EX-1 2 0002.txt FINANCIAL STATEMENTS JUNE 30, 1999 & 1998 Exhibit 1 AUDITED BALANCE SHEETS OF AMRES AS OF JUNE 30, 1999 AND 1998, AND THE RELATED STATEMENTS OF OPERATIONS, STOCKHOLDER'S EQUITY AND CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1999 AND JUNE 30, 1998 INDEPENDENT AUDITORS REPORT DATED JUNE 30, 1998 Independent Auditors' Report ---------------------------- Board of Directors AMERICAN RESIDENTIAL FUNDING, INC. We have audited the accompanying balance sheet of American Residential Funding, Inc. as of June 30, 1998, and the related income statement and statement of cash flows for the five months then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 financial statements referred to above present fairly, in all material respects, the financial position of American Residential Funding, Inc. as of June 30, 1998, and the results of its operations and its cash flows for the five months then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, we have also issued a report dated July 1, 1998, on our consideration of American Residential Inc.'s internal control structure, and report dated July 1, 1998, on its compliance with specific requirements applicable to major HUD programs, specific requirements applicable to Affirmative Fair Housing, and specific requirements applicable to nonmajor HUD program transactions. By: /s/ Hukriede, Walsh & Associates ----------------------------------------- Hukriede, Walsh & Associates, CPAs July 1, 1998 Westminster, California AMERICAN RESIDENTIAL FUNDING, INC. BALANCE SHEET AS OF JUNE 30, 1998 ASSETS ------ Current Assets: -------------- Cash and Cash Equivalents $ 130,000 ------------ Total Current Assets 130,000 Other Assets: ------------ Organization Costs 2,285 ------------ Total Assets $ 132,285 ============ LIABILITIES AND EQUITY ---------------------- Stockholder's Equity: -------------------- Common Stock no par value: 25,000 shares authorized, 5,000 issued and outstanding $ 130,000 Additional Paid-In Capital 2,285 ------------ Total Stockholder's Equity 132,285 ------------ Total Liabilities & Equity $ 132,285 ============ The accompanying notes are integral parts of this statement. AMERICAN RESIDENTIAL FUNDING, INC. INCOME STATEMENT FOR THE ELEVEN MONTHS ENDED JUNE 30, 1998 REVENUES: -------- ----------- Total Revenue $ 0 ----------- EXPENSES -------- ----------- Total Expenses $ 0 ----------- ----------- NET INCOME $ 0 ---------- =========== The accompanying notes are integral parts of this statement. AMERICAN RESIDENTIAL FUNDING, INC. STATEMENT OF CASH FLOWS FOR THE ELEVEN MONTHS ENDED JUNE 30, 1998 Cash Flows from Operating Activities: ------------------------------------ Net Income $ 0 Adjustments to Reconcile Net Income to Net Cash Decrease (Increase) in Assets: Organization Costs (2,285) (Decrease) Increase in Liabilities: ----------- Cash Provided by Operations $ (2,285) ----------- Cash Flows Used By Investing Activities: Cash Flows Used by Investing Activities $ 0 ----------- Cash Flows Used By Financing Activities: --------------------------------------- Capital Contributions 132,285 ----------- Cash Flows Provided from Financing Activities $ 132,285 ----------- Net Increase in Cash $ 130,000 Cash at Beginning of Year 0 ----------- Cash at End of Year $ 130,000 =========== The accompanying notes are integral parts of this statement. AMERICAN RESIDENTIAL FUNDING, INC. NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 1998 ORGANIZATION ------------ The Corporation was incorporated in the State of Nevada on March 13, 1998, under the name American Residential Funding Inc. The company will be principally engaged as a mortgage broker in the real estate industry. As of this date, there has been no revenue generating activity in the company's principal line of business. ACCOUNTING POLICIES ------------------- Income and expenses will be reported on a accrual basis, which means that income is recognized as it is earned and expenses are recognized as they are incurred whether or not cash is received or paid out at that time. In concurrence with industry practice, loan fees and commissions are recognized when the related loans are funded by the primary lenders. CASH AND INVESTMENTS -------------------- For purposes of reporting cash flows, cash and cash equivalents include debt and equity instruments purchased with a maturity of three months or less. INDEPENDENT AUDITORS REPORT DATED JUNE 30, 1999 Report of Independent Accountants Board of Directors American Residential Funding, Inc. We have audited the accompanying balance sheet of American Residential Funding, Inc. as of June 30, 1999, and the related statements of income, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the 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 and Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 financial statement referred to above present fairly, in all material respects, the financial position of American Residential Funding, Inc. as of June 30, 1999, and the results of its operations, changes in stockholders' equity, and cash flows for the year then ended in conformity with generally accepted accounting principles. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supporting information included in the report (shown on pages 10 through 15) are presented for the purposes of additional analysis and are not a required part of the basic financial statements of American Residential Funding, Inc. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, we have also issued a reports dated September 7, 1999, on our consideration of American Residential Funding, Inc. internal control structure, its compliance with specific requirements applicable to major HUD programs and non-major HUD program transactions. By: /s/ Hukriede, Walsh & Associates ------------------------------------- Hukriede, Walsh & Associates, CPAs September 7, 1999 Westminster, California American Residential Funding, Inc. Balance Sheet June 30, 1999 ASSETS Current Assets Cash $ 105,317 Commissions Receivable 128,325 Advances to Employees 8,525 Investments 600,000 Notes Receivable 100,000 ------------ Total Current Assets 942,168 ------------ Property and Equipment Computers and Equipment 17,343 Office Furniture & Fixtures 1,405 Accumulated Depreciation (2,225) Organization Costs 31,070 Accumulated Amortization (3,006) ------------ Total Property and Equipment 44,588 ------------ Other Assets Deposits 572 Investments 40,000 ------------ Total Other Assets 40,572 ------------ Total Assets $ 1,027,327 ============ The accompanying report and notes are an integral part of this financial statement. American Residential Funding, Inc. Balance Sheet June 30, 1999 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Current Liabilities Commissions Payable $ 95,794 Accounts Payable 25,517 Accrued Expenses Payable 28,745 Contracts Payable 18,500 Taxes Payable 800 ----------- Total Current Liabilities 167,356 ----------- Long-Term Liabilities Deferred Taxes Payable 746 Notes Payable 150,000 ----------- Total Long-Term Liabilities 150,746 ----------- Total Liabilities 318,102 ----------- SHAREHOLDERS' EQUITY Shareholders' Equity Common Stock 105,000 Preferred Stock 600,000 Retained Earnings 4,225 ----------- Total Shareholders' Equity 709,225 ----------- Total Liabilities and Shareholders' Equity $ 1,027,327 =========== The accompanying report and notes are an integral part of this financial statement.
American Residential Funding, Inc. Statement of Stockholders' Equity For the Year Ended June 30, 1999 Common Stock Preferred Additional Retained Total Stock Paid-in-Capital Earnings Balance, July 1, 1998 $ 130,000 $ 0 $ 2,285 $ 0 $132,285 Preferred Stock issued 0 600,000 0 0 600,000 Stock shares redeemed (25,000) 0 (2,285) 0 (27,285) Net income(loss) 0 0 0 4,225 4,225 Balance, June 30, 1999 $ 105,000 $ 600,000 0 $ 4,225 $709,225 The accompanying report and notes are an integral part of this financial statements
American Residential Funding, Inc. Income Statement For the Periods Ended June 30, 1999 REVENUES $ 3,547,933 -------------- EXPENSES Advertising and Marketing 20,819 Amortization and Depreciation 5,231 Automobile and Travel 15,688 Commissions and Fees 2,304,227 Consulting and Contractors 58,339 Credit Reports 22,556 Directors Fees 2,750 Dues and Subscriptions 12,893 Equipment 16,331 Insurance 40,881 Interest 3,088 Miscellaneous 7,100 Office Supplies 44,973 Officer Compensation 131,100 Postage and Delivery 14,068 Professional Development 11,113 Professional Fees 50,475 Rent 125,660 Repairs and Maintenance 11,719 Salaries and Benefits 536,351 Taxes and Licenses 3,319 Telephone 62,392 Travel and Entertainment 9,068 Utilities 10,925 Gain (Loss) on Acquisitions 20,294 -------------- Total Expenses 3,541,361 NET INCOME BEFORE TAXES 6,571 Provision for Income Taxes 2,346 NET INCOME $ 4,225 ============== The accompanying report and notes are an integral part of this financial statement. American Residential Funding, Inc. Statement of Cash Flows For the Year Ended June 30, 1999 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 4,225 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 2,225 Amortization 3,006 Changes in assets and liabilities: (Increase) decrease in trade receivables (136,850) (Increase) decrease in deposits (572) Increase (decrease) in accounts payable and accrued expense 166,556 Increase (decrease) in deferred taxes payable 746 Increase (decrease) in income taxes payable 800 --------- Net cash provided by (used in) operating activities 40,136 --------- CASH FLOWS FROM INVESTING ACTIVITIES Investments (40,000) Notes Receivable (100,000) Organization Costs (28,785) Purchase of property and equipment (18,748) --------- Net cash provided by (used in) investing activities (187,533) --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term borrowings 150,000 Redemption of common stock (27,285) --------- Net cash provided by (used in) financing activities 122,715 --------- Net increase (decrease) in cash and cash equivalents (24,683) Cash balance - beginning of period 130,000 --------- Cash balance - end of period $ 105,317 ========= The accompanying report and notes are an integral part of this financial statements AMERICAN RESIDENTIAL FUNDING, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 ORGANIZATION American Residential Funding, Inc. is a Nevada corporation organized March 13, 1998. The Company is a HUD-approved Title I and Title II loan correspondent, licensed by the Department of Real Estate. American Residential Funding, Inc. originates and sells HUD-insured mortgages and conventional loans. These loans are sold to financial institutions or other entities who securitize loans for investments. ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Revenue Recognition The financial statements of the Company are prepared using the accrual basis of accounting whereas revenues are recognized when earned and expenses are recognized when incurred. This basis of accounting conforms to generally accepted accounting principles. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. INVESTMENTS The Corporation has purchased 100,000 shares common stock of a publicly traded company which are classified as available-for-sale equity securities reported in accordance with FASB 115. Investment shares are held by a Trustee and have been irrevocably assigned to American Residential Funding, Inc.. The investment is reported at the lower of cost or market. The fair market value, $600,000, is based on quoted market prices as of June 30, 1999. The stock is restricted under the Securities and Exchange Commission Ruling 144. American Residential Funding, Inc. has invested $40,000 in a related company, reported at cost. AMERICAN RESIDENTIAL FUNDING, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 NOTES RECEIVABLE As of June 30, 1999, the Company holds a 12 month unsecured note receivable from a related company in the amount of $100,000 bearing 12% interest, principal and interest due June 15, 2000. AMORTIZATION AND DEPRECIATION Fixed assets are recorded at cost. Depreciation expense is computed under the straight line method over the useful lives of the assets. Organization costs are amortized under the straight line method over five years. CONTRACTS PAYABLE The Company has entered into a acquisition agreement with another company providing for the purchase of the sebsequent income generated, assets and obligations of an existing mortgage originating organization with monthly payments due of $2,750 through November 15, 1999. NOTES PAYABLE American Residential Funding, Inc. holds a $150,000 note payable to a related company bearing 5% interest, principal and interest payable April 1, 2005. STOCKHOLDERS' EQUITY The components of stockholders' equity are as follows: Preferred Stock consists of Class A shares of non-redeemable preferred stock at no par value, 5% interest, cumulative. There are 20,000 shares authorized; 12,000 shares are issued and outstanding. Class A Preferred shares are convertible to common stock. The Corporation has authorized 5,000 shares of no par common stock, with 5,000 shares issued and 4,038 shares outstanding. During fiscal year end June 30, 1999, the company redeemed 962 shares at cost. AMERICAN RESIDENTIAL FUNDING, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 TREASURY STOCK The Company has purchased, in the current fiscal year ended, 962 shares of American Residential Funding, Inc. common stock, at a total cost of $27,285. INCOME TAXES The Company uses different depreciation methods for financial reporting of fixed assets than for income tax reporting. These timing differences results in a tax deferral for the year ended June 30, 1999. The Company has accrued a minimum franchise tax expense of $800 to the State of California and has accrued a deferred federal tax liability of $746 for the fiscal year end June 30, 1999. COMMITMENTS AND CONTINGENCIES The Company has entered into various employment agreements with management individuals. The agreements require the Company to pay these parties (in aggregate) $120,000 per year over a period of three years, various other incentives, stock options and other commission arrangements based upon performance. LEASE OBLIGATIONS The Company has entered into noncancelable operating lease agreements and real estate lease agreements. The following is a schedule of future minimum rental payments required under the leases as of June 30, 1999. Period Ended June 30 Amount -------------------- ------ 2000 $20,506 2001 8,184 2002 8,184 2003 2,046 ------- Total $38,920 =======