##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-KSB
 (Mark One) þ
    
    Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 30,
2004.o
    
    Transition report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
 to
 .
 Commission file number 0-18808 Great Western Land and Recreation, Inc.  Nevada
(State or other jurisdiction
of incorporation or organization)
    
    13-3530765
(IRS Employer Identification No.)7373 N. Scottsdale Road, Suite C-140, Scottsdale, AZ
(Address of principal executive offices)
    
    85253
(Zip Code)
 Registrants telephone number: (480) 949-6007 Securities registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of the Act: Common Stock, Par Value $0.001
(Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
R No £ Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this Form 10-KSB. £ The registrants revenues for the fiscal year ended September 30, 2004, were $6,418,352. The aggregate market value of voting and nonvoting stock held by non-affiliates of the registrant
based upon the closing price as of December 31, 2004 is $696,178. Shares held by executive
officers, directors and persons owning more than 10% of the outstanding common stock have been
excluded because such persons may be deemed to be affiliates of the Company. The number of shares of the Registrants Common Stock outstanding at December 31, 2004 was
21,165,973. DOCUMENTS INCORPORATED BY REFERENCE
None. TRANSITIONAL SMALL
BUSINESS DISCLOSURE FORMAT: Yes
o Noþ    1




---



TABLE OF CONTENTS  PART IItem 1. BusinessItem 2. Description of PropertyItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Common Equity and Related Stockholder MattersItem 6. Managements Discussion and AnalysisItem 7. Financial StatementsItem 8. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 8A. Controls and ProceduresPART IIIItem 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange ActItem 10. Compensation of Directors and Executive OfficersItem 11. Security Ownership of Certain Beneficial Owners and ManagementItem 12. Certain Relationships and Related TransactionsItem 13. Exhibits and Reports on Form 8-KItem 14. Principal Accountant Fees and ServicesSIGNATURESEX-11EX-21EX-31.1EX-31.2EX-32.1EX-32.2EX-99.1    Table of Contents  
 PART I 
 Item 1. Business Overview Great Western Land and Recreation, Inc. (we or the Company) is incorporated in the state
of Nevada. We acquire, develop, market, sell and finance residential and recreational property in
the southwestern United States, with over 10,000 acres in various stages of development. Our
properties are located in Arizona, Texas and New Mexico and consist of a variety of lifestyle
choices including townhomes and condominiums for first-time homebuyers, vacant lots for commercial
homebuilders and ranch lots for those seeking recreational and investment properties. Over the
years, we have developed a number of subdivision projects in the Houston area, with additional
subdivision projects currently in various stages of development. Subdivided residential lots are
marketed principally to builders seeking to build homes in quality residential settings in the low-
to mid-price range. Our ranch properties are marketed to purchasers seeking a long-term investment
in up-scale vacant ranch land. In addition, we engage in ranching and agricultural activities on
some of our properties until the properties are either developed or sold. These activities include
the planting of tree farms, and the leasing of ranch property for cattle grazing. As an additional
marketing incentive to customers for our recreational land, we offer financing on individual
purchases of ranch lots. The majority of these loans are then sold to third parties. On June 4, 2003, we changed our year-end from December 31 to September 30. As a result of
this change, fiscal 2003 was a short year, which ended on September 30, 2003 and consisted of only
nine months. Industry Overview The real estate industry is fragmented and highly competitive. In each of our markets, we
compete with numerous builders, developers and others for the acquisition of property and with
local, regional and national developers, homebuilders and others with respect to the sale of
residential lots. Competition also occurs with regard to obtaining, among other things, desirable
financing, raw materials and skilled labor. We believe we can effectively compete in our market
areas and have the confidence in our ability to locate, develop and sell attractive properties in
the markets in which we operate. Properties The following description of our major properties includes forward-looking statements.
Forward-looking statements are often characterized by the use of words such as may, believes,
plans, will, anticipates, estimates, expects, or intends or by discussions of strategy,
plans or intentions. All forward-looking statements in this Annual Report to Stockholders are made
based on our current expectations and estimates, which involve risks, uncertainties and other
factors that could cause results to differ materially from those expressed in forward-looking
statements. You are cautioned not to place undue reliance on any such forward-looking statements.
We have no obligation to publicly release the result of any revisions that may be made to any
forward-looking statements to reflect anticipated or unanticipated events or circumstances
occurring after the date of such statements. Forward-looking statements regarding our major
projects involve a number of risks and uncertainties including, but not limited to, general
economic conditions, our ability to incur additional debt to finance development activities,
possible delays in planned development and other risk factors as set forth in this report and in
Exhibit 99.1 of this Annual Report to Stockholders and in our other filings with the Securities and
Exchange Commission. Texas Woodland Court.Woodland Court is a planned 43-unit condominium project located in College
Station, Texas. The land for this project was purchased in April 2004 with a combination of bank
financing and subordinated debt. Construction on this project began in July 2004 on the first nine
units and will continue until sales of the units are closed which we expect to be over
approximately the next two years. The property is pledged as collateral on a development loan and
a construction loan, with a combined outstanding balance of $1,166,690 as of September 30, 2004.
Interest payments at 2.0% over prime (4.75% as of September 30, 2004) are due quarterly, and the
loans are due in October and December 2005. Mallard Crossing Subdivision.Mallard Crossing consists of approximately 480 acres located in
northwest Houston. This project will be a residential lot and commercial subdivision, which we
expect to be developed in multiple phases over approximately the next eleven years. We had
expected construction on Phase I, which will consist of 200 lots, to begin in late 2005. However,
it is possible that we will experience some delays because presently the county has refused to
issue a building permit until a resolution on the drainage of the property is reached between us
and the neighboring property that is owned by the Nature Conservancy. Development costs for Phase
I will be financed primarily with a bank loan. The property is pledged as collateral on a loan with
an outstanding 2




---



##### Table of Contents



balance of $1,150,541 as of September 30, 2004. Interest payments at 1.25% over prime (4.75%
as of September 30, 2004) are due quarterly, and the loan is due in May 2005. Westchester Lakes. Westchester Lakes consists of 200 acres located in northwest Houston. The
project will be a residential lot and commercial subdivision, which we expect to be developed in
multiple phases over approximately the next eight years. We expect construction on Phase I,
consisting of approximately 100 lots, to begin in the fall of 2005. Development costs for Phase I
will be financed primarily with a bank loan. The property is pledged as collateral on loans with a
combined outstanding balance of $989,055 as of September 30, 2004. Interest payments at 1.0% over
prime (4.75% as of September 30, 2004) are due quarterly, and the loans are due in April 2005. It
is our intent to refinance these loans with a new development loan for the project. Coventry Subdivision.Coventry consists of approximately 300 lots located in northwest
Houston. One major homebuilder is actively building in this development. Sales of these lots
commenced in 1997 and there are currently 14 lots remaining, all of which are under contract. The
property had a bank loan with an outstanding balance of $186,400 as of September 30, 2004. Wheatstone Subdivision.Wheatstone consists of approximately 45 acres located near the West
Houston Energy corridor. The last of the 180 lots in this subdivision was sold in September 2003. Wheatstone
III  Brookside Court Subdivision. Wheatstone III is a 30-acre gated community in
northwest Houston. This development was completed with the sale of the last of the nine lots in
Phase II in April 2003. Arizona Glendale Springs Condominiums.Glendale Springs Condominiums is a planned 80-unit condominium
project located in Glendale, Arizona. Construction on Phase I, which will consist of 48 units,
began in the spring of 2003. Development and construction costs for Phase I are being primarily
financed with bank loans. At September 30, 2004, the construction loan had an outstanding balance
of $557,000 with interest payments of 7.0% annual interest due monthly and principal reductions
made as condominiums are sold. Also at September 30, 2004, the development loan had an outstanding
balance of $330,983 with interest payments of 7.0% annual interest due monthly and principal
reductions made as condominiums are sold. We expect sales to continue over approximately the next
two years. We have experienced various construction delays and substantial changes to the building plans
and specifications during the development of Phase I of Glendale Springs Condominiums. These
delays and plan changes are principally the result of changes required by the city of Glendale
after the commencement of construction, notwithstanding the citys prior approval of the plans and
specifications. We believe substantially all the changes required by the city have been completed,
and that further delays and unexpected cost increases in Phase I and Phase II are unlikely. Because of these cost issues we have examined the carrying value of Glendale Springs
Condominiums on our books compared to its fair value. As a result of this examination, we have
concluded, in accordance with the applicable accounting literature, that the carrying value of the
project exceeds its fair value by $211,799. Therefore, we have written down the value of Glendale
Springs Condominiums by that amount. Wagon Bow Ranch.Wagon Bow Ranch is a commercial cattle ranch located in Mohave County in the
Aquarius Mountains in northwest Arizona, initially consisting of approximately 48,000 acres, 34,000
of which were deeded land and 14,000 were state-leased land. The ranch is accessible by both a
highway and county road that are maintained year round. The property is of diverse topography,
ranging from mountainous slopes in the west to sloping mesas and flats in the majority of the
Ranch. The Ranch supports over 600 animal units of cattle all year long with ample water in running
streams and springs that run year round. There is abundant wildlife including mule deer, antelope,
bear, mountain lion and javelina. By car the Ranch is approximately two and a half-hours from Las
Vegas, three hours from Phoenix, and four hours from Los Angeles. The property has a main
residence, foremans house, guesthouse, bunkhouse, owners house, outbuildings and corrals. We have
subdivided the ranch into parcels which we market to people seeking a recreational or second home
location in a rural setting. We have sold approximately 25,000 acres
of the deeded land so far, and are marketing the
balance in 40 and 160-acre parcels. Sales prices currently range from $1,000 to $1,450 per acre.
We expect to incur development costs for roads, electricity, and recreational amenities in order to
increase the value and sales price of the remaining land. These costs are expected to be financed
primarily with the proceeds of a development loan. The property is pledged as collateral on a loan
with an outstanding balance of $1,093,231 as of September 30, 2004. Interest payments at 11%
annual interest are due monthly, with principal reductions made as lots are sold. Any remaining
balance on the loan is due in March 2006. Wright Place.Wright Place is zoned for and platted as a 15-unit condominium project designed
as an infill project in Phoenix, Arizona. As of September 30, 2004 we were evaluating whether to
develop this project or to sell the entitled land. 3




---



##### Table of Contents



New Mexico Willow Springs Ranch.Willow Springs Ranch is a commercial cattle ranch located on the west
side of Interstate 25, approximately 25 miles south of Socorro. On September 29, 2004 substantially
all of the ranch was sold for a total of approximately $3.9 million. Payment consisted of all
cash, which was used to pay off the related debt. We reserved approximately 900 acres of the
ranch, which had been subdivided into lots. Those lots are being marketed for sale. As of
September 30, 2004, several of those lots had been sold or were under contract. Regulation The real estate industry is subject to extensive complex regulation. We must comply with
various federal, state and local environmental, zoning and other statutes and regulations regarding
the purchase, subdivision and sale of real estate and various aspects of our financing operations.
In addition, our customer financing activities are subject to extensive regulation, which includes
regulation under the Truth-in-Lending Act and Regulation Z, the Fair Housing Act, the Fair Debt
Collection Practices Act, the Equal Credit Opportunity Act and Regulation B, the Electronic Funds
Transfer Act and Regulation E, the Home Mortgage Disclosure Act and Regulation C, Unfair or
Deceptive Acts or Practices and Regulation AA and the Right to Financial Privacy Act. We believe that we are in compliance in all material respects with applicable regulations.
However, these regulations are subject to change and we cannot assess the cost of complying with
all of the applicable laws and regulations. Our failure to comply with applicable laws or
regulations could subject us to large fines or other costly activities to come into compliance. Land owners are subject to liability for the costs of removal and remediation of certain
hazardous or toxic substances on their property, as well as for the related costs of investigation
and property damage under various federal, state and local laws, ordinances and regulations. These
laws often impose liability without regard to whether the owner knew about or was responsible for
the presence of the hazardous or toxic substances. If there are hazardous or toxic substances on
our properties that we are not aware of and we are unable to remediate the property, or the cost of
remediation is too high, we may not be able to sell or lease our property or to borrow against and
use the property as collateral. In addition to remediation of land, other federal and state laws
require the removal or encapsulation of asbestos-containing material when the material is in poor
condition or in the event of construction, demolition, remodeling or renovation. Other statutes may
require the removal of underground storage tanks. If we fail to comply with these and other
environmental, health or safety requirements we may be required to cease or change our operations
at a property. Competition The real estate industry is fragmented and highly competitive. We compete against numerous
builders, developers and others in the real estate business in each of our markets. We compete
mainly with builders and developers for the acquisition of property and with local, regional and
national developers and homebuilders in the sale of townhomes, condominiums and residential lots.
For ranch land sales, we compete mainly with regional recreational land developers. We believe
that we are competitive in our markets based on our strong reputation and the price, location and
quality of our products, as well as on the basis of our experience in land acquisition,
development, marketing and sale. In our customer financing activities, we compete with banks, mortgage companies, other
financial institutions and government agencies offering financing of real estate. However, we offer
customer financing as a marketing incentive to facilitate our recreational land sales and,
therefore, do not view our activities as being in competition with other lenders. Notes Receivable At September 30, 2004, we held $311,343 of third party notes receivable from the sale of
property. These notes are secured by the property sold and bear interest at 9.5% per year. Notes Payable At September 30, 2004, notes payable total $5,548,164, consisting primarily of secured
indebtedness to financial institutions bearing interest at both variable rates from 1.5% to 2.0%
over the prime rate and fixed rates ranging from 6% to 11%, maturing on various dates through
September 2008. The institutional indebtedness is secured by deeds of trust on the properties
associated with the borrowings. Subordinated Debt At September 30, 2004, subordinated debt totals $3,237,964, bearing interest at rates between
4% and 10%. Payments on the 4




---



##### Table of Contents



debt are made only when cash flow from a land sale, after payment of bank debt, exceeds our
operating cash requirements. This determination of operating cash requirements is made by our
management. This indebtedness is subordinated to all of our institutional indebtedness. On
September 29, 2003, $293,106 of this subordinated debt was converted to equity. Payable to Related Entities At
September 30, 2004 payables to related entities totaled
$1,021,210. These payables arose in respect of real estate
transactions, and bear interest at annual rates ranging from zero to
10%. The largest such payable, $757,184, bears interest at 8% and is
due from Glendale Condominiums LLC to minority investors in that
entity. Employees As of September 30, 2004, we have fourteen employees. In addition, we use contract labor on an
as-needed basis for ranch maintenance. We believe that relations with our employees are good. 
 Item 2. Description of Property Our executive offices are in leased premises located at 7373 N. Scottsdale Road, Suite C-140,
Scottsdale, Arizona 85253. We also lease sales offices in Wikieup, Arizona and a small office in
Houston, Texas. We believe that our properties and equipment are well maintained, in good
operating condition and adequate for our presently foreseeable needs. It is our policy to acquire real estate or investments in real estate for development and
resale. We do not currently have any limitations on the percentage of our assets which may be
invested in any one investment or type of investment, however we focus on acquiring, developing,
marketing, selling and financing residential and recreational property in the southwestern United
States. We finance these properties through a combination of borrowings from banks and cash
generated from land and lot sales. See Item 1 Business
 Properties for a description of each of
our major properties and Item 1 Business  Competition for a discussion of the general
competitive conditions to which our properties are subject. Notes receivable from sales of property are secured by the property sold. Although we have
retained certain notes receivable, these notes are generally sold to a third party with recourse
upon nonpayment by the debtor. In the opinion of management, all of our properties are adequately covered by insurance. 
 Item 3. Legal Proceedings We are from time to time a party to legal proceedings. All of the legal proceedings we are
currently involved in are ordinary and routine. The outcomes of the legal proceedings are
uncertain until they are completed. We believe that the results of the current proceedings will
not have a material adverse effect on our business or financial condition or results of
operations. 
 Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of securities holders in the fourth quarter of fiscal 2004. 
 PART II 
 Item 5. Market for Common Equity and Related Stockholder Matters The principal market on which our common stock is traded is the over-the-counter market. Our
stock is quoted in the over-the-counter Bulletin Board under the symbol GWES.OB. Our stock has
been traded since February 2004. The range of high and low bid quotations for our common stock for each quarter or partial
quarter of fiscal 2004 is shown below. These quotations were obtained from information published
by Yahoo.com. These over-the-counter market quotations reflect inter-dealer prices without retail
mark-up, mark-down, or commissions, and may not necessarily represent actual transactions. High
    
    
    LowPeriod
2/23/04  3/31/04
    
    
    1.01
    
    
    
    0.25Quarter ended 6/30/04
    
    
    1.25
    
    
    
    0.30Quarter ended 9/30/04
    
    
    1.01
    
    
    
    0.30
 On January 10, 2005 the reported bid and asked prices for our common stock were $0.46 and
$0.50, respectively. According to our transfer agent, at September 30, 2004, there were over 7,000 holders of
record of our common stock, including broker-dealers and clearing firms holding shares on behalf of
their clients. 5




---



##### Table of Contents



No dividends have ever been paid on our common stock, and we do not anticipate paying
dividends in the foreseeable future. 
 Item 6. Managements Discussion and Analysis Forward-Looking Statements This Annual Report to Stockholders includes forward-looking statements. Forward-looking
statements are often characterized by the use of words such as may, believes, plans, will,
anticipates, estimates, expects, or intends or by discussions of strategy, plans or
intentions. All forward-looking statements in this Annual Report to Stockholders are made based on
our current expectations and estimates, which involve risks, uncertainties and other factors that
could cause results to differ materially from those expressed in forward-looking statements. You
are cautioned not to place undue reliance on any such forward-looking statements. We have no
obligation to publicly release the result of any revisions that may be made to any forward-looking
statements to reflect anticipated or unanticipated events or circumstances occurring after the date
of such statements. Forward-looking statements involve a number of risks and uncertainties
including, but not limited to, general economic conditions, competitive factors and other risk
factors as set forth in this report and in Exhibit 99.1 of this Annual Report to Stockholders and
in our other filings with the Securities and Exchange Commission. Results of Operations On June 4, 2003, we changed our year-end from December 31 to September 30. As a result of
this change, fiscal 2003 was a short year, which ended on September 30, 2003 and consisted of only
nine months. Fiscal 2004 was the Companys first full twelve month year. Accordingly, the
following discussion of results of operations will compare audited balances for the year ended
September 30, 2004 to the unaudited balances for the year ended September 30, 2003, as follows: Year ended September 30,2004
    
    
    2003UnauditedLand and lot sales
    
    $
    6,418,352
    
    
    $
    3,500,259Cost of land and lot sales
    
    
    5,014,922
    
    
    
    1,673,176Gross profit on sales
    
    
    1,403,430
    
    
    
    1,827,083Operating, selling, general and
administrative expense
    
    
    1,684,539
    
    
    
    1,682,324Loss on
impairment of long-lived assets
    
    
    372,780
    
    
    
    Income (loss) from operations
    
    
    (653,889
    )
    
    
    144,759Other income (expense)Interest expense
    
    
    (482,975
    )
    
    
    (499,257
    )Interest income
    
    
    7,399
    
    
    
    125,615Equity in losses of unconsolidated companies
    
    
    (88,570
    )
    
    
    (73,336
    )Gain on settlement of note payable
    
    
    
    
    
    
    260,000Settlement of quepasa.com claim
    
    
    
    
    
    
    405,750Other
    
    
    68,262
    
    
    
    230,358(495,884
    )
    
    
    449,130Earnings (loss) before minority interest
    
    
    (1,149,773
    )
    
    
    593,889Minority interest
    
    
    (3,275
    )
    
    
    (1,000
    )Net earnings (loss)
    
    $
    (1,153,048
    )
    
    $
    592,889Net earnings (loss) per common and common
equivalent shareBasic and diluted
    
    $
    (0.06
    )
    
    $
    0.03
 6




---



##### Table of Contents



Year ended September 30, 2004 compared to the year ended September 30, 2003 Land and lot sales.Land and lot sales increased $2,918,093 or 83% to $6,418,352 in the year
ended 2004 from $3,500,259 in the year ended 2003. This increase was principally the result of the
bulk sale of Willow Springs Ranch in Socorro, New Mexico of $3,933,881 offset by decreases in
residential lot sales of $1,791,765. The decline in residential lot sales reflects that our
current projects in Houston are nearing completion. The Wheatstone and Wheatstone III subdivisions
were completed and sold out during 2003. We expect the Coventry subdivision to be sold out by the
end of fiscal 2005. However, we expect Mallard Crossing, a new residential development in the
Houston metro area, to begin generating revenue in late 2005, although it is possible that we will
experience some delays because presently the county has refused to issue a building permit until a
resolution on the drainage of the property is reached between us and the neighboring property. In
addition, ranch land sales at Wagon Bow increased as a result of our focus on improving the quality
of the sales force. We believe that these efforts, along with an improvement in the economy, will
lead to further increases in ranch land sales. Our land and lot sales are affected by numerous factors including mortgage interest rates,
demand for new housing starts and the availability of finished lots within a particular area.
Generally, the pace of sales and the price per lot increase over the life of a project as
developments gain popularity and as contract price escalators become effective. Cost of land and lot sales.Cost of land and lot sales increased $3,341,746, or 200%, to
$5,014,922 in the year ended 2004 from $1,673,176 in the year ended 2003. As a percentage of land
and lot sales, the cost of land and lot sales increased to 78% in the year ended 2004 from 48% in
the year ended 2003. This was due to the Willow Springs Ranch sale discussed above and a decrease
in the gross margins on residential lot sales in Houston. Gross profit on sales.Gross profit on sales decreased $423,653, or 23%, to $1,403,430 in the
year ended 2004 from $1,827,083 in the year ended 2003. As a percentage of sales these margins
decreased to 22% in the year ended 2004 from 52% in the year ended 2003. This was due to the sale
of the Willow Springs Ranch which was sold at a small profit. Operating, selling, general and administrative expenses.Operating, selling, general and
administrative expenses increased only $2,215, to $1,684,539 in the year ended 2004 from $1,682,324
in the year ended 2003. However as a percentage of sales these expenses decreased from 48% to 26%.
The increase was primarily due to increases in salaries of $30,872, insurance of $41,252,
professional fees of $67,276, and travel of $32,951; offset by decreases in grader expense of
$27,543, taxes of $59,950, bad debt expense $14,750, other income (expense) of $11,323 and
maintenance and repairs of $10,771. Loss
on impairment of long-lived asset. We have experienced various construction delays and
substantial changes to the building plans and specifications during the development of Phase I of
Glendale Springs. These delays and plan changes are principally the result of changes required by
the city of Glendale after the commencement of construction, notwithstanding the citys prior
approval of the plans and specifications. We believe substantially all the changes required by the
city have been completed, and that further delays and unexpected cost increases in Phase I and
Phase II are unlikely. Because of these cost issues we have examined the carrying value of Glendale Springs on our
books compared to its fair value. As a result of this examination, we have concluded, in
accordance with the applicable accounting literature, that the carrying value of the project
exceeds its fair value by $211,799. Therefore, we have written down the value of Glendale Springs
by that amount. We
have an investment in #22 Stafford Springs LTD (Stafford
Springs), which is recorded in other assets as a deposit
pending approval of our investment by HUD. Stafford Springs owns an
apartment project in Stafford, Texas called Summer Park. Because the
project is for sale, we have also evaluated the carrying value of our
investment in Stafford Springs compared to the fair value of the
project and the amount of our investment that would likely be
recovered upon sale. We have concluded that our investment in
Stafford Springs exceeds the amount that we would likely be able to
recover upon sale of the project, and have therefore written down
the carrying value of Stafford Springs by $160,891. Interest expense.Interest expense decreased $16,282 or 3% to $482,975 in the year ended 2004
from $499,257 in the year ended 2003. The decrease is due to declining balances of our loans
associated with the residential lot sales business, and to lower average outstanding balances on
our loans due to the repayment of principal as lots are sold. Interest income.Interest income decreased $118,216 to $7,399 in the year ended 2004 from
$125,615 in the year ended 2003 due to lower outstanding balances on notes receivable. Equity in losses of unconsolidated company.Equity in losses of unconsolidated company  was
$88,570 in the year ended 2004 compared to $73,336 in the
year ended 2003. Losses in both years related to our investments in
Laguna Investments, L.L.C. (Laguna Investments) and #22
Stafford Springs LTD (Stafford Springs). The portion of the
losses in resulting from Stafford Springs in 2004 and 2003 were
$88,570 and $19,806, respectively. In
2004 there were no losses recorded as a result of our investment in
Laguna Investments since our investment has been written down to $0.
The write down was due to the losses experienced by the investment in
prior years. However, under the terms of the Laguna at Arrowhead
Apartments L.L.C. operating agreement, of which Laguna Investments is a
member, Laguna Investments is subject to additional capital calls in
connection with its ownership interest in Laguna at Arrowhead
Apartments L.L.C. An additional capital call, for $53,530, was paid
during 2003. As a result of this payment, unrecognized equity losses
from prior periods were recorded to the extent of the capital call. Gain on settlement of note payable.Effective July 8, 2003, in exchange for a $650,000 note
payable, we acquired land in Stafford, Texas for $125,000 and also agreed to acquire a 34% interest
in #22 Stafford Springs LTD from the same third-party for $525,000. In September 2003, the seller
of the ownership interest agreed to accept a discount in exchange for an early payoff of the
$650,000 note. 7




---



##### Table of Contents



As a result this note was paid off on September 29, 2003 at a discount of $260,000. Gain on settlement of quepasa.com claim.We entered into a merger agreement with quepasa.com
as of August 6, 2001. In October 2001in order to induce the Company to amend and extend the
original merger agreement, quepasa.com loaned the Company $500,000. In February 2002, the merger
agreement was terminated. The merger agreement provided for a termination fee of $500,000 as
liquidated damages under certain circumstances. Under the terms of the settlement with
quepasa.com, we retained the termination fee, which resulted in the loan being deemed paid in full,
in exchange for a payment by the Company to quepasa.com of $50,000 and the transfer to quepasa.com
of 642,000 shares of quepasa.com common stock with a market value of $44,250. The net result was
that we recognized a gain of $405,750 on the settlement of the claim against quepasa.com during the
year ended 2003. Other income (expense).Other income (expense) decreased $162,096 or 70%, resulting in
income of $68,262 in the year ended 2004 compared to income of $230,358 in the year ended 2003. Excluded from the current year was $50,192 in life insurance proceeds received during the
year ended 2003. Net
earnings (loss).Net loss was $1,153,048 in the year ended 2004 compared to net earnings of
$592,889 in the year ended 2003, a decline of $1,745,937. This decline is primarily due to a
$423,653 decrease in gross profit due to lower lot and ranch sales, a $118,216 decrease in interest
income, a $260,000 decrease in gain on settlement of note payable, a $405,750 decrease in
settlement of quepasa.com claim, a $162,096 decrease in other income
and write down, of $372,780
on real estate projects. Liquidity and Capital Resources In this section we discuss:  
    sources and uses of cash, and significant factors that influence both;
    our analysis of our cash flows for the fiscal year ended 2004; and
    our commitments and contractual obligations. All of these factors are important to obtain an understanding of our ability to meet our
current obligations, to fund working capital, to finance the acquisition and development of new
projects, and to pay down existing debt. Sources and uses of cash. We require cash to fund our operating expenses, to finance the
acquisition and development of new projects and to pay debt service. Our principal sources of
liquidity are cash on hand, cash generated from land and lot sales, cash generated from bulk land
sales, collections on notes receivable, refinancings and funds from external borrowings. We may
also raise additional funding through future equity offerings, subject to market conditions. We believe that the key factors that could affect sources of cash include:  
    factors that affect our results of operations and cash flows, including reduced demand
for land resulting from economic slowdown and competitive pricing pressures; and
    factors that affect our ability to bring new projects to market, including ability to
find profitable development opportunities, ability to locate necessary financing sources to
develop the projects; and
    factors that affect our access to bank financing that could impair our ability to obtain
needed financing on acceptable terms to finance the acquisition and development of new
projects. Analysis of cash flows.As stated above, on June 4, 2003, we changed our year end from
December 31 to September 30. As a result of this change, fiscal 2003 was a short year, which ended
on September 30, 2003 and consisted of only nine months. Fiscal 2004 was the Companys first full
twelve month year. Accordingly, the following analysis of cash flows will cover the audited
balances for the year ended September 30, 2004 compared to the unaudited balances for the year
ended September 30, 2003, as follows: 8




---



##### Table of Contents



Year ended September 30,2004
    
    
    2003UnauditedCash flows provided by (used in)operating activitiesNet earnings (loss)
    
    $
    (1,153,048
    )
    
    $
    592,889Adjustments to reconcile net earnings (loss) to net cash provided
by (used in ) operating activities
    
    
    738,396
    
    
    
    1,769,417Changes in operating assets and liabilities
    
    
    (152,310
    )
    
    
    (1,062,860
    )Net cash provided by (used in) operating activities
    
    
    (566,962
    )
    
    
    1,299,446Cash flows provided by (used in) investing activitiesCollection of receivables from related entities
    
    
    34,213
    
    
    
    38,792Investment in unconsolidated company
    
    
    
    
    
    
    (53,530
    )Purchases of property and equipment
    
    
    (53,577
    )
    
    
    (47,977
    )Proceeds from sale of property and equipment
    
    
    40,000
    
    
    
    11,577Net cash provided by (used in) investing activities
    
    
    20,636
    
    
    
    (51,138
    )Cash flows provided by (used in) financing activitiesIssuance of notes payable
    
    
    5,192,501
    
    
    
    1,464,031Payments on notes payable
    
    
    (3,985,135
    )
    
    
    (1,956,898
    )Issuance of note payable to related entities
    
    
    150,000
    
    
    
    Increase (decrease) in payable to related entity
    
    
    125,783
    
    
    
    (22,162
    )Decrease in subordinated debt
    
    
    (378,377
    )
    
    
    (133,253
    )Payment of dividends on preferred stock
    
    
    (2,050
    )
    
    
    Proceeds from stock options exercised
    
    
    18,450
    
    
    
    Net cash provided by (used in) financing activities
    
    
    1,121,172
    
    
    
    (648,282
    )Net increase in cash and cash equivalents

    
    
    574,846
    
    
    
    600,026Cash and cash equivalents at beginning of period
    
    
    1,100,844
    
    
    
    500,818Cash and cash equivalents at end of period
    
    $
    1,675,690
    
    
    $
    1,100,844
 Cash flow activity for the year ended September 30, 2004.As of September 30, 2004, we
had cash and cash equivalents of $1,675,690, an increase of $574,846 from the September 30, 2003
balance. This compares to an increase in cash and cash equivalents of $600,026 in the year ended
September 30, 2003. Cash flow used in operating activities was $566,962 for the year ended 2004 compared to cash
provided by operating activities of $1,299,446 in the year ended 2003, a decrease of $1,866,408.
Significant factors contributing to our decreased cash flows from operating activities in the year
ended 2004 as compared to the year ended 2003 include:  
    Net losses of $1,153,048 in the year ended 2004 compared to a net income of $592,889 in
the year ended 2003, which is caused primarily by a $423,653 decrease in gross profit on
lot and ranch sales, a $118,216 decrease in interest income, a $260,000 decrease in gain on
settlement of note payable, a $405,750 decrease in settlement of quepasa.com claim, a
$162,096 decrease in other income and impairment write downs on a
long-lived assets of
$372,780 in 2004.
    A decrease in collections of notes receivable to $2,425 in the year ended 2004 compared
to $1,560,935 in the year ended 2003. Collections of notes receivable were unusually large
in 2003, due to the payoff of notes related to bulk sales of land in Houston. These were partially offset by the following factors causing increased cash flows in 2004
compared to 2003:  
    The Company spent less on land and related development costs in the year ended 2004
($534,097) compared to the year ended 2003 ($647,699).
    Other assets at September 30, 2003 included a deposit of $525,000 related to the
acquisition of a 34% interest in #22 Stafford Springs LTD. Looking forward, we expect cash flow from operations to remain slow in the first half of
fiscal of 2005, improving in the last half of the year as new projects begin to come on-line. Net cash provided by investing activities was $20,636 in the year ended 2004 compared to net
cash used of $51,138 in the year ended 2003. Net collections of receivables from related entities
increased $34,213 in the year ended 2004 compared to an increase of 9




---



##### Table of Contents



$38,792 in the year ended 2003.
We also paid $53,530 as an additional capital call in connection with our ownership interest in
Laguna at Arrowhead Apartments L.L.C in 2003 that was not paid in 2004. This was the first capital
call since we made an investment in Laguna in 1997, and we do not anticipate any additional capital
calls over the next twelve months. We purchased $53,577 of property and equipment in the year ended 2004 compared to $47,977 in the year ended
2003. Proceeds from the sale of property and equipment totaled $40,000 in the year ended 2004
compared to proceeds of $11,577 in the year ended 2003. We are not planning for any significant
increases in our purchases of property and equipment in fiscal 2005. Net cash provided by financing activities was $1,121,172 in the year ended 2004 compared to
usages of $648,282 in the year ended 2003. During the year ended 2004, additional borrowings
totaled $5,192,501 compared to $1,464,301 in the year ended 2003. The borrowings in 2004 consisted
primarily of note payables issued in exchange for land and development on our projects in Texas
(Mallard Crossing, Westchester Lakes and Woodland Court) as well as draws on construction loans for
the development of our condominium projects in Glendale, Arizona and College Station, Texas.
Payments on notes payable totaled $3,985,135 in the year ended 2004, included the payoff debt of
$1,681,805 related to the sale of the Willow Springs Ranch, compared to $1,956,898 in the year
ended 2003. Contractual obligations. Our long-term debt includes notes payable of $5,548,164 and
subordinated debt of $3,237,694. Other than two vehicle loans, all of the notes payable were
incurred to finance the development of our real estate projects. Principal payments on those notes
payable are primarily made as lots are sold, although minimum principal payments are also required
on certain loans. Included in notes payable is $2,139,596 of acquisition and development loans
used to purchase and develop two large parcels of land (480 acres and 200 acres) in the Houston
metro area for two new subdivisions. Also included is the note payable of $1,093,231 to finance
our Wagon Bow Ranch in northern Arizona. In addition, our construction loan for a condominium
project in Glendale, Arizona requires periodic advances by the
Company into a borrowers funds
account maintained by the bank. The borrowers funds account is used for the payment of
construction costs. As of September 30, 2004, construction on one 8-unit building has been started.
The remaining five buildings in this phase of the project are expected to begin construction at
various dates through 2005. Payments on the subordinated debt are made only when cash flow from a land sale, after payment
of bank debt, exceeds our operating cash requirements. This determination of operating cash
requirements is made by our management. On June 28, 2002, Amortibanc, our majority stockholder,
contributed $719,000 of capital to the Company through the conversion of subordinated debt to
preferred stock. The preferred stock is convertible into shares of our common stock, and has a
cumulative dividend, payable semi-annually. The dividend rate is 0% for the first year from the
date of issuance, and escalates each year until it reaches 7% in the sixth year from the date of
issuance. On September 29, 2003, Amortibanc contributed an additional $293,106 of capital to the
company through the conversion of subordinated debt to equity. In the normal course of our business, we have also entered into various operating leases for
equipment and vehicles. Our primary future cash needs, both in the short term and in the long-term will focus on
funding operating expenses, financing the acquisition and development of new projects and paying
debt service. To meet our cash flow needs during fiscal 2005 it will be necessary to supplement
the land and lot sales with bulk sales of ranch property, or additional borrowings. Although there
can be no assurances, management believes that cash flow from operations coupled with existing cash
and cash equivalent balances, proceeds from bulk sales of property or the sale of one or more notes
receivable, along with borrowings from banks and other financial institutions will generate
sufficient cash to fund our operating and cash flow needs for the next twelve months. To the
extent that actual results or events differ from our financial projections, our liquidity may be
adversely affected. We project that our capital expenditures for property and development, net of amounts funded
by development loans, will be approximately $2.3 million during fiscal 2005. The remainder will be
borrowed from banks and other financial institutions. As part of our business strategy, we
continuously review acquisition opportunities and proposals. We expect to finance any future
acquisitions with additional equity and debt financing, to the extent available on attractive
terms. We hold $311,343 of third party notes receivable from the sale of property. These notes are
secured by the property sold and bear interest at 9.5% per year. We evaluate the collectibility of
these notes based on the payment history and the value of the collateral, and charge off any
uncollectible balances. Included in 2004 maturities are two loans
totaling $53,215 which the Company is in process of foreclosing on. Quantitative and Qualitative Disclosures About Market Risk We do not have any derivative financial instruments as of September 30, 2004. We have entered
into loan agreements and accepted notes receivable in partial payment of land sales that subject
our portfolio to interest rate risk. At September 30, 2004, we held notes receivable in the amount
of $311,343 that we expect to hold until maturity. An increase in interest rates would result in a
decline in the market value of these notes but no reserve for this contingency is considered
necessary as we intend to hold these notes until maturity. These notes currently bear interest at
or near market rates. The schedule below details these exposures at September 10




---



##### Table of Contents



30, 2004, summarizes
the maturities and provides data on the calculated average interest rate that is applicable to each
segment. If interest rates had increased by 1% on our variable
interest rate debt as of the beginning of the year, interest
capitalized for the year would have been higher by approximately
$20,250. Interest expense would not have changed. Total
    
    

2005
    
    

2006
    
    

2007
    
    

2008
    
    
    2009
    
    
    ThereafterVariable interest rate debt
    
    $
    4,194,269
    
    
    $
    3,027,579
    
    
    $
    1,166,690
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Average interest rate
    
    
    6.36
    %
    
    
    6.75
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    
    
    
    
    Fixed interest rate debt
    
    
    1,353,895
    
    
    
    236,610
    
    
    
    6,404
    
    
    
    1,100,225
    
    
    
    5,301
    
    
    
    5,355
    
    
    
    Average interest rate
    
    
    10.06
    %
    
    
    10.90
    %
    
    
    10.92
    %
    
    
    10.92
    %
    
    
    5.90
    %
    
    
    5.90
    %
    
    
    0.00
    %Subordinated debt
    
    
    3,237,964
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,785
    
    
    
    
    
    
    
    3,167,179Average interest rate
    
    
    8.75
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.00
    %
    
    
    
    
    
    
    8.95
    %Fixed interest rate receivables
    
    
    311,343
    
    
    
    59,333
    
    
    
    6.959
    
    
    
    7,649
    
    
    
    8,408
    
    
    
    9,243
    
    
    
    219,751Average interest rate
    
    
    9.50
    %
    
    
    9.50
    %
    
    
    9.50
    %
    
    
    9.50
    %
    
    
    9.50
    %
    
    
    9.50
    %
    
    
    9.50
    %
 Recent Accounting Pronouncements In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation  Transition and
Disclosure  An Amendment of FASB
Statement 123 (SFAS 123). For entities that change their accounting for stock-based
compensation from the intrinsic method to the fair value method under SFAS 123, the fair value
method is to be applied prospectively to those awards granted after the beginning of the period of
adoption (prospective method). The amendment permits two additional transition methods for
adoption of the fair value method. In addition to the prospective method, the entity can choose to
either (i) restate all periods presented (retroactive restatement method) or (ii) recognize
compensation cost from the beginning of the fiscal year of adoption as if the fair value method had
been used to account for awards (modified prospective method). For fiscal years beginning
after December 15, 2003, the prospective method will no longer be allowed. We currently account for our
stock-based compensation using the intrinsic value method as proscribed by Accounting Principals
Board Option No. 25, Accounting for Stock issued to Employees and plan to continue using this
method to account for stock options, therefore, we do not intend to adopt the transition
requirements as specified in SFAS 148. We have adopted the new disclosure requirements of SFAS 148
in these financial statements. In
December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123(R), Share Based Payment
(SFAS 123(R)). This statement requires companies to
recognize the compensation cost related to share-based payment
transactions, including stock options, in their financial statements
based on the fair market value of the equity or liability instruments
issued. The effective date of SFAS 123(R) will be the interim
reporting period ended March 31, 2006. See Note A(11) for
pro forma information on the effect on net earnings and earnings per
share if the Company had applied the fair value recognition
provisions of SFAS 123(R) as of September 30, 2004. The FASB issued Interpretation (FIN) No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, in November
2002 and FIN No. 46, Consolidations of Variable Interest Entities, in January 2003. FIN No. 45
is applicable on a prospective basis for initial recognition and measurement provisions to
guarantees issued after December 2003; however, disclosure requirements are effective immediately.
FIN No. 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the
fair value of the obligations undertaken in issuing the guarantee and expands the required
disclosures to be made by the guarantor about its obligation under certain guarantees that it has
issued. The adoption of FIN No. 45 did not have a material impact on our financial position or
results of operations. FIN No. 46 requires that a company that controls another entity through
interest other than voting interest should consolidate such controlled entity in all cases for
interim periods beginning after June 15, 2003. The adoption of FIN No. 46 did not have a material
impact on our financial position or results of operations. 
 Item 7. Financial Statements The consolidated financial statements of the Company listed in the index appearing under Item
13(a)(1) hereof are filed as part of this Annual Report on Form 10-KSB and are hereby incorporated
by reference in this Item 7. See also Index to Consolidated Financial Statements on page F-1
hereof. 
 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None 
 Item 8A. Controls and Procedures (a) We maintain disclosure controls and procedures (as defined in Securities Exchange Act 1934
Rules 13a-14(c) and 15d-14(c)) that are designed to ensure that information required to be
disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commissions rules and forms, and that such
information is accumulated and communicated to our management, including our Chief Executive
Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and management necessarily
is required to apply its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. 11




---



##### Table of Contents



As
of the end of the period covered by this annual report, we carried out an evaluation,
under the supervision and with the participation of management, including our Chief Executive
Officer and Principal Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and
Principal Financial Officer concluded that our disclosure controls and procedures were effective. (b) There have not been any significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of their evaluation.
Our auditors have advised us of the existence of certain significant deficiencies
in our internal controls due to lack of segregation of duties because
of the small size of our staff. Our
management is evaluating possible corrective actions. 
 PART III 
 Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section
16(a) of the Exchange Act Directors and Executive Officers The following table sets forth information regarding our executive officers and directors as of
September 30, 2004: Officer orName
    
    Age
    
    Office
    
    Director SinceJay N. Torok
    
    
    65
    
    
    Chairman and Chief Executive Officer
    
    
    1994David J. Weber
    
    
    52
    
    
    President, Chief Operating Officer and Director
    
    
    2004Roger B. Clark (1)
    
    
    69
    
    
    Director
    
    
    1989Daniel Tracy (1) (2)
    
    
    64
    
    
    Director
    
    
    2003Ron OConnor (3)
    
    
    46
    
    
    Senior Vice President and Chief Financial Officer
    
    
    2003
   (1)
    
    Audit Committee member(2)
    
    Designated financial expert(3)
    
    Effective November 19, 2004, Mr. OConnor resigned. On December 15, 2004 Jerome L.
Joseph was named Senior Vice President and CFO.
 Our board of directors currently consists of four members. All directors hold office until the
next Annual Stockholders Meeting or until their successors have been elected and qualified, or
until their death, resignation, retirement, removal, or disqualification. Vacancies in the existing
board are filed by majority vote of the remaining directors. A summary of the background and
experience of the directors and executive officers follows. Jay N. Torok has served as Chairman of our board of directors and Chief Executive Officer
since 1994. In addition Mr. Torok has served as Executive Vice President of Amortibanc, Inc. as
well as other Amortibanc affiliates engaged in real estate development or venture capital. Prior to
joining the Amortibanc group of companies, from 1986 to 1992, Mr. Torok served as President and
Chief Executive Officer of Lone Pine Capital, a venture capital company specialized in acquisitions
management. Prior to joining Lone Pine Capital, from 1981 to 1985, Mr. Torok served as President
and Chief Executive Officer of Merrill Lynch Realty, Inc. Under Mr. Toroks management, Merrill
Lynch Realty, Inc. grew from 100 offices to over 380 offices in 38 cities in the United States and
four foreign cities, becoming the worlds largest real estate brokerage firm. Prior to joining
Merrill Lynch Realty, Inc., Mr. Torok served in various positions, including President of the
Container and Core Division of Clevepak Corporation, a former NYSE listed company, President of
Associated Forest Products, Inc., Vice President of Finance of Wausau Paper Mills, a Nasdaq quoted
company and Controller of the Forest Products Division and the Land Development Division of Owens
Illinois, Inc., a Fortune 100 company. Mr. Torok received his M.B.A. from Dartmouth and attended
law school at Temple University. David J. Weber has served as a member of our board of directors, President and Chief Operating
Officer since 2004. Mr. Weber served as a Vice President with D.R. Horton Homes and a Vice
President with Torrey Homes from 1990 till 2000. Mr. Weber then served as Chief Financial Officer
for Royce Homes, national builder, located in Houston, Texas. Prior to joining Torrey Homes in
1990, Mr. Weber owned and was President and Chief Executive Officer of multiple companies, engaged
in single family detached construction, apartment constructions and sales, land development, high
density housing, office buildings, townhomes, condominimums, oil and gas exploration and food
service. After graduation from college, Mr, Weber worked in various accounting and financial
departments with General Homes, Eden Corp. and Superior Homes, all located in Houston. Mr. Weber
graduated from Baylor University in 1974 and Atlanta Law School in 1994. Roger B. Clark has served as a member of our board of directors since 1989. Mr. Clark has been
president and chief executive 12




---



##### Table of Contents



officer of GlennCon, Inc. a leading supplier of goods and services to the worldwide public
gaming industry since 1984. From 1970 to 1983, Mr. Clark served in several positions with
Glendinning Companies, including president of Glendinning Companies, North America from 1978-83,
during which time he was responsible for all U.S. operations, including the consulting, retail
promotion, telecom and lottery divisions. Prior to that, Mr. Clark was employed by Procter &
Gamble. Mr. Clark received his degree in economics from Amherst College. Daniel Tracy has served as member of our board of directors since 2003. Mr. Tracy is a
business consultant and director. Mr. Tracy is currently a director of Edac Technologies
Corporation, a publicly traded manufacturer of aerospace components. Mr. Tracy is also a trustee of
the YMCA of Metropolitan Hartford, and Renbrook School. In 1998, Mr. Tracy concluded a 35-year
career with Arthur Andersen, an international accounting and consulting firm. From 1994 to 1998,
Mr. Tracy was responsible for Andersens SEC practice in Asia. From 1975 to 1994, Mr. Tracy was
the partner in charge of Andersens audit and accounting practice in Hartford, CT (1980-1994) and
Rochester, NY (1975-1980). Mr. Tracy received his bachelors degree and MBA from Dartmouth College. Ron OConnor served as Senior Vice President and Chief Financial Officer from February 2003
until November 2004. Prior to joining Great Western, Mr. OConnor served as Director of Worldwide
Consolidations and SEC Reporting of ON Semiconductor, a publicly traded semiconductor component
manufacturer, since 2000. Prior to joining ON Semiconductor, Mr. OConnor served as Assistant
Corporate Controller for MicroAge, Inc. a publicly traded wholesale distributor of microcomputer
products traded on the NASDAQ Exchange, since 1997. Prior to joining MicroAge, Mr. OConnor served
as Chief Financial Officer for Sunrise Educational Services, a chain of childcare centers. Mr.
OConnor is a C.P.A, and received his bachelors degree in accounting from the University of
Northern Iowa. Jerome L. Joseph was named Senior Vice President and Chief Financial Officer in December 2004.
Prior to joining Great Western, Mr. Joseph served as Chief Financial Officer of NZ Corporation for
approximately seven years. NZ Corporation was a real estate development and real estate lending
company traded on the American Stock Exchange prior to its merger with Lipid Sciences Inc. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and
executive officers, and persons who own more than 10% of a registered class of our equity
securities to file with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of equity securities of the Company. Officers, directors, and
greater than 10% stockholders are required to furnish us with copies of all Section 16(a) forms
they file. Based solely on a review of our transfer books and copies of Section 16(a) forms that we
have received, we believe that each person who, at any time during such fiscal year, was a
director, officer or beneficial owner of more than 10% of our common stock complies with all
Section 16(a) filing requirements during fiscal year ended September 30, 2004. 
 Item 10. Executive Compensation Each director who is not employed by us receives a meeting fee, in respect of all Board of
Directors and committee meetings attended on a single day, of $1,000. The following table provides certain summary information concerning the compensation earned by
our Chief Executive Officer and Chief Financial Officer. None of our other employees earned more
than $100,000 in the year ended September 30, 2004, in the nine months ended September 30, 2003 or
years ended December 31, 2002 or 2001. The long-term compensation columns have been omitted from
this table because the balances were zero. Other AnnualName and Principal Positions
    
    Year
    
    
    Salary
    
    
    Bonus
    
    
    Compensation (1)Jay N. Torok
    
    
    2004
    
    
    $
    144,801
    
    
    $
    
    
    
    $
    4,218President, Chairman, Chief Executive Officer,
    
    
    2003
    
    
    
    106,948
    
    
    
    
    
    
    
    3,115Treasurer and Director
    
    
    2002
    
    
    
    119,308
    
    
    
    
    
    
    
    3,4752001
    
    
    
    130,680
    
    
    
    
    
    
    
    2,995Ron OConnor
    
    
    2004
    
    
    
    111,333
    
    
    
    
    
    
    
    2,250Chief Financial Officer
   (1)
    Includes 401(k) Company match. 13




---



##### Table of Contents



We have not made or contemplated making any advances to any of our officers or directors. We maintain a 401(k) profit sharing plan for the benefit of our eligible employees. We make a
matching contribution equal to 100% of each participants eligible contributions to a maximum of 3%
of each participants compensation. We can also make a discretionary contribution determined
annually by our Board of Directors. In addition, we maintain medical and dental insurance plans for
our officers and employees. Stock Options The following table sets forth information regarding grants of options to purchase our common stock
to directors and executive officers during the year ended September 30, 2004. Number of
    
    
    Percent ofShares of
    
    
    TotalCommon Stock
    
    
    OptionsUnderlying
    
    
    Granted toOptions
    
    
    Employees in
    
    Exercise
    
    
    ExpirationName
    
    Granted
    
    
    Fiscal Year
    
    Price
    
    
    DateJay N. Torok
    
    
    150,000
    
    
    
    15.79
    %
    
    $
    0.31
    
    
    
    8/16/2014Roger B. Clark
    
    
    150,000
    
    
    
    15.79
    %
    
    $
    0.31
    
    
    
    8/16/2014Daniel Tracy
    
    
    150,000
    
    
    
    15.79
    %
    
    $
    0.31
    
    
    
    8/16/2014David J. Weber
    
    
    300,000
    
    
    
    31.58
    %
    
    $
    0.31
    
    
    
    8/16/2014
 These options were granted under our stock option plan and vest over a period ranging
from the grant date to three years from the grant date. During the year ended September 30, 2004,
our CEO, Jay N. Torok, exercised previously issued options of 73,000 at $0.15 per share. Employment Contracts We have entered into a five year employment agreement with Mr. Torok, effective September 1,
2001, that provides for an annual salary of $125,000, adjustable annually at the discretion of our
Board of Directors, with a minimum annual increase of 4%. Mr. Toroks agreement also provides for
payments to Mr. Torok in the event that his employment is terminated for any reason within its five
year term, including payment of the remaining annual salary at a rate of 50% of the rate provided
for under the employment agreement, payable for a period double the remaining term under the
employment agreement. Under the terms of Mr. Toroks employment agreement, the agreement shall be
automatically extended for one year at the end of each year during the term of the agreement,
expiring when Mr. Torok reaches the age of 70. Upon reaching the age of 70, should either party
wish to terminate the agreement, Mr. Torok shall be entitled to receive payment of 50% of his last
annual salary, each year for five years, provided that Mr. Torok agrees and has made himself
available to provide at least 90 days of consulting services to the Company in each of the five
years. 
 Item 11. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information as of December 31, 2004 concerning ownership of
our common stock by each director and officer, by all persons who hold of record or are known by us
to hold beneficially of record 5% or more of our outstanding shares and by all directors and
officers as a group. On December 31, 2004 there were 21,165,973 shares of our common stock
outstanding and entitled to vote. 14




---



##### Table of Contents



Shares
    
    
    Percent ofBeneficially
    
    
    SharesName and Address of Beneficial Owner
    
    Owned (1)
    
    
    OutstandingFive Percent Stockholders:Amortibanc Investments, L.C. (2)
    
    
    27,029,095
    
    
    
    92.8
    %Willard W. Garvey, Revocable Trust (2)
    
    
    27,029,095
    
    
    
    92.8
    %Willard W. Garvey Trust Number Thirteen (2)
    
    
    27,029,095
    
    
    
    92.8
    %Jean Garvey, Trustee (2)
    
    
    27,029,095
    
    
    
    92.8
    %Directors and Executive Officers:Jay N. Torok (3) (6)
    
    
    1,279,916
    
    
    
    5.8
    %Ron OConnor (7) (12)
    
    
    200,000
    
    
    
    0.9
    %Roger B. Clark (4) (8)
    
    
    262,393
    
    
    
    1.2
    %David J. Weber (10) (11)
    
    
    100,000
    
    
    
    0.5
    %Daniel Tracy (5) (9)
    
    
    166,667
    
    
    
    0.8
    %All directors and Executive Officers as a Group (5
persons)
    
    
    2,008,976
    
    
    
    8.9
    %
   (1)
    In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a person is
deemed to be the beneficial owner, for purposes of this table, of any shares of common stock
if such person has or shares voting power or investment power with respect to such security,
or has the right to acquire beneficial ownership at any time within 60 days after December 15,
2004. In calculating the percentage of ownership, such shares are deemed to be outstanding for
the purpose of computing the percentage of shares of common stock owned by such stockholder,
but are not deemed outstanding for the purpose of computing the percentage of shares of common
stock owned by any other stockholder. For purposes of this table, voting power is the power
to vote or direct the voting of shares and investment power is the power to dispose or
direct the disposition of shares.(2)
    The address for Amortibanc Investments L.C., the Willard Garvey Revocable Trust, the Willard
W. Garvey Trust Number Thirteen and Jean Garvey is 7309 E. 21st Street North, Suite
120, Wichita, KS 67206. Amortibanc Investments, L.C. disclaims beneficial ownership of these
shares. The Willard W. Garvey Revocable Trust and the Willard W. Garvey Trust Number Thirteen
are the only members of Amortibanc Investments L.C. and thereby share beneficial ownership of
these shares. Jean Garvey is the trustee of the Willard W. Garvey Revocable Trust and the
Willard W. Garvey Trust Number Thirteen. Includes the assumed conversion of $719,000 of
preferred stock into 8,124,446 shares of common stock. Does not include 84,726 shares of
common stock owned by David Theroux, Mrs. Garveys son-in law, 84,726 shares in the name of
Paul Theroux for whom David Theroux is custodian, or 84,726 shares in the name of Drake
Theroux, for whom David Theroux is custodian.(3)
    The address for Mr. Torok is 7373 North Scottsdale Road, Suite C-140, Scottsdale, AZ 85253.(4)
    The address for Mr. Clark is 6 Cardinal Road, Hilton Head, SC 29926.(5)
    The address for Mr. Tracy is 88 Wood Pond Road, West Hartford, CT 06107-3541.(6)
    Includes 239,069 shares of common stock owned by Mr. Torok, 10,165 shares owned by Lone Pine
Industries, Inc., a company controlled by Mr. Torok, 22,432 shares owned by Western Reserve
Environmental Services, a company in which Mr. Torok has an interest, primarily in a joint
trust with Anne V. Hodgkins, Mr. Toroks wife, and 1,008,250 shares of common stock issuable
upon the exercise of vested stock options.(7)
    Includes 200,000 shares of common stock issuable upon the exercise of vested stock options.
Does not include 100,000 shares of common stock issuable upon the exercise of stock options
that will not vest within 60 days of December 15, 2004.(8)
    Includes 62,500 shares of common stock owned by Mr. Clark, 1,976 shares owned by Clark-Bemis
Lumber Company, a company controlled by Mr. Clark, and 197,917 shares of common stock issuable
upon the exercise of vested stock options. Does not include 33,333 shares of common stock
issuable upon the exercise of stock options that will not vest within 60 days of December 15,
2004.(9)
    Included 166,667 shares of common stock issuable upon the exercise of vested stock options.
Does not include 33,333 shares of common stock issuable upon the exercise of stock options that will not vest within 60 days of
December 15, 2004. 15




---



##### Table of Contents



(10)
    The address for Mr Weber is 3602 Fallen Palms Court, Houston, TX 77042.(11)
    Included 100,000 shares of common stock issuable upon the exercise of vested stock options.
Does not include 200,000 shares of common stock issuable upon the exercise of stock options
that will not vest within 60 days of December 15, 2004.(12)
    The address for Mr. OConnor is 8426 East Shea Boulevard, Suite 17, Scottsdale, AZ 85260. 
 Item 12. Certain Relationships and Related Transactions Prior to March 1, 2003, we owned an 85% interest in Willow Springs Ranch, LLC, with several
minority investors owning the remaining 15%. The minority investors included, among others,
Lafayette Financial Services, a company that is 50% owned by the Chairman of our board of
directors, (Lafayette) and another partnership controlled by our Chairman. On March 1, 2003, we
bought out the minority investors interest in exchange for 640 acres of Arizona ranch land and
cancellation of a $134,962 payable. The Company has a 70% interest in Glendale Condominiums, LLC. The land for the project was
purchased from an individual and a trust who own the other 30% of the project. The payable of
$757,184 on September 30, 2004 represents the balance due, including interest at 8% per annum, for
this purchase. Principal and interest are due quarterly from September 2008 through September
2018. The land cost and preliminary development costs for this project total $3,689,487 and
$2,379,178 at September 30, 2004 and September 30, 2003, respectively and are included in land held
for development and sale in Arizona properties. Effective July 8, 2003, in exchange for a $650,000 note payable, we acquired land in Stafford,
Texas for $125,000 and also agreed to acquire a 34% interest in #22 Stafford Springs LTD (Stafford
Springs) for $525,000. Stafford Springs owns the Summer Park Duplexes, a 168-unit, HUD-financed,
manufactured housing duplex rental community in Stafford, Texas. The $525,000 paid for Stafford
Spring was recorded as a deposit pending receipt of final approval of this transaction by HUD. As
of September 30, 2004, HUD approval had not yet been received. This note was paid off on September
29, 2003 at a discount of $260,000. The Chairman of our board of directors also owns 33% of
Stafford Springs. On September 19, 1997, Laguna Investments L.L.C. (Laguna Investments), one of our
subsidiaries, acquired a 25.52% ownership in Laguna at Arrowhead Apartments L.L.C. (Laguna),
which owns an apartment complex in Phoenix, Arizona. On December 30, 2002, we sold a 7.1% interest
in Laguna Investments to Lafayette for $35,500 in partial payment of the note payable to Lafayette.
Lafayette is 50% owned by the Chairman of our Board of Directors. On September 29, 2003, we sold
an additional 6.37% interest in Laguna Investments to Lafayette for $31,855, also in partial
payment of the note payable to Lafayette. On September 29, 2003, we also sold a 3.0% interest in
Laguna Investments to Torok Partners, LLC for $15,000 in exchange for Torok Partners minority
interest in one of our projects. Torok Partners is controlled by the Chairman of our Board of
Directors. As a result of these transactions, at September 30, 2003 and 2004 we owned 83.53% of
Laguna Investments, which represents a 21.32% interest in Laguna . In prior years the Companys operations have been partially financed with advances from
Amortibanc Investments, L.C; the company that owns 93% of our outstanding common stock at September
30, 2004. The advances are subordinate to the Companys bank
financing and bear interest at 4% to
10%. The interest accrued on these advances has typically been added to the subordinated debt.
Payments on the debt are made only when cash flow from a land sale, after payment of related bank
debt, exceeds the Companys operating cash requirements. This determination of operating cash
requirements is made by the Companys management, however under the terms of the bank loan the
Company obtained to finance the Woodland Court condominium project, the outstanding balance of the
subordinated debt may not be less than $3,000,000. On October 31, 2003, the Company made a payment
of $378,587. The Company has an 82.5% interest in Villa Maria, LLC, which is constructing a condominium
project in College Station, Texas called Woodland Court. The remaining 17.5% is owned by minority
investors, consisting of three members of the Companys Board of Directors. A payable of $161,875
recorded in the payables to related entities section represents the balance due to these investors.
Interest on this balance accrues at 10% per annum, with principal and interest due at the end of
the project. The Company has a total interest of 70% in Houston Warren Ranch Partners, LLC (Warren Ranch)
which is derived from its 55% direct ownership in Warren Ranch as well as a 15% indirect interest
from its one third ownership in Jessica Star Partners, LLC. Jessica
Star Partners, LLC owns 45% of
Warren Ranch and consists of the following members owning a one third interest in the company:
Great Western Land & Recreation, Inc., the Chairman of Great Westerns Board of Directors and Brad
Dill of BD Realty. As of September 30, 2004 the Company owed $53,250 in fees related to the development of
Mallard Crossing and Westchester Lakes. 16




---



##### Table of Contents



The Company sold land at the Willow Springs Ranch to an entity wholly owned by a member of the
Companys Board of Directors. The Company purchased the property back in exchange for a note
payable that the Company paid in full on October 1, 2004. The balance of the note payable as of
September 30, 2004 was $48,901. 
 Item 13. Exhibits and Reports on Form 8-K.  (a)
    The following documents are filed as part of this Annual Report on Form 10-KSB:  (1)
    Consolidated Financial Statements Page No.Report
of Independent Registered Certified Public Accounting Firm
    
    F-2Consolidated Balance Sheet as of September 30, 2004
    
    F-3Consolidated Statements of Operations for the year ended
September 30, 2004 and the nine months ended September 30, 2003
    
    F-4Consolidated Statements of Stockholders Equity and
Comprehensive Income (Loss) for the year ended September 30,
2004 and the nine months ended September 30, 2003
    
    F-5Consolidated Statements of Cash Flows for the year ended
September 30, 2004 and the nine months ended September 30, 2003
    
    F-6Notes to Consolidated Financial Statements
    
    F-7
  (2)
    Exhibits FORM 10-KSB EXHIBIT LIST ExhibitNo.10.1
    
    Articles of Incorporation of First National Realty Associates,
Inc. (Incorporated by reference to Exhibit 8 of Registration
Statement on Form S-18 (No. 33-30679-NY))10.2
    
    Agreement of Merger of First National Realty Associates, Inc.
into Emphatic Mergers (Incorporated by reference to Exhibit 14
of Registration Statement on Form S-18 (No. 33-30679- NY))10.3
    
    Agreement and Plan of Merger between 1st Realty
Investments, Inc. and Great Western Land and Recreation, Inc.
dated as of July 23, 2002 (Incorporated by reference to
Exhibit 1 of Form 8-K filed with the Commission on July 29,
2002)10.4
    
    Certificate of Merger of Great Western Land and Recreation,
Inc., a Delaware Corporation with and into 1st
Realty Investments, Inc., a Nevada Corporation (Incorporated
by reference to Exhibit 10.4 of Form 10-KSB filed with the
Commission on December 29, 2003)10.5
    
    Great Western Land and Recreation, Inc. Amended and Restated
By-Laws (Incorporated by reference to Exhibit 10.5 of Form
10-KSB filed with the Commission on December 29, 2003)10.6
    
    Certificate of Designations of Series A Cumulative Convertible
Preferred Stock of 1st Realty Investments, Inc.
(Incorporated by reference to Appendix B of Schedule 14C of
1st Realty Investments, Inc. filed with the
Commission on January 27, 2003)10.7
    
    Investment Agreement dated June 29, 2002 by and between
Amortibanc Investments, L.C. and Great Western Land and
Recreation, Inc. (Incorporated by reference to Exhibit 10.7 of
Form 10-KSB filed with the Commission on December 29, 2003)10.8
    
    Great Western Land and Recreation, Inc. Stock Option Plan
(Incorporated by reference to Appendix C of Schedule 14C of
1st Realty Investments, Inc. filed with the
Commission on January 27, 2003)10.9
    
    Form of Great Western Land and Recreation, Inc. Stock Option
Agreement (Incorporated by reference to Exhibit 4.02 of Form
S-4 of Great Western Land and Recreation, Inc. filed with the
Commission on October 16, 2001)10.10
    
    Agreement of Sale of Partnership Interest, dated July 8, 2003
between Great Western Land
 17




---



##### Table of Contents



ExhibitNo.and Recreation, Inc. and Arete Real
Estate and Development Co. (Incorporated by reference to
Exhibit 10.10 of Form 10-KSB filed with the Commission on
December 29, 2003)10.11
    
    Sale and Subscription Agreement of Membership Interests in
Laguna Investments L.L.C. dated September 29, 2003 between
Great Western Land and Recreation, Inc. and Torok Partners,
L.L.C. (Incorporated by reference to Exhibit 10.11 of Form
10-KSB filed with the Commission on December 29, 2003)10.12
    
    Sale and Subscription Agreement of Membership Interests in
Laguna Investments L.L.C. dated September 29, 2003 between
Great Western Land and Recreation, Inc. and Lafayette
Financial Services, L.L.C. (Incorporated by reference to
Exhibit 10.12 of Form 10-KSB filed with the Commission on
December 29, 2003)10.13
    
    Employment Agreement between Great Western land and
Recreation, Inc. and Jay N. Torok dated September 1, 2001
(Incorporated by reference to Exhibit 10.01 of Form S-4/A of
Great Western Land and Recreation, Inc. filed with the
Commission on December 11, 2001)10.14
    
    Contribution Agreement by and between Great Western Land and
Recreation, Inc., Amortibanc Management, L.C., Amortibanc
Investments, L.C., and GWLR, LLC dated as of August 6, 2001
(Incorporated by reference to Exhibit 10.02 of Form S-4/A of
Great Western Land and Recreation, Inc. filed with the
Commission on December 11, 2001)10.15
    
    Promissory Note dated January 3, 2002, by and between GWLR
Wagon Bow Ranch, LLC and Bank Midwest (Incorporated by
reference to Exhibit 10.15 of Form 10-KSB filed with the
Commission on December 29, 2003)10.16
    
    Secured Promissory Note dated September 25, 2002, between
National Bank of Arizona and Glendale Condominiums, LLC
(Incorporated by reference to Exhibit 10.16 of Form 10-KSB
filed with the Commission on December 29, 2003)10.17
    
    Promissory Note dated September 25, 2002, between National
Bank of Arizona and Glendale Condominiums, LLC (Incorporated
by reference to Exhibit 10.17 of Form 10-KSB filed with the
Commission on December 29, 2003)10.18
    
    Loan Agreement dated June 23, 2000, by and between Willow
Spring Ranch, LLC and Bank Midwest (Incorporated by reference
to Exhibit 10.21 of Form S-4/A of Great Western Land and
Recreation, Inc. filed with the Commission on December 11,
2001)10.19
    
    Great Western Land and Recreation, Inc. Code of Business
Ethics (Incorporated by reference to Exhibit 10.19 of Form
10-KSB filed with the Commission on December 29, 2003)11
    
    Statement RE: Computation of per Share Earnings (Loss)21
    
    List of Subsidiaries31.1
    
    Certification of Jay N. Torok pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 200231.2
    
    Certification of Jay N. Torok pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 200232.1
    
    Certification of Jay N. Torok pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2
    
    Certification of Jay N. Torok pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 200299.1
    
    Risk Factors
  (b)
    Reports on Form 8-K during the quarter ended September 30, 2004 18




---



##### Table of Contents



9/29/2004
8/17/20048/16/2004
    

Item 8.01Item 5Item 5
 
 Item 14. Principal Accountant Fees and Services Audit fees The aggregate fees billed in each of the fiscal years ended September 30, 2004 and 2003 for
professional services rendered by our principal accountants for the audit of our annual financial
statements, the review of our quarterly financial statements, or services that are normally
provided by the accountant in connection with statutory and regulatory filings were $91,306 and
$135,796 respectively. Audit-related fees There were no fees billed for services rendered by our principal accountants which are reasonably
related to the performance of the annual audit or quarterly reviews which are not disclosed
above under Audit fees for the fiscal years ended September 30, 2004 and 2003. Tax fees The aggregate fees billed in each of the fiscal years ended September 30, 2004 and 2003 for
professional services rendered by our principal accountants for tax compliance, tax advice, and
tax planning were $5,474 and $1,300 respectively. All other fees None. The audit committee pre-approves all auditing and permitted non-auditing services provided by our
principal accountants, and pre-approves the estimated cost for such services. 19




---



##### Table of Contents



SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GREAT WESTERN LAND AND
RECREATION, 
INC.(Registrant)Date: January 18, 2005
    
    By /s/ Jay N. TorokJay N. TorokChairman of the Board and Principal
Financial Officer (see explanatory note)
 In accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures
    
    Title
    
    Date/s/ Jay N. Torok
    
    Chairman of the Board, Principal
Executive Officer, and Principal
Financial Officer (see explanatory note)
    
    January 18, 2005Jay N. Torok/s/ David J. Weber
    
    Director and Chief Operating Officer
    
    January 18, 2005David J. Weber/s/ Daniel Tracy
    
    Director
    
    January 18, 2005Daniel Tracy/s/ Roger B. Clark
    
    Director
    
    January 18, 2005Roger B. Clark
 Explanatory note: Ron
OConnor resigned as Chief Financial Officer effective
November 19, 2004. Jerome L. Joseph was appointed Chief
Financial Officer effective December 15, 2004. However, because
Mr. Joseph was not the Companys Chief Financial Officer for the
period covered by this report, Jay N. Torok has been appointed by the Companys
Board of Directors to act as the Principal Financial Officer for
purposes of filing this report. 20




---



##### Table of Contents



GREAT WESTERN LAND AND RECREATION, INC. CONTENTS PAGEReport
of Independent Registered Certified Public Accounting Firm
    
    F-2Consolidated Balance Sheet, September 30, 2004
    
    F-3Consolidated Statements of Operations, for the year ended September
30, 2004 and the nine months ended September 30, 2003
    
    F-4Consolidated Statements of Stockholders Equity and Comprehensive
Income (Loss), for the year ended September 30, 2004 and the nine
months ended September 30, 2003
    
    F-5Consolidated Statements of Cash Flows, for the year ended September
30, 2004 and the nine months ended September 30, 2003
    
    F-6Notes to Consolidated Financial Statements
    
    F-7
 F-1




---



##### Table of Contents



REPORT OF INDEPENDENT
REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM Board of Directors and
Stockholders of Great Western Land and Recreation, Inc. We have audited the accompanying consolidated balance sheet of Great Western Land and
Recreation, Inc. (a Nevada corporation) as of September 30, 2004 and the related
consolidated statements of operations , stockholders equity and comprehensive income,
and cash flows for the year ended September 30, 2004 and the nine months ended
September 30, 2003. These 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 the standards of the Public Company
Accounting Oversight Board (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 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 financial statements referred to above present fairly, in all
material respects, the financial position of Great Western Land and Recreation, Inc. as
of September 30, 2004 and the consolidated results of its operations and its cash flows
for the year ended September 30, 2004 and the nine months ended September 30, 2003 in
conformity with accounting principles generally accepted in the United States of
America. GRANT THORNTON LLP Wichita, Kansas
November 11, 2004 F-2




---



##### Table of Contents



GREAT WESTERN LAND AND RECREATION, INC.
CONSOLIDATED BALANCE SHEET
September 30, 2004 ASSETSCash and cash equivalents
    
    $
    1,675,690Notes receivable
    
    
    311,343Land held for development and sale
    
    
    10,542,558Receivable from related entities
    
    
    33,867Property and equipment, net of accumulated
depreciation of $67,318
    
    
    95,459Other
    
    
    704,929$
    13,363,846LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesNotes payable
    
    $
    5,548,164Subordinated debt
    
    
    3,237,964Payable to related entities
    
    
    1,021,210Accounts payable and other accrued liabilities
    
    
    976,869Total liabilities
    
    
    10,784,207Minority interest
    
    
    34,504Stockholders equityPreferred stock, $0.001 par value; 10,000,000 shares authorized;
22,580 shares issued and outstanding; 20,000 additional shares issued, held by a subsidiary and
reported as treasury shares; liquidation value -
$1,539,000 at September 30, 2004
    
    
    1,390,617Common stock, $0.001 par value; 30,000,000 shares
authorized; 21,008,399 shares issued and outstanding
    
    
    21,008Additional paid-in capital
    
    
    2,576,898Accumulated other comprehensive loss
    
    
    (733
    )Accumulated deficit
    
    
    (1,442,655
    )Total stockholders equity
    
    
    2,545,135$
    13,363,846
 The accompanying notes are an integral part of this consolidated financial statement. F-3




---



##### Table of Contents



GREAT WESTERN LAND AND RECREATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS NineYear ended
    
    
    months endedSeptember 30,
    
    
    September 30,2004
    
    
    2003Land and lot sales
    
    $
    6,418,352
    
    
    $
    2,263,056Cost of land and lot sales
    
    
    5,014,922
    
    
    
    1,182,336Gross profit on sales
    
    
    1,403,430
    
    
    
    1,080,720Operating, selling, general and administrative expense
    
    
    1,684,539
    
    
    
    1,112,925Loss on
impairment of long-lived assets
    
    
    372,780
    
    
    
    Loss from operations
    
    
    (653,889
    )
    
    
    (32,205
    )Other income (expense)Interest expense
    
    
    (482,975
    )
    
    
    (382,953
    )Interest income
    
    
    7,399
    
    
    
    112,891Equity in losses of unconsolidated companies
    
    
    (88,570
    )
    
    
    (73,336
    )Gain on settlement of note payable
    
    
    
    
    
    
    260,000Other income (loss)
    
    
    68,262
    
    
    
    131,620(495,884
    )
    
    
    48,222Earnings (loss) before minority interest
    
    
    (1,149,773
    )
    
    
    16,017Minority interest
    
    
    (3,275
    )
    
    
    (832
    )Net earnings (loss)
    
    $
    (1,153,048
    )
    
    $
    15,185Net earnings (loss) per common and common
equivalent shareBasic and diluted
    
    $
    (0.06
    )
    
    $
    Weighted average common and common
equivalent shares outstandingBasic and diluted
    
    
    20,886,002
    
    
    
    20,781,965
 The accompanying notes are an integral part of these consolidated financial statements. F-4




---



##### Table of Contents



GREAT WESTERN LAND AND RECREATION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME (LOSS)
Year ended September 30, 2004 and nine months ended September 30, 2003 AccumulatedOtherAdditional
    
    
    compre-
    
    
    
    
    
    
    Compre-Preferred Stock
    
    
    Common Stock
    
    
    paid-in
    
    
    hensive
    
    
    Accumulated
    
    
    hensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    capital
    
    
    loss
    
    

deficit
    
    
    Income (Loss)Balance, December 31, 2002
    
    
    14,380
    
    
    $
    628,559
    
    
    
    20,781,965
    
    
    $
    20,782
    
    
    $
    2,334,045
    
    
    $
    (703
    )
    
    $
    (302,742
    )
    
    $
    Subordinated debt converted to
capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    293,106
    
    
    
    
    
    
    
    
    
    
    
    Amortization of discount on
preferred stock
    
    
    
    
    
    
    31,850
    
    
    
    
    
    
    
    
    
    
    
    (31,850
    )
    
    
    
    
    
    
    
    
    
    
    Change in unrealized loss on
marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    (30
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,185
    
    
    
    15,185Comprehensive income for the nine
months ended September 30, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    
    $
    15,155Balance, September 30, 2003
    
    
    14,380
    
    
    
    660,409
    
    
    
    20,781,965
    
    
    
    20,782
    
    
    
    2,595,301
    
    
    
    (733
    )
    
    
    (287,557
    )Rounding adjustment due to
reverse stock split
    
    
    
    
    
    
    
    
    
    
    3,434
    
    
    
    3
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    Issuance of preferred stock in
exchange for land
    
    
    8,200
    
    
    
    678,581
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of preferred stock to
subsidiary and reported
as treasury stock
    
    
    20,000
    
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred stock held by
subsidiary and reported
as treasury stock
    
    
    (20,000
    )
    
    
    (1,000,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of discount on
preferred stock
    
    
    
    
    
    
    51,627
    
    
    
    
    
    
    
    
    
    
    
    (51,627
    )
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock in
exchange for minority
interest and an option to
purchase land
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    100
    
    
    
    14,900
    
    
    
    
    
    
    
    
    
    
    
    Payment of dividends on
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,050
    )Stock option excercises
    
    
    
    
    
    
    
    
    
    
    123,000
    
    
    
    123
    
    
    
    18,327
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,153,048
    )
    
    
    (1,153,048
    )Comprehensive loss for the year
ended September 30, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,153,048
    )Balance, September 30, 2004
    
    
    22,580
    
    
    $
    1,390,617
    
    
    
    21,008,399
    
    
    $
    21,008
    
    
    $
    2,576,898
    
    
    $
    (733
    )
    
    $
    (1,442,655
    )
 The accompanying notes are an integral part of these consolidated financial statements. F-5




---



##### Table of Contents



GREAT WESTERN LAND AND RECREATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS NineYear ended
    
    
    months endedSeptember 30,
    
    
    September 30,2004
    
    
    2003Cash flows provided by (used in) operating activitiesNet earnings (loss)
    
    $
    (1,153,048
    )
    
    $
    15,185Adjustments to reconcile net earnings (loss) to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    47,021
    
    
    
    35,762Accrued interest expense included in debt
    
    
    375,089
    
    
    
    334,253Deferred income taxes
    
    
    
    
    
    
    858Accretion of interest income
    
    
    
    
    
    
    (9,254
    )Collection of notes receivable relating to prior years sales
    
    
    2,425
    
    
    
    1,560,935Uncollected notes receivable from current year sales
    
    
    (243,650
    )
    
    
    (47,230
    )Loss on disposal of property, plant and equipment
    
    
    92,886
    
    
    
    14,059Loss on impairment of long-lived assets
    
    
    372,780
    
    
    
    Equity in losses of unconsolidated companies
    
    
    88,570
    
    
    
    73,336Minority interests in earnings of consolidated subsidiaries
    
    
    3,275
    
    
    
    832Gain on settlement of note payable
    
    
    
    
    
    
    (260,000
    )Gain on sale of investment in unconsolidated company
    
    
    
    
    
    
    (37,349
    )Changes in operating assets and liabilities:Land held for development and sale
    
    
    (534,097
    )
    
    
    (808,273
    )Other assets
    
    
    25,504
    
    
    
    (759,822
    )Accounts payable and other accrued liabilities
    
    
    356,283
    
    
    
    296,288Net cash provided by (used in) operating activities
    
    
    (566,962
    )
    
    
    409,580Cash flows provided by (used in) investing activitiesCollection of receivable from related entities
    
    
    34,213
    
    
    
    46,628Investment in unconsolidated company
    
    
    
    
    
    
    (53,530
    )Purchases of property and equipment
    
    
    (53,577
    )
    
    
    (47,215
    )Proceeds from sale of property and equipment
    
    
    40,000
    
    
    
    11,577Net cash provided by (used in) investing activities
    
    
    20,636
    
    
    
    (42,540
    )Cash flows from financing activitiesIssuance of notes payable
    
    
    5,192,501
    
    
    
    1,368,549Payments on notes payable
    
    
    (3,985,135
    )
    
    
    (1,289,114
    )Issuance of note payable to related entity
    
    
    150,000
    
    
    
    Increase in payable to related entities
    
    
    125,783
    
    
    
    Decrease in subordinated debt
    
    
    (378,377
    )
    
    
    Payment of dividends on preferred stock
    
    
    (2,050
    )
    
    
    Proceeds from stock options exercised
    
    
    18,450Net cash provided by financing activities
    
    
    1,121,172
    
    
    
    79,435Net increase in cash and cash equivalents
    
    
    574,846
    
    
    
    446,475Cash and cash equivalents at beginning of period
    
    
    1,100,844
    
    
    
    654,369Cash and cash equivalents at end of period
    
    $
    1,675,690
    
    
    $
    1,100,844Supplemental disclosure of cash flow information:Cash paid during the period for interest, net of amount capitalized
    
    $
    53,682
    
    
    $
    58,394Cash paid during the period for income taxes
    
    
    
    
    
    
    14,960Noncash investing and financing activitiesAccrued interest capitalized included in debt
    
    
    165,778
    
    
    
    41,989Transfer of Wagon Bow ranch land in exchange for minority
interest in
Houston Warren Ranch LLC
    
    
    15,614
    
    
    
    Transfer of Wagon Bow Ranch land in exchange for minority
interest in Willow Springs Ranch, LLC and a reduction in the payable
to minority investors
    
    
    
    
    
    
    134,962Preferred stock issued in exchange for land in Houston, Texas
    
    
    678,581
    
    
    
    Common stock issued in exchange for 47.5% minority interest in
Firebird Financial, LLC and an option to purchase land
    
    
    15,000
    
    
    

    Subordinated debt issued in exchange for land in College Station, Texas
    
    
    70,000
    
    
    
    Subordinated debt converted to capital
    
    
    
    
    
    
    293,106Sale of
investment in unconsolidated company in exchange for partial payment of advances from related entities
    
    
    
    
    
    
    31,855Sale of
investment in unconsolidated company in exchange for minority interest
    
    
    
    
    
    
    15,000
 The accompanying notes are an integral part of these consolidated financial statements. F-6




---



##### Table of Contents



GREAT WESTERN LAND AND RECREATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A  SUMMARY OF ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the
accompanying consolidated financial statements follows. 1.Basis of presentation and business The accompanying consolidated financial statements as of September 30, 2004 and for the year
ended September 30, 2004 and the nine months ended September 30, 2003 include the accounts of
Great Western Land and Recreation, Inc. and its wholly- and majority-owned subsidiaries
(collectively, the Company). Investments in companies that represent 20% to 50% of the
ownership interest are accounted for on the equity method. Investments in companies that
represent less than a 20% ownership interest are accounted for on the cost basis. All material
intercompany accounts and transactions have been eliminated. The Company is engaged principally in the acquisition, development and sale of land located in
Houston and College Station Texas, Phoenix and Glendale, Arizona and certain country areas of New
Mexico and Arizona. Transactions include both retail and non-retail land sales, depending upon
the progress of the development and sub-division process. The Company maintains its records and prepares its financial statements in accordance with
accounting principles generally accepted in the United States of America for real estate
operations. Great Western Land & Recreation, Inc. is incorporated in the state of Nevada. On June 4, 2003 the Company changed its year-end from December 31 to September 30. As a result
of this change, fiscal 2003 was a short year, which ended on September 30, 2003 and consisted of
only nine months. 2.Revenue recognition The Company records the sale of real estate under the full accrual method when ownership rights
and obligations have transferred to the buyer, the buyers initial and continuing investments
provide a sufficient commitment to purchase and collectibility of the sales price is reasonably
assured. Profit is primarily recognized when the sale has been consummated. The installment
method (profit recognized as a portion of each cash payment received), is used to recognize
profit for certain real estate sales that do not meet the criteria for full accrual recognition. 3.Land held for development and sale Land held for development and sale is carried at cost plus development costs, loan costs,
interest and real estate taxes incurred during the period the development is in process.
Impairment of the carrying cost of land is evaluated by comparison of estimated fair value less
cost to sell. Estimated fair value less cost to sell is based upon sales in the normal course of
business less estimated development costs to complete and dispose of the property. The
accumulated land cost is charged to cost of sales based upon the computed average lot cost at the
time of sale, which is not materially different than the relative fair value basis. 4.Notes receivable The Company evaluates the collectibility of the notes receivable and charges off any
uncollectible balances. If notes receivable become more
than 90 days past due in the payment of interest such notes are
placed on non-accrual status until they are no longer more than
90 days past due. Notes receivable from the retail sale of certain real estate lots and
parcels are sold to third parties. The Company retains no ownership or remaining interest in
these properties or responsibilities for any future expenses related to these properties except
that the notes are subject to recourse. See Note K for additional discussion. The Company sells the majority of its notes receivable to an unrelated third party with recourse
for credit defaults. The buyer holds back a portion of the sales proceeds, reported on the
balance sheet in other assets as $177,286, net of an allowance for recourse losses. The Company
primarily considers down payments, sales of other properties in the development, and payment
history in making decisions about the needed allowance. 5.Advertising costs F-7




---



##### Table of Contents



Advertising costs are expensed as incurred and are included in operating, selling, general and
administrative expense. Total advertising cost was $102,191 and $73,025 for the year ended
September 30, 2004 and for the nine months ended September 30, 2003, respectively. 6.Income taxes Income taxes are accounted for using the asset and liability method. Under this method, deferred
income tax assets and liabilities are recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which these
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. A valuation allowance is provided for deferred tax assets that are not expected
to be recovered from future operations. 7.Use of estimates In preparing financial statements in conformity with accounting principles generally accepted in
the United States of America, management is responsible for making estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and reported amounts of revenues and
expenses during the reported period. Actual results could differ from those estimates and it is
reasonably possible that the allowance established for recourse chargebacks could materially
change in the near future. 8.Cash equivalents For purposes of the statements of cash flows, the Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents. 9.Financial instruments The carrying amounts reflected in the consolidated balance sheet for cash and cash equivalents
approximate fair value due to the short maturities of the instruments. Notes receivable
approximate fair value considering the quality of the credit, payment terms, property sold and
market based interest rates. Related entities receivables/payables bear market-based rates and
approximate fair value. The notes payable and subordinated debt also approximate fair value
based on interest rates, payment terms and the Companys current incremental borrowing rates for
similar type borrowing arrangements. 10.Net earnings (loss) per share Basic net earnings (loss) per share is calculated by dividing net earnings (loss) less preferred
stock dividends applicable to the period by the average number of common shares outstanding
during the period. Diluted net earnings (loss) per share is the same as basic net earnings
(loss) per share because the convertible preferred stock and the stock options are anti-dilutive
and therefore excluded from the computation. 11. Stock-based compensation As described more fully in Note M, the Company measures compensation expense relating to employee
stock awards in accordance with Accounting Principles Board Opinion No. 25 Accounting for Stock
Issued to Employees (APB 25). The Company measures compensation expense relating to
non-employee stock awards in accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123). The Company accounts for this plan under the recognition and measurement principles of APB Opinion
No. 25, Accounting for Stock Issued to Employeesand related Interpretations using the intrinsic
value based method. No stock-based employee compensation cost is reflected in net earnings, as all
options granted under this plan had an exercise price equal to the market value of the underlying
common stock on the date of grant. The following table illustrates the effect on net earnings and
earnings per share if the Company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation
for the year ended September 30, 2004 and the nine months ended September 30, 2003. Nine monthsYear ended
    
    
    endedSeptember 30,
    
    
    September 30,2004
    
    
    2003Net earnings (loss) as reported
    
    $
    (1,153,048
    )
    
    $
    15,185Deduct: Total stock-based employee compensation expense
determined under fair value based method (1)
    
    
    (68,995
    )
    
    
    (9,967
    )Pro forma net earnings (loss)
    
    $
    (1,222,043
    )
    
    $
    5,218Earnings (loss) per share:Basic and
diluted - as reported
    
    $
    (0.06
    )
    
    $
    Basic and
diluted - pro forma
    
    $
    (0.06
    )
    
    $
    
 (1)
    The fair value method amortizes the estimated fair value of the options at date of grant
over the vesting period. The fair value of these options was estimated at the date of grant
assuming a risk-free interest rate of 4.88%, an expected option life of 10 years with no dividends. Such life is based on all options being exercised just prior to
expiration.
 NOTE B  NOTES RECEIVABLE Notes receivable at September 30, 2004 consist of notes receivable from lot sales to individuals,
bearing interest at 9.5%, payable in monthly aggregated principal and interest payments of $2,388
through September 2024. These notes are collateralized by the lots sold. Maturities for notes receivable as of September 30, 2004 follow: F-8




---



##### Table of Contents



2005
    
    
    59,3332006
    
    
    6,9592007
    
    
    7,6492008
    
    
    8,4082009
    
    
    9,243Thereafter
    
    
    219,751$
    311,343
 Included in 2005 maturities
are two loans totaling $53,215 which are in foreclosure. NOTE C  LAND HELD FOR DEVELOPMENT AND SALE The cost of land held for development and sale is comprised of the following at September 30,
2004: Houston,
    
    
    NewTexas
    
    
    Mexico
    
    
    Arizonaproperties
    
    
    properties
    
    
    properties
    
    
    TotalLand acquisition costs
    
    $
    4,765,127
    
    
    $
    4,661,638
    
    
    $
    3,526,645
    
    
    $
    12,953,410Development costs
    
    
    2,775,852
    
    
    
    433,303
    
    
    
    2,567,247
    
    
    
    5,776,402Capitalized interest
    
    
    249,161
    
    
    
    68,817
    
    
    
    264,747
    
    
    
    582,725Capitalized taxes
    
    
    68,602
    
    
    
    
    
    
    
    56,922
    
    
    
    125,524Capitalized loan costs
    
    
    400,231
    
    
    
    58,584
    
    
    
    645
    
    
    
    459,460Total
    
    
    8,258,973
    
    
    
    5,222,342
    
    
    
    6,416,206
    
    
    
    19,897,521Less cumulative allocation to cost of sales
    
    
    2,568,351
    
    
    
    5,128,151
    
    
    
    1,658,461
    
    
    
    9,354,963$
    5,690,622
    
    
    $
    94,191
    
    
    $
    4,757,745
    
    
    $
    10,542,558
 The above summary includes only properties with remaining unsold land. Properties are deleted when
100% developed and sold. NOTE D  RELATED ENTITIES Related entity receivables/payables are as follows at September 30, 2004: Receivable from related entities:Minority investor in Houston Warren Ranch Partners, LLC (2)
    
    $
    18,125Other
    
    
    15,742$
    33,867Payable to related entities:Minority investors in Glendale Condominiums, LLC (1)
    
    $
    757,184Minority investor in Houston Warren Ranch Partners, LLC (4)
    
    
    53,250Repurchase of ranch property from board member (5)
    
    
    48,901Minority investors in Villa Maria, LLC (3)
    
    
    161,875$
    1,021,210
 The subordinated debt is also due to a related entity. See Note H for further discussion.  (1)
    The Company has a 70% interest in Glendale Condominiums, LLC. The land for the project was
purchased from an individual and a trust who own the other 30% of the project. The payable
represents the balance due, including interest at 8% per annum, for this purchase. Principal
and interest are due quarterly from September 2008 through September 2018. The land cost and
preliminary development costs for this project total $3,477,688 and $2,379,178 at September
30, 2004 and September 30, 2003, respectively and are included in land held for development
and sale in Arizona properties. F-9




---



##### Table of Contents



(2)
    The Company has a total interest of 70% in Houston Warren Ranch Partners, LLC (Warren
Ranch) which is derived from its 55% direct ownership in Warren Ranch as well as a 15%
indirect interest from its one third ownership in Jessica Star Partners, LLC. Jessica Star
Partners, LLC owns 45% of Warren Ranch and consists of the following members owning a one
third interest in the company: Great Western Land & Recreation, Inc., the Chairman of Great
Westerns Board of Directors and Brad Dill of BD Realty. The note receivable from Jessica Star
Partners, LLC bears interest at 10%, with principal and interest due on September 24, 2004.  (3)
    The Company has an 82.5% interest in Villa Maria, LLC, which is constructing a condominium
project in College Station, Texas called Woodland Court. The remaining 17.5% is owned by
minority investors, consisting of three members of the Companys Board of Directors. The
payable represents the balance due to these investors. Interest on this balance accrues at
10% per annum, with principal and interest due at the end of the project.  (4)
    During the year the Company paid BD Realty $64,811 in fees related to the development of
Mallard Crossing and Westchester Lakes, as well as rent on the Houston Office which is leased
from them.  (5)
    The Company sold land at the Willow Springs Ranch to an entity wholly owned by a member of
the Companys Board of Directors. The Company purchased the property back in exchange for a
note payable that the Company paid in full on October 1, 2004. The Company recognized no gain
or loss in relation to this transaction. NOTE E  INVESTMENT IN UNCONSOLIDATED COMPANY On September 19, 1997, Laguna Investments L.L.C. (Laguna Investments), a subsidiary of the
Company, acquired a 25.52% ownership in Laguna at Arrowhead Apartments L.L.C. (Laguna), which
owns an apartment complex in Phoenix, Arizona. On December 30, 2002, the Company sold a 7.1%
interest in Laguna Investments to Lafayette Financial Services, L.L.C. (Lafayette) for $35,500 in
partial payment of the note payable to Lafayette. Lafayette is 50% owned by the Chairman of the
Companys Board of Directors with the remaining ownership balance belonging to one outside
investor. On September 29, 2003, the Company sold an additional 6.37% interest in Laguna
Investments to Lafayette for $31,855, also in partial payment of the note payable to Lafayette. On
September 29, 2003, the Company also sold a 3.0% interest in Laguna Investments to Torok Partners,
LLC for $15,000 in exchange for Torok Partners minority interest in one of the Companys projects.
Torok Partners is controlled by the Chairman of the Companys Board of Directors. As a result of
these transactions, at September 30, 2004, the Company owns 83.53% of Laguna Investments, which
represents a 21.32% interest in Laguna. This investment in Laguna is accounted for using the equity method. Under the equity method, the
Companys investment balance approximates the Companys original cost adjusted for its equity
interest in the earnings and losses of Laguna since the date of acquisition. At September 30, 2004
the Companys investment balance in Laguna was $-0-. Under the terms of the Laguna at Arrowhead
Apartments L.L.C. operating agreement, Laguna Investments L.L.C. is subject to additional capital
calls in connection with its ownership interest in Laguna. Laguna Investments L.L.C. paid in
additional capital of $53,530, which was paid in fiscal 2003. As a result of this payment,
unrecognized equity losses from prior periods were recorded in the nine months ended September 30,
2003 to the extent of the capital call. Unrecognized losses from Laguna as of September 30, 2004
total $298,797. In September 2004, the Company was notified by the managers of the apartment complex that the
property was under contract to be sold. The propertys sales price is $14,550,000, which should
yield the Company approximately a $500,000 gain. The sale of the apartment complex is expected to
close in February 2005. Summarized unaudited financial information for Laguna is as follows: September 30,2004Current assets
    
    $
    13,486Noncurrent assets
    
    
    8,030,223Total assets
    
    $
    8,043,709Current liabilities
    
    $
    144,533Noncurrent liabilities
    
    
    9,159,972Members capital
    
    
    (1,260,796
    )$
    8,043,709
 F-10




---



##### Table of Contents



Nine monthsYear ended
    
    
    endedSeptember 30,
    
    
    September 30,2004
    
    
    2003Revenues
    
    $
    1,430,274
    
    
    $
    1,132,145Net loss
    
    
    (522,125
    )
    
    
    (368,907
    )
 NOTE F  OTHER ASSETS Other assets consist of the following as of September 30, 2004: Financing reserve receivable, net of allowance
of $31,286
    
    $
    177,286Debt origination fees
    
    
    47,829Prepaid expenses, advances and other
    
    
    74,227Deposits (1)
    
    
    265,844Project costs and other
    
    
    139,743$
    704,929
  (1)
    Effective July 8, 2003, in exchange for a $650,000 note payable, the Company acquired
land in Stafford, Texas for $125,000 and also agreed to become a general partner and
acquire a 34% interest in #22 Stafford Springs LTD (Stafford Springs) for $525,000.
Stafford Springs owns the Summer Park Duplexes, a 168-unit, HUD-financed, manufactured
housing duplex rental community in Stafford, Texas. The $525,000 paid for Stafford Spring
is recorded as a deposit pending receipt of final approval of this
transaction by HUD. The Company has recorded its 34% of
Stafford Springs losses since July 8, 2003. The Company recorded
losses of $88,570 in 2004 and $19,806 in 2003, which is included in
equity in losses of unconsolidated companies. As
of September 30, 2004, HUD approval had not yet been received. This note was paid off on
September 29, 2003 at a discount of $260,000. The Chairman of
the Companys board of directors also beneficially owns or
controls as a fiduciary 33% of Stafford Springs. Because the project
is for sale, we have also evaluated the carrying value of our
investment in Stafford Springs compared to the fair value of the
project and the amount of our investment that would likely be
recovered upon sale. We have concluded that our investment in
Stafford Springs exceeds the amount that we would likely  be able to
recover upon sale of the project, and have therefore written down the
carrying value of the deposit for Stafford Springs by $160,891.HUD approval of the transaction was received on
November 8, 2004. The Company is
currently evaluating Stafford Springs to determine if it will be consolidated under FIN
No. 46R, Consolidation of Variable Interest
Entities. If it is determined that consolidation is required it will be consolidated as of November 8, 2004.Summarized unaudited financial information for Stafford Springs is as follows: September 30,2004Current assets
    
    $
    116,077Restricted assets
    
    
    219,154Property and equipment
    
    
    9,777,370Other assets
    
    
    531,681$
    10,644,282Current liabilities
    
    $
    374,809Long term liabilities
    
    
    11,345,297Accumulated deficit
    
    
    (1,075,824
    )$
    10,644,282
 F-11




---



##### Table of Contents



Nine months endedSeptember 30,2004Net revenues
    
    $
    1,169,820Operating expenses
    
    
    (587,606
    )Interest
    
    
    (621,691
    )Depreciation and amortization
    
    
    (222,142
    )Net loss
    
    $
    (261,619
    )
 NOTE G  NOTES PAYABLE Notes payable consist of the following at September 30, 2004: Texas PropertiesNotes payable to various financial institutions bearing interest at 1% to 2%
over prime (4.75% at September 30, 2004). The interest payments are due monthly and
the loans have maturity dates through December, 2005.
Principal reductions are primarily made as developed
lots are sold - collateralized by Texas real estate
    
    $
    3,492,686Arizona Ranch PropertiesNote payable to financial institution, bearing interest at a fixed rate of 11%.
Interest payments are due monthly with principal
reductions made as lots are sold, remaining balance due March 2006,
- collateralized by Arizona real estate
    
    
    1,093,231Other Arizona PropertiesNotes payable to financial institution for construction of a condominium
complex, bearing interest at variable rates of 6.5% to 7.0%.
Interest payments are due monthly,
with principal reductions made as condominiums are sold, remaining
balance due April, 2005 - collateralized by Arizona real estate
    
    
    887,983Other
    
    
    74,264$
    5,548,164
 Maturities for notes payable as of September 30, 2004 follow: Year ended September 30,2005
    
    $
    3,264,1892006
    
    
    1,173,0942007
    
    
    1,100,2252008
    
    
    5,3012009
    
    
    5,355Thereafter
    
    
    $
    5,548,164
 NOTE H  SUBORDINATED DEBT The Companys operations have been partially financed with advances in prior years from Amortibanc
Investments, L.C. The advances are subordinate to the Companys bank financing and bear interest
at 4% to 10%. The interest accrued on these advances has typically been added to the subordinated
debt. Payments on the debt are made only when cash flow from a land sale, after payment of related
bank debt, exceeds the Companys operating cash requirements. This determination of operating
cash requirements is made by the Companys management, however under the terms of the bank loan the
Company obtained to finance the Woodland Court condominium project, the outstanding balance of the
subordinated debt may not be less than $3,000,000. On F-12




---



##### Table of Contents



October 31, 2003, the Company made a payment of $378,587. Also included in subordinated debt is a
note payable related to the purchase of land in College Station, Texas for the Woodland Court
condominium project. The note bears interest at 5.0% and is subordinate to the loans on this
property. Principal on the note is due on April 1, 2009, with interest payments due quarterly.
The balance due on this note, including accrued interest, is $70,875 and $0 on September 30, 2004
and September 30, 2003, respectively. The total advances and accrued interest due are $3,237,964
and $3,319,684 at September 30, 2004 and September 30, 2003, respectively. Subordinated debt of $293,106 was converted to equity in the Company by Amortibanc Investments,
L.C. effective September 30, 2003. NOTE I - OPERATING LEASES The Company leases office space, vehicles and equipment under operating leases. Future minimum
lease payments under these agreements are as follows: Year ending September 30,2005
    
    $
    63,0042006
    
    
    56,8512007
    
    
    58,1682008
    
    
    59,4852009
    
    
    47,080Thereafter
    
    
    
 Total rent expense was $64,408 and $90,673 for the year ended September 30, 2004 and the nine
months ended September 30, 2003, respectively. NOTE J - PROFIT-SHARING RETIREMENT PLAN The Company maintains a 401(k) profit-sharing plan for the benefits of its eligible employees. The
Company makes a matching contribution equal to 100% of each participants eligible contributions to
a maximum of 3% of each participants compensation. The Company can also make a discretionary
contribution determined annually by the Board of Directors. Contribution expense incurred by the
Company was $11,954 and $9,683 for the year ended September 30, 2004 and for the nine months ended
September 30, 2003, respectively. NOTE K - COMMITMENTS AND CONTINGENCIES The Company has sold notes receivable with repayment terms of up to 20 years, with recourse upon
nonpayment by the debtor, of $429,755 during the year ended September 30, 2004 and $383,968 during
the nine months ended September 30, 2003. The remaining balances due, with recourse, of all notes
sold are $1,455,827 as of September 30, 2004. Fifteen percent of the note sales proceeds are retained by the purchaser of the notes as a
nonpayment reserve and returned to the Company when the original land purchasers pay off the note
balances. The reserve balance is $208,572 at September 30, 2004 and is included in other assets,
net of an allowance established for recourse chargeback of $31,286. If the Company incurs a
chargeback, ownership of the original land sold will revert to the Company and can be resold to
help recover any losses incurred by the Company as a result of the chargeback. During the year
ended September 30, 2004, the Company received two chargebacks totaling $53,214. The Company did
not incur a loss in relation to the chargebacks. From time-to-time the Company is involved in litigation arising in the normal course of business.
Based on information currently available, management does not believe that the ultimate resolution
of any such matters will have a material adverse effect on the Companys financial condition,
results of operations or cash flow. The Company entered into a five-year employment agreement with its CEO during 2001. In the event
the Company consummates an acquisition (as defined in the agreement) during the terms of the
agreement, the contract provides for salary increases and issuance of F-13




---



##### Table of Contents



options to acquire a total of 600,000 common shares of the surviving corporation at a price not to
exceed the fair market value of such shares on the closing date of the acquisition. The agreement
also provides for severance payments upon termination in the amount of the total compensation for
the remainder of the contract terms and a consulting arrangement upon retirement of the president. NOTE L - PREFERRED STOCK The Company has authorized three series of preferred stock: Series A Cumulative Convertible
Preferred Stock (Series A Preferred), Series B Cumulative Convertible Preferred Stock (Series B
Preferred) and Series C Cumulative Convertible Preferred Stock (Series C Preferred). As of
September 30, 2004, there are 14,380 shares of Series A Preferred and 8,200 shares of Series C
Preferred issued and outstanding. As of September 30, 2004, 20,000 shares of Series B Preferred
have been issued and are held by a subsidiary of the Company. Series A Preferred Stock Effective June 28, 2002, the Company issued 14,380 shares of Series A Preferred with a liquidation
value of $719,000. The Series A Preferred is senior to the Series B Preferred and to the Series C
Preferred, and is not redeemable at a fixed or determinable price or on a fixed or determinable
date or upon the occurrence of any event that is not solely within the Companys control. It is
convertible by the holder at any time into shares of the Companys common stock at a price equal to
the average market price of the Companys common stock for the thirty business days immediately
preceding the conversion, and is redeemable by the Company at any time after one year from the date
of issuance. The Series A Preferred has a cumulative dividend, payable semi-annually at the
following rates: First year from the date of issuance
    
    0% per annumSecond year from the date of issuance
    
    2% per annumThird year from the date of issuance
    
    4% per annumFourth year from the date of issuance
    
    5% per annumFifth year from the date of issuance
    
    6% per annumThereafter
    
    7% per annum
 As the Series A Preferred has an increasing dividend rate, it was initially recorded at its fair
value at the date of its issuance by discounting the preferred stock using managements estimate of
the current market rate for dividend yields and comparing it to the actual dividend rate of the
stock. This resulted in a discount of $114,071, which is being amortized to additional paid in
capital over the period of increasing dividend rates of the stock. The balance of the Series A
Preferred (net of unamortized discount) was $689,694 and $660,409 at September 30, 2004 and
September 30, 2003, respectively. At September 30, 2004, dividends in arrears totaled $14,380, or
$1.00 per share. Series B Preferred Stock Effective June 1, 2004, the Company issued 20,000 shares of Series B Preferred with a liquidation
value of $1,000,000 to Houston Warren Ranch Partners, LLC, a majority-owned subsidiary of the
Company. The Series B Preferred was then pledged by Houston Warren Ranch Partners, LLC as
collateral on a loan. The Series B Preferred ranks junior to the Series A Preferred, but is senior
to the Series C Preferred, and is not redeemable at a fixed or determinable price or on a fixed or
determinable date or upon the occurrence of any event that is not solely within the Companys
control. It is convertible by the holder at any time into shares of the Companys common stock at
a price equal to the average market price of the Companys common stock for the thirty business
days immediately preceding the conversion, and is redeemable by the Company at any time after one
year from the date of issuance. The Series B Preferred has a cumulative dividend, payable
semi-annually at the following rates: First year from the date of issuance
    
    2.0% per annumSecond year from the date of issuance
    
    3.0% per annumThird year from the date of issuance
    
    3.5% per annumThereafter
    
    4.0% per annum
 As a majority-owned subsidiary of the Company, the accounts of Houston Warren Ranch Partners, LLC
are included in the accompanying consolidated financial statements. Accordingly, the shares and
dividends of Series B Preferred owned by Houston Warren Ranch Partners, LLC are not reported in the
accompanying consolidated balance sheet. Series C Preferred Stock F-14




---



##### Table of Contents



Effective March 31, 2004, the Company issued 8,200 shares of Series C Preferred with a liquidation
value of $820,000. The shares were issued in exchange for land with a fair market value of $678,581. The Series C Preferred ranks junior to the Series A Preferred and to the Series
B Preferred, and is not redeemable at a fixed or determinable price on a fixed or determinable date
or upon the occurrence of any event that is not solely within the Companys control. It is
convertible by the holder at any time into shares of the Companys common stock at the following
prices: First year from the date of issuance
    
    $1.00 per share of common stockSecond through fourth years from the date of issuance
    
    $2.00 per share of common stockThereafter
    
    $3.50 per share of common stock
 The Series C Preferred is redeemable by the Company at any time after five years from the date of
issuance. It has a cumulative dividend, payable semi-annually at the following rates: First year from the date of issuance
    
    1% per annumSecond year from the date of issuance
    
    2% per annumThird year from the date of issuance
    
    3% per annumFourth year from the date of issuance
    
    4% per annumFifth year from the date of issuance
    
    5% per annumThereafter
    
    7% per annum
 As the Series C Preferred has an increasing dividend rate, it was initially recorded at its fair
value at the date of its issuance by discounting the preferred stock using managements estimate of
the current market rate for dividend yields and comparing it to the actual dividend rate of the
stock. This resulted in a discount of $141,419, which is being amortized to additional paid-in
capital over the period of increasing dividend rate of the stock. The balance of the Series C
Preferred was $700,923 on September 30, 2004. There were no dividends in arrears at September 30,
2004 NOTE M - STOCK OPTION PLAN The Company has established a 2001 stock option plan and has reserved 3,500,000 shares to be issued
under the plan. All employees are eligible to participate in this plan and participants shall be
selected by an Administrative Committee consisting of not less than three members of the Companys
Board of Directors. The options generally vest over a period of 3 years, however certain options
granted to employees who have been with the Company for over five years vest immediately. The
options expire no more than 10 years from the date of grant. Upon termination of an option
holders employment, all unvested options will immediately terminate and vested options will
generally remain exercisable for a period of three months after date of termination (one year in
case of disability or death). The options issued in 2003 and 2004 were at exercise prices which
approximated the fair market value of the Companys common stock at the date of grant. Prior to
the time a public market existed for the Companys common stock, fair market value was determined
by the Board of Directors. Thereafter, fair value was determined by the most recent closing price
for the Companys common shares on the over-the-counter bulletin board on the date of grant. At
September 30, 2004 options for 1,210,500 shares of common stock were available for issuance under
the plan. Additional information with respect to stock option plan activity is as follows: Outstanding OptionsWeightedNumber
    
    
    Averageof
    
    
    ExerciseShares
    
    
    PriceJanuary 1, 2003
    
    
    1,843,750
    
    
    $
    0.18Grants
    
    
    200,000
    
    
    
    0.15September 30, 2003
    
    
    2,043,750
    
    
    
    0.18Grants
    
    
    950,000
    
    
    
    0.33Exercises
    
    
    (123,000
    )
    
    
    0.15Cancellations
    
    
    (581,250
    )
    
    
    0.20September 30, 2004
    
    
    2,289,500
    
    
    $
    0.24
 F-15




---



##### Table of Contents



Outstanding options expire at
various dates through July 2013. The weighted-average exercise
price of options which were exercisable at September 30, 2004
was $0.22. Options outstanding and options
exercisable at September 30, 2004 are as follows: Outstanding Options
    
    
    Exercisable OptionsWeighted
    
    
    
    
    
    
    WeightedNumber
    
    
    Average
    
    
    Number
    
    
    AverageExercise
    
    
    of
    
    
    Contractual
    
    
    of
    
    
    ContractualPrices
    
    
    Shares
    
    
    Life (in years)
    
    
    Shares
    
    
    Life (in years)$ 0.15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,327,000
    
    
    
    7.5
    
    
    
    1,110,334
    
    
    
    7.3$ 0.31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750,000
    
    
    
    9.9
    
    
    
    550,000
    
    
    
    9.9$ 0.35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    9.8
    
    
    
    $ 0.65
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    9.6
    
    
    
    $ 0.80
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,500
    
    
    
    5.1
    
    
    
    62,500
    
    
    
    5.12,289,500
    
    
    
    
    
    
    
    1,722,834
 NOTE N - INCOME TAXES Due to the net losses of
$1,153,048 for the year there were no deferred tax assets and/or liabilities
recorded for the year ended September 30, 2004. The net losses will be carried forward to be used
against future profits. The tax deferred assets and liabilities were as follows at September 30, 2004 and
September 30, 2003: September 30,
    
    
    September 30,2004
    
    
    2003Deferred tax assetsNet
operating loss carry forwards
    
    $
    297,105
    
    
    $
    Impairment
writedown
    
    
    149,076
    
    
    
    Allowance for doubtful accounts
    
    
    12,514
    
    
    
    11,043Expense attributable to related entity
    
    
    
    
    
    
    24,042458,695
    
    
    
    35,085Less valuation allowance
    
    
    (451,997
    )
    
    
    (15,950
    )6,698
    
    
    
    19,135Deferred tax liabilityDepreciation of property and equipment
    
    
    6,698
    
    
    
    7,056$
    
    
    
    $
    12,079
 The Company has a valuation
allowance against the deferred tax assets, as their realization is
dependent upon future taxable income. F-16




---



##### Table of Contents



Income tax expense is comprised of the following: Year
    
    
    Nine monthsended
    
    
    endedSeptember 30,
    
    
    September 30,2004
    
    
    2003Current
expense (benefit)
    
    $
    (12,079
    )
    
    $
    (858
    )Deferred tax expense (benefit)
    
    
    12,079
    
    
    
    858Income tax expense
    
    $
    
    
    
    $
    
 A reconciliation of income
taxes computed at the federal statutory rate of 34% to income tax
expense is as follows: Year
    
    
    Nine monthsended
    
    
    endedSeptember 30,
    
    
    September 30,2004
    
    
    2003Income tax
expense (benefit) at statutory rate
    
    $
    (392,036
    )
    
    $
    5,163Increase
(decrease) in deferred tax valuation allowance
    
    
    436,047
    
    
    
    (858
    )Difference due to progressive statutory rates
    
    
    
    
    
    
    (2,885
    )Other,
primarily state income taxes
    
    
    (44,011
    )
    
    
    (1,420
    )$
    
    
    
    $
    
 At September 30, 2004,
the Company had approximately $742,764 of net operating loss
carryforwards expiring through 2024. NOTE O  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) During the fourth quarter of
2004, the Company recorded impairment charges of $372,780 in
connection with the Companys evaluation of the carrying value of its long-lived assets. Consolidated quarterly financial information is as follows: Year
ended September 30, 2004Quarter ended
    
    Dec 31
    
    
    Mar 31
    
    
    Jun 30
    
    
    Sep 30Revenue
    
    $
    288,876
    
    
    $
    520,747
    
    
    $
    628,153
    
    
    $
    4,980,576Operating income (loss)
    
    
    (270,590
    )
    
    
    (101,469
    )
    
    
    (89,668
    )
    
    
    (192,162
    )Net earnings (loss)
    
    
    (372,155
    )
    
    
    (212,640
    )
    
    
    (241,477
    )
    
    
    (326,776
    )Net earnings (loss) per common
and common equivalent share
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.02
    )
 Nine months ended September 30, 2003Quarter ended
    
    Mar 31
    
    
    Jun 30
    
    
    Sep 30Revenue
    
    $
    694,590
    
    
    $
    879,587
    
    
    $
    688,879Operating income (loss)
    
    
    (197,111
    )
    
    
    121,421
    
    
    
    43,485Net earnings (loss)
    
    
    (403,007
    )
    
    
    76,553
    
    
    
    341,639Net earnings (loss) per common
and common equivalent share
    
    $
    (0.02
    )
    
    $
    
    
    
    $
    0.02
 NOTE P  RELATED PARTY TRANSACTIONS Prior to March 1, 2003, the Company owned an 85% interest in Willow Springs Ranch, LLC, with
several minority investors owning the remaining 15%. The minority investors included, among
others, Lafayette Financial Services, L.L.C., a company that is 50% owned by the Chairman of the
Companys board of directors, (Lafayette) and another partnership controlled by the Chairman. On
March 1, 2003, the Company bought out the minority investors interest in exchange for 640 acres of
Arizona ranch land and cancellation of a $134,962 payable. F-17




---



##### Table of Contents



Effective July 8, 2003, in exchange for a $650,000 note payable, the Company acquired land in
Stafford, Texas for $125,000 and also agreed to become a general partner and acquire a 34% interest
in #22 Stafford Springs LTD (Stafford Springs) for $525,000. Stafford Springs owns the Summer
Park Duplexes, a 168-unit, HUD-financed, manufactured housing duplex rental community in Stafford,
Texas. The $525,000 paid for Stafford Spring is recorded as a deposit pending receipt of final
approval of this transaction by HUD (see Note F). As of September 30, 2004, HUD approval had not
yet been received. This note was paid off on September 29, 2003 at a discount of $260,000. The
Chairman of the Companys board of directors also owns 33% of Stafford Springs. On September 19, 1997, Laguna Investments L.L.C. (Laguna Investments), a subsidiary of the
Company, acquired a 25.52% ownership in Laguna at Arrowhead Apartments L.L.C. (Laguna), which
owns an apartment complex in Phoenix, Arizona. On December 30, 2002, the Company sold a 7.1%
interest in Laguna Investments to Lafayette for $35,500 in partial payment of the note payable to
Lafayette. Lafayette is 50% owned by the Chairman of the Companys Board of Directors. On
September 29, 2003, the Company sold an additional 6.37% interest in Laguna Investments to
Lafayette for $31,855, also in partial payment of the note payable to Lafayette. On September 29,
2003, the Company also sold a 3.0% interest in Laguna Investments to Torok Partners, LLC for
$15,000 in exchange for Torok Partners minority interest in one of the Companys projects. Torok
Partners is controlled by the Chairman of the Companys Board of Directors. As a result of these
transactions, at September 30, 2004 and September 30, 2003, the Company owns 83.53% of Laguna
Investments, which represents a 21.32% interest in Laguna (see Note E). In December 2003, three members of the Companys Board of Directors invested a total of $150,000 in
exchange for a subordinated note payable from Villa Maria, LLC and a 17.5% minority interest in
Villa Maria, LLC. The Company currently owns the remaining 82.5% of Villa Maria, LLC together with
a subordinated payable. Villa Maria, LLC is constructing Woodland Court, a planned 43-unit
condominium project located in College Station, Texas. Interest on the $150,000 balance accrues at
10% per annum, with principal and interest due at the end of the project (see Note D). The Company
believes that the terms of the subordinated note payable are at least as good as it could have
obtained through arms-length negotiations. NOTE Q  CHANGE IN FISCAL YEAR On June 4, 2003 the Company changed its year-end from December 31 to September 30. As a result of
this change, fiscal 2003 was a short year, which ended on September 30, 2003 and consisted of only
nine months. Comparable consolidated information regarding the Companys audited results of
operations and cash flows for the year ended September 30, 2004 and unaudited results of operations
and cash flows for the year ended September 30, 2003 is as follows: F-18




---



##### Table of Contents



Year ended September 30,2004
    
    
    2003UnauditedLand and lot sales
    
    $
    6,418,352
    
    
    $
    3,500,259Cost of land and lot sales
    
    
    5,014,922
    
    
    
    1,673,176Gross profit on sales
    
    
    1,403,430
    
    
    
    1,827,083Operating, selling, general and
administrative expense
    
    
    1,684,539
    
    
    
    1,682,324Loss on
impairment of long-lived assets
    
    
    372,780
    
    
    
    Income (loss) from operations
    
    
    (653,889
    )
    
    
    144,759Other income (expense)Interest expense
    
    
    (482,975
    )
    
    
    (499,257
    )Interest income
    
    
    7,399
    
    
    
    125,615Equity in losses of unconsolidated companies
    
    
    (88,570
    )
    
    
    (73,336
    )Gain on settlement of note payable
    
    
    
    
    
    
    260,000Settlement of quepasa.com claim
    
    
    
    
    
    
    405,750Other
    
    
    68,262
    
    
    
    230,358(495,884
    )
    
    
    449,130Earnings (loss) before minority interest
    
    
    (1,149,773
    )
    
    
    593,889Minority interest
    
    
    (3,275
    )
    
    
    (1,000
    )Net earnings (loss)
    
    $
    (1,153,048
    )
    
    $
    592,889Net earnings (loss) per common and common
equivalent shareBasic and diluted
    
    $
    (0.06
    )
    
    $
    0.03Weighted average common and common
equivalent shares outstandingBasic and diluted
    
    
    20,886,002
    
    
    
    20,781,965
 F-19




---



##### Table of Contents



Year ended September 30,2004
    
    
    2003UnauditedCash flows
provided by (used in) operating activitiesNet earnings (loss)
    
    $
    (1,153,048
    )
    
    $
    592,889Adjustments to reconcile net earnings (loss) to net cash provided
by (used in ) operating activities
    
    
    738,396
    
    
    
    1,769,417Changes in operating assets and liabilities
    
    
    (152,310
    )
    
    
    (1,062,860
    )Net cash provided by (used in) operating activities
    
    
    (566,962
    )
    
    
    1,299,446Cash flows provided by (used in) investing activitiesCollection of receivables from related entities
    
    
    34,213
    
    
    
    38,792Investment in unconsolidated company
    
    
    
    
    
    
    (53,530
    )Purchases of property and equipment
    
    
    (53,577
    )
    
    
    (47,977
    )Proceeds from sale of property and equipment
    
    
    40,000
    
    
    
    11,577Net cash provided by (used in) investing activities
    
    
    20,636
    
    
    
    (51,138
    )Cash flows provided by (used in) financing activitiesIssuance of notes payable
    
    
    5,192,501
    
    
    
    1,464,031Payments on notes payable
    
    
    (3,985,135
    )
    
    
    (1,956,898
    )Issuance of note payable to related entities
    
    
    150,000
    
    
    
    Increase (decrease) in payable to related entity
    
    
    125,783
    
    
    
    (22,162
    )Decrease in subordinated debt
    
    
    (378,377
    )
    
    
    (133,253
    )Payment of dividends on preferred stock
    
    
    (2,050
    )
    
    
    Proceeds from stock options excercised
    
    
    18,450
    
    
    
    Net cash provided by (used in) financing activities
    
    
    1,121,172
    
    
    
    (648,282
    )Net increase in cash and cash equivalents
    
    
    574,846
    
    
    
    600,026Cash and cash equivalents at beginning of period
    
    
    1,100,844
    
    
    
    500,818Cash and cash equivalents at end of period
    
    $
    1,675,690
    
    
    $
    1,100,844
 NOTE R  RECENT ACCOUNTING PRONOUNCEMENTS In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting
for Stock-Based Compensation  Transition and Disclosure  An Amendment of FASB Statement 123
(SFAS 123). For entities that change their accounting for stock-based compensation from the
intrinsic method to the fair value method under SFAS 123, the fair value method is to be applied
prospectively to those awards granted after the beginning of the period of adoption (prospective
method). The amendment permits two additional transition methods for adoption of the fair value
method. In addition to the prospective method, the entity can choose to either (i) restate all
periods presented (retroactive restatement method) or (ii) recognize compensation cost from the
beginning of the fiscal year of adoption as if the fair value method had been used to account for
awards (modified prospective method). For fiscal years beginning December 15, 2003, the
prospective method will no longer be allowed. The Company currently accounts for its stock-based
compensation using the intrinsic value method as proscribed by Accounting Principals Board Option
No. 25, Accounting for Stock issued to Employees and plans on continuing using this method to
account for stock options, therefore, it does not intend to adopt the transition requirements as
specified in SFAS 148. The Company has adopted the new disclosure requirement of SFAS 148 in these
financial statements. In
December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123(R), Share Based Payment
(SFAS 123(R)). This statement requires companies to
recognize the compensation cost related to share-based payment
transactions, including stock options, in their financial statements
based on the fair market value of the equity or liability instruments
issued. The effective date of SFAS 123(R) will be the interim
reporting period ended March 31, 2006. See Note A(11) for
pro forma information on the effect on net earnings and earnings per
share if the Company had applied the fair value recognition
provisions of SFAS 123(R) as of September 30, 2004. The FASB issued Interpretation (FIN) No. 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others, in November 2002 and FIN
No. 46, Consolidations of Variable Interest Entities, in January 2003. FIN No. 45 is applicable
on a prospective basis for initial recognition and measurement provisions to guarantees issued
after December 2003; however, disclosure requirements are effective immediately. FIN No. 45
requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value
of the obligations undertaken in issuing the guarantee and expands the required disclosures to be
made by the guarantor about its obligation under certain guarantees that it has issued. The
adoption of FIN No. 45 did not have a material impact on the Companys financial position or
results of operations. FIN No. 46 requires that a company that controls another entity through
interest other than voting interest should consolidate such controlled entity in all cases for
interim periods beginning after June 15, 2003. The adoption of FIN No. 46 did not have a material
impact on its financial position F-20




---



##### Table of Contents



or results of operations. NOTE S  SUBSEQUENT EVENT On November 8, 2004, HUD approved the Stafford Springs transaction. (See Note F and Note P.) NOTE T  LOSS ON
IMPAIRMENT OF LONG-LIVED ASSETS The Company has experienced various construction delays and substantial changes to the building
plans and specifications during the development of Phase I of our Glendale Springs Condominiums.
These delays and plan changes are principally the result of changes required by the city of
Glendale after the commencement of construction, notwithstanding the citys prior approval of the
plans and specifications. We believe substantially all the changes required by the city have been
completed, and that further delays and unexpected cost increases in Phase I and Phase II are
unlikely. Because of these cost issues the Company has examined the carrying value of Glendale Springs
compared to its fair value. As a result of this examination the Companys management has
concluded, in accordance with the applicable accounting literature, that the carrying value of the
project exceeds its fair value by $211,799. Therefore, the carrying value of Glendale Springs has
been reduced by that amount. The Company has an investment in #22 Stafford Springs LTD (Stafford Springs), which is
recorded in other assets as a deposit pending approval of our investment
by HUD. Stafford Springs owns an apartment project in Stafford, Texas called
Summer Park. Because the project is for sale, the Company
has also evaluated the carrying value of the Stafford Springs investment compared
to the fair value of the project and the amount of that
investment that would likely be recovered upon a sale of the project. The Companys
management has concluded that the investment in Stafford Springs exceeds the amount
that would likely be recoverable upon sale of the project, and has therefore reduced the
carrying value of the investment in Stafford Springs by $160,891. F-21




---



##### Table of Contents



2004 10-KSB EXHIBIT INDEX ExhibitNo.10.1
    
    Articles of Incorporation of First National Realty Associates,
Inc. (Incorporated by reference to Exhibit 8 of Registration
Statement on Form S-18 (No. 33-30679-NY))10.2
    
    Agreement of Merger of First National Realty Associates, Inc.
into Emphatic Mergers (Incorporated by reference to Exhibit 14
of Registration Statement on Form S-18 (No. 33-30679- NY))10.3
    
    Agreement and Plan of Merger between 1st Realty
Investments, Inc. and Great Western Land and Recreation, Inc.
dated as of July 23, 2002 (Incorporated by reference to
Exhibit 1 of Form 8-K filed with the Commission on July 29,
2002)10.4
    
    Certificate of Merger of Great Western Land and Recreation,
Inc., a Delaware Corporation with and into 1st
Realty Investments, Inc., a Nevada Corporation (Incorporated
by reference to Exhibit 10.4 of Form 10-KSB filed with the
Commission on December 29, 2003)10.5
    
    Great Western Land and Recreation, Inc. Amended and Restated
By-Laws (Incorporated by reference to Exhibit 10.5 of Form
10-KSB filed with the Commission on December 29, 2003)10.6
    
    Certificate of Designations of Series A Cumulative Convertible
Preferred Stock of 1st Realty Investments, Inc.
(Incorporated by reference to Appendix B of Schedule 14C of
1st Realty Investments, Inc. filed with the
Commission on January 27, 2003)10.7
    
    Investment Agreement dated June 29, 2002 by and between
Amortibanc Investments, L.C. and Great Western Land and
Recreation, Inc. (Incorporated by reference to Exhibit 10.7 of
Form 10-KSB filed with the Commission on December 29, 2003)10.8
    
    Great Western Land and Recreation, Inc. Stock Option Plan
(Incorporated by reference to Appendix C of Schedule 14C of
1st Realty Investments, Inc. filed with the
Commission on January 27, 2003)10.9
    
    Form of Great Western Land and Recreation, Inc. Stock Option
Agreement (Incorporated by reference to Exhibit 4.02 of Form
S-4 of Great Western Land and Recreation, Inc. filed with the
Commission on October 16, 2001)10.10
    
    Agreement of Sale of Partnership Interest, dated July 8, 2003
between Great Western Land and Recreation, Inc. and Arete Real
Estate and Development Co. (Incorporated by reference to
Exhibit 10.10 of Form 10-KSB filed with the Commission on
December 29, 2003)10.11
    
    Sale and Subscription Agreement of Membership Interests in
Laguna Investments L.L.C. dated September 29, 2003 between
Great Western Land and Recreation, Inc. and Torok Partners,
L.L.C. (Incorporated by reference to Exhibit 10.11 of Form
10-KSB filed with the Commission on December 29, 2003)10.12
    
    Sale and Subscription Agreement of Membership Interests in
Laguna Investments L.L.C. dated September 29, 2003 between
Great Western Land and Recreation, Inc. and Lafayette
Financial Services, L.L.C. (Incorporated by reference to
Exhibit 10.12 of Form 10-KSB filed with the Commission on
December 29, 2003)10.13
    
    Employment Agreement between Great Western land and
Recreation, Inc. and Jay N. Torok dated September 1, 2001
(Incorporated by reference to Exhibit 10.01 of Form S-4/A of
Great Western Land and Recreation, Inc. filed with the Commission on December 11, 2001)10.14
    
    Contribution Agreement by and between Great Western Land and
Recreation, Inc., Amortibanc Management, L.C., Amortibanc
Investments, L.C., and GWLR, LLC dated as of August 6, 2001
(Incorporated by reference to Exhibit 10.02 of Form S-4/A of
Great Western
 E-1




---



##### Table of Contents



ExhibitNo.Land and Recreation, Inc. filed with the Commission on December 11, 2001)10.15
    
    Promissory Note dated January 3, 2002, by and between GWLR
Wagon Bow Ranch, LLC and Bank Midwest (Incorporated by
reference to Exhibit 10.15 of Form 10-KSB filed with the
Commission on December 29, 2003)10.16
    
    Secured Promissory Note dated September 25, 2002, between
National Bank of Arizona and Glendale Condominiums, LLC
(Incorporated by reference to Exhibit 10.16 of Form 10-KSB
filed with the Commission on December 29, 2003)10.17
    
    Promissory Note dated September 25, 2002, between National
Bank of Arizona and Glendale Condominiums, LLC (Incorporated
by reference to Exhibit 10.17 of Form 10-KSB filed with the
Commission on December 29, 2003)10.18
    
    Loan Agreement dated June 23, 2000, by and between Willow
Spring Ranch, LLC and Bank Midwest (Incorporated by reference
to Exhibit 10.21 of Form S-4/A of Great Western Land and
Recreation, Inc. filed with the Commission on December 11,
2001)10.19
    
    Great Western Land and Recreation, Inc. Code of Business
Ethics (Incorporated by reference to Exhibit 10.19 of Form
10-KSB filed with the Commission on December 29, 2003)11
    
    Statement RE: Computation of per Share Earnings (Loss)21
    
    List of Subsidiaries31.1
    
    Certification of Jay N. Torok pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 200231.2
    
    Certification of Jay N. Torok pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 200232.1
    
    Certification of Jay N. Torok pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2
    
    Certification of Jay N. Torok pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 200299.1
    
    Risk Factors
 E-2