UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Date of Report (Date of Earliest Event Reported): April 3, 2003
ASHCROFT HOMES CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
Colorado 0-33437 31-1664473
- -------- ------- ----------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
56 Inverness Drive East, Suite 105
Englewood, Colorado 80112
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (303) 799-6194
--------------
N/A
--------------------------------------------------------------
(Former name or former address, if changed since last report):
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Pro-Forma Financial Information.
See Index for a complete listing.
(b) Financial Statements of Business Acquired.
The following combined financial statements of the Ashcroft subsidiaries,
as defined in the Form 8-K dated April 3, 2003 are filed with this report:
Report of Independent Auditors.
Combined Balance Sheet at December 31, 2002 and 2001.
Combined Statements of Operations for the years ended December
31, 2002, 2001, and 2000.
Combined Statement of Stockholders' and Members' Equity for the
years ended December 31, 2002, 2001, and 2000.
Combined Statement of Cash Flows for the years ended December
31, 2002, 2001, and 2000.
Notes to Combined Financial Statements
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned hereunto duly authorized.
ASHCROFT HOMES CORPORATION
Date: June 17, 2003 By: /s/ Joseph A. Oblas, President
------------------------------
Joseph A. Oblas, President
Ashcroft Homes Corporation
Proforma Consolidating (Unaudited)
Balance Sheet
December 31, 2002
Ashcroft Homes
Ashcroft Homes OneDentist Corporation
Corporation Resources Proforma Proforma
Combined Inc. Adjustments Consolidated
------------ ------------ ------------ ------------
ASSETS
Cash $ 516,616 $ -- $ -- $ 516,616
Accounts receivable 517,030 -- -- 517,030
Accounts receivable - related parties 1,302,516 -- -- 1,302,516
Income taxes receivable 132,448 -- -- 132,448
House inventory 12,184,528 -- -- 12,184,528
Land inventory 19,539,892 -- -- 19,539,892
Deposits 805,793 -- -- 805,793
Prepaid expenses 439,960 -- -- 439,960
Notes receivable 85,000 -- -- 85,000
Property and Equipment, net 269,995 -- -- 269,995
Other Assets 624,195 -- -- 624,195
Goodwill 243,722 -- -- 243,722
------------ ------------ ------------ ------------
$ 36,661,695 $ -- $ -- $ 36,661,695
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY
Notes payable $ 28,346,409 $ -- $ -- $ 28,346,409
Due to related parties 2,482,790 31,799 (31,799)1 --
(575,164)2 1,907,626
Leases payable 93,680 -- 93,680
Accounts payable and accrued expenses 4,233,497 20,988 (20,988)1 4,233,497
Accrued warranty and costs on sold homes 176,496 -- -- 176,496
Customer deposits - refundable and non-refundable 590,357 -- -- 590,357
Accrued interest - related parties 245,312 -- -- 245,312
Deferred income 400,332 -- -- 400,332
------------ ------------ ------------ ------------
Total Liabilities 36,568,873 52,787 (627,951) 35,993,709
Minority interest (625,348) -- -- (625,348)
STOCKHOLDERS' AND MEMBERS' EQUITY
Series A preferred stock 5,400,000 5,400,000 2
Common stock 694,584 316,667 (316,667)1
(27,310)2 667,274
Additional paid in capital 240,756 79,000 (79,000)1 240,756
Members deficit (27,310) -- 27,310 2 --
Accumulated deficit (189,860) (448,454) 448,454 1 --
-- -- (4,824,836)2 (5,014,696)
------------ ------------ ------------ ------------
Total Stockholders' and Members' Equity 718,170 (52,787) 627,951 1,293,334
------------ ------------ ------------ ------------
$ 36,661,695 $ -- $ -- $ 36,661,695
============ ============ ============ ============
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Ashcroft Homes Corporation
Proforma Consolidating (Unaudited)
Statement of Operations
For the Year Ended December 31, 2002
Ashcroft Homes
Ashcroft Homes OneDentist Corporation
Corporation Resources Proforma Proforma
Combined Inc. Adjustments Consolidated
---------------- ---------- --------------- ------------
SALES $ 36,970,293 $ - $ - $ 36,970,293
COST OF SALES 36,554,351 - - 36,554,351
---------------- ---------- --------------- ------------
GROSS PROFIT 415,942 - - 415,942
---------------- ---------- --------------- ------------
EXPENSES:
Selling, general and administrative 1,988,492 20,748 (20,748) 1 1,988,492
Interest expense 292,810 - - 292,810
---------------- ---------- --------------- ------------
Total Expenses 2,281,302 20,748 (20,748) 2,281,302
---------------- ---------- --------------- ------------
OPERATING INCOME (LOSS) (1,865,360) (20,748) 20,748 (1,865,360)
OTHER INCOME:
Interest income 3,818 - - 3,818
Other income (expense) 946,673 18,580 (18,580) 1 946,673
---------------- ---------- --------------- ------------
Total Other Income 950,491 18,580 (18,580) 950,491
---------------- ---------- --------------- ------------
NET INCOME (LOSS) BEFORE MINORITY
INTEREST AND INCOME TAXES (914,869) (2,168) 2,168 (914,869)
MINORITY INTEREST 126,218 - - 126,218
---------------- ---------- --------------- ------------
NET INCOME (LOSS) BEFORE INCOME
TAXES (788,651) (2,168) 2,168 (788,651)
INCOME TAX (BENEFIT) EXPENSE (132,448) - - (132,448)
---------------- ---------- --------------- ------------
NET INCOME (LOSS) $ (656,203) $ (2,168) $ 2,168 $ (656,203)
================ ========== =============== ============
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
ASHCROFT HOMES CORPORATION AND SUBSIDIARIES
PROFORMA EXPLANATORY HEADNOTE
The following unaudited proforma consolidated financial statements give effect
to the reverse acquisition of Ashcroft Homes, Inc. and several related entities
(the "Company") by OneDentist Resources, Inc. ("ODRE") and is based on the
estimates and assumptions set forth herein and in the notes to such statements.
This proforma information has been prepared utilizing the historical financial
statements of the Company and notes thereto, which are incorporated by reference
herein. The historical results of ODRE are incorporated by reference to its
10K-SB for the year ended December 31, 2002. The transaction is being treated as
a reverse acquisition and a recapitalization. The Company is the acquirer for
accounting purposes. The proforma financial data does not purport to be
indicative of the results which actually would have been obtained had the
acquisition been effected on the dates indicated or the results which may be
obtained in the future.
The following unaudited proforma consolidating statement of operations for the
year ended December 31, 2002 gives effect to the transaction as if it had
occurred on January 1, 2002. The following unaudited proforma consolidating
balance sheet as of December 31, 2002 gives effect to the transaction as if it
had occurred on December 31, 2002.
On April 3, 2003, the Company was acquired by ODRE in exchange for 12,954,060
shares of ODRE common stock and 1,350,000 shares of ODRE Series A preferred
stock. Shortly thereafter, ODRE changed its name to Ashcroft Homes Corporation.
ASHCROFT HOMES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED
PROFORMA CONSOLIDATING FINANCIAL STATEMENTS
PROFORMA ADJUSTMENTS
The adjustments related to the unaudited pro forma consolidating balance sheet
are computed assuming the acquisition of the Company by ODRE was consummated at
December 31, 2002. The adjustments related to the unaudited pro forma
consolidating statement of operations for the year ended December 31, 2002 are
computed assuming the acquisition was consummated at the beginning of the
period.
NOTE 1 - ADJUSTMENT TO LIABILITIES, EQUITY AND STATEMENT OF OPERATIONS
In connection with the acquisition by ODRE, the Company did not assume any
liabilities of ODRE. The capital structure of ODRE was converted to the
structure of the Company. All expenses of ODRE have been adjusted to reflect the
expenses of the Company.
NOTE 2 - ADJUSTMENT TO LIABILITIES AND EQUITY
In connection with the acquisition, the Company issued 1,350,000 shares of 7 %
Series A preferred stock convertible at $4 per share to an equal number of
common stock. The holders of the preferred stock converted $575,164 of debt to
equity and the remaining balance is presented as an increase to the accumulated
deficit. Stockholders and members of the combining entities converted their
common stock and membership interests to common stock of the consolidated
entity.
The entities combined in the acquisition were as follows:
Ashcroft Homes, Inc. Corporation
West Gold Holdings, Inc. S-Corporation
Stonegate Capital Corporation Corporation
Absolute Construction, LLC LLC
Tesoro Homes @ Tallyn's Reach, LLC LLC
Peregrine Sanctuary, LLC LLC
INDEX
Page
----
Independent Auditors' Report F-1
Combined Financial Statements:
Balance Sheets F-2
Statements of Operations F-4
Statements of Changes in Stockholders' and Members' Equity F-5
Statements of Cash Flows F-6
Notes to Combined Financial Statements F-7
AJ. Robbins, P.C.
Certified Public Accountants
216 Sixteenth Street
Suite 600
Denver, CO 80202
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Ashcroft Homes Corporation
Englewood, Colorado
We have audited the accompanying combined balance sheets of Ashcroft Homes
Corporation as of December 31, 2001 and 2002, and the related combined
statements of operations, changes in stockholders' and members' equity, and cash
flows for each of the years in the three year period ended December 31, 2002.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the combined
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 combined financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Ashcroft
Homes Corporation as of December 31, 2001 and 2002, and the results of its
operations and its cash flows for each of the years in the three year period
ended December 31, 2002 in conformity with generally accepted accounting
principles in the United States of America.
/s/ AJ. ROBBINS, P.C.
----------------------------
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Denver, Colorado
May 16, 2003
F-1
ASHCROFT HOMES CORPORATION
COMBINED BALANCE SHEETS
==========================
ASSETS
December 31,
2002 2001
----------- -----------
Cash $ 516,616 $ 515,026
Accounts receivable 517,030 566,335
Accounts receivable - related parties 1,302,516 1,206,019
Income taxes receivable 132,448 --
House inventory 12,184,528 22,867,116
Land inventory 19,539,892 22,600,612
Deposits 805,793 724,740
Prepaid expenses 439,960 665,490
Notes receivable 85,000 --
Property and equipment, net 269,995 498,225
Other assets 624,195 69,136
Goodwill 243,722 266,349
----------- -----------
$36,661,695 $49,979,048
=========== ===========
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS
F-2
ASHCROFT HOMES CORPORATION
COMBINED BALANCE SHEETS (Continued)
====================================
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY
December 31,
2002 2001
------------ ------------
Notes payable $ 28,346,409 $ 38,987,397
Due to related parties 2,482,790 3,024,419
Leases payable 93,680 118,942
Accounts payable and accrued expenses 4,233,497 5,339,501
Accrued warranty and costs on sold homes 176,496 965,691
Customer deposits - refundable and non-refundable 590,357 502,216
Accrued interest - related parties 245,312 45,422
Deferred income 400,332 290,000
------------ ------------
Total Liabilities 36,568,873 49,273,588
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS (625,348) (187,229)
STOCKHOLDERS' AND MEMBERS' EQUITY 718,170 892,689
------------ ------------
$ 36,661,695 $ 49,979,048
============ ============
F-3
ASHCROFT HOMES CORPORATION
COMBINED STATEMENTS OF OPERATIONS
====================================
For the Years Ended December 31,
2002 2001 2000
------------ ------------ ------------
SALES $ 36,970,293 $ 46,847,046 $ 42,964,725
COST OF SALES 36,554,351 43,313,963 38,465,465
------------ ------------ ------------
GROSS PROFIT 415,942 3,533,083 4,499,260
------------ ------------ ------------
EXPENSES:
Selling, general and administrative 1,988,492 2,605,849 2,458,098
Interest 292,810 201,876 315,612
------------ ------------ ------------
Total Expenses 2,281,302 2,807,725 2,773,710
------------ ------------ ------------
OPERATING INCOME (LOSS) (1,865,360) 725,358 1,725,550
OTHER INCOME (EXPENSE):
Interest income 3,818 10,180 27,966
Other income (expense) 946,673 265,526 (24,256)
------------ ------------ ------------
Total Other Income 950,491 275,706 3,710
------------ ------------ ------------
NET INCOME (LOSS) BEFORE MINORITY INTEREST AND INCOME
TAXES (914,869) 1,001,064 1,729,260
MINORITY INTEREST 126,218 (499,895) (684,921)
------------ ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES (788,651) 501,169 1,044,339
INCOME TAX (BENEFIT) EXPENSE (132,448) 15,092 34,611
------------ ------------ ------------
NET INCOME (LOSS) $ (656,203) $ 486,077 $ 1,009,728
============ ============ ============
F-4
ASHCROFT HOMES CORPORATION
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' AND MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
=====================================================================
Retained
Additional Members' Earnings/
Common Stock Paid-In Equity Accumulated
Shares Amount Capital (Deficit) (Deficit) Total
----------- ----------- ----------- ----------- ----------- -----------
Balances,
December 31, 1999 4,134,542 $ 125 $ 240,756 $ -- $ (122,531) $ 118,350
Distributions -- -- -- -- (515,757) (515,757)
Net income -- -- -- -- 1,009,728 1,009,728
----------- ----------- ----------- ----------- ----------- -----------
Balances,
December 31, 2000 4,134,542 125 240,756 -- 371,440 612,321
Distributions -- -- -- -- (205,709) (205,709)
Net income (loss) -- -- -- (5,506) 491,583 486,077
----------- ----------- ----------- ----------- ----------- -----------
Balances,
December 31, 2001 4,134,542 125 240,756 (5,506) 657,314 892,689
Contributions -- -- -- 32,664 -- 32,664
Stock issued in exchange for accounts payable 690,459 690,459 -- -- -- 690,459
Stock issued for cash 4,750,000 4,000 -- -- -- 4,000
Distributions -- -- -- -- (245,439) (245,439)
Net (loss) -- -- -- (54,468) (601,735) (656,203)
----------- ----------- ----------- ----------- ----------- -----------
Balances,
December 31, 2002 9,575,001 $ 694,584 $ 240,756 $ (27,310) $ (189,860) $ 718,170
=========== =========== =========== =========== =========== ===========
F-5
ASHCROFT HOMES CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
==================================
For the Years Ended December 31,
2002 2001 2000
------------ ------------ ------------
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income (loss) from operations before minority
interest $ (782,421) $ 985,972 $ 1,694,649
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization 258,273 320,151 234,243
Loss on retirement of assets -- 47,584 22,719
Changes in assets and liabilities:
Accounts receivable 49,305 (167,633) (98,645)
Receivables from related parties (96,497) (883,489) (193,319)
Income taxes receivable (132,448) -- --
House inventories 10,682,588 (1,117,098) (8,668,667)
Land inventories 3,060,720 (7,030,950) (6,955,074)
Deposits (81,053) 1,218,687 (1,217,815)
Prepaid expenses 225,530 (266,718) (239,488)
Other assets (555,060) 36,808 206,921
Accounts payable and accrued expenses (415,545) 351,709 2,639,142
Customer deposits 88,141 (679,370) (306,568)
Deferred income 110,332 (32,795) 322,795
Accrued expenses, related parties 199,890 37,334 (1,912)
Accrued warranty costs (789,195) 699,124 (310,123)
------------ ------------ ------------
Net Cash Provided by (Used In) Operating 11,822,560 (6,480,684) (12,871,142)
Activities -- -- --
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Notes receivable (85,000) -- --
Purchase of equipment (7,416) (129,321) (359,190)
------------ ------------ ------------
Net Cash Provided by Investing Activities (92,416) (129,321) (359,190)
------------ ------------ ------------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Repayment of leases (25,262) (31,225) (12,212)
Proceeds from notes payable 22,622,962 28,249,223 27,066,603
Repayment of notes payable (33,263,950) (20,850,019) (13,924,284)
Proceeds from loans payable, related parties 1,553,081 126,662 1,288,376
Repayment of loans payable, related parties (2,094,710) (284,838) (94,000)
Distributions to stockholders (245,439) (205,709) (515,757)
Contributions of equity to LLC 32,664 -- --
Sale of common stock 4,000 -- --
Distributions to minority interest members (362,650) (831,712) (2,217,426)
Contributions from minority interest members 50,750 62,841 68,375
------------ ------------ ------------
Net Cash Provided by (Used In) Financing (11,728,554) 6,235,223 11,659,675
------------ ------------ ------------
Activities
------------ ------------ ------------
INCREASE (DECREASE) IN CASH 1,590 (374,782) (1,570,657)
Cash and Cash Equivalents at Beginning of Period 515,026 889,808 2,460,465
------------ ------------ ------------
Cash and Cash Equivalents at End of Period $ 516,616 $ 515,026 $ 889,808
============ ============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 1,250,248 $ 2,624,427 $ 1,381,904
============ ============ ============
Taxes $ -- $ -- $ --
============ ============ ============
F-6
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
- -------------------------
The combined financial statements include the accounts of the following
entities, collectively referred to as "The Company" or "Ashcroft", which are
affiliated by virtue of their inclusion in the acquisition of OneDentist
Resources, Inc. ("ODRE") on April 3, 2003. All significant intercompany
transactions have been eliminated.
Ashcroft Homes, Inc. Corporation
West Gold Holdings, Inc. S-Corporation
Stonegate Capital Corporation Corporation
Absolute Construction, LLC LLC
Tesoro Homes @ Tallyn's Reach, LLC LLC
Peregrine Sanctuary, LLC LLC
Upon completion of the acquisition, ODRE changed its name to Ashcroft Homes
Corporation, and the entities listed became wholly owned subsidiaries of
Ashcroft (the "Ashcroft Subsidiaries").
Nature of Operations
- --------------------
The Company designs, builds and sells single-family homes in Colorado,
principally in the Denver, Colorado Springs and Fort Collins metropolitan areas.
The Company is also engaged in residential land development throughout Colorado.
The Company currently offers its homes, designed principally for the "move-up"
and relocation markets, under the "Ashcroft Homes" and "Tesoro Homes" brand
names. Typically, Ashcroft Homes range in size from 1,800 square feet to over
4,500 square feet and range in price from $300,000 to $600,000, with an average
sales price of $475,000. Tesoro custom homes range in size from 2,800 square
feet to over 4,000 square feet and range in price from $480,000 to $700,000,
with an average sales price of $550,000.
Investment in Limited Liability Companies and Limited Partnership
- -----------------------------------------------------------------
The Company accounts for its investments in limited liability companies ("LLCs")
and limited partnership ("LP") under the consolidation method. The Company is
the manager of each of the entities and exerts control over the entities.
Additionally, certain members of the Company's management and Board of Directors
are members in the LLCs and LP.
F-7
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Status as of
December 31,
Ownership % 2002
----------- -------------
Anthem Ashcroft Home Builders, LCC 50.0% Active
Brookwood, LLC 33.4% Active
WGB Management, LLC 50.0% Active
WECC, LLC 25.0% Inactive
WGB Fairway Ten Partners, LP *50.0% Inactive
Caste Club, LLC 37.5% Inactive
*50.0% owned by WGB Management, LLC
Presentation
- ------------
The Company's homebuilding operations conducted across several metropolitan
areas of the state of Colorado have similar characteristics; therefore, they
have been aggregated into one reportable segment--the homebuilding segment.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents consist primarily of cash in banks and highly liquid
investments with original maturities of 90 days or less.
Real Estate Inventories
- -----------------------
Real estate inventories are reported at cost net of impairment losses, if any.
Real estate inventories consist primarily of raw land, lots under development,
homes under construction and completed homes of real estate projects. All direct
and indirect land costs, offsite and onsite improvements and applicable interest
and other carrying charges are capitalized to real estate projects during
periods when the project is under development. Land, offsite costs and all other
common costs are allocated to land parcels benefited based upon relative fair
values before construction. Onsite construction costs and related carrying
charges (principally interest and property taxes) are allocated to the
individual homes within a phase based upon the relative sales value of the
homes. The Company relieves its accumulated real estate inventories through cost
of sales for the cost of homes sold. Selling expenses and other marketing costs
are expensed in the period incurred. A provision for warranty costs relating to
the Company's limited warranty plans is included in cost of sales at the time
the sale of a home is recorded. The Company generally reserves .5 percent of the
sales price of its homes for warranty costs. The warranty cost accrued is
amortized over 12 months against the warranty costs incurred.
F-8
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
- ----------------------
Property and equipment is recorded at cost. Depreciation expense is provided on
a straight-line basis using the estimated useful lives of 3-7 years. Maintenance
and repairs are charged to expense as incurred. When assets are retired or
otherwise disposed of, the property accounts are relieved of costs and
accumulated depreciation and any resulting gain or loss is credited or charged
to operations. Depreciation expense was $235,646 in 2002, $296,688 in 2001 and
$211,791 in 2000.
Impairment Of Long Lived Assets
- -------------------------------
Housing projects and unimproved land held for future development (components of
inventory) and property and equipment are reviewed for recoverability whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets is measured by comparing the
carrying amount of an asset to future undiscounted net cash flows expected to be
generated by the asset. If these assets are considered to be impaired, the
impairment loss to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Deposits on Option Agreements
- -----------------------------
During July 1999 the Company entered into an agreement to purchase developed
lots in a residential community and made option payments of $1,000 each for 84
lots. The Company purchased 35 lots in 2002 and the deposits were applied toward
the purchase price of the lot. The remaining 49 lots will not be purchased and
the Company forfeited the deposits.
Advertising and Promotion Costs
- -------------------------------
Advertising and promotion costs are charged to expense during the period
incurred. Advertising and promotion expense totaled $126,531 in 2002, $436,620
in 2001 and $355,426 in 2000.
Goodwill
- --------
Goodwill which arose from 1999 and 1998 acquisitions of the Company's Fort
Collins and Colorado Springs operations was capitalized and is being amortized
over 15 years. Amortization expense totaled $22,453 in 2002, 2001 and 2000.
F-9
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Recognition And Classification Of Costs
- ----------------------------------------------
Income from the sale of residential units or land parcels is recognized when
closings have occurred and the risk of ownership is transferred to the buyer.
Sales commissions are included in selling, general and administrative expense.
Customer earnest money and change order deposits are recorded as liabilities.
During construction, all direct material and labor costs and those indirect
costs related to acquisition and construction are capitalized. Capitalized costs
are charged to earnings upon closing. Costs incurred in connection with
completed homes and selling, general and administrative costs are charged to
expense as incurred. Provision for estimated losses on uncompleted contracts, if
necessary, is made in the period in which such losses are determined. Revenues
from construction management fees are recognized upon the sale of completed
homes.
Stock-Based Compensation
- ------------------------
The Company has elected to follow the intrinsic value method to account for
compensation expense related to the award of stock options and to furnish the
pro forma disclosures required under SFAS No. 123, "Accounting for Stock-Based
Compensation." Since the stock option awards are granted at prices no less than
the fair-market value of the shares at the date of grant, no compensation
expense is recognized for these awards. As of December 31, 2002 the Company has
not granted any options.
Use Of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
Income Taxes
- ------------
The Company accounts for income taxes under the asset and liability method for
its corporations. Under this method, deferred income taxes are recorded to
reflect the tax consequences in future years of temporary differences between
the tax basis of assets and liabilities and their financial statement amounts at
the end of each reporting period. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense represents the tax payable for the current period and the
change during the period in deferred tax assets and liabilities. Deferred tax
assets and liabilities have been netted to reflect the tax impact of temporary
differences.
The combined financial statements do not include a provision for income taxes
for the S-Corporation or the LLCs because the S-Corporation and LLCs do not
incur federal or state income taxes. Instead, earnings and losses are included
in the stockholders' or members' personal income tax returns and are taxed based
on their personal tax strategies.
F-10
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Risk
- ----------------------
The Company's financial instruments that are exposed to concentrations of credit
risk consist of cash, including money market accounts, and receivables. The
Company invests its cash in banks with high credit ratings; however, certain
account balances during 2002 and 2001 have been maintained at levels in excess
of federally insured limits. The Company's receivables are primarily due from
shareholders and affiliated entities and from amounts not received from title
companies related to sales occurring prior to year end. As a consequence, the
Company's management believes that concentrations of credit risk are limited and
the Company has not experienced a loss in such accounts.
Fair Value of Financial Instruments
- -----------------------------------
The carrying value of cash, accounts receivable, notes payable, accounts
payable, and accrued expenses approximate fair value because of the short
maturity of these items. The carrying value of non-current liabilities
approximates fair value based on references to interest rates on similar
instruments.
Recently Issued Accounting Pronouncements
- -----------------------------------------
In July 2001 the Financial Accounting Standards Board ("FASB") issued Statements
of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141")
and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. Under SFAS 142, goodwill and intangible assets
with indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives (but with no maximum life). With respect to
goodwill and intangible assets acquired prior to July 1, 2001, the Company is
required to adopt SFAS 142 effective December 31, 2001.
In July 2001 the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which addresses accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS No. 143 will be effective for the Company for the fiscal
year beginning January 1, 2003 and early adoption is encouraged. SFAS No. 143
requires that the fair value of a liability for an asset's retirement obligation
be recorded in the period in which it is incurred and the corresponding cost
capitalized by increasing the carrying amount of the related long-lived asset.
The Company estimates that the new standard will not have a material impact on
its consolidated financial statements.
F-11
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In August 2001 the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 is effective for the Company on
January 1, 2002 and addresses accounting and reporting for the impairment or
disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of and APB Opinion No. 30, Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business. SFAS No. 144 retains the
fundamental provisions of SFAS No. 121 and expands the reporting of discontinued
operations to include all components of an entity with operations that can be
distinguished from the rest of the entity and that will be eliminated from the
ongoing operations of the entity in a disposal transaction. The Company
estimates that the new standard will not have a material impact on its
consolidated financial statements.
In April 2002 the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of SFAS Statement No. 13, and Technical Corrections ("SFAS
145"). This statement rescinds the requirement in SFAS No. 4, Reporting Gains
and Losses from Extinguishment of Debt, that material gains and losses on the
extinguishment of debt be treated as extraordinary items. The statement also
amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between
the accounting for sale-leaseback transactions and the accounting for certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions. Finally the standard makes a number of
consequential and other technical corrections to other standards. The provisions
of the statement relating to the rescission of SFAS 4 are effective for fiscal
years beginning after May 15, 2002. Provisions of the statement relating to the
amendment of SFAS 13 are effective for transactions occurring after May 15, 2002
and the other provisions of the statement are effective for financial statements
issued on or after May 15, 2002. The Company has reviewed SFAS 145 and its
adoption is not expected to have a material effect on its consolidated financial
statements.
In July 2002 the FASB issued SFAS No. 146, Accounting for Exit or Disposal
Activities ("SFAS 146"). SFAS 146 applies to costs associated with an exit
activity (including restructuring) or with a disposal of long-lived assets.
Those activities can include eliminating or reducing product lines, terminating
employees and contracts, and relocating plant facilities or personnel. SFAS 146
will require a Company to disclose information about its exit and disposal
activities, the related costs, and changes in those costs in the notes to the
interim and annual financial statements that include the period in which an exit
activity is initiated and in any subsequent period until the activity is
completed. SFAS 146 supersedes Emerging Issues Task Force Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring), and
requires liabilities associated with exit and disposal activities to be expensed
as incurred and can be measured at fair value. SFAS 146 is effective
prospectively for exit or disposal activities initiated after December 31, 2002,
with earlier adoption encouraged. The Company has reviewed SFAS 146 and its
adoption is not expected to have a material effect on its consolidated financial
statements.
F-12
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In December 2002 the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS No. 123. This
Statement amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation from the intrinsic value based method of accounting
prescribed by APB No. 25. In addition, this Statement amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
Under the provisions of SFAS No. 148, companies that choose to adopt the
accounting provisions of SFAS No. 123 will be permitted to select from three
transition methods: Prospective method, Modified Prospective method and
Retroactive Restatement method. The transition and annual disclosure provisions
of SFAS No. 148 are effective for the fiscal years ending after December 15,
2002. The Company is currently evaluating SFAS No. 148 to determine if it will
adopt SFAS No. 123 to account for employee stock options using the fair value
method and, if so, when to begin transition to that method.
NOTE 2 - INVENTORY
Inventory consists of:
December 31,
2002 2001
------------ ----------
Homes under construction $ 12,184,528 $ 22,867,116
Development projects in progress 19,539,892 22,600,612
------------ ------------
Total $ 31,724,420 $ 45,467,728
============ ============
Homes under construction include homes finished and ready for delivery and homes
in various stages of construction.
F-13
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
2002 2001
------------ -----------
Office equipment $ 426,930 $ 425,384
Leasehold improvements 55,600 55,600
Furniture and fixtures 56,963 56,963
Model furnishings and sales center costs 643,888 638,018
------------ -----------
1,183,381 1,175,965
Less accumulated depreciation 913,386 677,740
------------ -----------
$ 269,995 $ 498,225
============ ===========
NOTE 4 - NOTES PAYABLE
Notes payable consists of the following at December 31, 2002 and 2001:
2002 2001
-------------- -------------
Various notes with several individuals and other lending entities for lot
purchases and construction of homes with interest rates ranging from 7% to
30%; principal payments ranging from $3,000 monthly to lump sum payments due
at maturity dates which range from December 15, 2000 to February 1, 2003;
majority of these notes are secured by Deeds of Trust. Balances of $853,457
are in default as of December 31, 2002. $ 1,380,207 $ 1,585,000
Various notes with several lenders for lot purchases and construction of homes
with interest rates ranging from 5.25% to 12.5% per annum; interest due
monthly, principal due at various dates within the next twelve months;
majority of these notes are secured by the related homes that are being built
or lots that are being purchased. 26,920,154 37,028,805
Various notes with several vendors for accounts payable converted to notes
with interest rates ranging from 0% to 10.5% per annum. 46,048 373,592
------------- -------------
28,346,409 38,987,397
Less current portion 28,346,409 36,407,827
------------- -------------
$ - $ 2,579,570
============= =============
Substantially all of the above notes are guaranteed by the Company's CEO and
other members of management.
F-14
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 4 - NOTES PAYABLE (Continued)
The Company has significant borrowings which require, among other things,
compliance with various loan covenants. The Company has not received a waiver
for its loan covenant violations. In addition, the original maturity dates of
certain of the borrowing arrangements have been renegotiated with lenders and
the maturities have been extended.
NOTE 5 - DUE TO RELATED PARTIES
Related party debt consists of the following at December 31, 2002 and 2001:
2002 2001
-------------- -------------
Note due to related party for $151,000; interest at 30% per annum, principal and
interest due as Company closes on construction loans for specific lots in
the Arapahoe Farms development, with remaining balance due October 10, 2001;
unsecured. $ 43,500 $ 43,500
Note payable to related party for $1,570,000; interest at 2% plus prime rate plus
additional interest; due June 6, 2003; secured by Deed of Trust, security
agreement and fixture filing executed with the note. 453,106 816,059
Note payable to related party for $1,000,000; interest at 30% per annum,
compounded monthly; due September 16, 2001; secured by a first Deed of Trust
on certain property in El Paso County, Colorado. - 1,094,860
Note payable to related party for $200,000; interest at 25% per annum plus the
greater of $20,000 or an amount equal to 5% of net profits (as defined) on
the sale of lots in the Water Valley sub-division; due December 20, 2001. 220,000 200,000
Notes payable to related party for $180,427; interest at 12.5% per annum. 180,427 180,427
Note payable to related party for $25,000; interest at 20% per annum; due when
specific lot is sold in the Plum Creek subdivision; secured by a second Deed
of Trust on the lot. - 25,000
Advances from related parties, non-interest bearing, due on demand. 1,585,757 664,573
-------------- -------------
2,482,790 3,024,419
Less current portion 2,482,790 2,208,360
-------------- -------------
$ - $ 816,059
============== =============
Some of the above related party debt is guaranteed by the Company's CEO.
F-15
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 6 - LOAN REFINANCING
On December 30, 2002 Stonegate borrowed $2,450,000 from a bank, which was
personally guaranteed by certain stockholders of the Company. The loan was to
purchase certain loans from Fifth Third Mortgage Company, payable by Ashcroft
and Orchard Homes, LLC (an affiliate). The new loan bears interest at 15%
annually. 7% Interest is paid monthly and 8% is accrued. Principal and all
accrued interest is due by December 29, 2003. Stonegate paid a loan fee at
closing of the transaction of $50,000 and will pay an additional $50,000 upon
the sale of the first lot from the property, which collateralizes the loan.
The loans payable to Fifth Third from Ashcroft were assigned to Stonegate on
December 31, 2002 in the amount of $3,531,700, which were utilized to construct
11 single-family homes. The notes were endorsed to Stonegate. The intercompany
amounts due to Stonegate have been eliminated. Ashcroft recognized a gain on the
reduction in debt of approximately $470,000.
Fifth Third also assigned three loans of Orchard Homes, LLC (an affiliated
entity) to Stonegate totaling $168,300. The notes were endorsed to Stonegate.
Subsequent to year end, the property underlying the loans was deeded to
Ashcroft.
NOTE 7 - OPERATING AND CAPITAL LEASES
Operating leases
- ----------------
The Company leases office space in Denver and Colorado Springs under operating
leases. Future minimum lease payments under non-cancelable operating leases as
of December 31, 2002 are as follows:
Offices
----------
2003 $ 116,207
2004 59,784
2005 18,058
----------
$ 194,049
Rental expense for all operating lease agreements totaled $109,250, $151,781 and
$128,750 for the years ended December 31, 2002, 2001 and 2000, respectively.
Capital Leases
- --------------
The Company leases various equipment under capitalized leases expiring through
2005. The assets have been recorded at the lower of the present value of the
minimum lease payments or their fair value, and are depreciated over the assets'
estimated useful lives.
F-16
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 7 - OPERATING AND CAPITAL LEASES (Continued)
Minimum future lease payments under the capital leases as of December 31, 2002
are as follows:
2003 $ 67,894
2004 30,027
2005 12,631
----------
Total minimum lease payments 110,552
Less amount representing interest 16,872
----------
Present value of net minimum lease payments with interest
at approximately 13%- 17% 93,680
Less current portion 54,941
----------
$ 38,739
==========
As of December 31, 2002 machinery and equipment includes $162,380 acquired
through capital leases. Accumulated depreciation related to these assets was
$73,149.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company has entered into employment agreements with members of its
management for periods ranging from 1-5 years. The agreements allow for minimum
salary increases ranging from 3%-5% per annum, bonuses in accordance with the
Company's 2003 Management Bonus Plan, and participation in the Company's 2003
Stock Option Plan. To date no options have been granted under this plan. The
Company is required to pay base salaries ranging from $100,000 to $240,000. The
following are future minimum salary commitments:
Year Ended
2003 $ 581,319
2004 $ 427,917
2005 $ 305,794
In April 2003 the Company entered into an agreement for financial advisory
services for a term of one year. The Company is required to pay four quarterly
payments of $35,000 and a cash fee of 5% of any equity raised during the term of
the agreement and up to one year following its termination.
F-17
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 9 - COMMON STOCK
During 2002 the Company issued 690,459 shares of common stock valued at $690,459
as settlement of accounts payable and certain notes payable due to vendors. The
Company realized a gain of approximately $150,000 as a result of other vendor
settlements.
Subsequent to year end two members of management purchased 600,000 shares of the
Company's common stock for $50,000.
Private Placement
- -----------------
In April 2003 the Company sold 50,000 shares of common stock for $50,000 under
an offering to sell 3,000,000 shares of common stock at $1.00 per share.
NOTE 10 - INCOME TAXES
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES
The components of deferred tax assets and (liabilities) were as follows:
2002 2001
----------- ------------
Total deferred tax assets $ 182,360 $ --
Less valuation allowance (182,360) --
----------- ------------
Net deferred tax asset $ -- $ --
=========== ============
F-18
ASHCROFT HOMES CORPORATION
NOTES TO FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to deferred tax assets
and (liabilities) were as follows:
2002 2001
------------ ------------
Temporary differences:
Property and equipment $ - $ (68,620)
Other (16,322) 71,848
Warranty costs 10,778 (7,596)
Interest stockholders 5,544 4,368
Net operating loss carryforward (182,360) --
Less valuation allowance 182,360 --
----------- ------------
$ -- $ --
=========== =============
F-19
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES (Continued)
The components of deferred income tax expense (benefit) were are follows:
2002 2001 2000
----------- ----------- ------------
Temporary differences:
Property and equipment $ 68,620 $ (62,207) $ 8,683
Warranty costs 18,374 (68) 6,798
Other (88,171) 51,216 (12,009)
Interest stockholders 1,177 11,059 (3,472)
Net operating loss carryforward (182,360) -- --
Less valuation allowance 182,360 -- --
----------- ----------- ------------
$ -- $ -- $ --
=========== ============ ============
The following is a reconciliation of the amount of income tax expense (benefit)
that would result from applying the statutory income tax rates to pre-tax loss
and the reported amount of income tax expense (benefit):
2002 2001 2000
----------- --------- --------
Tax expense (benefit) at statutory rates $ (307,549) $ 24,068 $ 72,325
State tax expense - (3,457) (4,058)
Warranty costs (9,476) 6,869 6,807
Other 692 (79,451) (43,626)
Depreciation - 62,050 (5,800)
Interest stockholders - 5,013 8,963
Net operating loss carryback 129,716 - -
Increase in valuation allowance 54,169 - -
----------- --------- --------
$ (132,448) $ 15,092 $34,611
=========== ========= ========
NOTE 11 - SUBSEQUENT EVENT - ACQUISITION
Exchange
- --------
Effective April 3, 2003, Ashcroft Homes Corporation, formerly known as
OneDentist Resources, Inc. ("ODRE"), acquired all of the outstanding stock and
membership interests of the Company. The consideration issued by the ODRE in
connection with the exchange was 12,954,060 shares of its no par value common
stock and 1,350,000 shares of its Series A Convertible Preferred Stock
("Preferred Stock"). The Company has issued an additional 600,000 shares of
common stock to certain employees of an Ashcroft Subsidiary. Simultaneously with
closing of the transaction (the "Exchange"), the former sole executive officer
and director of ODRE, resigned and was replaced as Chief Executive Officer and
Director, the chief executive of most of the Ashcroft Subsidiaries. As a result
of the issuance of stock in the Exchange, as well as the change in the Board of
Directors, the Company experienced a change in control. The acquisition will be
treated as a reverse acquisition and a recapitalization of Ashcroft Homes Corp.
for accounting and financial statement reporting purposes.
Certain former shareholders or equity owners of the Company became the largest
shareholders of the Company following closing of the Exchange. The Chief
Executive Officer and his wife beneficially own 6,488,601 shares of common stock
and 1,350,000 shares of Preferred Stock, representing a total of 49.32% of the
outstanding common stock if the Preferred Stock were converted. They also own
100% of the Preferred Stock, entitling them to five votes for each share
outstanding. Accordingly, they own a total of 62.17% of the outstanding voting
stock of the Company after the Exchange.
F-20
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 11 - SUBSEQUENT EVENT - ACQUISITION (Continued)
The President of Stonegate Capital Corporation (an Ashcroft Subsidiary) is now
the President of the Company and owns 1,197,707 shares, or 8.24% of the common
stock. The secretary/treasurer of Stonegate is now the Secretary and Controller
of the Company and also owns 1,197,707 shares of the common stock. A former
member of one of the Ashcroft Subsidiaries owns 750,000 shares of common stock,
or greater than 5% of the common stock outstanding. Each of these individuals
executed an employment contract with the Company.
The consideration received by the Company in exchange for issuance of shares at
the closing was the common stock or membership interests of the various Ashcroft
Subsidiaries surrendered by former owners at the closing. Indirectly, the
Company acquired all of the assets of those entities. The former shareholders or
members of the corporate and limited liability company subsidiaries surrendered
all of their ownership interests in the Ashcroft Subsidiaries for issuance of
Company shares.
Entities Acquired
- -----------------
In connection with the Exchange, the Company indirectly acquired all of the
assets and liabilities of the Ashcroft Subsidiaries, consisting generally of
developed residential home lots, an inventory of homes in process, finished
homes for sale and a library of home construction plans, and the accounts
payable, loans and other liabilities. The following represents a complete list
of the subsidiaries acquired by the Company, and the business engaged by each
immediately prior to the Exchange:
o Ashcroft Homes of Colorado, Inc. (formerly, Ashcroft Homes, Inc.) - designs
and constructs single family and low-density, multi-family housing along
the front range of Colorado, from Colorado Springs to Fort Collins.
o Absolute Construction Services, LLC - provides construction management
services to independent third parties.
o Peregrine Sanctuary, LLC - develops building lots in a single subdivision
in Colorado Springs, Colorado.
o Stonegate Capital Corporation - owns and manages a portfolio of
construction loans secured by interests in real estate located in Colorado.
The company is marketing the real estate securing the loans.
o Tesoro Homes @ Tallyn's Reach, LLC - constructs a wide variety of homes in
and around Denver, Colorado.
o West Gold Holdings, Inc. - a developer of residential lots for the Ashcroft
Subsidiaries and some independent third parties.
F-21
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 11 - SUBSEQUENT EVENT - ACQUISITION (Continued)
Issuance of Preferred Stock
- ----------------------------
In conjunction with the Exchange, the Company issued a new series of Preferred
Stock to individuals. The Series A Convertible Preferred Stock was issued for a
price of $4 per share, resulting in a total issue price of $5,400,000 for the
1,350,000 shares issued at the closing.
Holders of the Preferred Stock are entitled to receive a cumulative dividend of
seven percent (7%) per annum, payable quarterly in arrears beginning June 30,
2003 and continuing until the Preferred Stock is redeemed or converted. In the
event that the dividends are not paid in any period, those dividends accumulate
and must be paid prior to dividends on the common stock or any other class of
stock junior to the Preferred Stock.
The Preferred Stock is convertible into the Company's common stock on a
one-for-one basis beginning six months from the date of closing, subject to
adjustment. The conversion rate may be adjusted in the event of stock dividends,
stock splits, certain reorganizations and, subject to certain limited
exceptions, the issuance of common stock or other securities convertible into
common stock at a price less than $1 per share.
Holders of the Preferred Stock are entitled to a preference in the event the
Company is liquidated on a voluntary or involuntary basis. In that event,
holders of the Preferred Stock will receive a preferential distribution to
holders of the common stock and any other junior securities in an amount equal
to the issue price, plus any accrued but unpaid dividends. Following payment of
any preferential distributions upon liquidation, holders of the Preferred Stock
are not entitled to share in any further distributions.
The Preferred Stock may be redeemed by the Company by giving the holders not
less than 20 days advance written notice and by paying the issue price plus any
accrued but unpaid dividends. The holders of the Preferred Stock are entitled to
convert the stock into common stock during the period of any notice of
redemption.
Finally, holders of the Preferred Stock are entitled to vote with holders of the
common stock at the rate of five votes for each share of preferred owned by
them. Accordingly, the 1,350,000 shares issued in connection with the Exchange
are entitled to 6,750,000 votes on any matters submitted to the shareholders for
consideration.
F-22
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 12 - SUBSEQUENT EVENT - CONTRACTS TO ACQUIRE ADDITIONAL REAL ESTATE ASSETS
On April 18, 2003, the Company executed agreements with three affiliated
entities in Colorado to acquire approximately 215 developed building lots and
approximately 20 finished and partially finished units in three subdivisions in
the Denver metropolitan area. The lots and building units will be added to
Ashcroft's existing inventory of lots and units for construction and sale to
customers. The proposed sellers of the assets are Saddle Vista at Saddlerock,
LLC, Thraemoor in the Park, LLC and Villas at Cherry Hills, LLC, each a private
Colorado limited liability company.
The purchase price for the assets will consist primarily of assumption of
outstanding debt associated with the property, together with the issuance of an
as-yet undetermined amount of Ashcroft common stock. Existing debt includes
primary and subordinated debt incurred for the land acquisition, development and
unit construction, obligations for earnest money deposits received from
purchasers of individual lots and units, subcontractor and material payables and
real estate taxes. The purchase price is estimated to be approximately
$20,000,000, exclusive of earnest money deposits. The amount of Ashcroft common
stock to be issued in the transaction will be determined based primarily on
negotiations between the Company and the holders of the subordinated debt. It is
anticipated that the common stock will be used to satisfy a portion of the
subordinated debt.
The assets include a significant number of multi-family lots and building units.
Acquisition of these assets would represent Ashcroft's first significant entry
into the multi-family process.
Completion of the acquisition is subject to numerous contingencies, including
but not limited to analysis of, and negotiation for, the existing debt on the
property. Closing is also contingent on transfer of appropriate fee simple
title, successful completion of due diligence indicating the appropriateness of
acquisition and a successfully negotiated determination of the amount of common
stock to be issued in the transaction. Subject to satisfaction of these, and
other contingencies, closing is presently estimated for the end of the second or
beginning of the third quarter.
NOTE 13 - SUBSEQUENT EVENT - FINANCINGS
On January 31, 2003 Stongegate borrowed $169,901 from an individual. The note
bears interest at 15% per year and is payable in $5,000 monthly installments of
principal and interest, with all remaining principal and accrued interest
payable on June 30, 2003. The note is secured by real estate.
F-23
ASHCROFT HOMES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 13 - SUBSEQUENT EVENT - FINANCINGS (Continued)
In April 2003 the Company entered into a Securities Purchase Agreement with an
individual. The Company has agreed to sell 1,250,000 shares of the Company's
common stock at $.40 per share for an aggregate purchase price of $500,000 and
issue warrants purchasing up to 900,000 shares of the Company's common stock at
prices ranging from $1.00 to $2.00, expiring December 31, 2008. The Company also
granted an option to this individual to purchase 500,000 shares of common stock
at $.50 per share, expiring nine months from the closing of the Securities
Purchase Agreement and issued warrants to purchase up to 450,000 shares of the
Company's common stock at prices ranging from $1.00 to $2.00, expiring December
31, 2008.
On April 23, 2003 the Company borrowed $250,000 from an individual. The note
accrues interest at 10%, is due June 30, 2003, and is secured by specific
completed homes. As an inducement to the loan, Stonegate and the Company's
President have agreed to acquire $1,350,000 in notes due to Fifth Third by this
individual by obtaining financing from a new lender.
F-24