating Expenses:
Compensation 1,416 9.2% 2,355 9.2% 2,949 8.7%
Advertising 194 1.2% 353 1.4% 639 1.9%
Occupancy and vehicle 240 1.6% 358 1.4% 269 0.8%
Depreciation and amortization 38 0.2% 70 0.3% 98 0.3%
Insurance 101 0.6% 196 0.8% 223 0.7%
Professional fees 147 1.0% 219 0.9% 126 0.4%
Taxes and licenses 141 0.9% 296 1.2% 301 0.9%
Miscellaneous 829 5.3% 1,190 4.6% 1,569 4.6%
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Total Operating Expenses 3,106 20.0% 5,037 19.7% 6,174 18.2%
Other Income (Expense):
Commissions earned 37 0.2% 108 0.5% 231 0.6%
Rental income 92 0.3%
Interest income 49 0.3% 27 0.1% 88 0.3%
Other income (expense) (5) 0.0% 380 1.5% 18 0.1%
Finance participation 137 0.5% 430 1.3%
Interest expense (599) (3.8%) (614) (2.4%) (425) (1.3%)
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Total Other Income (Expense) (518) (3.3%) 38 0.2% 434 1.3%
Income (Loss) Before Income Tax
Provision and Minority Interest (402) (2.6%) 73 0.3% 187 0.5%
Income tax provision 33 0.2% 116 0.4% (73) (0.2%)
Minority interest in net income (71) (0.5%) (240) (0.9%) (10) (0.0%)
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Net Income (440) (2.9%) (51) (0.2%) 104 0.3%
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Comparison of Fiscal 1999 to Fiscal 1998. Sales in 1999 rose by approximately $8
million, or 32%, on an increase of 153 units sold, or 24%, primarily due to a
net increase of three sales lots in 1999. However, these greater sales did not
result in an increase in gross profit margin, which decreased as a percentage of
sales to 17.5% in 1999 from 19.8% in 1998. This decrease was due primarily to a
more competitive market which demands a decreased sales price per unit. Another
factor is the additional costs to implement governmental restrictions related to
the set-up and placement of homes. The Company is using inventory management
methods in an effort to address these conditions in fiscal 2000. Despite this
adverse condition, net profit for 1999 increased by $155,000 in 1999, or over
300%, due to two primary factors which offset the decrease in gross margin.
These were a reduction in operating costs from 19.7% of sales in 1998 to 18.2%
of sales in 1999 and an increase in other income from .1% of sales in 1998 to
1.2% of sales in 1999. These resulted from the following factors: (i) spreading
the operating costs over a greater sales base: (ii) an increase in commission,
rental, interest and finance participation income; and (iii) a large decrease in
interest expense due to the assumption of floor plan expense by manufacturers at
a number of retail sales centers featuring their products exclusively. Minority
(11)
Interest in Net Income decreased from $240,392 in Fiscal 1998 to $9,989 in
Fiscal 1999. This is due to an agreement between the Company and the minority
shareholders to pay bonuses based on performance. As a result of this new plan,
the Company paid $193,460 to the minority shareholders, which was recorded as
compensation. The effect of this was to reduce the profits in the minority
ownership subsidiaries, resulting in a reduction in the amount recorded as
Minority Interest in Net Income of Consolidated Subsidiaries.
Comparison of Fiscal 1998 to Fiscal 1997. Sales rose by approximately $10
million, or 65%, in 1998 on increased unit sales of 260, or 60%. This increase
was primarily attributable to a net increase of three sales lots in that year.
Gross margin dropped in 1998 by .9% from 20.7% in 1997 to 19.8% in 1998 due to
the same factors adversely affecting gross margin in 1999, although the effect
of these conditions was not as severe as in the latter year. The net loss was
reduced from $440,000 in 1997 to $51,000 in 1998 due almost entirely to a very
substantial increase in commission, interest and finance participation income
from $86,000 in 1997 to $642,000 in 1998. This increase resulted from better
terms the Company was able to negotiate with its suppliers because of the very
large increase in Company purchases from them.
Liquidity and Capital Resources
Since its formation in 1990, the Company has funded its operations and capital
expenditures primarily through contributions from its founders and private
placements of its equity securities and debt, including convertible notes. In
the most recent placements of securities made by the Company (i) in 1997, it
received a total of $ 485,000 in capital contributions through the conversion of
notes originally sold in 1996 and the sale of 200,000 shares of common stock in
a private offering, and (ii) in fiscal 1999 it received $202,500 from the sale
of convertible debentures and $100,000 from the sale of warrants in another
private placement.
As an addition source of capital, the Company recently sold to a local finance
company for $565,204 a total of 34 retail installment sales contracts held
received from the sale of lots and homes.
The Company has used these proceeds to open and supply inventory to new retail
locations and to improve its working capital position. The Company believes that
the proceeds from these placements, together with cash flow from its operations
and its present lines of floor plan financing, should provide it with sufficient
liquidity to conduct operations and maintain its expansion of sales for the next
several months. There can be no assurance that such will be the case, however,
particularly if general economic conditions result in a downturn in the sale of
housing in the Augusta Georgia market.
(12)
Forward Looking Statements
The discussion contained in this Section and elsewhere in this Memorandum
contain certain "forward looking statements" (within the meaning of that term as
defined in the Securities Act and the Exchange Act), about the Company's future
operations. These statements include, among other things, projections of
revenues from existing and future retail sales centers, the Company's plans to
open new sales centers and to obtain the needed floor plan financing for them,
and the Company's anticipation that this expansion will result in a substantial
increase in profitability. The likelihood of the Company's success in
undertaking these activities and achieving these results is based upon a number
of assumptions and estimates which are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of the
Company and which reflect business conditions that are subject to change. These
include adverse changes in the financial markets, which may in turn adversely
affect the Company's ability to borrow funds and the price at which those funds
will be available, changes in the mortgage market, which may adversely affect
the ability of the Company's customers to finance the purchase of new homes, and
in economic conditions in those areas in which the Company's retail sales
centers are located. As a result of these uncertainties, actual results may vary
substantially from these forward looking statements contained herein and
prospective investors should not place undue reliance on any of them.
C. Qualitative and Quantitative Disclosures about Market Risk.
The Company does not hold and has not held any derivative securities such as
options or other market risk sensitive instruments and, accordingly, is not
presently subject to the risks of investment in such vehicles.
Item 3. Properties
The Company's principal offices are located in building at 124 North Belair
Road, Evans, Georgia which it acquired in January 1999 for a price of $285,000.
The property has 3,340 square feet of modern office space and is adequate for
the Company's requirements for the foreseeable future. It was financed by a
$230,000 mortgage loan from Suntrust Bank personally guaranteed by E. Samuel
Evans, the Company's President and Robert S. Wilson, one of its directors and
original promoters. The mortgage is due in monthly installments of $2,115,
including interest at 7.25% per annum, with the balance of the principal due on
December 5, 2001.
(13)
The Company holds a continuing interest in the Mayfair Acres and Timbers
properties consisting of seven lots for sale (four with mobile homes installed
on them), 10 rental units and 6.7 acres of undeveloped land.
Eleven of the Company's retail mobile home sales lots, consisting of
approximately two to five acres each, are leased for a total rental of $260,852
per year. One lot at Thomson Georgia, consisting of 1.5 acres, was purchased by
the Company in March 1999 for a price of $275,000, payable in monthly
installments of $2,663 each, or the same amount the Company was formerly paying
as rent for the property to its owner. The Company also owns a lot in Pelzer
South Carolina formerly used a sales center. The property was acquired in 1998
for a price of $50,000.
The sales offices on the lots are manufactured homes used for that purpose.
Three of these offices are leased from E. Samuel Evans, the Company's president
and three are leased from other shareholders. The Company owns three tow trucks
and two escort vehicles to transport units sold to customer sites, as well as
five service trucks and other necessary sales and office equipment. Total book
value of these vehicles and equipment was $120,898 at March 31, 1999 against
outstanding financing owing by the Company of $114,962.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information regarding the beneficial ownership of
the Company's Common Stock at June 1, 1999, of (i) each person who is known by
the Company to own beneficially more than five percent of its Common Stock, (ii)
each executive officer and director of the Company, and (iii) all officers and
directors of the Company as a group. The Company has been advised by each
stockholder identified in the table that he possesses all voting and investment
power with respect to the stock beneficially owned by him.
(14)
Name, Address Shares Percentage of
and Affiliation Beneficially Outstanding
with Company Owned Shares
--------------- ------------ --------------
E. Samuel Evans, 195,000(1) 9.3%
President and Director
845 Vivian Court
Evans GA 30809
Robert S. Wilson, 194,138(2) 9.3%
Director(2)
4715 Lake Front Drive
Martinez, Georgia 30907
Richard Belz, Director -0- -0-
101 Fairchild Avenue
Plainview NY 11803
Laura Rollins, Chief 3,000 0.1%
Financial Officer,
Secretary and Treasurer
3690 Inverness Way
Martinez GA 30907
Bryce N. Batzer, -0-(3) -0-%
Director
2263 N.E. 26th Street
Lighthouse Point, FL
33064
All officers and 392,138 18.7%
directors as a group
(five persons)
---------------------------
(1) Does not include 200,000 shares issuable on exercise of Class A Warrants
owned by Mr. Evans.
(2) Mr. Wilson resigned as Chairman of the Board of the Company as of June 30
1999 but remains a director. This table does not include 51,000 shares held
by Mr. Wilson's wife, 2,813 shares held by Stock Builders Corp., a
corporation of which Mr. Wilson and members of his immediate family own
41.67%, and 328,000 shares issuable upon exercise of Class A Warrants owned
by him.
(3) Does not include 128,672 shares held by trusts agreement for the benefit of
members of his family, 33,000 shares issuable on conversion of $90,000 in
Convertible Debentures and 50,000 shares issuable upon exercise of Class A
Warrants issued to him as a director.
(15)
Item 5. Directors and Executive Officers
The directors and executive officers of the Company are:
Name Age Position
---- --- --------
E. Samuel Evans 50 President, CEO and
Director
Robert S. Wilson 76 Director
Bryce N. Batzer 78 Director
Richard Belz 43 Director
Cynthia D. Holley 36 Vice President-
Operations
Chester C. Helmick 57 General Sales Director
Laura H. Rollins 43 CFO, Secretary and
Treasurer
E. Samuel Evans has served as president and a director of the Company since
1992. Prior to that date his principal occupation was as president and owner of
Augusta Housing Center Inc. from its formation in 1982 until its sale to the
Company in 1992. Mr. Evans is a graduate of Augusta College with a degree in
business administration in 1971 and a graduate of Woodrow Wilson College of Law
in Atlanta, Georgia in 1979. He is licensed to practice law in the State of
Georgia.
Robert S. Wilson has been chairman of the board of the Company since its
founding in 1989. He has resigned as Chairman effective June 30. 1999. He served
as its president and chief executive officer until 1992 and as secretary and
treasurer until 1998. Prior to his founding of the Company, Mr. Wilson was
active for 34 years in the securities industry as an executive with S.D. Cohn &
Company, a retail broker/dealer in New York City from 1981 to 1984 and, prior to
that date, as a sales representative or wholesaler of mutual funds with several
other firms. From 1986 to 1989, he was self-employed as a real estate broker and
from 1984 to 1986, he was an employee of Lease/Purchase Corporation, a real
estate dealer and developer. Until 1999, he held a real estate sales license in
the State of New York and is a 1947 graduate of Cornell University.
Bryce N. Batzer has been a director of the Company since 1994. He is currently
the owner of Cedarbrook Development Company Inc., a Florida land and home
developer which he organized in 1987. He is also vice president of American
Marine Products Inc., a manufacturer of marine windows, boat windshields and
other marine products. Mr. Batzer was the president of Plastiline Inc., a
publicly held company, from 1955 through 1976, and until 1996 he served Florida
Coast Banks Inc. for over 25 years as a member of the executive committee,
chairman of the loan committee and chairman of the compensation committee. Mr.
Batzer was a founder and board member of the Broward Manufacturers Association
(16)
and a founder, director and chairman of the Broward Industrial Development
Board, both of which are instrumental in developing an industrial economic base
for Broward County, Florida. He is a graduate of Syracuse University, holding a
bachelor's degree in industrial engineering.
Laura H. Rollins joined the Company as Comptroller in August, 1998. She
previously worked for the Company's auditors, Serotta, Maddox, Evans & Co. for
one year and for C. C. McGregor & Co. of Columbia, South Carolina for the prior
two and one-half years. She is a certified public accountant licensed in South
Carolina and Georgia and a graduate of the University of North Carolina. She is
a member of the AICPA and the South Carolina and Georgia Societies of CPA's.
Richard Belz was elected a director of the Company in November 1998. He has been
a principal and officer of Redstone Securities, Inc. since 1989. He is a
licensed securities representative and certified public accountant.
Cynthia D. Holley has been an employee of the Company since October 1995 as
office manager and administrative assistant and was promoted to her present
position in April 1999. She is a graduate of Mercer University with a BBA in
marketing management and holds certificates as human relations specialist and
GMHA housing consultant.
Chester C. Helmick joined Augusta Housing Center, one of the Company's
subsidiaries, in 1984 as a housing consultant and has served the Company in
various managerial positions since its acquisition of that subsidiary. He was
elected to his present position with the Company in March 1999. Mr. Helmick is
retired from the United States Army in which he served for 20 years.
Mr. Wilson and Mr. Evans may be deemed promoters of the Company. They, members
of their families, and Mr. Batzer have been involved in several transactions
with the Company, described in "Certain Transactions".
Each director serves for a term of one year and is elected at the annual meeting
of shareholders. The Company's officers are appointed by its Directors and hold
office at their discretion.
(17)
Item 6. Executive Compensation
The following table sets forth information concerning total compensation paid
by the Company during its last three fiscal years to the Company's chief
executive officer and its officers and directors as a group:
Year Ended
Name Position March 31 Compensation (1)
---- -------- -------- ----------------
E. Samuel Evans President 1999 $ 110,332
1998 $ 105,741
1997 $ 94,259
All directors and officers 1999 $ 307,182
as a group (6 in number) 1998 $ 259,211
1997 $ 156,759
----------------
(1) This compensation consisted entirely of salary. It did not include
automobile allowances in the amount of $18,000 paid to Mr. Evans in fiscal
1998, the cost of health insurance benefits, or the guarantee fee paid
annually to Mr. Evans for his personal guarantee of the Company's floor
plan financing. See "Certain Relationships and Related Transactions".
In fiscal 1997, 1998 and 1999, the Company granted a total of 200,000 Class A
Warrants each to Messrs. Wilson and Evans. These grants were made in
consideration for services they rendered to the Company. The Warrants had no
significant value at the dates they were issued.
Mr. Batzer and Mr. Belz serve as directors for minimal cash compensation but are
reimbursed for out-of-pocket expenses in attending to the affairs of the
Company. Mr. Batzer has also been granted 50,000 Class A Warrants for his
services.
The Company has entered into an employment agreement terminating on March 31,
2000 with Mr. Evans calling for compensation of $96,000 per year plus bonuses to
be determined by the Board of Directors based upon profitability of the
Company's operations. The employment contract also contains a covenant not to
compete with the Company for a period of one year following termination of
employment.
Equity Incentive Plan
---------------------
On April 26, 1996 the Company adopted an Equity Incentive Plan and reserved 1
million shares for issuance pursuant to options and awards granted under the
Plan. All full time employees are eligible for participation in the Plan,
including senior management and directors. All awards and options issued under
the Plan must be approved by a committee of the Board of Directors not including
members of senior management, which will fix the terms of the options and awards
granted. At this date no such awards or options remain in effect.
(18)
Item 7. Certain Relationships and Related Transactions
The Company and its subsidiaries have engaged in the following transactions with
officers and directors of the Company and members of their immediate families
since April 1, 1998:
1. On May 24, 1999, the Company paid off a mortgage loan in the amount of
$114,424 from McDuffie Bank & Trust Co. of Thomson, Georgia, the proceeds
of which were used to repay a loan of $40,000 made to purchase the Mayfair
Acres property and to pay for the development of the lots and site
improvements on the property. This bank loan had been personally guaranteed
by Messrs. Evans and Wilson, and in consideration for giving their personal
guarantees, the Company had issued to each of them 20,000 shares of Common
Stock in March 1994.
2. Mr. Evans has personally guaranteed payment of the Company's obligations
under its existing floor plan lines of credit. For these guarantees, the
Company has paid him a fee which during fiscal 1999 amounted to $147,560.
3. The Company employs Sheryl Evans, wife of Mr. Evans, as consultant in the
decoration and furnishing of mobile homes it sells to its retail customers.
During fiscal 1999, Mrs. Evans received $152,725 for her services to the
Company in this capacity, and incurred approximately $24,000 in expenses
for the purchase of materials used in Company displays.
4. On April 28, 1999, the Company purchased two manufactured homes from Bryce
Batzer, a director of the Company, for a total purchase price of $62,349,
which was approximately his cost in the homes. On that day, Mr. Batzer used
the proceeds from the sale to acquire a $65,000 convertible debenture of
the Company. The remaining $2,651 was treated as a miscellaneous expense of
the Company.
5. The Company rents three mobile homes from E. Samuel Evans for use as sales
offices on its lots in Augusta and Statesboro, Georgia and Anderson, South
Carolina. Total rental for these homes is $33,446 per year.
6. On October 1, 1998, the Company acquired Southern States Lenders, Inc. a
local Augusta Georgia mortgage lender and servicer, for a price of $20,000.
After coming to the conclusion that this acquisition would not serve the
Company's best interests, in April, 1999 it distributed to its shareholders
the shares it held in Southern States, and certain directors and officers
of the Company, including Messrs. Evans and Wilson, acquired the remaining
shares of that company. No transactions undertaken by Southern States have
been recorded on the Company's books. The Company has recovered from
Southern States its entire investment in that company and has no remaining
connections with it.
The Company believes that these transactions with its officers and shareholders
have been and will be on terms no less favorable to the Company than those
available from unaffiliated parties.
(19)
Item 8. Legal Proceedings
The Company is currently a defendant in several lawsuits, none of which is
material to its operations or would, in the event of an adverse decision, be
materially adverse to its business.
Item 9. Market Price and Dividends on the Registrant's Common Equity and
Related Stockholder Matters
The Company's Common Stock have traded on the OTC Bulletin Board since May 11,
1998. The following table sets forth the high and low bid and asked prices for
both securities and the volume of trading on a quarterly basis since that date.
Quarter Ended Bid Asked
------------- --- -----
June 30, 1998 3.00--9.12 4.00--9.62
September 30, 1998 3.50--5.62 3.62--6.00
December 31-1998 0.94--3.68 1.75--4.50
March 31, 1999 1.75--3.25 1.75--4.00
June 30 1999 1.62--2.37 1.87--3.00
On June 30 1999 the Common Stock was quoted at 2.12 bid and 2.37 asked.
Item 10 Recent Sales of Unregistered Securities
Since April 1, 1996, the Company has issued shares of Common Stock, warrants to
purchase Common Stock and debentures convertible into Common Stock in the
following transactions. None of these securities was registered under the
Securities Act of 1933 on the basis of the exemptions stated below.
1. In June 1996 the Company issued to 19 purchasers a total of $600,000 in
debentures convertible at $2.00 per share into Common Stock; the purchasers
also acquired for no additional consideration warrants to purchase 600,000
shares of Common Stock for an exercise price of $6.50 per share. This
issuance was made pursuant to the provisions of the Rules of Regulation D,
including Rule 504,and was consequently exempt from registration.
2. In June 1997 $481,500 of the foregoing debentures were converted into
240,750 shares of Common Stock at the conversion price of $2.00 per share.
This issuance was exempt from registration pursuant to Section 3(a)9 of the
Act.
(20)
3. During 1998 a total of $77,500 in debentures issued by the Company in a
private offering in 1993 were converted into 62,000 shares of Common Stock
in accordance with their terms. The issuance of these shares was also
exempt from registration by reason of the provisions of Section 3(a)9.
4. In December 1997 the Company issued to 12 purchasers a total of 201,172
shares of Common Stock for a price of $5.00 per share, or a total of
$1,005,860. As part of the transaction, the agent placing these shares was
granted the right to purchase for a price of 10 cents per warrant 100,000
warrants to purchase shares of Common Stock at $6.50 per share and issued
75,000 shares of Common Stock. This transaction was conducted pursuant to
Regulation D, including Rule 504, and was therefore exempt from
registration under the Act.
5. From January to April 1999, the Company issued to a total of eight
investors, including Bryce Batzer, one of its directors, a total of
$202,500 in debentures convertible into Common Stock at a price of $4.00
per share. This issuance was conducted pursuant to the provisions of
Regulation D, including Rule 506, and was thus exempt from registration
under the Act. The debentures have been legended as "restricted
securities", as that term is defined in Rule 144, and may not be
transferred except in accordance with the provisions of that Rule.
6. During fiscal 1999 the Company issued a total of 12,000 shares to two
persons for the performance of internal financial reporting services and
25,000 shares to a financial public relations firm for assistance in
preparing press releases and reports to stockholders. These shares were
issued as "restricted shares" under Section 4(2) of the Act and Rule 144,
are legended as such and may not be sold or trasferred except in compliance
with Rule 144.
Item 11. Description of Registrant's Securities to be Registered
Common Stock
The Company is authorized to issue 10,000,000 shares of Common Stock, $.002 par
value. At June 30, 1999, there were 2,091,539 shares of Common Stock issued and
outstanding, owned by 61 stockholders of record. Based on its inquiries with the
market makers for the Common Stock, the Company believes there to be at least
250 beneficial owners holding their shares in brokerage accounts. The following
description of the Company's securities does not purport to be complete and is
subject to and qualified in its entirety by reference to the Certificate of
Incorporation and By-laws of the Company and the provisions of applicable law.
Each holder of Common Stock is entitled to all rights and privileges of holders
of common stock under Delaware law, which provides that: (1) such holders are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of legally available funds; (2) in the
event of the liquidation, dissolution or winding up of a corporation, such
holders are entitled to share ratably in all assets remaining after the payment
of liabilities and (3) such holders do not have preemptive rights or other
(21)
rights to subscribe for additional shares. There are no redemption or sinking
fund provisions applicable to the Common Stock. Each Common Stock holder has the
right to one vote for each share he owns. As there is no cumulative voting for
the election of directors or any other purpose, the persons holding a majority
of the outstanding shares voted in any election of directors will be able to
elect all directors. All outstanding shares of Common Stock are duly authorized,
validly issued, fully paid and non-assessable. All shares of Common Stock are
issued in registered form and are freely transferable, subject to applicable
securities laws and to restrictive agreements between the Company and the
holders of such shares.
Transfer Agent
The Transfer Agent for the Common Stock and Class A Warrants is OTC Corporate
Transfer Service Company, P.O. Box 501, Hicksville, New York 11801
(516-433-6503).
Item 12. Indemnification of Directors and Officers
Section 102(b)(7) of the Delaware General Corporation Law grants corporations
the right to limit or eliminate the personal liability of their directors for
monetary damages for breach of their fiduciary duty except for breaches of the
director's duty of loyalty to the corporation or its stockholders, for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, for certain transactions involving unlawful payments on
account of dividends or repurchase or redemption of the corporation's stock, and
for transactions in which the directors derive an improper personal benefit. The
Company's Certificate of Incorporation provides for the elimination of personal
liability of a director to the Company and its stockholders for monetary damages
for the breach of the director's fiduciary duty to the full extent allowable
under Section 102(b)(7).
Section 145 of the Delaware General Corporation Law grants corporations the
right to indemnify their directors, officers, employees and agents against
expenses, judgment, fines and other amounts paid pursuant to settlement of any
pending, completed or threatened legal action to which any of such persons
becomes a party by reason of the fact that he is or was a director, officer,
employee or agent of the corporation so long as the indemnity has acted in good
faith and in a manner he reasonably believes to be or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, has had no reasonable cause to believe that his conduct was
unlawful. The Company's Certificate of Incorporation provides for
indemnification of such persons to the full extent allowable under applicable
law.
(22)
Item 13. Financial Statements and Supplementary Data
See the attached financial statements listed in Item 15.
Item 14. Changes in Registrant's Certifying Accountants
The Company's consolidated financial statements were previously audited by
Cherry Bekaert & Holland LLP as of and for the year ended March 31, 1997 and by
Serotta Maddocks Evans & Co. as of and for the year ended March 31, 1998. The
Company in March, 1998 decided, with approval by the Board of Directors, to
dismiss Cherry Bekaert & Holland LLP and change to Serotta Maddocks Evans & Co.
On March 18, 1999, the Company, with the approval by the Board of Directors,
decided to change audit services from Serotta Maddocks Evans & Co. to Gifford,
Hillegass & Ingwersen, P.C. This decision was based on the fact that Serotta
Maddocks Evans & Co. does not provide audit services to SEC reporting entities.
The reports of Cherry Bekaert & Holland LLP and Serotta Maddocks Evans & Co.
over the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with the audits for the two most recent fiscal years and through
March 18, 1999, there have been no disagreements with Cherry Bekaert & Holland
LLP or Serotta Maddocks Evans & Co. on any matter of accounting principles or
practices, financial statements disclosure, or auditing scope or procedure,
which disagreements if not resolved to the satisfaction of Cherry Bekaert &
Holland LLP and Serotta Maddocks Evans & Co. would have caused them to make
reference thereto in their report on the financial statements for such years.
There have been no reportable events during the two most recent fiscal years and
through March 18, 1999.
(23)
Item 15. Financial Statements and Exhibits
Financial Statements
Item Page No.
---- --------
Report of Gifford Hillegass & Ingwersen, P.C. F-1
Independent Accountants
Consolidated Balance Sheets as of March 31, 1998 F-3
and March 31, 1999
Consolidated Statement of Operations for the F-5
years ended March 31, 1997, March
31, 1998 and March 31, 1999
Consolidated Statement of Changes in F-6
Shareholders' Equity for the years ended
March 31, 1997, March 31, 1998 and March 31, 1999
Consolidated Statement of Cash Flows for the year F-7
ended March 31, 1997, March 31, 1998 and March 31, 1999
Notes to Financial Statements F-9
Report of Serotta Maddocks Evans & Co., CPA's F-23
Independent Accountants
Consolidated Balance Sheet as of March 31, 1998 F-24
Consolidated Statement of Operations F-25
for the year ended March 31, 1998
Consolidated Statement of Changes in Shareholders' Equity F-26
for the year ended March 31, 1998
Consolidated Statements of Cash Flows for the year ended F-27
March 31, 1998
Notes to Financial Statements F-28
Report of Cherry Bekaert & Holland LLP, F-35
Independent Accountants
Consolidated Balance Sheet as of March 31, 1997 F-36
Consolidated Statement of Operations F-38
for the year ended March 31, 1997
Consolidated Statement of Changes in Shareholders' Equity F-39
for the year ended March 31, 1997
Consolidated Statements of Cash Flows for the year ended F-40
March 31, 1997
Notes to Financial Statements F-41
Exhibits
3(i) Certificate of Incorporation of the Company, E-1
as amended
3(ii) By-laws of the Company E-11
10.1 Employment Agreement between the Company and E. E-21
Samuel Evans dated April 26, 1996
10.2.1 Rental Agreement between the Company and E. E-26
Samuel Evans dated February 15, 1995
covering the rental of manufactured home sales
office
10.2.2 Rental Agreement between the Company and E-27
E. Samuel Evans dated January 1, 1997 covering
the rental of a manufactured home sales office
16.1 Letter re changes in certifying accountants E-28
from Cherry, Bekaert & Holland, LLP
16.2 Letter re changes in certifying accountants E-29
from Serotta Maddocks Evans & Co., CPA'S
21 List of subsidiaries of the Company E-30
23.1 Consent of Independent Accountants E-31
Cherry Bekaert & Holland, LLP
23.2 Consent of Independent Accountants E-32
Serotta Maddocks Evans & Co., CPA'S
23.3 Consent of Independent Accountants E-33
Gifford Hillegass & Ingwersen, P.C.
27 Financial Data Schedule
(24)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Apple Homes Corporation and Subsidiaries
Evans, Georgia
We have audited the accompanying consolidated balance sheet of Apple Homes
Corporation and Subsidiaries at March 31, 1999, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
consolidated financial statements of Apple Homes Corporation as of March 31,
1998 were audited by other auditors whose report dated June 15, 1998 (except for
Notes 13 and 16, dated June 23, 1999) expressed an unqualified opinion on those
statements. The consolidated financial statements of Apple Homes Corporation as
of March 31, 1997 were audited by other auditors, whose report dated January 26,
1998 expressed an unqualified opinion on those statements. As discussed in Note
M to these consolidated financial statements, the consolidated financial
statements for March 31, 1998 and 1997 have been adjusted to reflect correction
of errors related to these years.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
F-1
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Apple Homes
Corporation and Subsidiaries as of March 31, 1999, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Gifford, Hillegass & Ingwersen, P.C.
-----------------------------------------
GIFFORD, HILLEGASS & INGWERSEN, P.C.
June 23, 1999
F-2
· Enlarge/Download Table
APPLE HOMES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
====================================================================================
Assets
March 31,
-------------------------
1999 1998
------------------------------------------------------------------------------------
Current assets
Cash $ 683,452 $ 922,176
Accounts receivable 781,723 240,445
Rebates receivable 409,011 --
Other receivable 57,645 165,766
Inventories (Notes C and F) 8,317,210 5,251,617
Other current assets 18,116 95,087
Deferred taxes (Note J) 107,520 74,531
Notes receivable, current portion (Note E) 544,955 42,883
----------- -----------
Total current assets 10,919,632 6,792,505
----------- -----------
Property and equipment, net (Notes D and H) 1,235,876 402,160
----------- -----------
Other assets
Notes receivable, net of current portion (Note E) 184,215 679,761
Deferred taxes (Note J) -- 78,102
Deferred loan costs, net of accumulated
amortization of $92,954 and $74,954 89,325 87,050
Goodwill, net of accumulated amortization
of $39,747 and $29,979 (Note P) 434,341 292,175
Other assets 43,195 --
----------- -----------
Total other assets 751,076 1,137,088
----------- -----------
TOTAL ASSETS $12,906,584 $ 8,331,753
=========== ===========
====================================================================================
F-3
====================================================================================
Liabilities and Stockholders' Equity
March 31,
-----------------------------
1999 1998
------------------------------------------------------------------------------------
Current liabilities
Floorplan payable (Note F) $ 7,993,154 $ 4,641,509
Accounts payable 746,969 421,493
Sales tax payable 170,749 207,009
Accrued salaries and commissions 90,926 230,799
Other accrued liabilities 195,640 309,490
Customer deposits 132,037 96,704
Income tax payable 18,826 --
Due to minority stockholders 40,407 128,440
Notes payable, current portion (Notes G and H) 87,933 116,249
------------ ------------
Total current liabilities 9,476,641 6,151,693
------------ ------------
Long term liabilities
Notes payable (Notes G and H) 1,054,316 491,508
------------ ------------
Minority interest in net assets of
consolidated corporation 84,517 79,496
------------ ------------
Commitments and contingencies (Note O)
Stockholders' equity
Common stock, $.002 par value; authorized
10,000,000 shares; 2,091,539 and
1,790,614 issued and outstanding 4,183 3,581
Additional paid-in capital 2,727,809 2,150,661
Retained deficit (440,882) (545,186)
------------ ------------
Total stockholders' equity 2,291,110 1,609,056
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,906,584 $ 8,331,753
============ ============
=====================================================================================
The accompanying notes are an integral part of these financial statements.
F-4
APPLE HOMES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
======================================================================================================================
Year ended March 31,
1999 1998 1997
----------------------------------------------------------------------------------------------------------------------
Sales $ 33,776,250 $ 25,615,535 $ 15,549,376
Cost of Sales 27,849,088 20,543,498 12,327,352
------------ ------------ ------------
Gross Profit 5,927,162 5,072,037 3,222,024
------------ ------------ ------------
Operating expenses
Compensation 2,948,697 2,354,711 1,416,052
Occupancy and vehicle 269,482 357,735 239,413
Advertising 639,072 352,610 194,151
Insurance 223,001 196,223 101,373
Taxes and licenses 301,447 296,081 140,489
Professional fees 125,805 219,417 147,383
Depreciation and amortization 97,562 70,059 37,980
Other 1,569,292 1,190,239 828,645
------------ ------------ ------------
Total operating expenses 6,174,358 5,037,075 3,105,486
------------ ------------ ------------
Operating income (loss) (247,196) 34,962 116,538
Other income (expense)
Finance participation 429,814 136,460 --
Rental income 92,200 -- --
Interest income 88,140 27,137 49,457
Commissions 231,183 107,666 36,851
Other income (expense) 17,528 380,082 (5,332)
Interest expense (424,637) (613,560) (599,322)
------------ ------------ ------------
Total other income (expense) 434,228 37,785 (518,346)
------------ ------------ ------------
Income (loss) before income tax provision and minority interest 187,032 72,747 (401,808)
Income tax (provision) benefit (72,739) 116,114 33,333
Minority interest in net income of consolidated subsidiaries (9,989) (240,392) (71,051)
------------ ------------ ------------
NET INCOME (LOSS) $ 104,304 $ (51,531) $ (439,526)
============ ============ ============
Per share data: (Note I)
Weighted average number of shares outstanding 1,925,012 1,491,423 1,109,669
Net income (loss) per share $ 0.05 $ (0.03) $ (0.40)
======================================================================================================================
The accompanying notes are an integral part of these financial statements.
F-5
APPLE HOMES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years Ended March 31, 1999, 1998, and 1997
===================================================================================================================================
Additional Retained
Number of Common Paid-in Earnings
Shares Stock Capital (Deficit) Total
-----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 1,067,849 $ 2,136 $ 775,289 $ (54,129) $ 723,296
Issuance of common stock 99,118 198 49,459 -- 49,657
Net loss -- -- -- (439,526) (439,526)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1997, as restated (a) 1,166,967 2,334 824,748 (493,655) 333,427
Issuance of common stock:
Stock offering / services, as restated (a) 268,672 537 711,587 -- 712,124
Debt disposition 266,475 533 484,467 -- 485,000
Residential land and manufactured homes 88,500 177 129,859 -- 130,036
Net loss, as restated (a) -- -- -- (51,531) (51,531)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1998, as restated (a) 1,790,614 3,581 2,150,661 (545,186) 1,609,056
Issuance of common stock:
Professional services 66,925 134 88,616 -- 88,750
Debt disposition 104,000 208 161,292 -- 161,500
Purchase of subsidiary 130,000 260 227,240 -- 227,500
Sale of warrants -- -- 100,000 -- 100,000
Net income -- -- -- 104,304 104,304
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1999 2,091,539 $ 4,183 $ 2,727,809 $ (440,882) $ 2,291,110
=========== =========== =========== =========== ===========
(a) Reference Note M for explanation of restated balances and prior period adjustments.
====================================================================================================================================
The accompanying notes are an integral part of these financial statements.
F-6
APPLE HOMES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
============================================================================================================================
For the Year Ended March 31,
-----------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 104,304 $ (51,531) $ (439,526)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Bad debt expense 51,101 21,324 --
Bad debt recovery -- (76,602) --
Deferred income taxes 45,113 (116,114) (29,933)
Depreciation and amortization 97,562 70,059 37,980
Issuance of common stock for
professional services 74,000 -- 49,657
Issuance of common stock in lieu of
payment of interest expense 38,750 -- --
Gain on sale of assets -- (190,137) (2,500)
Minority interest in net income of
consolidated subsidiary 9,989 240,392 71,051
Changes in assets and liabilities, net of effects
from purchase of subsidiary:
Accounts receivable (505,536) (195,431) 73,726
Other receivables (289,790) 98,686 (180,080)
Inventories (2,767,830) (830,859) (2,215,125)
Other current assets 76,971 (86,250) (1,988)
Notes receivable (337,627) (393,507) (127,748)
Other assets (15,356) 14,435 57,995
Floorplan payable 3,351,645 747,384 2,168,133
Accounts payable 310,524 (78,766) 359,826
Accrued expenses (317,992) 458,980 182,533
Customer deposits 35,333 (9,968) 75,223
Other liabilities 18,826 (2,009) 27,009
----------- ----------- -----------
Net cash provided by (used in) operating activities (20,013) (379,914) 106,233
----------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment (257,783) (145,022) (161,803)
Excess of cash acquired over cash paid for
purchsed subsidiary 44,805 -- --
Proceeds from the sale of developed
residential land and manufactured homes -- 292,000 2,500
Advances to related entities -- 132,999 (64,099)
----------- ----------- -----------
Net cash provided by (used in) investing activities (212,978) 279,977 (223,402)
----------- ----------- -----------
============================================================================================================================
F-7
===========================================================================================================================
For the Year Ended March 31,
-----------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on notes payable $ (181,346) $ (402,891) $ (68,461)
Proceeds from issuance of notes payable 188,889 -- 862,027
Payments made for loan cost (20,275) -- --
Additions to deferred underwriting cost -- -- (200,926)
Proceeds from issuance of common stock and warrants 100,000 1,058,312 45,528
Distributions paid to minority stockholders -- (185,393) (111,499)
Due to/from minority stockholders, net (93,001) 128,440 --
Repayments on advances from officers -- (19,000) (34,082)
----------- ----------- -----------
Net cash provided (used) by financing activities (5,733) 579,468 492,587
----------- ----------- -----------
Net increase (decrease) in cash (238,724) 479,531 375,418
Cash, beginning of year 922,176 442,645 67,227
----------- ----------- -----------
Cash, end of year $ 683,452 $ 922,176 $ 442,645
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 533,881 $ 602,000 $ 503,982
=========== =========== ===========
Cash paid during the year for income taxes $ 8,770 $ -- $ --
=========== =========== ===========
Non cash investing and financing activities:
Financed property and equipment purchases $ 644,449 $ 35,036 $ --
Purchased subsidiary through
Issuance of common stock 227,500 -- --
Seller financing 20,000 -- --
Repossessed mobile home units
converted to inventory 280,000 -- --
Converted developed residential land to:
Inventory -- 449,314 --
Property and equipment -- 132,477 --
Note payable and interest converted to common stock 98,750 -- --
Debentures converted to common stock 77,500 485,000 --
Issuance of stock for professional services 74,000 150,000 --
Developed residential land received in exchange for:
Accounts receivable -- 51,134 --
Notes receivable -- 210,591 --
Common stock -- 130,000 54,700
Transfer of deferred underwriting cost against
related capital contributio -- 346,152 --
===========================================================================================================================
The accompanying notes are an integral part of these financial statements.
F-8
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE A - NATURE OF BUSINESS
The principal operations of Apple Homes Corporation and its subsidiaries (the
"Company") consist of the sale and installation of manufactured homes, primarily
in the southeastern United States. The subsidiaries of Apple Homes Corporation
consist of the following:
Name Location Percent Ownership
--------------------------------------------------------------------------------
Augusta Housing Center, Inc. Augusta, Georgia 100%
Big Daddy's Mobile Homes, Inc. Augusta, Georgia 80%
Evans-Lanier, Inc. Thomson, Georgia 80%
Apple Homes, Inc. Waynesboro, Georgia 100%
J. C. Homes, Inc. Augusta, Georgia 80%
Tim Phillips Homes, Inc. Thomson, Georgia 80%
Mobile Air Systems, Inc. Augusta, Georgia 100%
All subsidiaries conduct business in the name of Apple Homes. The Company
extends customary trade terms to some of its customers, all of whom are located
in the southeastern United States.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned and majority owned subsidiaries. All material intercompany
accounts and transactions are eliminated in consolidation.
Management Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Receivables
The Company uses the allowance method to provide for recognition of bad debt.
F-9
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories are stated at the lower of cost or market and are determined using
the specific identification method.
Property and Equipment
Property and equipment are stated at cost. Maintenance and repairs are charged
to expense as incurred, and renewals and betterments are capitalized. Provisions
for depreciation are charged to income over the estimated useful lives of the
assets using methods applicable for income tax purposes, which do not differ
significantly from generally accepted accounting principles.
Deferred Loan Costs
Deferred loan costs related to the private placements of subordinated debentures
described in Note G are being amortized over the expected life of the related
debt using a method that approximates the interest method.
Goodwill
Goodwill represents the excess of acquisition costs over the fair market value
of the net assets of acquired subsidiaries. Goodwill is being amortized on a
straight-line basis over a period of forty years. In accordance with APB 17,
"Intangible Assets," the Company continues to evaluate the amortization period
to determine whether events or circumstances warrant revised amortization
periods.
Advertising Costs
The Company expenses advertising costs as they are incurred.
Income Taxes
Income taxes are allocated among Apple Homes Corporation and its subsidiaries
based upon their respective separate taxable income or loss. Deferred taxes are
recognized for differences between the basis of assets and liabilities for
financial statement and income tax purposes. The differences relate primarily to
allowance for doubtful receivables (deductible for financial statement purposes
but not for income tax purposes), inventory capitalization for income tax
reporting, and the value of net operating losses for tax purposes carried
forward from prior years. The deferred tax assets represent the future tax
return consequences of these differences, which will be deductible when the
assets are recovered or settled.
F-10
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
The carrying amounts of cash, receivables, and payables approximate fair value
because of the short maturity, generally less than three months, of these
instruments. The carrying value of the Company's notes receivable approximates
fair value because the majority of the outstanding balance was adjusted to the
sales price of the notes sold subsequent to year end as described in Note E. The
carrying value of the Company's long-term debt approximates fair value because
current market prices and the Company's current incremental borrowing rate are
not significantly different from the terms in the Company's debt portfolio.
Concentration of Credit Risk
The Company is subject to credit risk through trade and note receivables and
uninsured cash balances. The majority of the Company's business is from retail
trade of manufactured homes in the southeastern United States. Consideration was
given to this concentration and the financial position of these customers when
determining the allowance for doubtful accounts. Reference Note O regarding
potential recourse liability. Cash is placed in well capitalized, high quality
financial institutions. The Federal Insurance Corporation insures accounts at
each institution up to $100,000. At March 31, 1999 balances in excess of the
$100,000 limit amounted to approximately $285,000.
Reclassifications
Certain 1998 and 1997 amounts have been reclassified to conform with the 1999
presentation. These reclassifications had no effect on net income or loss for
the years.
F-11
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE C - INVENTORIES
At March 31, 1999 and 1998, inventories consisted of:
1999 1998
--------------- --------------
New Manufactured Homes $ 7,377,858 $ 4,537,876
Repossessed Homes 191,513 -0-
Used Manufactured Homes 194,233 264,427
Air Conditioning Units 89,088 -0-
Land and Home Packages 464,518 449,314
--------------- --------------
$ 8,317,210 $ 5,251,617
=============== ==============
NOTE D - PROPERTY AND EQUIPMENT
At March 31, 1999 and 1998, property and equipment consisted of:
1999 1998
------------- -------------
Land $ 325,000 $ -0-
Buildings 416,930 200,477
Furniture and Fixtures 86,194 56,604
Vehicles 176,250 73,559
Leasehold Improvements 173,594 -0-
Machinery and Equipment 34,337 -0-
Rental Units 134,186 132,477
------------- -------------
1,346,491 463,117
Less Accumulated Depreciation (110,615) (60,957)
------------- -------------
$ 1,235,876 $ 402,160
============= =============
NOTE E - NOTES RECEIVABLE
Notes receivable result from Company financial sales of manufactured homes. The
notes have remaining terms of one to thirty years and interest rates range from
8% to 15%. Subsequent to March 31, 1999, the Company sold notes receivable with
a face value of $596,717 to a financing company for $481,605. The discount of
$115,112 was recorded at March 31, 1999 as part of the allowance for doubtful
accounts of $148,277.
Of the thirty-two notes which were sold by the Company, nineteen notes have
recourse for twelve months, and thirteen notes were sold without recourse. The
F-12
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE E - NOTES RECEIVABLE (continued)
conditions of the recourse allow the Company the option to make any payments on
the owners' behalf to avoid defaults in the loan and give the Company the right
to collect directly from the owners for any such payments made. No reserve has
been recorded for this recourse, as management believes the Company will be able
to collect on any outstanding payments.
Notes receivable at March 31, 1998 are net of an allowance for doubtful accounts
of $97,041.
NOTE F - FLOORPLAN PAYABLE
The Company has maintained a floorplan line of credit of $10,275,000 during
1999 and $7,150,000 during 1998 with several finance companies for new homes
inventory. These credit lines are collateralized by the homes and are guaranteed
by an officer of the Company. Interest rates range from prime to prime + 2%,
depending on several factors, including the number of days a home is on a sales
lot. Of the available line, $7,993,154 was utilized on March 31, 1999 and
$4,641,509 was utilized on March 31, 1998.
For the years ended March 31, 1999 and 1998 floorplan interest expense was
$385,394 and $404,814, respectively.
NOTE G - SUBORDINATED DEBENTURES
During the year ended March 31, 1994, the Company completed a private placement
of seventeen debentures in the principal amount of $300,000. The debentures are
due in 2003, pay interest semi-annually at 10.0%, and are convertible by the
holders after two years into shares of the Company's common stock at a
conversion ratio of $1.25 per share. As of March 31, 1999, $77,500 of the
original debenture amount had been converted into 62,000 shares of stock. None
of the debentures were converted during the year ended March 31, 1998.
In December 1998, the Company offered convertible subordinated debentures as a
private placement pursuant to Rule 504 of Regulation D of the 1933 Securities
Act. The offering is not to exceed $900,000. As of March 31, 1999, $137,500 had
been issued to investors. In April, 1999, an additional $65,000 was issued. The
debentures are due five years from their date of issue. They bear interest,
payable semiannually, at a rate of 10% per annum. They are convertible into
common stock of the Company at the conversion price of $5.00 per share.
The debentures are subordinated in right of payment to holders of senior debt,
including bank borrowings and floorplan financing.
F-13
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE H - NOTES PAYABLE
At March 31 1999, and 1998, notes payable consisted of the following:
1999 1998
---------- -----------
Subordinated debentures (see Note G) $ 360,000 $ 300,000
Note payable to Sun Trust with interest
at 7.25%, monthly payments of $2,115 due
through December 2001; secured by an
office building and personal guarantees
of the Company president and a director. 228,802 -0-
Note payable to Southeastern at 9.50%,
monthly payments of $2,663 due through
November 2013; secured by land. 252,393 -0-
Note payable to McDuffie Bank &Trust at
10.25%, monthly payments of $1,830 due
through September 2000; secured by land
and personal guarantees of the Company
president and a director. 116,247 126,335
Note payable to a stockholder at 10%
interest, principal and accrued interest
of $38,749 due in September 1998;
unsecured. -0- 85,000
Other notes payable to banks bearing
interest ranging from prime plus .85% to
18% fixed, monthly payments totaling
$4,566, maturing between April 1999 and
November 2002; secured primarily by
automobiles. 114,489 66,690
Other notes payable bearing interest
rates ranging from 4.9% to 11.08%,
monthly payments totaling $708 maturing
between November 2001 and February 2002;
secured by various equipment. 22,111 -0-
F-14
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE H - NOTES PAYABLE (continued)
1999 1998
---------- ----------
Unsecured note payable to an individual;
principal and interest at 10%, due in
monthly installments of $1,062 through
November 2000 $ 20,389 $ 29,732
Other unsecured notes payable due in
full over the next year. 27,818 -0-
---------- ----------
1,142,249 607,757
Less current portion (87,933) (116,249)
---------- ----------
$1,054,316 $ 491,508
========== ==========
As of March 31, 1999 future maturities are as follows:
Year ending March 31, 1999
2000 $ 87,933
2001 80,022
2002 264,745
2003 35,427
2004 254,986
2005 and thereafter 419,136
----------
$1,142,249
==========
NOTE I - EARNINGS PER SHARE
Basic earnings (loss) per share is computed by dividing net income or loss
attributable to common shares by the weighted average of common shares
outstanding during the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. The accompanying financial
statements do not include diluted earnings per share because conversion of the
subordinated debentures described in Note G and exercise of the stock warrants
described in Note N are antidilutive for the years presented.
F-15
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE J - INCOME TAXES
For the years ended March 31, 1999, 1998, and 1997 the income tax (provision)
benefit consisted of:
1999 1998 1997
----------- ------------ -----------
Current:
Federal $ -0- $ -0- $ -0-
State (27,596) -0- -0-
----------- ------------ -----------
(27,596) -0- -0-
----------- ------------ -----------
Deferred:
Federal (38,372) 98,697 28,333
State (6,771) 17,417 5,000
----------- ------------ -----------
(45,143) 116,114 33,333
----------- ------------ -----------
$ (72,739) $ 116,114 $ 33,333
=========== ============ ===========
The reconciliation of reported income tax (expense) benefit to the amount of
income tax (expense) benefit that would result from applying federal statutory
tax rates to pretax income is as follows:
F-16
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE J - INCOME TAXES (continued)
· Enlarge/Download Table
Year ended March 31,
------------------------------------------------------------------------
1999 1998 1997
---------------------- --------------------- ------------------
Balance % Balance % Balance %
---------------------- --------------------- ------------------
Statutory federal income tax $ (63,891) (34.0) $ (24,734) (34.0) $ 136,615 34.0
State income tax, net of
federal tax benefit (27,596) (14.8) -0- -0- -0- -0-
Non deductible expenses (36,252) (19.4) (2,815) (3.9) -0- -0-
Valuation allowance change 55,000 29.3 143,663 197.5 (103,282) (25.7)
--------- ------ --------- -------- -------- ------
$ (72,739) (38.9) $ 116,114 159.6 $ 33,333 8.3
========= ====== ========= ======== ======== ======
The components of deferred tax assets were as follows:
March 31,
----------------------------------------------
1999 1998 1997
------------- -------------- --------------
Net operating loss carryforward $ 35,495 $ 150,063 $ 198,663
Allowance for doubtful accounts 59,311 38,816 36,519
Inventory capitalization 12,714 18,754 -0-
------------- -------------- --------------
107,520 207,633 235,182
Less valuation allowance -0- (55,000) (198,663)
------------- ------------- --------------
$ 107,520 $ 152,633 $ 36,519
============= ============== ==============
SFAS No. 109 requires a valuation allowance to be recorded when it is more
likely than not that some or all of the deferred tax assets will not be
realized. At March 31, 1999, due to improved profitability of the Company,
management determined that it was more likely than not that future taxable
income would be sufficient to enable the Company to realize all of its deferred
tax assets. Accordingly, no valuation allowance has been recorded at March 31,
1999. As of March 31, 1999, the remaining net operating loss carryforward of
approximately $88,000 will expire in varying amounts through 2012.
NOTE K - RELATED PARTY TRANSACTIONS
During the years ended March 31, 1999, 1998, and 1997 rent of $33,445, $33,000,
and $21,444, respectively, was paid to an officer of the Company for
month-to-month leasing arrangements. In addition, the Company paid floor plan
guaranty fees of $147,560 and $159,019 during the years ended 1999 and 1998,
respectively, to an officer.
During the year ended March 31, 1999, the Company employed the president's wife
in a consulting capacity. She decorated and furnished manufactured homes that
the Company sells to its retail customers. Related compensation amounted to
approximately $153,000, which included reimbursement of her direct expenses of
approximately $24,000.
F-17
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE K - RELATED PARTY TRANSACTIONS (continued)
During the year ended March 31, 1998 the Company received developed residential
land from related parties in exchange for accounts receivable of $51,134, notes
receivable of $210,591, and the issuance of common stock of $130,000.
NOTE L - EQUITY INCENTIVE PLAN
In a prior year, the Company approved an Equity Incentive Plan designed to
attract and retain key employees. The Plan, administered by a committee
appointed by the Board of Directors, provides for stock options and other stock
based awards to reward employees, as the Committee deems appropriate. The
Company approved the allocation of up to 1,000,000 shares of common stock to be
used in the Plan. No stock has been awarded under this Plan.
NOTE M -- PRIOR PERIOD ADJUSTMENTS
The balance of retained earnings (deficit) at March 31, 1997 has been restated
to correct an error in accounting. The retained earnings (deficit), as
previously reported at March 31, 1997 of $(605,154) was inclusive of
distributions of $111,499 paid to minority stockholders of partially owned
subsidiaries during 1997 which should have been applied against minority
interest liability and not retained earnings. The effect of the correction is to
reduce the retained earnings (deficit) at March 31, 1997 from $(605,154) to
$(493,655). This correction does not impact the previously reported net loss for
the year ended March 31, 1997.
The balances of retained earnings (deficit), paid-in capital and net income as
of and for the year ended March 31, 1998, as previously reported, have been
restated to correct errors in accounting. These corrections are based on
information discovered subsequent to the original release of the March 31, 1998
financial statements. The corrections are summarized as follows:
F-18
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
· Enlarge/Download Table
NOTE M -- PRIOR PERIOD ADJUSTMENTS (continued)
Additional Retained Net
Year Ended March 31, 1998 Paid-in Earnings Income
------------------------- Capital (Deficit) (Loss)
----------- ------------ -------------
Balance at beginning of year, as previously $ 824,748 $ (605,154)
reported
As previously reported:
Prior period adjustment - 93,145
Issuance of common stock
Stock offering/other cash 659,306 -
-
Debt disposition 484,467 -
Residential land and manufactured
homes 129,859 -
Distributions paid to minority interest - (240,392)
Net income - 202,982 $ 202,982
--------- -------- ---------
Balance at March 31, 1998, as previously
reported 2,098,380 (549,419)
Correction of classification of 1997
distributions to minority stockholders - 111,499
Correction of:
Prior period adjustment - (93,145) (93,145)
Valuation of stock issued for services,
offering cost and contributions to
capital 52,281 - (52,281)
Revenue cut off, accrued expenses and
minority interest - - (205,036)
Income tax provision - - 95,949
Classification of 1998 distributions to
minority stockholders - 240,392 -
----------
Total 1998 net income adjustments (254,513) (254,513)
----------- ---------- ----------
Balances at March 31, 1998, as restated $ 2,150,661 $ (545,186) $ (51,531)
=========== ========== ==========
F-19
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE M -- PRIOR PERIOD ADJUSTMENTS (continued)
The net effect of the adjustments to net income noted above was to change
earnings per share of $0.14, as previously reported, to loss per share of
$(0.03).
NOTE N - WARRANTS
At March 31, 1999, the Company had outstanding Class A Warrants to purchase
2,913,872 shares of the Company's common stock at $6.50 per share. The warrants
expire on December 31, 2001.
NOTE O - COMMITMENTS AND CONTINGENCIES
At March 31, 1999, the Company was contingently liable for outstanding mortgages
placed with third party lenders on several homes that were previously sold with
recourse for various limited periods of time. The original mortgages at the time
of sale were approximately $859,000. Management estimates that the range of any
future possible loss if the owners default on these mortgages is between $86,000
and $129,000. These estimates are based on the Company's past performance and
industry averages for manufactured homes that are repossessed and then resold.
These losses are expensed when incurred as normal operating cost.
The Company has several operating leases that are month to month contracts. Rent
expense for the years ended March 31, 1999, 1998 and 1997 totaled approximately
$366,000, $213,000 and $82,000 respectively.
NOTE P -- ACQUISITIONS
On January 1, 1999, the Company acquired 100% of the issued outstanding stock of
Mobile Air Systems, Inc. for $10,000 cash, $20,000 note payable, and 130,000
shares of common stock of Apple Homes Corporation valued at $227,500. The
transaction was accounted for as a purchase, and goodwill in the amount of
$181,051 was recognized, which is being amortized over 40 years for financial
reporting. The pro forma results on the operations of the Company for the past
two years is insignificant.
NOTE Q - EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) Profit Sharing Plan. All individuals employed on
March 15, 1999 were eligible to participate in the plan immediately. Individuals
employed after March 15, 1999 must complete six months of service and have
attained the age of 21. Eligible employees are allowed to make elective
deferrals of compensation to the plan in accordance with the 401(k) provisions.
The Company may elect to make additional contributions under the profit sharing
provisions of the plan. There were no Company contributions made to the plan for
the year ended March 31, 1999.
F-20
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE R - PENDING ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is effective
for all fiscal quarters of all fiscal years beginning after June 15, 1999. This
Statement establishes accounting and reporting standards for derivative
instruments and hedging activities. Management does not believe that the
adoption of this statement will be material to the consolidated financial
statements.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use. This SOP gives guidelines for the
capitalization or expensing of certain external and internal costs incurred when
developing computer software for internal use. The SOP also gives guidelines as
to the amortization of the capitalized cost. The SOP is effective for financial
statements for fiscal years beginning after December 15, 1998. Management does
not believe that the adoption of this SOP will be material to the consolidated
financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up
Activities. This SOP provides guidance on the financial reporting of start-up
costs and organizational costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. This SOP is effective for
financial statements for fiscal years beginning after December 15, 1998.
Management does not believe that the adoption of this SOP will be material to
the consolidated financial statements.
F-21
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE S - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
· Enlarge/Download Table
Quarter
-------------------------------------------------------------
1st 2nd 3rd 4th
------------ ------------ ------------- ------------
(In thousands except per share data)
Year ended March 31, 1999
Net sales $ 8,143 $ 10,490 $ 7,307 $ 7,836
Gross profit 1,745 1,677 1,109 1,396
Net income (loss) 149 20 (81) 16
Earnings per share $ 0.07 $ 0.01 $ (0.04) $ 0.01
============ ============ ============ =============
Weighted average
shares outstanding 1,811,942 1,897,756 1,913,517 2,077,506
Year ended March 31, 1998
Net sales $ 5,957 $ 6,408 $ 5,794 $ 7,457
Gross profit 1,196 1,163 1,037 1,676
Net income (loss) 61 (84) (159) 130
Earnings per share $ 0.05 $ (0.06) $ (0.10) $ 0.07
============ =========== ============ =============
Weighted average
shares outstanding 1,166,967 1,446,218 1,599,668 1,748,114
Earnings per share is computed independently for each of the quarters presented.
Therefore, the sum of the quarterly earnings per share do not necessarily equal
the total for the year.
F-22
SME
--------------------------
SEROTTA
--------------------------
Report of Independent Certified Public Accountants MADDOCKS
--------------------------
EVANS & CO., CPA'S
--------------------------
A Professional Corporation
--------------------------
The Board of Directors
Apple Homes Corporation
Augusta, Georgia
We have audited the accompanying consolidated balance sheet of Apple Homes
Corporation and Subsidiaries (the "Company") as of March 31, 1998, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Apple Homes
Corporation and Subsidiaries as of March 31, 1998, and the results of its
operations and cash flows for the year then ended in conformity with generally
accepted accounting principles.
As discussed in Note 16 to the financial statements, certain errors in reported
amounts were discovered by management of the Company subsequent to our
previously issued 1998 report dated June 15, 1998. Accordingly, the 1998
financial statements have been restated to correct these errors.
/s/ Serotta Maddocks Evans & Co.
-----------------------------------
SEROTTA MADDOCKS EVANS & CO., CPA'S
Augusta, Georgia
June 15, 1998, except for Notes 13
and 16, as to which the date is June 23, 1999
--------------------------------------------------------------------------------
701 Greene Street, Suite 200 / Augusta, GA 30901-2322
Telephone (706) 722-5337 Telefax (706) 724-FAXX (3299)
F-23
APPLE HOMES CORPORATION AND SUBSIDIAREIS
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
ASSETS
CURRENT ASSETS
Cash $ 922,176
Accounts receivable 240,445
Other receivables 165,766
Inventories 5,251,617
Other current assets 95,087
Deferred taxes 74,531
Notes receivable, current portion 42,883
-----------
Total Current Assets 6,792,505
-----------
PROPERTY AND EQUIPMENT, NET 402,160
-----------
OTHER ASSETS
Notes receivable, net of allowance
for bad debt of $97,041 679,761
Deferred taxes 78,102
Deferred loan acquisition costs,
net of accumulated amortization of $74,954 87,050
Goodwill, net of accumulated
amortization of $29,979 292,175
-----------
Total Other Assets 1,137,088
-----------
$ 8,331,753
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Floorplan payable $ 4,641,509
Accounts payable 421,493
Sales tax payable 207,009
Accrued salaries and commissions 230,799
Other accrued liabilities 309,490
Customer deposits 96,704
Due to minority stockholders 128,440
Notes payable, current portion 116,249
-----------
Total Current Liabilities 6,151,693
-----------
LONG-TERM LIABILITIES
Notes payable 491,508
-----------
MINORITY INTEREST IN NET ASSETS
OF CONSOLIDATED SUBSIDIARY 79,496
-----------
STOCKHOLDERS' EQUITY
Common stock, $.002 par value;
authorized 10,000,000 shares;
1,790,614 issued and outstanding 3,581
Additional paid-in capital 2,150,661
Retained deficit (545,186)
-----------
Total Stockholders' Equity 1,609,056
-----------
$ 8,331,753
===========
See notes to consolidated financial statements
F-24
APPLE HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1998
SALES $ 25,615,535
COST OF SALES 20,543,498
------------
Gross Profit 5,072,037
------------
OPERATING EXPENSES
Compensation 2,354,711
Occupancy and vehicle 357,735
Advertising 352,610
Insurance 196,223
Taxes and licenses 296,081
Professional fees 219,417
Depreciation and amortization 70,059
Utilities 215,740
Office and lot 220,523
Travel and entertainment 92,337
Guaranty fees 159,019
Rent and maintenance 112,811
Other 389,809
------------
Total Operating Expenses 5,037,075
------------
Operating Income 34,962
------------
OTHER INCOME (EXPENSE)
Finance participation and other 516,542
Interest income 27,137
Commissions 107,666
Interest expense (613,560)
------------
Total Other Income (Expense) 37,785
------------
Income Before Income Tax Provision
and Minority Interest 72,747
INCOME TAX BENEFIT 116,114
MINORITY INTEREST IN NET INCOME
OF CONSOLIDATED SUBSIDIARY (240,392)
------------
Net Loss $ (51,531)
============
Per share data:
Weighted average number of shares outstanding 1,491,423
Net loss per share $ (0.03)
See notes to consolidated financial statements
F-25
· Enlarge/Download Table
APPLE HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
YEAR ENDED MARCH 31, 1998
Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
----- ------- --------- -----
Balance, March 31, 1997 $ 2,334 $ 824,748 $ (493,655) $ 333,427
Issuance of common stock:
Stock offering/other cash 537 711,587 -- 712,124
Debt disposition 533 484,467 -- 485,000
Residential land and manufactured homes 177 129,859 -- 130,036
Net loss -- -- (51,531) (51,531)
---------- ---------- ---------- ----------
Balance, March 31, 1998 $ 3,581 $2,150,661 $ (545,186) $1,609.056
========== ========== ========== ==========
See notes to consolidated financial statements
F-26
APPLE HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (51,531)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Bad debt expense 21,324
Bad debt recovery (76,602)
Deferred income taxes (116,114)
Depreciation and amortization 70,059
Gain on sale of developed residential
land and manufactured homes (190,137)
Minority interest in net income of
consolidated subsidiary 240,392
Cash provided by (used in):
Accounts receivables (195,431)
Rebates receivables 98,686
Inventories (830,859)
Notes receivable (393,507)
Other assets (71,815)
Floorplan payable 747,384
Accounts payable (78,766)
Accrued expenses 458,980
Customer deposits (9,968)
Other liabilities (2,009)
-----------
Net cash used in operating activities (379,914)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (145,022)
Proceeds from the sale of developed
residential land and manufactured homes 292,000
Advances to related entities 132,999
-----------
Net cash provided by investing activities 279,977
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable (402,891)
Proceeds from issuance of common stock 1,058,312
Distributions paid to minority stockholders (185,393)
Due to minority stockholders 128,440
Repayments on advances from officers (19,000)
-----------
Net cash provided by financing activities 579,468
-----------
Net increase in cash and cash equivalents 479,531
Cash and cash equivalents, beginning of year 442,645
===========
Cash and cash equivalents, end of year $ 922,176
===========
See notes to consolidated financial statements
F-27
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APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
---------------------------
The principal operations of Apple Homes Corporation and its subsidiaries (the
"Company") consist of the sale and installation of manufactured homes primarily
in the southeastern United States. The subsidiaries of Apple Homes Corporation
consist of the following:
Name Location Percent Ownership
--------------------------------------------------------------------------------
Augusta Housing Center. Inc. Augusta, Georgia 100%
Big Daddy's Mobile Homes, Inc. Augusta, Georgia 80
Evans-Lanier, Inc. Thomson, Georgia 80
Apple Homes, Inc. Waynesboro, Georgia 80
J. C. Homes, Inc. Augusta, Georgia 80
Tim Phillips Housing, Inc. Thompson, Georgia 80
New Century Homes, Inc. Augusta, Georgia 80
All subsidiaries conduct business in the name of Apple Homes. The Company
extends customary trade terms to some of its customers, all of whom are located
in the southeastern United States.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned and majority owned subsidiaries. All material intercompany
accounts and transactions are eliminated in consolidation.
Management Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
Receivables
The Company uses the allowance method to provide for recognition of bad debt.
F-28
SME
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
---------------------------------------------------
Inventory
Inventory is stated at the lower of cost or market and is determined using the
specific identification method.
Property and Equipment
Property and equipment are stated at cost. Maintenance and repairs are charged
to expense as incurred, and renewals and betterments are capitalized. Provisions
for depreciation are charged to income over the estimated useful lives of the
assets using methods applicable for income tax purposes, which do not differ
significantly from generally accepted accounting principles.
Advertising Costs
The Company expenses advertising costs as they are incurred.
Income Taxes
Income taxes are accounted for using the asset and liability approach for
financial accounting and reporting purposes. Under that method, deferred tax
assets and liabilities are recognized for temporary differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Net Income Per Share
Net income per share is computed by dividing net income by the weighted average
number of shares outstanding during the year. The weighted average number of
shares used in the calculation of net income per share was computed based on the
actual time such shares were outstanding during the year. The Company's
convertible debentures (see Note 8) meet the criteria for classification as
common stock equivalents. Therefore, they were included in the calculation of
weighted average number of shares. The Company's Class A warrants do not meet
the criteria for classification as common stock equivalents. Therefore, they
were excluded from the calculation of weighted average number of shares.
NOTE 3 - INVENTORY
------------------
At March 31, 1998, inventory consists of:
New manufactured homes $ 4,537,876
Used manufactured homes 264,427
Land and mobile home packages 449,314
-----------
$ 5,251,617
===========
F-29
SME
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT
-------------------------------
At March 31, 1998, property and equipment consists of:
Buildings and improvements $ 200,477
Rental mobile home units 132,477
Furniture and fixtures 56,604
Vehicles 73,559
---------
463,117
Less accumulated depreciation (60,957)
---------
$ 402,160
=========
NOTE 5 - DEFERRED LOAN ACQUISITION COSTS
----------------------------------------
The Company incurred costs related to the private placement of its debentures
and the acquisition of bridge loans, principally during 1994. These costs have
been deferred and are being amortized over the expected life of the related debt
using a method that approximates the interest method.
NOTE 6 - GOODWILL
-----------------
Goodwill is being amortized over a period of forty years using the straight-line
method.
NOTE 7 - FLOORPLAN PAYABLE
--------------------------
The Company maintains a $7.15 million floorplan line of credit with several
finance companies for new homes inventory. These credit lines are collateralized
by the homes and personal guarantee from an officer of the Company. Interest
rates range from prime to prime + 4%, depending on several factors, including
the number of days a home is on a lot. The finance companies also offer
incentive packages back to the Company based on the volume of homes financed and
the turnover of inventory financed. Of the available line, approximately $4.6
million was utilized on March 31, 1998.
For the year ended March 31, 1998, floor plan interest expense and incentives
received were $404,814 and $136,460, respectively.
F-30
SME
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - SUBORDINATED DEBENTURES
--------------------------------
During 1994, the Company completed a private placement of 17 debentures in the
principal amount of $300,000. The debentures are due 2003, pay interest
semi-annually at 10.0%, and are convertible by the holders after two years into
shares of the Company's common stock at a conversion ratio of $l.25 per share.
NOTE 9 - NOTES PAYABLE
----------------------
At March 31, 1998, notes payable consists of the following:
Note payable to First Union with interest at prime
plus 1.50%, payments of $640.86 are due monthly
through April 2000; secured by an automobile. $ 20,634
Note payable to First Union with interest at prime
plus 1.50%, payments of $471.63 are due monthly
through April 1999; secured by an automobile. 6,133
Note payable to an individual; principal and
interest at 10%, due in monthly installments of
$1,062 through November 2000; unsecured. 29,732
Note payable to McDuffie Bank & Trust at 10%
interest, payments of $515.14 are due monthly
through February 2002; secured by a manufactured
home. 19,803
Note payable to Regions Bank at 10% interest,
payments of $552.56 are due monthly through
December 2001; secured by a vehicle. 20,120
Note payable to McDuffie Bank & Trust at 10.25%
interest, payments of $1,830 are due monthly
through September 2000; secured by land and
personal guarantees of the Company president and a
minority shareholder. 126,335
Debentures (See Note 8) 300,000
Note payable to a stockholder at 10% interest,
principal and accrued interest of $38,749 due in
September 1998; unsecured. 85,000
---------
607,757
Less current portion (116,249)
---------
$ 491,508
=========
F-31
SME
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - NOTES PAYABLE (continued)
----------------------
Maturities are as follows:
Year ending March 31,
---------------------
1999 $ 116,249
2000 28,877
2001 153,392
2002 9,239
2003 --
2004 and thereafter 300,000
---------
$ 607,757
=========
NOTE 10 - INCOME TAXES
----------------------
At March 31, 1998, the income tax benefit consists of:
Current:
Federal $ --
State --
Deferred:
Federal (98,697)
State (17,417)
----------
Total $ (116,114)
==========
The reconciliation of reported net income tax benefit to the amount of
income tax expense that would result from applying federal statutory tax rates
to pretax income is as follows:
Amount Percent
------ -------
Statutory federal income tax expense $ 24,734 34.0
Valuation allowance change (143,663) (197.5)
Other 2,815 3.9
--------- ------
$(116,114) (159.6)
========= ======
At March 31, 1998, the components of deferred tax assets were as follows:
Net operating loss carryforward $150,063
Allowance for uncollectible accounts 38,816
Inventory capitalization 18,754
--------
207,633
Less valuation allowance (55,000)
--------
$152,633
========
SFAS No. 109 requires a valuation allowance to be recorded when it is more
likely than not that some or all of the deferred tax assets will not be
realized. At March 31, 1998, management has determined that a reserve is
necessary until future taxable income is sufficient to enable the Company to
realize all of its deferred tax assets. At March 31, 1998, the remaining net
operating loss carryforward of approximately $370,000 will expire in varying
amounts through 2012.
F-32
SME
APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - RELATED PARTY TRANSACTIONS
------------------------------------
During the year ended March 31, 1998, rent of approximately $33,000 was paid to
an officer of the Company for month-to-month leasing arrangements. In addition,
floorplan guaranty fees of $159,019 were paid to an officer of the Company.
NOTE 12 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
----------------------------------------------------------
During the year ended March 31, 1998, cash paid for interest was approximately
$602,000.
During the year ending March 31, 1998, the following noncash transactions
occurred:
Related
Amount Party Transaction
--------------------------------------------------------------------------------
Received developed residential land in $ 51,134 Yes
exchange for write-off of accounts
receivable
Received developed residential land in 210,591 Yes
exchange for write-off of notes
receivable
Received developed residential land in 130,000 Yes
exchange for issuance of common stock
Write-off of a note payable in exchange 485,000 No
for issuance of common stock
Write-off prepaid expense to related 346,152 No
cash addition to paid-in capital
Assets purchased through financing 35,036 No
arrangements
Received services in exchange for
issuance of common stock 150,000 No
Converted developed residential land
to inventory 449,314 No
Converted developed residental land
to property and equipment 132,477 No
NOTE 13 - EQUITY INCENTIVE PLAN
-------------------------------
In a prior year, the Company approved an Equity Incentive Plan designed to
attract and retain key employees. The Plan, administered by a committee
appointed by the Board of Directors, provides for stock options and other stock
based awards to reward employees as the Committee deems appropriate. The Company
approved the allocation of up to 1,000,000 shares of common stock to be used in
the Plan. No stock has been awarded under this Plan.
NOTE 14 - CONCENTRATION OF CREDIT RISK
---------------------------------------
The Company maintains its cash balances at several financial institutions.
Accounts at each institution are insured up to $100,000 by the Federal Insurance
Corporation. At March 31, 1998, the Company's uninsured cash balances totaled
approximately $525,000.
F-33
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APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - WARRANTS
------------------
At March 31, 1998, the Company had outstanding Class A warrants to purchase
1,913,872 shares of the Company's common stock at $6.50 per share. The warrants
expire on December 31, 2001.
NOTE 16 - RESTATEMENTS
----------------------
Certain reclassifications and errors of reported amounts were discovered by
management of the Company subsequent to our previously issued 1998 report dated
June 15, 1998. Therefore, the financial statements have been restated as
follows:
· Enlarge/Download Table
March 31, 1998, March 31, 1998,
as previously reported Restatement as restated
---------------------------------------------------------------
Assets $ 8,148,089 $ 183,664 $ 8,331,753
Liabilities 6,228,863 414,338 6,643,201
Minority interest in net assets
of consolidated corporations 366,684 (287,188) 79,496
Stockholders' Equity 1,552,542 56,514 1,609,056
Sales 25,522,390 93,145 25,615,535
Other operating expenses 4,685,190 351,885 5,037,075
Interest expense 521,838 91,722 613,560
Income tax benefit 20,165 95,949 116,114
F-34
Report of Independent Certified Public Accountants
The Board of Directors
Mayfair Homes Corporation
Augusta, Georgia
We have audited the accompanying consolidated balance sheets of Mayfair Homes
Corporation and Subsidiaries (the "Company") as of March 31, 1997 and 1996, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mayfair Homes
Corporation and Subsidiaries as of March 31, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Cherry, Bekaert & Holland, LLP
-----------------------------------
Cherry, Bekaert & Holland, LLP
Augusta, Georgia
January 26, 1998
F-35
MAYFAIR HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and 1996
ASSETS
1997 1996
---------- ----------
Current assets
Cash $ 442,645 $ 67,227
Trade receivables, net 19,546 93,272
Other receivables 245,497 65,417
Inventory 3,971,444 1,790,894
Advances to related entities 132,999 68,900
Current portion of notes receivable 191,852 38,467
Prepaid and other current assets 8,837 6,849
Deferred income taxes 29,109 3,186
---------- ----------
Total current assets 5,041,929 2,134,212
---------- ----------
Property and equipment
Building and improvements 172,859 74,792
Vehicles 51,803 4,923
Furniture and equipment 48,517 31,661
---------- ----------
273,179 111,376
Less accumulated depreciation 33,202 23,360
---------- ----------
Net property and equipment 239,977 88,016
---------- ----------
Developed residential land 207,118 172,543
---------- ----------
Other assets
Notes receivable, net 369,200 394,837
Finance participation receivable, net 18,955 23,055
Deferred loan acquisition costs 105,049 126,050
Deferred underwriting costs 355,152 154,226
Goodwill 269,694 277,332
Deferred income taxes 7,410 3,400
Other 14,435 68,330
---------- ----------
Total other assets 1,139,895 1,047,230
---------- ----------
Total assets $6,628,919 $3,442,001
========== ==========
See notes to consolidated financial statements.
F-36
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
----------- -----------
Current liabilities
Floor plan payable $ 3,894,125 $ 1,725,992
Accounts payable 500,259 140,433
Accrued expenses 263,318 80,785
Customer deposits 106,672 31,449
Advances from officers 19,000 53,082
Current portion of notes payable 52,085 113,561
Short-term notes payable 323,204 25,000
Other liabilities 27,009 --
----------- -----------
Total current liabilities 5,185,672 2,170,302
----------- -----------
Long-term liabilities
Subordinated debentures 300,000 300,000
Notes payable 785,323 228,485
----------- -----------
Total long-term liabilities 1,085,323 528,485
----------- -----------
Minority interest in net assets of
consolidated subsidiary 24,497 19,918
----------- -----------
Stockholders' equity
Common stock, $.002 par value;
authorized 5,000,000 shares;
issued and outstanding:
1997 - 1,166,967; 1996
1,067,849 shares 2,334 2,136
Additional paid-in capital 824,748 775,289
Retained deficit (493,655) (54,129)
----------- -----------
Total stockholders' equity 333,427 723,296
----------- -----------
Total liabilities and
stockholders' equity $ 6,628,919 $ 3,442,001
=========== ===========
F-37
MAYFAIR HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 31, 1997 and 1996
1997 1996
------------ ------------
Sales $ 15,549,376 $ 8,442,228
Less cost of sales 12,327,352 7,028,488
------------ ------------
Gross profit 3,222,024 1,413,740
------------ ------------
Operating expenses
Compensation 1,416,052 600,807
Occupancy and vehicle 239,413 133,931
Advertising 194,151 101,667
Insurance 101,373 60,779
Taxes and licenses 140,489 47,458
Professional fees 147,383 42,510
Depreciation and amortization 37,980 35,982
Other 828,645 211,310
------------ ------------
Total operating expenses 3,105,486 1,234,444
------------ ------------
Operating income 116,538 179,296
Other income (expense)
Commissions 36,851 30,004
Rental and other (5,332) 6,316
Interest income 49,457 12,343
Interest expense (599,322) (323,062)
------------ ------------
Other expense, net (518,346) (274,399)
------------ ------------
Loss before income taxes and
minority interest (401,808) (95,103)
Income tax benefit 33,333 6,586
Minority interest in net income of
consolidated subsidiary (71,051) (4,917)
------------ ------------
Net loss $ (439,526) $ (93,434)
============ ============
Per share data:
Weighted average number of
shares outstanding 1,109,669 946,264
Net loss per share $ (.40) $ (.10)
============ ============
See notes to consolidated financial statements.
F-38
· Enlarge/Download Table
MAYFAIR HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
Years ended March 31, 1997 and 1996
Retained
Common Paid-in Earnings
Stock Capital (Deficit Total
----- ------- -------- -----
Balance, March 31, 1994 $ 1,193 $ 315,425 $ (67,194) $ 249,424
Issuance of common stock 510 212,490 -- 213,000
Net income -- -- 106,499 106,499
--------- --------- --------- ---------
Balance, March 31, 1995 1,703 527,915 39,305 568,923
Issuance of common stock 433 247,374 -- 247,807
Net loss -- -- (93,434) (93,434)
--------- --------- --------- ---------
Balance, March 31, 1996 2,136 775,289 (54,129) 723,296
Issuance of common stock 198 49,459 49,657
Net loss -- -- (439,526) (439,526)
--------- --------- --------- ---------
Balance, March 31, 1997 $ 2,334 $ 824,748 $(493,655) $ 333,427
========= ========= ========= =========
See notes to consolidated financial statements.
F-39
· Enlarge/Download Table
MAYFAIR HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended March 31, 1997 and 1996
1997 1996
----------- -----------
Cash flows from operating activities
Net loss $ (439,526) $ (93,434)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Minority interest in net income of consolidated subsidiary 71,051 4,918
Depreciation and amortization 37,980 35,982
Deferred income taxes (29,933) (6,586)
(Gain) loss on disposition of assets (2,500) 6,055
Professional services contributed 49,657 --
Cash provided by (used in):
Trade receivables, net 73,726 (56,201)
Other receivables (180,080) (4,755)
Inventory (2,180,550) 541,679
Notes receivable, net (127,748) (25,699)
Prepaid and other current assets (1,988) 15,557
Developed residential land (34,575) --
Other assets, net 57,995 15,321
Floor plan payable 2,168,133 (634,273)
Accounts payable 359,826 31,407
Accrued expenses 182,533 12,139
Customer deposits 75,223 8,085
Other liabilities 27,009 --
----------- -----------
Net cash provided by (used in) operating activities 106,233 (149,805)
----------- -----------
Cash flows from investing activities
Additions to property and equipment (161,803) (24,673)
Advances to related entities (64,099) (64,176)
Proceeds from disposition of property and equipment 2,500 30,346
Investment in sales locations opened subsequent to March 31, 1997 -- (25,000)
----------- -----------
Net cash used in investing activities (223,402) (83,503)
----------- -----------
Cash flows from financing activities
Proceeds from issuance of common stock -- 108,000
Proceeds from issuance of common stock of subsidiaries 45,528 15,000
Proceeds from issuance of notes payable 862,027 101,723
Principal payments on notes payable (68,461) (73,102)
Distributions paid to minority stockholders (111,499) --
Additions to deferred underwriting costs (200,926) (46,477)
Proceeds from advances from officers -- 49,515
Repayments on advances from officers (34,082) (4,983)
----------- -----------
Net cash provided by financing activities 492,587 149,676
----------- -----------
Net increase (decrease) in cash 375,418 (83,632)
Cash at beginning of year 67,227 150,859
----------- -----------
Cash at end of year $ 442,645 $ 67,227
=========== ===========
See notes to consolidated financial statements.
F-40
MAYFAIR HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 and 1996
Note 1 - The Company and Basis of Presentation
The principal operations of Mayfair Homes Corporation and its subsidiaries (the
"Company") consist of the sale and installation of manufactured homes and the
development of residential property for resale primarily in the southeastern
United States. The Company began operations in October 1990. The wholly owned
subsidiaries of Mayfair Homes Corporation consist of Augusta Housing Center,
Inc. and Big Daddy's Mobile Homes, Inc. During 1996, Mayfair Homes Corporation
completed the purchase of an 80% interest in Evans-Lanier, Inc., a sales
location in Thomson, Georgia. During 1997, the Company began operations with an
80% interest in four new subsidiaries, Apple Homes, Inc. (Augusta, Georgia), J.
C. Homes, Inc. (Augusta, Georgia), Deneaux Housing, Inc. (Waynesboro, Georgia),
and Apple Homes of Tennessee, Inc. (Johnson City, Tennessee). All subsidiaries
conduct business in the name of Apple Homes. The Company extends customary trade
terms to some of its customers, all of whom are located in the southeastern
United States.
Note 2 - Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned and majority owned subsidiaries. All material intercompany
accounts and transactions are eliminated in consolidation. For 1996, the
accounts of Evans-Lanier, Inc. are included for the period from its date of
incorporation, February 1, 1995, through its year end, December 31, 1995. The
effect on the consolidated financial statements of using a calendar year for
Evans-Lanier is not considered material.
During 1997, Evans-Lanier, Inc. changed its fiscal year end from December 31 to
March 31 to coincide with the Company's fiscal year end. For 1997, the accounts
of Evans-Lanier, Inc. are included for its fiscal year ended March 31, 1997.
Operations of Evans-Lanier, Inc. for the three month period ended March 31,
1996, presented in summary form below, are immaterial and unaudited.
Evans-Lanier, Inc.
Selected Financial Data
For the Three Month Period Ended March 31, 1996
-----------------------------------------------
Sales $691,892
Cost of sales 568,364
--------
Gross profit 123,528
Operating expenses 71,105
--------
Operating income 52,423
Other expense, net 13,179
--------
Net income $ 39,244
========
Management Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-41
MAYFAIR HOMES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
March 31, 1997 and 1996
Note 2 - Summary of Significant Accounting Policies (Continued)
Fair Value of Financial Instruments
Financial instruments held by the Company at March 31, 1997 include cash,
accounts and notes receivable, related party advances, floor plan, accounts and
notes payable and customer deposits. Management believes that, based on current
interest rates and terms for comparable financial instruments, the estimated
fair value of the Company's financial instruments approximated their carrying
values at March 31, 1997.
Receivables
The Company uses the allowance method to provide for recognition of bad debt.
The Company's allowance for doubtful accounts was $76,602 and $9,371 at March
31, 1997 and 1996, respectively.
Inventory
Inventory is stated at the lower of cost or market and is determined using the
specific identification method.
Property and Equipment
Property and equipment are stated at cost. Maintenance and repairs are charged
to expense as incurred, and renewals and betterments are capitalized. Gains and
losses on disposals are credited or charged to operations.
Depreciation and Amortization
Provisions for depreciation are charged to income over the estimated useful
lives of the assets using methods applicable for income tax purposes. The
estimated useful lives of depreciable and amortizable assets are as follows:
Years
-----
Building and improvements 15
Vehicles 3 - 5
Furniture and equipment 3 - 7
Goodwill 40
Deferred loan acquisition costs 9
Other intangible assets 5
Depreciation expense for the years ended March 31, 1997 and 1996 was $21,330 and
$9,007, respectively.
Income Taxes
Income taxes are accounted for using the asset and liability approach for
financial accounting and reporting purposes. Under that method, deferred tax
assets and liabilities are recognized for temporary differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Net Loss Per Share
Net loss per share is computed by dividing net loss by the weighted average
number of shares outstanding during the year. The weighted average number of
shares used in the calculation of net loss per share was computed based on the
actual time such shares were outstanding during the year. The Company's
convertible debentures (see Note 10) do not meet the criteria for classification
as common stock equivalents. Therefore, they were excluded from the calculation
of weighted average number of shares.
F-42
MAYFAIR HOMES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
March 31, 1997 and 1996
Note 2 - Summary of Significant Accounting Policies (Continued)
Future Impact of Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) has issued two accounting
standards which the Company will adopt during its fiscal year ending March 31,
1998.
Statement of Financial Accounting Standards (SFAS) 128, "Earnings per Share" is
effective for fiscal years ending after December 15, 1997. The Statement
requires the presentation of basic earnings per share, which is calculated using
the weighted average number of outstanding common shares, and diluted earnings
per share, which incorporates the potential dilution from all potentially
dilutive securities outstanding.
SFAS 129, "Disclosure of Information about Capital Structure" is also effective
for fiscal years ending after December 15, 1997. This Statement, which applies
to all entities, requires the disclosure of information related to an entity's
securities, liquidation preference of preferred stock, and redeemable stock.
Management has determined that the impact on the Company's consolidated
financial statements of adopting the standards discussed above would not be
material.
Reclassifications
Certain 1996 amounts have been reclassified to conform with the 1997
presentation. These reclassifications had no effect on net loss.
Note 3 - Notes Receivable
Notes receivable consists of the following:
1997 1996
-------- ---------
Receivable from individuals; secured by real
estate; due in monthly installments of principal
and interest at rates ranging from 8.25% to 8.5%
with terms of 360 months $104,674 $ --
Receivable from minority shareholders; due in
quarterly payments based on minority interests'
share of net profits 56,830 --
Receivable from an individual; secured by real
estate; due in monthly installments of principal
and interest at 11.0% through December 19, 2006 -- 50,000
Receivable from individuals; secured by mobile
homes; due in monthly installments of principal
and interest at rates ranging from 6.36% to 26.61
with terms from 12 to 240 months 264,808 174,665
F-43
MAYFAIR HOMES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
March 31, 1997 and 1996
Note 3 - Notes Receivable (Continued)
1997 1996
-------- --------
Receivable from a company owned by a Director;
secured by developed residential lots.
Payments are in the form of lot releases
upon sales of lots $210,592 $218,010
-------- --------
Total 636,904 442,675
Less current portion 191,852 38,467
-------- --------
Long-term notes receivable 445,052 404,208
Less allowance for doubtful accounts ( 75,852) ( 9,371)
-------- --------
Net long-term notes receivable $369,200 $394,837
======== ========
Note 4 - Developed Residential Land
Developed residential land primarily consists of approximately 7 acres located
within Mayfair Acres subdivision in Richmond County, Georgia.
Note 5 - Finance Participation Receivable
The Company sold, in prior years, a portion of its mobile homes under a recourse
financing plan. In doing so, it participated in finance charges which are held
in reserve by the financing agent. Payment of this reserve is contingent on the
customers paying their obligations. The March 31, 1997 and 1996 receivable of
$18,955 and $23,055, respectively, is presented net of an allowance for doubtful
accounts of $19,500 and $15,990 at March 31, 1997 and 1996, respectively.
Note 6 - Deferred Loan Acquisition Costs
The Company incurred costs related to the private placement of its debentures
and the acquisition of bridge loans principally during 1994. These costs have
been deferred and are being amortized over the expected life of the related debt
using a method that approximates the interest method.
Note 7 - Deferred Underwriting Costs
The Company incurred certain administrative costs related to its efforts to
raise capital, which culminated in a Rule 504 offering of common stock completed
subsequent to year-end - See Note 19. These costs will be deducted from the
proceeds of the related offering.
Note 8 - Goodwill
Goodwill relates to the purchase of Augusta Housing Center, Inc. and Big Daddy's
Mobile Homes, Inc., the Company's wholly owned subsidiaries, and Evans-Lanier,
Inc., a majority owned subsidiary, and is being amortized over a period of forty
years using the straight-line method.
F-44
MAYFAIR HOMES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
March 31, 1997 and 1996
Note 8 - Goodwill (Continued)
At March 31, 1997 and 1996, goodwill and related amortization is as follows:
1997 1996
-------- --------
Goodwill:
Augusta Housing Center, Inc. $104,632 $104,632
Big Daddy's Mobile Homes, Inc. 138,405 138,405
Evans-Lanier, Inc. 50,000 50,000
-------- --------
293,037 293,037
-------- --------
Accumulated amortization:
Augusta Housing Center, Inc. 10,463 7,847
Big Daddy's Mobile Homes, Inc. 10,380 6,920
Evans-Lanier, Inc. 2,500 938
-------- --------
23,343 15,705
-------- --------
$269,694 $277,332
======== ========
Note 9 - Other Assets
Other assets consists of the following: 1997
1996 Option to purchase 10 houses and lots in
The Timbers subdivision, acquired through
issuance of 136,000 shares of the Company's
stock. Purchase price for the 10 homes is
$200,000, with closing to occur upon the
successful completion of the public offering. $ -- $ 39,984
Investment in sales locations opened
subsequent to March 31, 1996 25,000
Other miscellaneous 14,435 3,346
-------- --------
$ 14,435 $ 68,330
======== ========
Note 10 - Subordinated Debentures
During 1994 the Company completed a private placement of 17 debentures in the
principal amount of $300,000. The debentures are due 2003, pay interest
semi-annually at 10.0%, and are convertible by the holders after two years into
shares of the Company's common stock at a conversion ratio of $1.25 per share.
Note 11 - Notes Payable
Short-term notes payable consists of the following:
1997 1996
-------- ----------
Promissory notes payable to individuals;
principal and interest at 10% due June 30,
1997. $115,000 $ --
Bridge loan from a shareholder; interest at
10%; due on demand; unsecured. 85,000 --
Payable on demand to a shareholder; interest
at 10%; unsecured. 25,000 25,000
Note payable to a shareholder; principal and
interest at 10% due May 14, 1997; unsecured. 25,000 --
F-45
MAYFAIR HOMES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
March 31, 1997 and 1996
Note 11 - Notes Payable (Continued)
1997 1996
---------- ----------
Note payable to a bank; due September 24,
1997; interest at 11%; secured by real
estate. $ 25,085 $ --
Note payable at a bank; due September 25,
1997; interest at 9.25%; unsecured. 48,119 --
---------- ---------
Short-term notes payable $ 323,204 $ 25,000
========== =========
Long-term liabilities consists of the following:
1997 1996
---------- ---------
Promissory notes payable to individuals; principal
and interest at 10% due originally June 30,
1997. Amount was subsequently converted to
common stock. See Note 19. $ 485,000 $ --
Payable to a financial institution at rates
ranging from 10.25% to 10.75%; due in monthly
installments through March 1998; unsecured 3,478 10,776
Bridge loan from a shareholder; interest at 10%;
$50,000 due March 31, 1997; $35,000 convertible
into common stock at $2 per share, due December
27, 1997; unsecured -- 85,000
Bridge loan from a bank; principal and interest at
10.25% payable monthly beginning April 1994;
balloon payment extended to August 1997;
secured by land 146,550 173,328
Subordinated debentures payable to individuals;
interest at 10% payable semi-annually; due 2003 300,000 300,000
Mortgages to a financial institution; interest at
11%; due in monthly installments through August
1997; secured by a mobile home 117,597 8,508
Note payable to an individual; principal and
interest at 10%; due in monthly installments of
$1,062 through November 2000; unsecured 39,729 47,711
Payable to a financial institution; principal and
interest at prime plus 1.5% payable monthly
beginning May 1997 through April 2001; secured
by a vehicle 25,018 --
Payable to a financial institution; principal and
interest at prime plus 1.5% payable monthly
beginning May 1997 through April 1999; secured
by vehicles 20,036 --
Payable to a bank; principal and interest at
9.25%; due in monthly installments through
February 2001; secured by model home in Mayfair
Acres subdivision -- 16,723
--------- --------
Total 1,137,408 642,046
Less current portion 52,085 113,561
--------- --------
Long-term notes payable and
subordinated debentures $1,085,323 $528,485
========== ========
F-46
MAYFAIR HOMES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
March 31, 1997 and 1996
Note 11 - Notes Payable (Continued)
The Company's long-term liabilities mature as follows:
Year ending March 31,
---------------------
1998 $ 52,085
1999 52,236
2000 46,338
2001 187,016
2002 14,733
2003 and thereafter 785,000
----------
$1,137,408
==========
Note 12 - Income Taxes
Income tax expense (benefit) in 1997 and 1996 is summarized as follows:
1997 1996
-------- --------
Current taxes:
Federal $ -- $ --
State -- --
---------- ----------
-- --
---------- ----------
Deferred taxes ( 33,333) ( 6,586)
---------- -----------
Total income tax benefit $( 33,333) $ ( 6,586)
========= =========
The following is a reconciliation of Federal income taxes for 1997 and 1996 at
the Federal statutory rate with Federal income taxes recorded by the Company:
1997 1996
--------- --------
Computed income taxes at the
Federal statutory rate $(136,615) $(20,585)
Losses not available for carryback 136,615 20,585
--------- --------
Income tax expense (benefit) $ -- $ --
========= ========
Deferred tax assets at March 31, 1997 and 1996 consist of the following:
1997 1996
--------- ---------
Operating loss carryforwards $ 198,663 $ 46,681
Allowance for uncollectible accounts 36,519 6,586
--------- ---------
235,182 53,267
Less valuation allowance (198,663) ( 46,681)
--------- ---------
Net deferred tax asset $ 36,519 $ 6,586
========= =========
At March 31, 1997, the Company had net operating loss carryforwards of
approximately $522,800, which will expire in various periods through 2012.
F-47
MAYFAIR HOMES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
March 31, 1997 and 1996
Note 13 - Operating Leases
The Company leases office space, lot space and certain equipment under
short-term operating leases. Rent expense under these leases amounted to
$239,413 and $110,366 in 1997 and 1996, respectively.
Note 14 - Related Party Transactions
Related party advances consist of the following:
· Enlarge/Download Table
1997 1996
---------------------- -----------------------
Receivables Payables Receivables Payables
----------- -------- ----------- --------
Receivable from a company owned by a Director of
the Company $ 51,134 $ -- $ 37,448 $ --
Receivable from a partnership in which the Chairman
of the Company owns a 50% interest 77,311 -- 26,728 --
Receivable from the President of the Company 4,554 -- 4,724 --
Payable to a partnership in which the Company owns a
minority interest -- -- -- 8,165
Payable to the wife of the Chairman of the Company -- 9,000 -- 24,917
Payable to the President of the Company -- 10,000 -- 20,000
--------- -------- --------- -------
Total related party advances $132,999 $ 19,000 $ 68,900 $53,082
========= ======== ========= =======
During 1995 the Chairman's wife purchased the sales office at one of the
locations and leases the sales office back to the Company for $625 per month on
a month-to-month basis.
Two of the Company's sales offices are owned by the President. The Company
leases the offices on a month-to-month basis for $1,787 per month.
Note 15 - Reverse Stock Split
On March 6, 1996 the Company's Board of Directors approved a one-for-two reverse
split of the Company's outstanding common stock. The effect of the reverse split
was to decrease the number of outstanding common shares from 2,135,694 to
1,067,849 and to increase the par value from $.001 to $.002.
Note 16 - Supplemental Disclosure of Cash Flow Information
Cash paid for interest was $503,982 and $300,029 for the years ended March 31,
1997 and 1996, respectively.
During the year ended March 31, 1996, the Company recorded a receivable in the
amount of $4,724 related to the sale of a vehicle to the Company's President.
Asset additions through financing arrangements totaled $22,242 during the year
ended March 31, 1996. There were no such arrangements during 1997.
The Company recognized goodwill in the amount of $50,000 in 1996 related to its
purchase of an 80% interest in Evans-Lanier, Inc. (see Note 1).
F-48
MAYFAIR HOMES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
March 31, 1997 and 1996
Note 16 - Supplemental Disclosure of Cash Flow Information (Continued)
During the year ended March 31, 1996, the Company purchased a model home in its
Mayfair Acres subdivision from a Director in exchange for 46,147 shares of
stock. The home is carried in the Company's consolidated financial statements at
March 31, 1996 at the purchase price of $54,700. During 1997, the home was sold
to a third party.
Note 17 - Amendment of Certificate of Incorporation
On April 26, 1996 the Company amended its Certificate of Incorporation to
increase the authorized capitalization to 10,000,000 shares of common stock and
to increase the par value to $.002.
Note 18 - Equity Incentive Plan
On April 26, 1996 the Company rescinded its 1993 Stock Option Plan and approved
a new Equity Incentive Plan designed to attract and retain key employees. The
Plan, administered by a committee appointed by the Board of Directors, provides
for stock options and other stock based awards to reward employees as the
Committee deems appropriate. The Company approved the allocation of up to
1,000,000 shares of common stock to be used in the Plan. No shares of stock were
used in the 1993 Stock Option Plan.
Note 19 - Subsequent Events
Subsequent to March 31, 1997 the Company converted $485,000 of its $600,000
short-term promissory notes to common stock at a rate of $2 per share. The
remaining $115,000 plus accrued interest was repaid by the Company.
Subsequent to March 31, 1996 the Company completed the sale of 200,000 Units of
$5 per Unit. Each Unit consisted of one share of common stock and one Common
Stock Purchase Warrant, each to purchase one share of the Company's common stock
at $6.50 per share. The warrants are exercisable until December 31, 2001.
Note 20 - Retained earnings and minority interest
In previously issued financial statements, dividends of $111,499 paid to
minority interest shareholders during the year ended March 31, 1997 were
incorrectly shown as a reduction of retained earnings. In the accompanying
financial statements, retained earnings has been restated to exclude the
minority interest dividends, and the dividends have been charged to the
liability account "Minority interest in net assets of consolidated subsidiary."
F-49
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
APPLE HOMES CORPORATION
By: /s/ E. Samuel Evans
-------------------------------
E. Samuel Evans, President
Date: July 15, 1999
-----------------------------
(25)
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