10-K 1 form10k.htm ANNUAL REPORT FOR THE PERIOD ENDED DECEMBER 31, 2004 Filed by Automated Filing Services Inc. (604) 609-0244 - Canadian Rockport Homes International, Inc. - Form 10K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to___________

Commission file number 333-62786

Canadian Rockport Homes International, Inc.
(Exact name of registrant as specified in its charter)

700 West Pender Street, Suite 507
Vancouver, B.C. Canada V6C 1G8
(604) 669-1081
(Address of principal executive office & telephone number)

Delaware 98-0354610
(State of incorporation) (IRS Employer Identification #)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $.001 per share

¨ Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.

¨ Check if disclosure of delinquent filers in response to Item 405 of Regulation SK is not contained herein, and will not 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-K or any amendment to this Form 10-K.

The common stock of Canadian Rockport Homes International, Inc. is not currently listed on any securities exchange, or quoted on any quotation service. There is currently no established public market for the common stock of Canadian Rockport Homes International, Inc.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

At August 19, 2005 the aggregate market value of the issued and outstanding common shares held by non-affiliates of the registrant, as computed based upon the price at which the common equity was sold, was $40,305,890. The number of shares outstanding of the registrant's common stock as of August 19, 2005 was 16,203,897.

Documents Incorporated by Reference
No (1) annual report to security holders; (2) proxy or information statement; or (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933; are incorporated by reference into any part of this Form 10-K.

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Canadian Rockport Homes International, Inc.

Table of Contents

Part I

Business 3
Properties 4
Legal Proceedings 4
Submission of Matters to a Vote of Security Holders 4
Part II
Market for Common Equity and Related Stockholder Matters 5
Selected Financial Data 8
Management's Discussion and Analysis of Financial Condition and Operations 9
Quantitative and Qualitative Disclosures About Market Risk 13
Financial Statements and Supplementary Data 14
Changes In and Disagreements With Accountants 15
Controls and Procedures 15
Part III
Directors and Executive Officers of the Registrant 15
Compliance with Section 16(a) of the Exchange Act 17
Executive Compensation 17
Security Ownership of Certain Beneficial Owners and Management 18
Certain Relationships and Related Transactions 20
Principal Accounting Fees and Services 20
Part IV
   
Exhibits, Financial Statement Schedules, and Reports on Form 8-K 21
   
   
Signatures 22

II

Canadian Rockport Homes International, Inc.

Business

Canadian Rockport Homes International, Inc. ("the "Company") is a Delaware corporation, which was formed on January 10, 1996 under the name Lenz Products, Inc.

In February 2001, the Company acquired all of the outstanding shares of Canadian Rockport Homes Ltd. ("CRH"), a British Columbia corporation, in exchange for 11,300,000 shares of common stock. Shortly thereafter, the corporate name was changed from Lenz Products, Inc. to Canadian Rockport Homes International, Inc. Canadian Rockport Homes International, Inc. has not generated any revenue to date and continues as a development stage corporation.

Also in February 2001, the Company acquired all of the intellectual properties owned by TWiC Housing Corporation, relating to the TWiC system for the construction of houses. In exchange for the assets acquired, the Company issued 2,000,000 shares of its common stock. TWiC is wholly owned by a shareholder and former director of the Company. The Company valued the assets purchased, including patents pertaining to the TWiC System at an estimated historical cost of $10,057.

Canadian Rockport Homes International, Inc. (the Company), during fiscal year 2001 formed a subsidiary in Chile under the name Rockport Homes Chile Limitada ("RCHL"). Canadian Rockport Homes International, Inc. is a 1% owner of RHCL, with the remaining 99% owned by CHR. The Chilean subsidiary was formed to enable the Company to conduct operations in Chile. In 2003, all of its assets of RCHL were transferred to Rockport Trading, S.A ("RT"). RCHL was dissolved in 2005 and through the dissolution, all of the subsidiary's obligations including its liability on the rental of its former plant located in Quilicura totaling $283,985 were extinguished...

During 2002, the Company acquired certain assets of 598546 BC LTD, which included 100% of the outstanding shares of Rockport Trading S.A., a Chilean corporation, formerly Maderas Doradas Canadienses, S.A. ("RT"). At the time of its acquisition, RT had no operations. During the year, the Company sold all of the assets of RT except for the acquired building and land.

On March 24, 2004 the Company formed CRH of Nevada, Inc., a Nevada corporation ("CRHN"). CRHN was formed for the purpose of undergoing a migratory merger by which the company would move from the State of Delaware to the State of Nevada. The Company anticipates that the migratory merger will be completed in 2005.

Canadian Rockport Homes International, Inc., through its subsidiaries, intends to manufacture and sell modular housing in various third-world and developing countries primarily in South America, Asia, Mexico, Africa and Eastern Europe. Currently the Company has an agreement with TWiC to construct a manufacturing facility in Chile in which the Company plans to manufacture modular housing. The Company, through its purchase of R.T., is currently building a plant on its land located in Lampa, Chile.

Description of Business.

Canadian Rockport Homes International, Inc. is in the development stage with plans to manufacture and construct low cost concrete modular housing in developing nations and third-world countries. The Company's business is based upon its exclusive ownership of the TWiC technology which has been developed in Canada over the past thirty years by TWiC Housing Corp. Canadian Rockport Homes International, Inc. is in the process of constructing its manufacturing facility in Lampa, Chile where initial operations will commence. It is the Company's intent to complete the plant by December 31, 2005, barring financial constraints. The estimated cost to complete the plant is $350,000. The Company is in the process of raising the funds necessary to fund the completion of the plant. However, if the amounts raised are deficient, then Management plans to finance the remaining balance needed using the property as collateral against the amount financed. In 2005, the Company entered into an agreement to acquire 3.3998 hectares of land located in the Valle Grande Housing Project. a new housing development near Santiago, Chile, for the purpose of building houses to sell to the general public. The actual price paid for the land will be determined on the date of close, which will be when the seller completes the construction of the property's infrastructure. The Company expects the final purchase price to be approximately $560,000. The Company has the option to acquire additional land after this transaction is consummated.

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Canadian Rockport Homes International, Inc.

The TWiC technology meets Canadian and U.S. construction standards, using an inexpensive, rapid, and consistent method of construction and application. The construction technology is applicable to low, middle, and high-end housing, as well as single homes, duplexes, row houses, multi-story buildings, hotels, schools and warehouses. However, initial product offerings will focus only on affordable housing and there is no assurance that the Company will create other residential or commercial product lines in the future.

Patents

The TWiC technology bears the United States Patent No. 5,997,792 and was filed on December 7, 1999. At present, the patent is effective and there are no pending challenges. However, United States patents are not recognized in many countries. The Company also has a patent on its technology in Chile. The Company has decided not to pursue its patent application with China at the present time.

Operations in Chile

Canadian Rockport Homes International, Inc. intends to conduct initial operations in Chile, through RT. RT is currently constructing a facility on its land located in Lampa, Chile which will house the manufacturing of the TWiC modular units. Canadian Rockport Homes International has also made initial contact with various potential Chilean customers and currently has 20 Chilean employees working on the construction of the plant and three employees working in the Company's Chilean office. Due to treaties between Canada and Chile, there is "free trade" between the two countries. There is currently no taxation on any profits which are invested in Chile or in RT. There is a 15% flat tax on profits moved from Chile into Canada, but due to a treaty between Canada and Chile, there is no double taxation on any repatriated profits.

Patents and Proprietary Rights

The company is relying heavily upon its use of the TWiC technology successfully to carry out its plan of operations. Thus, the company has purchased TWiC technology which is patented and is taking reasonable steps to protect the technology from being copied by any third party. The U.S. Patent number is 5,997,792 and was filed on December 7, 1999.

Employees

The Company currently has nine (9) employees working in its Canadian office and 23 employees working in Chile as discussed above. Further, the Company's President is providing services to the Company and is being paid through his wholly owned Corporation. The Company anticipates needing to recruit, train and manage local staff and other personnel in each third world country into which Canadian Rockport Homes International, Inc. expands, on an as needed basis.

Properties

The Company currently leases office space at 700 West Pender Street, Suites 507, Vancouver, B.C., Canada V6C 1G8. The company, through RT owns 2.5 acres of land located in Lampa, Chile where it its now building its manufacturing plant which will be utilized as offices and plant facilities in its Chilean operations. The plant and adjacent pad on which a gantry sits will utilize 50% of the acreage. Currently additional space in Chile is leased on a month-to-month basis from which its Chilean operations are currently housed.

Legal Proceedings

Canadian Rockport Homes International, Inc. has never been in bankruptcy, receivership or any similar legal proceeding, and is not subject to any pending legal proceedings. Canadian Rockport Homes International, Inc. is not aware of any threatened legal proceedings. The foregoing is also true with respect to each officer, director and control shareholder as well as any entity owned by any officer, director and control shareholder, over the last five years.

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Canadian Rockport Homes International, Inc.

Rockport Homes Ltd. Is involved in two lawsuits. The first relates to past due legal fees due a Canadian law firm. The Company is disputing the amounts being charged and the lawsuit is on going. In addition, Canadian Rockport Homes Ltd. is also being sued for alleged fees due a brokerage firm for duty paid in the transportation of Company assets into Chile. The Company disputes the claim and this lawsuit is also on-going.

Submission of Matters to a Vote of Security Holders

None during the year ended December 31, 2004.

Market for Common Equity and Related Stockholder Matters

Market Information

The common stock of Canadian Rockport Homes International, Inc. is not currently listed on any securities exchange, or quoted on any quotation service. There is currently no established public market for the common stock of Canadian Rockport Homes International, Inc.

Holders

Canadian Rockport Homes International, Inc. has approximately 15,913,484 shares of common stock outstanding as of December 31, 2004. Canadian Rockport Homes International, Inc. has approximately 2,589 shareholders. Canadian Rockport Homes International, Inc. has outstanding at December 31, 2004 stock options for 2,350,000 shares.

A schedule of options outstanding as of December 31, 2004 is as follows:

Exercise Options
Price Outstanding Terms
     
$2.00 850,000 (a) Exercisable 8 months after Company's common stock begins publicly trading
 
$2.00 1,300,000 (b) Currently exercisable through October 31, 2005
     
$5.00 200,000 (c) Exercisable 8 months after Company's common stock begins publicly trading
 
2,350,000

a) Of the 850,000 options outstanding, the following officers and related parties hold the following:

  William Malone 100,000 option
  Ryan Malone 100,000 options
  Nelson Riis 100,000 options
  Harry Gordon 50,000 options

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Canadian Rockport Homes International, Inc.

b) Of the 1,300,000 options outstanding, the following officers and related parties hold the following:

  William Malone 200,000 option
  Ryan Malone 200,000 options
  Nelson Riis 200,000 options
  Harry Gordon 100,000 options

c) Of the 200,000 options outstanding, the following officers and related parties hold the following:

  Ken Olsen 150,000 options

Dividend Policy

Canadian Rockport Homes International, Inc. has never paid dividends on its common stock and does not anticipate paying any dividends in the foreseeable future. Management anticipates that earnings will be retained to fund the company's working capital needs and expansion of the business.

Securities authorized for issuance under equity compensation plan

  Number of securities Weighted-average Number of securities remaining
  to be issued upon exercise price of available for future issuance
  exercise of outstanding options, under equity compensation
  outstanding options, warrants and rights plans (excluding securities
  warrants and rights reflected in column (a))
  (a) (b) (c)

Plan Category      
Equity
Compensation plans
approved by security
holders -        - -
Equity
Compensation plans
Not approved by
Security holders 2,350,000 $2.26 -

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Canadian Rockport Homes International, Inc.

Selected Financial Data

Canadian Rockport Homes International, Inc. is a development stage company and has not yet commenced operations in connection with the manufacture and construction of modular concrete housing units in Chile. The company has been involved in preparing for the commencement of operations and the raising of funds for the commencement of operations, including preparation and build-out of a manufacturing facility in Lampa, Chile where initial operations may commence. The provided selected financial data is derived from the consolidated financial statements of Canadian Rockport Homes International, Inc. and its predecessors for the periods shown.

From Inception
(March 27, 1997)
to
December 31, December 31,
2001 2002 2003 2004 2004
Income $ - $ - $ - $ - $ -
Operating Expenses (1,479,268 ) (2,042,819 ) (3,317,394 ) (2,444,643 ) (9,644,499 )
Other income (expenses) 3,621 (27,686 ) (28,917 ) (11,903 ) (64,828 )
             Net loss (1,475,647 ) (2,070,505 ) (3,346,311 ) (2,456,546 ) (9,709,327 )
           
Basic Loss Per Share $ (.10 ) $ (.14 ) $ (0.22 ) $ (0.16 )
           
Assets
         Current Assets
             Cash $ 223,823 $ 181,331 $ 143,718 $ 31,358
             Receivables - - 5,736 -
             Prepaid Expenses 500 500 1,792 1,652
             Property and Equipment - Net 121,721 509,424 485,371 537,691
             Construction in Progress 486,667 692,479 937,645 1,142,038
          Other Assets
             Deferred lease expense 59,469 11,894 - -
             Patent and intellectual
                   properties 10,981 10,341 9,758 9,116
           
           
             Total Assets $ 903,161 $  1,405,969 $ 1,584,020 $ 1,721,855
           
           
             Long-Term Debt $ - $ 1,970 $ 7,697 $ 4,909

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Canadian Rockport Homes International, Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

For the fiscal year ending December 31, 2004 and 2003:

 

During the fiscal year ending December 31, 2004, the company was still in the construction phase of its plant in Lampa, Chile and has not generated any revenue since its inception. For 2004, the Company incurred a net operating loss of $2,456,546 as compared to its net operating loss in 2003 of $3,346,311. The $889,765 net decrease in 2004's net operating loss compared to 2003's net operating loss primarily relates to the decrease in the amount charged to operations for compensation of the fair value of options granted to employees and consultants of $1,526,685 ($756,189 in 2004 compared to $2,282,874 in 2003) and an increase in general and administrative expenses of $655,483 ($1,690,003 in 2004 compared to $1,034,520 in 2003).

The increase in 2004 general and administrative expenses over 2003 expenses pertains to increased legal and accounting expenses of $44,564 ($116,905 in 2004 as compared to $72,341 in 2003), decreased advertising of $26,844 ($11,885 in 2004 as compared to $38,729 in 2003) decreased rent of $(5,441) ($98,081 in 2004 as compared to $103,522 in 2003), decreased travel of $13,873 ($76,241 in 2004 as compared to $90,114 in 2003), an increase in salaries, benefits and other officer compensation of $800,726 ($1,178,839 in 2004 as compared to $378,113 in 2003), and decreased consulting fees of $(79,093) ($46,560 in 2004 as compared to $125,653 in 2003).

During 2003 and throughout 2004, the Company's president and other employees provided services to the Company through their wholly owned corporations. Further, of the $1,178,839 of compensation expense for 2004, only $560,279 have actually been paid. The remaining $618,560 has been accrued pursuant to the terms of the respective employment and other related agreements.. The increase in legal and accounting fees incurred in 2004 compared to 2003 relate to the costs associated with the Company's lawsuits and increased business activity. Of the general and administrative expenses amounting to $1,690,003 incurred in 2004, $164,425 relates to the Company's Chilean operations and $1,525,578 was incurred in the Company's Canadian operations. Of the general and administrative expenses amounting to $1,034,520 incurred in 2003, $233,785 relates to the Company's Chilean operations and $800,735 was incurred in the Company's Canadian operations The Company incurred interest expense of $11,943 during 2004 as compared to $29,102 in 2003. Of the $29,102 incurred in 2003, $12,500 was imputed on the common shares of the Company's common stock which was issued to the borrowers as part of the compensation.

Chilean Operations

 
During 2004, the rent on an apartment maintained by the Company amounted to $10,817 in 2004 as compared to $12,528 incurred during 2003. Compensation and related expenses incurred during 2004 amounted to $93,000 as compared to $107,069, which was incurred during 2003. During 2004 the Company incurred $9,678 in legal and accounting fees as compared to $10,284 incurred during 2003. Depreciation expense on the Company's Chilean assets during 2004 amounted to $3,885 as compared to $11,881 incurred during 2003.

Canadian Operations

 
Salaries, other compensation, and related costs for 2004 amounted to $1,085,839 as compared to $283,126 during 2003. Of the $1,085,839. $467,279 was paid during 2004 and the balance of $618,560 was accrued. Rent expense for 2004 amounted to $87,264 as compared to $79,100 for 2003. Advertising and promotion for 2004 amounted to $11,885 as compared to $35,935 for 2003. Legal and accounting fees charged to operations 2004 amounted to

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Canadian Rockport Homes International, Inc.

 
$107,227 as compared to $61,255 for 2003. Depreciation expense for 2004 amounted to $39,235 as compared to $23,881 for 2003. Telephone expense for 2004 amounted to $20,300 as compared to $18,679 for 2003. Office expense for 2004 amounted to $17,411 as compared to $16,651 for 2003.

For the fiscal year ending December 31, 2003 and 2002:

 

During the fiscal year ending December 31, 2003, the company was still in the construction phase of its plant in Lampa, Chile and has not generated any revenue since its inception. For 2003, the Company incurred a net operating loss of $3,346,311 as compared to its net operating loss in 2002 of $2,070,505. The $1,275,806 net increase in 2003's net operating loss primarily relates to the charge to operations of the fair value of options granted to employees and consultants and a reduction in general and administrative expenses. The net increase in the amount of compensation relating to the granting of options in 2003 compared to 2002 was $1,949,207 ($2,282,874 in 2003 compared to $333,667 in 2002). The net decrease in general and administrative expense in 2003 as compared to 2002 was $(286,271) ($1,034,520 in 2003 and $1,320,791 in 2002).

The decrease in 2003 general and administrative expenses over 2002 expenses pertains to decreased legal and accounting expenses of $(63,669) ($72,341 in 2003 as compared to $136,010 in 2002), increased advertising of $19,817 ($38,729 in 2003 compared to $18,912 in 2002) decreased rent of $(393,384) ($103,522 in 2003 as compared to $496,906 in 2002), increased travel of $42,359 ($90,114 in 2003 as compared to $47,755 in 2002), an increase in salaries, benefits and other officer compensation of $111,751 ($378,113 in 2003 compared to $266,362), a decrease in consulting fees of $(37,561) ($125,653 in 2003 compared to $163,214 in 2002) During 2003, the Company's president and another employee began providing services to the Company through their wholly owned corporations. The compensation paid to these corporations totaling $63,794 is included in total 2003 compensation of $378,113. Legal and accounting fees incurred in 2003 relate to normal business activity, whereas in 2002, the Company was involved in filing its registration statement in Canada. Increased salaries and related compensation relates to an increase in number of employees in 2003 as compared to 2002.

Of the general and administrative expenses amounting to $1,034,520 incurred in 2003, $233,785 relates to the Company's Chilean operations and $800,735 was incurred in the Company's Canadian operations.

The Company incurred interest expense of $29,102 during 2003, the majority of which relates to interest accrued on a $65,657 demand loan borrowed from the two shareholders (See Note 6 to the financial statements).

Chilean Operations

 
During 2003, the Company incurred no rental expense on its Chilean plant as compared to $423,139 incurred in 2002. Rent on an apartment maintained by the Company amounted to $12,528 in 2003 as compared to $12,726 incurred during 2002. Compensation and related expenses incurred during 2003 amounted to $107,069 as compared to $113,536, which was incurred during 2002. During 2003 the Company incurred $10,284 in legal and accounting fees as compared to $20,108 incurred during 2002. Depreciation expense on the Company's Chilean assets during 2003 amounted to $11,881 as compared to $22,193 incurred during 2002. Travel expenses incurred during 2003 amounted to $11,786 as compared to $26,849 incurred in 2002.

Canadian Operations

 
Salaries, other compensation, and related costs for 2003 amounted to $283,126 as compared to $235,447 during 2002. Included in the $283,126 is $63,794, which was incurred for services rendered to the Company by its president and a former employee through their wholly owned corporations. Consulting fees during 2003 amounted to $65,804 as compared to $51,968 for 2002. Rent expense for 2003 amounted to $79,100 as compared to $51,968 for 2002. Advertising and promotion for 2003 amounted to $35,935 as compared to $18,912 for 2002. Legal and accounting fees charged to operations 2003 amounted to $61,255 as compared to $120,209 for 2002. Depreciation expense for 2003 amounted to $23,881 as compared to $24,967 for 2002. Telephone expense for 2003 amounted to $18,679 as compared to $16,205 for 2002. Office expense for 2003 amounted to $16,651 as compared to $16,356 for 2002.

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Canadian Rockport Homes International, Inc.

 
Salaries and related costs for 2002 amounted to $235,447 as compared to $252,397 during 2001. Consulting fees during 2002 amounted to $51,968 as compared to $62,807 for 2001. Rent expense for 2002 amounted to $51,968 as compared to $40,481 for 2001. The increase in rent in 2002 relates to the Company's leasing of an additional office space. Advertising and promotion for 2002 amounted to $18,912 as compared to $18,647 for 2001. Legal and accounting fees charged to operations 2002 amounted to $120,209 as compared to $10,817 for 2001. Depreciation expense for 2002 amounted to $17,967 as compared to $10,013 for 2001. Telephone expense for 2002 amounted to $16,205 as compared to $12,078 for 2001. Office expense for 2002 amounted to $16,356 as compared to $19,355 for the same period last year.

Liquidity and Capital Resources

During the fiscal year ending December 31, 2004, the company received proceeds of $1,119,199 through the sale of its common stock, and $42,049 from its President. Of the amount received in 2004, $933,693 was used in operations, $278,301 was used in the construction of the Company's gantry, and plant, $1,016 was used to purchase furniture and equipment, $54,574 was used in the stock offerings, and $2,545 was used as principal reduction in capital lease obligation. Balance of cash and cash equivalents as of December 31, 2004 was $31,358; which was a decrease in cash of $112,360 for the fiscal year.

During the fiscal year ending December 31, 2003, the company received proceeds of $1,241,748 through the sale of its common stock, $252 from proceeds on an insurance claim and $1,841 from its President. Of the amount received in 2003, $947,843 was used in operations, $224,653 was used in the construction of the Company's gantry, display home, and plant, $9,375 was used to purchase furniture and equipment, $105,738 was used in the stock offerings, $1,296 was used as principal reduction in capital lease obligation, and $238 was repaid to the Company's President. Balance of cash and cash equivalents as of December 31, 2003 was $143,718; which was a decrease in cash of $37,613 for the fiscal year.

Critical Accounting Policies

The discussion and analysis of the Company's financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with its Board of Directors, the Company have identified two accounting policies that it believes are key to an understanding of its financial statements. These are important accounting policies that require management's most difficult, subjective judgments.

The first critical accounting policy relates to the accounting for costs incurred in the construction of the Company's molds and related plant. All costs incurred in the construction of molds and plant are capitalized until completion. The molds will be depreciated over their respective lives. The costs incurred in the construction of the plant, will be depreciated over the lesser of the useful life of the plant or the term of the lease of the building housing the respective assets (if applicable).

The second critical accounting policy relates to expense recognition. All expenses are recognized at the time the respective expense was incurred.

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Canadian Rockport Homes International, Inc.

Changes in Securities

During 2003, the Company issued 248,978 shares of its common stock through a private offering in exchange for $1,241,748. In addition, during the year, the Company issued 600 shares of its common stock for consulting services valued at $3,000, and 9,426 shares of its common stock for services rendered in connection with its private offerings valued at $47,310. The value of the shares issued in connection with the Company's private offerings was netted against the proceeds received.

During 2004, the Company issued 224,087 shares of its common stock through a private offering in exchange for $1,119,199. In addition, during the year, the Company issued 1,175 shares of its common stock for consulting services valued at $5,875, and 10,326 shares of its common stock for services rendered in connection with its private offerings valued at $51,360. The value of the shares issued in connection with the Company's private offerings was netted against the proceeds received.

For the period from January 1, 2005 through August 19, 2005, the Company issued 257,245 shares of its common stock through a private offering in exchange for $1,285,227, and issued 33,168 shares of its common stock for consulting services valued at $165,840.

Quantitative and Qualitative Disclosures About Market Risk

Canadian Rockport Homes International, Inc. may be subject to market risk in the form of interest rate risk and foreign currency risk. Canadian Rockport Homes International, Inc. is a development stage company with limited operations to date, and neither interest rate nor foreign currency has had a material impact on such operations.

The company's exposure to interest rate changes primarily may be as related to long-term debt used to fund future property acquisitions. Management's objective is to limit any impact of interest rate changes and may include any borrowing to be negotiated at fixed rates. Although interest rate changes have had no material affect on operations to date, management must continually evaluate such rates as manufacturing operations commence, corporate profitability is achieved, and expansion is being considered. The company may also establish lines of credit through traditional banking venues to insure liquidity during future periods of growth, and may consider fixed or variable rate bank lines consistent with any fluctuation of interest rates at the time of such growth.

The company's exposure to foreign currency exchange requires continuing management attention to the stability of the countries in which operations may be planned, as well as trade relations between the selected country(s) and Canada. Both trade relations and stability as pursuant to planned operations in Chile are currently favorable. Canadian Rockport Homes International, Inc. will continue to comprehensively evaluate conditions in countries where operations are in place and where future operations are planned, and will take any measures feasible at the time to minimize foreign currency risk. Such measures may include, but are not limited to; a reduction in operations or relocating a portion of operations to a more favorable environment.

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Canadian Rockport Homes International, Inc.

Canadian Rockport Homes International, Inc.

(A Development Stage Company)

Financial Statements and Supplementary Data

Contents

14

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
Canadian Rockport Homes International, Inc.
Vancouver, British Columbia

We have audited the accompanying consolidated balance sheets of Canadian Rockport Homes International, Inc., (A Development Stage Company) as of December 31, 2003 and 2004, and the related consolidated statements of operations, and accumulated deficit, comprehensive loss, stockholders' equity, and cash flows, for the years ended December 31, 2002, 2003, and 2004 and for the period from the Company's inception (May 27, 1997) through December 31, 2004. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audits 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 my opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Canadian Rockport Homes International, Inc. as of December 31, 2003 and 2004, and the results of its operations, and its cash flows for the years ended December 31, 2002, 2003, and 2004, and for the period from Company's inception (May 27, 1997) through December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 12 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency, which raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note 12. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Jonathon P. Reuben                 
Jonathon P. Reuben, CPA
An Accountancy Corporation
August 19, 2005

  F-2


CANADIAN ROCKPORT HOMES INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS

December 31, December 31,
2003     2004  
     
Assets
     
       Current Assets
               Cash and cash equivalents $  143,718 $ 31,358
               Employee advance 2,317 -
               Loan receivable - related party 2,492 -
               Receivable - other 927 -
               Prepaid expenses 1,792   1,652  
     
                     Total current assets 151,246   33,010  
     
       Property and Equipment
               Land 400,000 400,000
               Trucks 28,957 31,126
               Furniture & equipment 183,887 286,357
               Property held under capital leases 12,094 12,999
               Leasehold improvements 1,570   1,688  
626,508 732,170
               Less accumulated depreciation (141,137 ) (194,479 )
485,371 537,691
               Construction in progress 937,645   1,142,038  
     
                             Total property and equipment - net 1,423,016   1,679,729  
     
       Other Assets
                     Investment in common stock held for sale - -
                     Intangible assets subject to amortization::
                             Patents 9,758   9,116  
     
                             Total other assets 9,758   9,116  
     
                             Total Assets $  1,584,020   $ 1,721,855  

The accompanying notes are an integral part of the financial statements. F-3


CANADIAN ROCKPORT HOMES INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS

December 31, December 31,
  2003     2004  
     
Liabilities and Stockholders' Equity
     
     Current Liabilities
             Rent payable $  290,366 $  292,465
             Legal fees payable 133,412 166,047
             Trade payables 9,102 34,364
             Accrued compensation - 618,560
             Payroll taxes payable 2,645 43,018
             Loans payable - related party - 39,979
             Loans payable - other 15,612 15,612
             Current maturities of obligations under capital leases 2,539 3,364
             Notes payable - current 113,450     127,594  
     
                     Total current liabilities 567,126     1,341,003  
     
     Obligation under capital lease 7,697     4,909  
     
             Total liabilities 574,823     1,345,912  
     
     Stockholders' Equity
             Common Stock, $.001 par value ; authorized
                     100,000,000 shares; issued and outstanding
                     15,677,896 shares as of December 31, 2003, and
                     15,913,484 shares as of December 31, 2004 15,678 15,913
             Additional paid-in capital 8,237,056 10,063,510
             Deficit accumulated during the development stage (7,252,781 ) (9,709,327 )
             Other comprehensive income 9,244     5,847  
     
                     Total Stockholders' Equity 1,009,197     375,943  
     
                     Total Liabilities and Stockholders' Equity $  1,584,020   $  1,721,855  

The accompanying notes are an integral part of the consolidated financial statements. F-4


CANADIAN ROCKPORT HOMES INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT

From Inception
For the Year Ended (March 27, 1997)
December 31, Through
  2002     2003     2004     December 31, 2004  
(Restated)
         
Income $  - $  - $  - $  -
         
Operating Expenses
     General and administrative expenses (1,320,791 ) (1,034,520 ) (1,690,003 ) (5,487,624 )
     Compensation and consulting expense
         incurred on option grants (333,667 ) (2,282,874 ) (756,189 ) (3,770,063 )
     Gain (loss) on disposition of assets (358,361 ) - 1,549 (356,812 )
     Loss on impairment of goodwill (30,000 )   -     -     (30,000 )
         
     Loss from operations (2,042,819 ) (3,317,394 ) (2,444,643 ) (9,644,499 )
         
Other Income (Expenses)
     Interest income 377 185 40 4,280
     Interest expense (28,063 )   (29,102 )   (11,943 )   (69,108 )
         
     Net Loss Before Income Taxes (2,070,505 ) (3,346,311 ) (2,456,546 ) (9,709,327 )
         
     Income Taxes -   -     -     -
         
     Net Loss $  (2,070,505 ) $  (3,346,311 ) $  (2,456,546 ) $  (9,709,327 )
         
     Basic and Diluted Loss Per Share $  (0.14 ) $  (0.22 ) $  (0.16 )
         
         
     Weighted Average Common
       Shares Outstanding 15,227,781     15,539,728     15,811,470      

The accompanying notes are an integral part of the consolidated financial statements. F-5


CANADIAN ROCKPORT HOMES INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

From Inception
For the Year Ended (March 27, 1997)  
December 31, Through
2002     2003     2004     December 31, 2004  
(Restated)                    
         
Net Income $  (2,070,505 ) $  (3,346,311 ) $  (2,456,546 ) $  (9,709,327 )
         
Other comprehensive income
   Foreign currency translation adjustment (1,515 ) 10,325   (3,397 ) 5,847
         
         
         Net comprehensive loss $  (2,072,020 ) $  (3,335,986 ) $  (2,459,943 ) $  (9,703,480 )

The accompanying notes are an integral part of the consolidated financial statements. F-6


CANADIAN ROCKPORT HOMES INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE COMPANY'S INCEPTION (MARCH 27, 1997) THROUGH DECEMBER 31, 2004

Deficit
Accumulated Equity Adjustment
Additional During the Stock from Foreign
Transaction Common Stock Paid-in Development Subscription Currency
Unit Price Date Shares Amount Capital Stage Receivable Translation
                 
Shares issued on organizing Company $0.00 3/27/1997 5,816,675 $  5,817 (4,817 ) $  (1,050 ) - -
Adjustment to give effect to recapitalization on
February 15, 2001 1,135,186 1,135 (1,135 ) - - -
Net loss from the Company's inception
 (March 27, 1997) through December 31, 1997 - - - - -
                 
Balance - December 31, 1997 6,951,861 6,952 (5,952 ) (1,050 ) - -
                 
Net loss for the year ended December 31, 1998 - - (96,259 ) - 773
                 
Balance - December 31, 1998 6,951,861 6,952 (5,952 ) (97,309 ) - 773
-
Shares issued for cash $21.49 6/30/1999 791 1 16,999 - - -
Shares issued for cash $0.09 6/30/1999 791,000 791 72,409 (13,174 ) 65,000 -
Net loss for the year ended December 31, 1999 - - - - - (1,483 )
                 
Balance - December 31, 1999 7,743,652 7,744 83,456 (110,483 ) 65,000 (710 )
                 
Shares issued in cancellation of indebtedness $0.01 2/10/2000 847,500 848 6,153 - - -
Shares issued for services $0.01 2/10/2000 113,000 113 887 - - -
(at estimated value of services rendered)
Shares issued for cash $0.16 2/14/2000 339,000 339 53,898 - - -
Shares issued for cash $0.16 2/14/2000 339,000 339 53,898 - - -
Shares issued in cancellation of indebtedness $0.06 2/15/2000 56,500 57 3,444 - - -
Shares issued for cash $0.16 3/2/2000 282,500 283 44,916 - - -
Shares issued for cash $0.26 3/3/2000 141,250 141 36,017 - - -
Shares issued in cancellation of indebtedness $0.07 3/8/2000 56,500 57 3,844 - - -

The accompanying notes are an integral part of the consolidated financial statements. F-7


CANADIAN ROCKPORT HOMES INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE COMPANY'S INCEPTION (MARCH 27, 1997) THROUGH DECEMBER 31, 2004

Deficit Equity
Accumulated Adjustment
Additional During the from Foreign
Transaction Common Stock Paid-in Development Subscription Currency
Unit Price Date Shares Amount Capital Stage Receivable Translation
                 
Shares issued in cancellation of indebtedness $0.53 3/8/2000 56,500 57 29,944 - -  -
Shares issued for services $0.09 3/8/2000 113,000 113 9,887 - -    -
(at estimated value of services rendered)
Shares issued for cash $0.16 3/28/2000 113,000 113 17,966 - -     -
Shares returned to Company and cancelled $31.61 4/13/2000 (791 ) (1 ) (24,999 ) - -    -
Cash received on subscription 9/26/2000 - - - - (10,000 )   -
Shares issued for cash $0.20 10/5/2000 226,000 226 44,972 - -  -
Shares issued for cash $0.32 10/5/2000 141,250 141 45,057 - -  -
Shares issued in cancellation of indebtedness $1.06 10/25/2000 28,250 28 29,972 - -  -
Shares issued for services $0.09 10/25/2000 28,250 28 2,472 - -    -
(at estimated value of services rendered)
Shares issued for cash $0.32 10/27/2000 226,000 226 72,090 - -    -
Shares issued for cash $0.16 10/30/2000 197,750 198 31,440 - -    -
Cash received on subscription - - - (20,000 )
Shares issued for cash $0.32 10/31/2000 56,500 57 18,023 - -    -
Shares issued for cash $0.32 10/31/2000 56,500 57 18,023 - -  -
Shares issued for cash $0.32 11/1/2000 16,950 17 5,407 - -  -
Shares issued for cash $0.32 11/2/2000 28,250 28 9,012 - -      -
Shares issued for cash $0.32 11/2/2000 28,250 28 9,012 - -  -
Shares issued for cash $0.32 11/2/2000 113,000 113 36,045 - -      -
Shares issued for cash $0.32 11/6/2000 113,000 113 36,045 - -  -
                 
Shares issued for cash $0.16 11/9/2000 113,000 113 17,966 - -  -
Shares issued for cash $0.32 11/10/2000 56,500 57 18,023 - - -
Shares issued for cash $0.32 11/14/2000 113,000 113 36,045 - -  -
Cash received on subscription 11/21/2000 - - - - (20,000 )  -
Shares issued for cash $0.32 11/24/2000 56,500 57 18,023 - -  -
Shares issued for cash $0.48 11/30/2000 94,129 94 45,104 - -  -
Shares issued for services $0.53 11/30/2000 18,871 19 9,981 - -  -
(at estimated value of services rendered)
Shares issued for cash $0.25 12/6/2000 522,625 523 129,647 - -  -

The accompanying notes are an integral part of the consolidated financial statements. F-8


CANADIAN ROCKPORT HOMES INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE COMPANY'S INCEPTION (MARCH 27, 1997) THROUGH DECEMBER 31, 2004

Deficit
Accumulated Equity Adjustment
Additional During the from Foreign
Transaction Common Stock  Paid-in Development Subscription Currency
Unit Price Date Shares Amount  Capital Stage Receivable Translation
                 
Shares issued for cash through private placement
 offering $5.00 248,978 249 1,241,499 - - -
Shares issued for marketing services $5.00 600 1 2,999 - - -
 (at estimated value of services rendered)
Shares issued for services rendered in connection
 with the Company's private placement offering $5.00 9,462 9 (9 ) - - -
 (at estimated value of services rendered)
Cost incurred in offerings - - (105,738 ) - - -
Compensation expense from stock option grants - - 2,282,874 - - -
Net loss for the year ended December 31, 2003 - - - (3,346,311 ) - 10,325
                 
       Balance - December 31, 2003 15,677,896 15,678 8,237,056 (7,252,781 ) - 9,244
                 
Shares issued for cash through private placement
 offering $5.00 224,087 224 1,118,975 - -
Shares issued for marketing services $5.00 1,175 1 5,874 - -
 (at estimated value of services rendered)
Shares issued for services rendered in connection
 with the Company's private placement offering $5.00 10,326 10 51,620 - -
 (at estimated value of services rendered)
Cost incurred in offerings - - (106,204 ) - -
Compensation expense from stock option grants - - 756,189 - -
Net loss for the year ended December 31, 2004 - - - (2,456,546 ) - (3,397 )
                 
       Balance - December 31, 2004 15,913,484  $ 15,913 $ 10,063,510 $ (9,709,327 )  $ - $ 5,847

The accompanying notes are an integral part of the consolidated financial statements. F-9


CANADIAN ROCKPORT HOMES INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE COMPANY'S INCEPTION (MARCH 27, 1997) THROUGH DECEMBER 31, 2004

Deficit Equity
Accumulated Adjustment
Additional During the from Foreign
Transaction Common Stock  Paid-in Development Subscription Currency
Unit Price Date Shares Amount  Capital Stage Receivable Translation
                 
Shares issued for cash through private placement
 offering $5.00 248,978 249 1,241,499 - - -
Shares issued for marketing services $5.00 600 1 2,999 - - -
 (at estimated value of services rendered)
Shares issued for services rendered in connection
 with the Company's private placement offering $5.00 9,462 9 (9 ) - - -
 (at estimated value of services rendered)
Cost incurred in offerings - - (105,738 ) - - -
Compensation expense from stock option grants - - 2,282,874 - - -
Net loss for the year ended December 31, 2003 - - - (3,346,311 ) - 10,325
                 
       Balance - December 31, 2003 15,677,896 15,678 8,237,056 (7,252,781 ) - 9,244
                 
Shares issued for cash through private placement
 offering $5.00 224,087 224 1,118,975 - -
Shares issued for marketing services $5.00 1,175 1 5,874 - -
 (at estimated value of services rendered)
Shares issued for services rendered in connection
 with the Company's private placement offering $5.00 10,326 10 51,620 - -
 (at estimated value of services rendered)
Cost incurred in offerings - - (106,204 ) - -
Compensation expense from stock option grants - - 756,189 - -
Net loss for the year ended December 31, 2004 - - - (2,456,546 ) - (3,397 )
                 
       Balance - December 31, 2004 15,913,484  $ 15,913 $ 10,063,510 $ (9,709,327 )  $ - $ 5,847

The accompanying notes are an integral part of the consolidated financial statements. F-10


CANADIAN ROCKPORT HOMES INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS

From Inception
For the Year Ended March 27, 1997
December 31, Through
2002  2003 2004 December 31, 2004
(Restated)
Cash Flows from Operating Activities
   Net Loss $  (2,070,505 ) $  (3,346,311 ) $  (2,456,546 ) $  (9,709,327 )
   Adjustments to reconcile net loss to net cash
      used in operating activities:
         Issuance of common stock for services - 3,000 5,875 22,375
         Issuance of common stock in Company's organization - - - 1,000
         Compensation recognized on stock option grants 333,667 2,282,874 756,189 3,770,063
         (Gain) Loss on disposition of assets 358,361 388 (1,549 ) 357,200
         Loss on impairment of goodwill 30,000 - - 30,000
         Depreciation and amortization 40,804 50,336 43,791 176,298
         (Increase) Decrease in Assets
              (Increase) decrease in prepaid expenses 47,574 10,687 255 (1,545 )
              (Increase) in other assets (3,091 ) 3,253 162
         Increase (Decrease) in Liabilities
              Increase in trade and other payables 291,848 26,356 91,213 465,492
              Increase in accrued compensation - - 618,560 618,560
              Increase in notes payable 27,242 27,918 5,266 60,426
         
         Net cash used in operating activities (941,009 ) (947,843 ) (933,693 ) (4,209,296 )
         
Cash Flows from Investing Activities
   Net proceeds on sale of timber and truss plant 211,639 - - 211,639
   Insurance proceeds on equipment theft - 252 - 252
   Acquisition of equipment and other property (230,213 ) (234,028 ) (279,317 ) (1,196,555 )
         
               Net cash (used) in investing activities (18,574 ) (233,776 ) (279,317 ) (984,664 )
         
         
Cash Flows from Financing Activities
   Gross proceeds from private offerings 870,353 1,241,748 1,119,199 5,426,871
   Costs incurred in stock offerings (10,867 ) (105,738 ) (54,574 ) (356,748 )
   Officer advances 103,826 1,841 42,049 171,859
   Proceeds from loans 70,268 - - 144,668
   Repayments on officer loans (102,825 ) (238 ) - (127,382 )
   Principal reduction on obligations under capital leases (420 ) (1,296 ) (2,545 ) (4,261 )
   Purchase of treasury stock (10,000 ) - - (35,000 )
         
               Net cash provided by financing activities 920,335 1,136,317 1,104,129 5,220,007
         
               Effect of exchange rates on cash (3,244 ) 7,689 (3,479 ) 5,311
         
               Net Increase (Decrease) in Cash and Cash
                   Equivalents (42,492 ) (37,613 ) (112,360 ) 31,358
         
               Beginning Balance - Cash and Cash Equivalents 223,823 181,331 143,718 -
         
               Ending Balance - Cash and Cash Equivalents $  181,331 $  143,718 $  31,358 $  31,358

The accompanying notes are an integral part of the consolidated financial statements. F-11


CANADIAN ROCKPORT HOMES INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS

Supplemental Information:

  Non-cash Investing and Financing Activities:
     
   

During 2002, the Company issued 200,000 shares of its common stock in exchange for substantially all of the assets of 598546 B.C., Ltd. The Company valued the assets received at $1,000,000, the estimated fair market value of the shares issued. Subsequent to the acquisition, the Company sold all of the timber and a truss plant received from 598546 B.C. and recognized a loss of $358,361 on the sale. In addition, the Company charged $30,000 allocated to goodwill in the purchase to operations.

During 2003, the Company issued 9,462 shares of its common stock for services rendered in connection with its private offerings. The services were valued at $47,310, the estimated value of the shares issued.

During 2003, the Company acquired computer equipment through capitalized leases. The price of the leased equipment amounted to $8,003

During 2004, the Company issued 10,326 shares of its common stock for services rendered in connection with its private offerings. The services were valued at $51,630, the estimated value of the shares issued.

Cash Paid For:

From Inception
For the Year Ended (March 27, 1997)
December 31, Through
2002 2003 2004 December 31, 2004
         
         
Interest Expense $  821 $  1,184 $  2,597 $  4,602
         
Income Taxes $  - $  - $  - $  -

The accompanying notes are an integral part of the consolidated financial statements. F-12


CANADIAN ROCKPORT HOMES INTERNATIONAL, INC.
(A Development Stage Company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies

 

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, as discussed in Note 12, the Company has not generated any income and continues to have recurring operating losses. These matters raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Realization of a major portion of the assets in the accompanying consolidated balance sheet is dependent upon the Company's ability to meet its financing requirements, and the success of its future operations. Management continues to raise funds through private offerings and is still seeking manufacturing contracts. Management believes that these sources of funds and current liquid assets will allow the Company to continue as a going concern. However, no assurances can be made that current or anticipated sources of funds will enable the Company to finance future periods' operations.

Business Activities and Related Risks

Canadian Rockport Homes International, Inc was incorporated in Delaware on January 10, 1996 under the name, Lenz Products, Inc. The Company changed its name to Canadian Rockport Homes International, Inc. in early 2001.

The Company is in the development stage as defined in FASB Statement 7 and currently has plans to manufacture and erect low cost concrete modular buildings. The Company has not paid any dividends and any dividends that may be paid in the future will depend on the financial requirements of the Company and other relevant factors.

In February 2001, the Company acquired all of the outstanding shares of Canadian Rockport Homes, Ltd., ("CRH"), a company incorporated in the Province of British Columbia on March 26, 1997, in exchange for issuing 11,300,000 shares of its common stock. For financial reporting purposes, the acquisition was treated as a reverse acquisition whereby CRH's operations continue to be reported as if it had actually been the acquirer. Assets and liabilities continue to be reported at the Acquiree's historical cost because before the reverse acquisition, the Company had nominal assets, liabilities and operations.

The Company also formed a subsidiary in 2001 in Chile under the name Rockport Homes Chile Limitada ("RHCL"). The Company and CRH are the sole shareholders of this Chilean company. In 2002, the Company acquired certain assets of 598546 BC Ltd., which included 100% of the outstanding shares of Canadian Rockport Trading Limitada, a Chilean corporation, formerly Maderas Doradas Canadienses, S.A. ("RT"). At the time of its acquisition, RT had no operations. During the year, the Company sold all of the assets of RT except for the acquired building and land on which the Company is building its Chilean plant and offices.


  F-13


 

For ease in administration and to reduce costs, the Company in 2003 decided to dissolve RHCL and operate its Chilean operations solely through RT, which currently owns significantly all of the Company's Chilean assets. The dissolution of RCHL was finalized on January 15, 2005 (See Note .14 - Subsequent Events)

On March 24, 2004 the Company formed CRH of Nevada, Inc., a Nevada corporation ("CRHN"). CRHN was formed for the purpose of undergoing a migratory merger by which the company would move from the State of Delaware to the State of Nevada. As a result of the merger, CRHN would assume all of the assets and liabilities of the Company and be renamed as 'Canadian Rockport Homes International, Inc.' The purpose of the merger is to take advantage of Nevada state tax treatment for the Company which Management believes is more favorable to the Company than Delaware state tax treatment. It is not anticipated that there will be any other material difference due to the migratory merger. The Company anticipates that the migratory merger will be completed in 2005.

The Company maintains all of its cash deposits at two banks, one in Canada and one in Chile. The Company's bank accounts are not insured.

Principles of Consolidation

The accompanying financial statements include the accounts and transactions of Canadian Rockport Homes International, Inc. and its wholly owned subsidiaries, Canadian Rockport Homes, Ltd., Rockport Homes Chile Limitada, Canadian Rockport Trading Limitada, and CRH of Nevada Inc. Intercompany transactions and balances have been eliminated in consolidation.

Foreign Currency Translations

For foreign operations whose functional currency is the local foreign currency, balance sheet accounts are translated at exchange rates in effect at the end of the year and income statement accounts are translated at average exchange rates for the year. Translation gains and losses are included as a separate component of stockholders' equity.

Property and Equipment

The cost of property and equipment is depreciated over the estimated useful lives of the related assets that range from 3 to 7 years. Depreciation is computed on the straight-line method for financial reporting purposes and for income tax reporting purposes. Depreciation expense for 2002, 2003 and 2004 was $40,160, $49,667 and $43,120, respectively.

Intangible Assets

Patents are being amortized over their respective remaining lives of 18 years. Amortization expense for 2002, 2003 and 2004 was $644, $669, and $671, respectively.

Intangible assets consist of the following:


December 31, 2004
Weighted
Gross Net Average
Intangible Accumulated Intangible Life
Assets Amortization Assets (Years)
           
  Patents $ 11,607 $ 2,491 $  9,116 18

  F-14


December 31, 2003
    Weighted
Gross     Net     Average
Intangible Accumulated     Intangible     Life
Assets Amortization     Assets     (Years)
                         
                         
  Patents $    11,568   $ 1,810     $ 9,758     18
                         
                         
December 31, 2002
    Weighted
Gross     Net     Average
Intangible Accumulated     Intangible     Life
Assets Amortization     Assets     (Years)
                         
                         
  Patents $    11,474   $ 1,133     $ 10,341     18

  Estimated amortization expense for each of the next five years ended December 31, is as follows:

2005 $ 642
2006 642
2007 642
2008 642
2009 642
Total $ 3,210

 

Net Loss Per Share

The Company adopted Statement of Financial Accounting Standards No. 128 that requires the reporting of both basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with SFAS 128, any anti-dilutive effects on net earnings (loss) per share are excluded. If such shares were included in diluted EPS, they would have resulted in weighted-average common shares of 16,487,788, 17,267,079 and 18,864,330 in 2002, 2003 and 2004, respectively. Such amounts include shares potentially issuable under outstanding options and warrants. (see Note 4 and 10).

Issuances Involving Non-cash Consideration

All issuances of the Company's stock for non-cash consideration have been assigned a dollar amount equaling either the market value of the shares issued or the value of consideration received,


  F-15


 

whichever is more readily determinable. The majority of the non-cash consideration received pertains to services rendered by consultants and others.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers cash and cash equivalents to include all stable, highly liquid investments with maturities of three months or less.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Income Taxes

Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB Statement No. 109, "Accounting for Income Taxes". As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Fair Value of Financial Instruments

Pursuant to SFAS No. 107, "Disclosures About Fair Value of Financial Instruments", the Company is required to estimate the fair value of all financial instruments included on its balance sheet as of June 30, 2004. The Company considers the carrying value of such amounts in the financial statements to approximate their face value.

Note 2 - Recent Accounting Pronouncements

 

The FASB recently issued the following statements:

In December 2004, the FASB issued FASB Statement No. 153, exchanges of Nonmonetary Assets, which is an amendment of APB Opinion No. 29. The amendments made by Statement 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have "commercial substance." Previously, Opinion 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished. The provisions in Statement 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early application is permitted and companies must apply the standard prospectively. The Company adopted this statement on January 1, 2005. The adoption of the statement should not cause a significant change in the current manner in which the Company accounts for its exchanges of nonmonetary assets.


  F-16


 

In December 2004, the FASB issued FASB Statement No. 152, Accounting for Real Estate TimeSharing Transactions - An Amendment of FASB Statements No. 66 and 67. This standard amends FASB Statement No. 66, Accounting for Sales of Real Estate, by referring users to AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. Statement 152 also amends FASB Statement No. 67, Accounting for Costs and Initial Operations of Real Estate Projects, to state that the guidance for "incidental operations" and costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. Statement 152 is effective for financial statements for fiscal years beginning after June 15, 2005. This statement is not applicable to the Company's current operations.

The FASB has issued FASB Statement No. 123 (Revised 2004), Share-Based Payment. The new FASB rule requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. This statement precludes the recognition of compensation expense under APB 25 intrinsic value method. Public entities other than small business issuers will be required to apply Statement 123R in the first interim or annual reporting period that begins after June 15, 2005. Management believes that the adoption of the statement will not have a significant impact on its current operations and plans to adopt this statement on July 1, 2005.

On November 24, 2004, the FASB issued FASB Statement No. 151, Inventory Costs - An amendment of ARB No. 43, Chapter 4. Statement 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and spoilage should be expensed as incurred and not included in overhead. Further, Statement 151 requires that allocation of fixed production overheads to conversion costs should be based on normal capacity of the production facilities. The provisions in Statement 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Companies must apply the standard prospectively. Management plans on adopting this standard on April 1, 2006 and expects that that the adoption of the statement to have no impact on its current operations.

Note 3 - Accrued Compensation

  On January 1, 2004, the Company entered into employment, consulting, and other related contracts with its management and personnel. Under the terms of these various agreements, the Company is obligated to pay on a monthly basis approximately $82,000 in compensation. Due to the Company's current cash flow requirements needed in the construction of its Chilean facility, monthly compensation currently being paid is approximately $31,000. The difference of approximately $51,000 a month is being accrued and will be paid when the Company has sufficient funds available. The terms of the contracts are for two years.

Note 4 - Issuances of Common Stock

 

During the year ended December 31, 2002, the Company issued 173,738 shares of its common stock through a private offering in exchange for $870,353. In addition, the Company issued 200,000 shares of its common stock in exchange for certain assets of 598546 BC LTD (see Note 1).

During the year ended December 31, 2003, the Company issued 248,978 shares of its common stock through a private offering in exchange for $1,241,748. In addition, the Company issued 9,462 shares of common stock to various consultants relating to the Company's private offering. The services were valued at $47,310, the estimated value of the shares for the services rendered, and were charged against the offering proceeds received. In addition, in 2003, the Company issued 600 shares to a consultant for marketing services. The services were valued at $3,000, the estimated value of the shares issued for the services rendered.

  F-17


 

During the year ended December 31, 2004, the Company issued 224,087 shares of its common stock through a private offering in exchange for $1,119,199. In addition, the Company issued 10,326 shares of common stock to various consultants relating to the Company's private offering. The services were valued at $51,630, the estimated value of the shares for the services rendered, and were charged against the offering proceeds received. In addition, in 2004, the Company issued 1,175 shares to a consultant for marketing services. The services were valued at $5,875, the estimated value of the shares issued for the services rendered.

In connection with the above private offerings, the Company issued a total of warrants to purchase 752,860 shares of the Company's common stock at a price of $7.00. The warrants expire two years after the first date that the Company's stock is publicly traded.

Note 5 - Investments

  Through legal action against a consultant who failed to provide the agreed upon services after being paid, the Company received shares of stock in 598546 BC Ltd, a closely held Canadian corporation from which the Company acquired Canadian Rockport Trading Limitada.. The Company has valued the shares at $0 and has charged the costs relating to the legal action totaling $1,915 to operations.. The company of which shares were acquired currently has no operations and its only significant asset is its cumulative net operating loss that can be utilized for income tax reporting purposes.

Note 6 - Related Party Transactions

  a. On February 5, 2001, the Company acquired all of the intellectual properties owned by TWiC Housing Corporation relating to the TWiC system for the construction of houses. Included in the assets acquired were the patents pertaining to the TWiC System. In exchange for the assets acquired, the Company issued 2,000,000 shares of its common stock. Under the terms of the purchase agreement, the shares issued have restricted covenants as to when the shares are free to sell or transfer. TWiC's is wholly owned by Harry Gordon, a shareholder and director of the Company. The Company valued the assets purchased at their estimated historical cost of $10,057. The Company is amortizing the purchase price over 18 years, the remaining life of the related patents.
     
Pursuant to the purchase agreement, the Company guaranteed that the market price of the shares received by TWiC will exceed $2.50 Canadian within four years from the commencement date of trading. If the shares do not reach such a price within the period, the Company will issue sufficient additional shares in order that the total number of shares issued multiplied by the highest market price of the stock during the four year period equals $5,000,000 Canadian.
     
  b. On January 10, 2001, the Company entered into an agreement with TWiC for the manufacturing of 32 molds and the supply of the services required to construct the Company's Chilean plant. For these molds and services, the Company agreed to pay $1,600,000 consisting of $1,400,000 cash, and 100,000 shares of common stock valued at $2.00 per share. Under the terms of the agreement the Company is to make a $300,000 down payment and pay the remainder of the balance due in progressive draws. During the year ended December 31, 2001, the Company paid $285,000 and issued the 100,000 shares of its common stock. The $485,000 has been included in construction in progress. No payments were made in 2002. Total amounts paid towards this agreement in 2003 were $10,315.
     
On June 9, 2004, this agreement was concluded and the Company and TWiC each released each other from any further obligations that they had under it.

  F-18



  c. The Company and its President have made advances and repayments to each other. These advances are non-interest bearing and due upon demand. The balance due the Company by its President as of December 31, 2003 was $2,492. The balance due the President by the Company as of December 31, 2004 was $39,979.
     
  d. Acquisition of Rockport Trading Limitada
     
In June 2002, the Company consummated its acquisition of certain assets of 598546 B.C. Ltd in exchange for 200,000 shares of its common stock. The price allocated to the assets acquired was based upon the market value of the shares issued of $5.00 per share. The assets acquired and their respective allocated values are as follows:

Land $  400,000
Truss plant 120,000
Timber 450,000
Goodwill 30,000
$ 1,000,000

The timber was sold during the second quarter of 2002 for $131,329, net selling expenses resulting in a loss from the sale of $318,671. The truss plant were sold during the third quarter of 2002 for $80,310, net of selling expenses resulting in a loss of $39,690.
     
The Company deemed the goodwill acquired to be impaired and charged the full amount to operations during the fourth quarter of 2002.
     
At the time of the acquisition, 598546 B.C. Ltd. was owned by a shareholder of the Company. As of December 31, 2004, the Company owned 14% of 598546 B.C. Ltd. (See Note 5 - Investments).
     
  e. In April 2002, two shareholders advanced $65,657 to the Company evidenced by two promissory notes that are assessed interest at an annual rate of 8%. The notes are due on demand. Under the terms of the notes, the Company issued 5,000 shares of its common stock to each lender at the time of repayment. The Company is imputing interest on the shares to be issued at a price of $5.00 per share. The imputed interest was charged to operations ratably over a one-year period, which Management believed to be the length of time that the loans will be outstanding. The balance of this obligation on December 31, 2004 and 2003 was $127,594 and $113,450, respectively. Interest charged to operations for 2002, 2003 and 2004 was $27,242, $14,353 and $5,266.

Note 7 - Income Taxes

 

The Company is in the development stage and incurred net operating losses, therefore no provisions for income taxes have been established. As of December 31, 2004, the Company's net operating losses totaled $9,709,325, which expire in various years through 2024.

An allowance has been provided that reduced the tax benefits accrued by the Company for these operating losses to zero as it cannot be determined when, or if, the tax benefits derived from these losses will materialize.

Note 8 - Leases

  The Company is a lessee of computer equipment under three capital leases expiring through August 28, 2007. The equipment and respective liabilities under these leases have been recorded at the fair

  F-19


 

value of the equipment and are being amortized over the estimated five-year useful life of the equipment. Amortization of equipment under the capital leases is included in depreciation expense.

Following is a summary of the property held under the capital leases:

2002 2003 2004
  Computer equipment $ 3,033 $  12,094 $  12,999
  Less: accumulated depreciation    (505 )   (2,404 )      (5,636 )
$ 2,528   $  9,690   $  7,363  

  Minimum future lease payments under the capital leases over their remaining lives are as follows:

  2005 $ 4,885
  2006 3,698
  2007 2,958
  2008 376
11,917
     
  Less imputed interest (3,644 )
     
  Present value of net minimum lease payments $ 8,273

 

On March 7, 2001, the Company entered into an agreement for the lease of certain real property in Chile where the Company plans to build its plant. The lease is for twenty-four months commencing April 7, 2001. The monthly rent is $31,297. At the maturity of the lease, the Company had the option to acquire the property for $4,580,000. The Company paid $95,151 in commission and legal fees pertaining to the lease that have been capitalized were amortized over life of the lease. The balance due on this lease as of December 31, 2004 amounted to $283,985. The Company's RCHL subsidiary has not made any payments towards this obligation since April 2002 and was in default under the terms of the lease agreement as of December 31, 2004.

In addition, the Company leases its Vancouver, B.C. office on a long-term lease expiring on December 31, 2006, payable in monthly installments of approximately $7,000.

Rent expense for 2002, 2003 and 2004 totaled $496,906, $103,522 and $98,081, respectively.

Future minimum lease commitments pertaining to the Vancouver office lease expire as follows:

  December 31, 2005 $ 84,000
  December 31, 2006 84,000
     
  Total future minimum lease payments $ 168,000

Note 9 - Investment in Unconsolidated Joint Venture

  On August 20, 2003, the Company entered into an agreement with Urrutia Conus & Asociados ("SerCon") to form a joint venture under the name of Inmoboiliaria y Construcciones Ser-Con Rockport ("ICSR"). Each party has a 50% ownership interest in the joint venture. The joint venture was formed for the purpose of building and selling houses using the technology of the

  F-20


 

Company. Under the agreement SerCon is responsible for the construction of each property's foundation, patio, carport, utility hook-up, and fences. The Company is responsible for the manufacturing of the dwellings.

For 2003, the Company incurred a net loss in the joint venture equal to its total investment amounting to $6,288. The Company terminated the joint venture in 2003.

Note 10 - Stock Options

 

In 2001, the Company granted to certain employees, directors and consultants, options to acquire 1,150, 000 shares of the Company's common stock at a price of $2.00 per share of which 150,000 options were forfeited during the year, The options are exercisable eight months after the commencement of the Company's stock trading publicly for a period of two years. In the event that the eight-month period ends after January 1, 2003, the expiration date of the options extend to the first business day after the eight-month period expires. As of December 31, 2003, the Company's common stock has yet to commence trading.

In 2003, the Company granted to certain employees, directors, and consultants, options to acquire 1,300,000 shares of the Company's common stock at a price of $2.00 per share. The options are exercisable through October 31, 2005; however, if the Company commences a second public offering, the options are not exercisable during the period from 60 days before the commencement of the pubic offering through 60 days after the commencement of the public offering. In 2003, 50,000 options were forfeited.

Also in 2003, the Company granted an option to an employee to purchase 50,000 shares of its common stock at a price of $5.00 per share. The options are exercisable eight months after the Company begins trading its shares publicly and must be exercised within two years once vested.

In 2004, the Company granted two consultants options to acquire 150,000 shares of its common stock at $5 per share. The options are exercisable eight months after the Company begins trading its shares publicly and must be exercised within two years once vested. Also in 2004, options to acquire 100,000 shares of the Company's common stock were cancelled.

In 2003, the Company adopted the fair value method of accounting for its stock based compensation pursuant to FASB Statement 123. Prior to the adoption of FASB 123, the Company used the intrinsic value method under APB Opinion 25.

In the change from APB 25 to FASB 123, the Company restated its losses from operations in 2002 to reflect the application of FASB 123. A reconciliation of the restated net loss and basic loss per share for 2002 is as follows:

2002
  Net loss as originally reported $  (1,736,838 )
  Compensation on stock option grants,
     net of related tax effects (333,667 )
  Net loss as restated $  (2,070,505 )
  Basic loss per share as originally reported $  (.11 )
  Compensation on stock option gains (.03 )
  Basic loss per share - as restated $  (.14 )

  F-21


  The following is a summary of the outstanding options:

  Weighted Average
Number of Shares   Exercise Price
         
  Outstanding - December 31, 2002 1,000,000   $2.00
         
  Granted 1,350,000   2.11
  Exercised -   -
  Forfeited (50,000)   (2.00)
         
  Outstanding - December 31, 2003 2,300,000   2.06
         
  Granted 150,000   5.00
  Exercised -   -
  Forfeited (100,000)   (2.00)
         
         
  Outstanding - December 31, 2004 2,350,000   $2.26
         
         
  Average fair value for options granted
     October 2003   $ 3.09
     (Exercise price $2.00 per share)
         
  Average fair value for options granted
     December 2003   $ 1.16
     (Exercise price $5.00 per share)
         
  Average fair value for options granted
     February 2004   $ 1.54
     (Exercise price $5.00 per share)
         
  Average fair value for options granted
     December 2004   $ 1.57
     (Exercise price $5.00 per share)

  The following is a summary of the status of fixed options outstanding at December 31, 2004:

  Outstanding Options Exercisable Options
Weighted Weighted
Average Average
  Exercise Exercise Exercise Exercise
  Price Number Price Price Number Price
  $2 - $5 2,350,000 $2.26 $2 1,100,000 $2

  The assumptions used in determining the fair value of options granted are as follows:

2003   2004
  Weighted average risk-free interest rate 1.5%   3.0%
  Weighted average expected life 2.75 years   4.24 years
  Expected volatility 30%   30.%
  Expected dividends 0   0

  F-22


Note 11 - Segment Reporting

  Currently, the Company has only one principal reportable segment, its Chilean operation, which is still in the construction phase. The Company's corporate offices are located in Vancouver, B.C. A schedule reflecting the application of costs and expenses for the years ended December 31, 2002, 2003 and 2004 on a geographical basis for the two facilities is as follows:

  2002
Chilean operations $  (1,398,645 )
Corporate offices ( 671,860 )
 Net operating loss $  (2,070,505 )
  2003
Chilean operations $  ( 233,785 )
Corporate offices (3,112,526 )
 Net operating loss $  (3,346,311 )
  2004
Chilean operations $  ( 164,425 )
Corporate offices (2,292,121 )
 Net operating loss $  (2,456,546 )

  Company assets at December 31, 2003 and 2004 are located as follows:

  2003
Chilean operations $  1,390,245
Corporate offices 193,775  
       
 Total assets $  1,584,020  
       
       
  2004
Chilean operations $  1,652,911
Corporate offices 68,944  
       
 Total assets $  1,721,855  

Note 12 - Basis of Presentation and Going Concern

 

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Company as a going concern. However, the Company has sustained operating losses since its inception (March 27, 1997). In addition, the Company has used substantial amounts of working capital in its operations.


  F-23


  Further, at December 31, 2004, current liabilities exceed current assets by approximately $1,304,000 and the deficit accumulated during the development stage amounted to approximately $9,709,000. In view of these matters, realization of a major portion of the assets in the accompanying consolidated balance sheet is dependent upon the Company's ability to meet its financing requirements, and the success of its future operations. Management continues to raise funds through private offerings and is still seeking manufacturing contracts. Management believes that these sources of funds and current liquid assets will allow the Company to continue as a going concern. However, no assurances can be made that current or anticipated sources of funds will enable the Company to finance future periods' operations.

Note 13 - Contingencies

 

The Company is being sued for past due legal fees. The Company is disputing the amounts being charged and the lawsuit is on going. In addition, the Company is also being sued for alleged fees due a brokerage firm for duty paid in the transportation of Company assets into Chile. The Company disputes the claim and this lawsuit is also on-going. Management has accrued in its liabilities what it believes to be a sufficient amount to pay the two claims upon their eventual resolution.

In issuing certificates evidencing the number of shares held by the respective shareholders, the Company's former transfer agent issued certificates for more shares than were actually outstanding. The Company did not catch this error and these certificates were mailed to the respective shareholders. The Company is in the process of retrieving and canceling the excess issued shares

Note 14 - Subsequent Events

 

As discussed in Note 1 the dissolution of RCHL was finalized on January 15, 2005. Pursuant to guidance from legal counsel, it is management's belief that the related liabilities associated with this lease were extinguished in this dissolution. The total lease liability that was extinguished in 2005 included the $283,985 lease obligation reflected in the December 31, 2004 financial statements.

For the period from January 1, 2005 through August 19, 2005, the Company issued 257,245 shares of its common stock through a private offering in exchange for $1,285,227, and issued 33,168 shares of its common stock for consulting services valued at $165,840.

In 2005, the Company entered into an agreement to acquire 3.3998 hectares of land located in the Valle Grande Housing Project. a new housing development near Santiago, Chile, for the purpose of building houses to sell to the general public . The actual price paid for the land will be determined on the date of close, which will be when the seller completes the construction of the property's infrastructure. The Company expects the final purchase price to be approximately $560,000. The Company has the option to acquire additional land after this transaction is consummated.

In connection with the land purchase, the Company borrowed $515,000 from a shareholder. Under the terms of the loan, the shareholder received an approximate 36.7857% interest in a General Security Agreement that incompasseses 1) the Company's plant located in Lampa, Chile; the Chilean land located as discussed above, 3 module display homes located on the land (once built), and building material used in the building of the houses on the subject land. In order for the Company to sell individual lots to homebuyers free of any encumbrances, the shareholder has agreed to release his security interest in phases of 40 lot increments. In consideration for the loan, the Company has agreed to pay him interest on the loan assessed at 7%pper annum plus a profit sharing interest equal to 36.7857% of $3,277 per house on the first 229 houses that the Company sales totaling approximately $276,052. Profit sharing payments will be made in 11 installments; the first 10 in 20 house increments of approximately $24,109, and then a final payment of approximately $34,962. The shareholder has a right to receive his profit sharing payments in cash or in shares of the Company's common stock at a conversion price of $5 per share. The principal loan balance of $515,000 will be paid within two years.

 

In 2005, the Company's President advanced the Company approximately $150,000, which is assessed interest at a rate of 2% per month. The loan is unsecured and due on demand.


  F-24

Canadian Rockport Homes International, Inc.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

There have been no disagreements between Canadian Rockport Homes International, Inc. and its independent accountants on any matter of accounting principles or practices or financial statement disclosure. There have been no changes in Canadian Rockport Homes International, Inc. accountants.

Controls and Procedures

Canadian Rockport Homes International, Inc. management, including the Principal Executive Officer and Principal Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14(c) and 15d-14(c). This evaluation was conducted within 90 days prior to the filing of this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this annual report has been made known to them in a timely fashion. There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date the Principal Executive Officer and Principal Financial Officer completed their evaluation.

Directors and Executive Officers of the Registrant

Canadian Rockport Homes International, Inc. directors and principal executive officers are as follows:

Name Age Position
     
Nelson Riis 63 Executive Vice-President, and Director
Dr. William R. Malone 64 CEO, Chairman of the Board of Directors
Shannon Downs 45 CFO, Secretary, Treasurer, and Director

Canadian Rockport Homes Ltd. directors, principal executive officers and key employees are:

Name Age Position
     
Dr. William R. Malone 64 President, CEO, and Director
Nelson Riis 63 Executive Vice President Director
Kenneth Olsen 44 Vice-President of Manufacturing
Donald Belsby 68 Director
Ryan Malone 33 Director

Rockport Homes Chile Limitada directors and principal officers are, as follows:

Name Age Position
Dr. William R. Malone 64 President, Secretary, Treasurer and Director

Rockport Trading S.A. directors and principal officers are, as follows:

Name Age Position
Dr. William R. Malone 64 President, Secretary, Treasurer and Director

CRH of Nevada, Inc. directors and principal officers are, as follows:

Name Age Position
Dr. William R. Malone 64 President, Secretary, Treasurer and Director

In September 2004, Ms. Carol Laeser was relieved from her position as CFO and director of Canadian Rockport International, Inc. for cause. Also in 2004, Harry Gordon resigned his position as Secretary and director of Rockport Homes International Inc. and as Secretary, Treasurer, Vice President of Engineering and Design, and Director of Rockport Homes Ltd.

15

Canadian Rockport Homes International, Inc.

Mr. Nelson Riis is a former Member of Parliament of Canada who had served for over twenty (20) years. He has served on several committees and boards overseeing the regulation and review of Canadian Federal and International Banking Institutions, governmental fiscal and monetary policy. Most recently, he sat on the Industry Committee responsible for small and medium sized business, competition policy and productivity. He has traveled extensively and has established an extensive network of worldwide business contacts. Mr. Riis graduated from the University of British Columbia ("UBC") receiving a Bachelor of Education in 1965. Thereafter, Mr. Riis received his Masters Degree from UBC in Urban Geography in 1970.

Dr. William R. Malone has been involved in the health and real estate industries since 1967. By pursuing acquisitions of underutilized property and engaging in construction systems designed to maximize property use and value, Dr. Malone has obtained experience with the basic economic, legal and financial principles, which affect world real estate markets. Dr. Malone has held senior positions in a variety of sectors within the commercial and residential real estate fields including President and CEO of Country Supreme Estates and President of Thoroughbred Properties Inc. Dr. Malone was also President of Zenith Energy, Inc., an oil and gas company that drilled 200 wells in the U.S. and traded on the NASD OTC market.

Mr. Harry Gordon, as a structural engineer, mechanical engineer, and heating and ventilating designer, has worked with Trans-Canada Airlines, C.D. Howe Company, Consolidated Mining and Smelting, and H.A. Simons Ltd. Mr. Gordon established H. Gordon Engineering Limited in 1965, supplying services to the forestry industry and the construction industry, primarily in the commercial and residential fields. The largest single contract undertaken by this firm was the design of site, services and structures for a large pulp and paper mill in Nigeria. Other assignments included four ship loader tower designs for installations on the Western Coast of Canadian and United States and on Richards Bay, South Africa. Mr. Gordon initiated development of thin-wall-in-concrete housing modules and obtained first patents in the name of Formete Structures Ltd. Since the disbanding of his engineering firm in 1990, he has accepted structural assignments and continues development and engineering on the thin-wall-in-concrete module as president of TWiC Housing Corp. Mr. Gordon resigned his position with the Company in 2004.

Mr. Donald P. Belsby. For the past eight years, Mr. Belsby has held the position of President of Belsby Farms, along with being the Chairman of the Board of Belsby Farms. The farm activities include over 11,000 acres of wheat, barley, peas and oat farming. The other acreage is used for cattle, bison, lumbering and developing small parcels for sale. He is also the Chairman of Canyon Crest Hunting Club, Inc., a hunting ranch that entertains over 250 hunters a year.

Ms. Carol Laeser spent four years at the University of British Columbia where she took business and accounting courses. Ms. Laeser has more than fourteen years of business experience working with accounting firms as well as running her accounting business. Her responsibilities included budget preparations, minimizing taxes, supervising accounting systems, creating monthly financial statements and being part of a strategic goal setting team. Ms. Laeser present duties are CFO. She is also developing Rockport's own Web service that will connect the various plants to the Corporate Headquarters in Vancouver. This system will also assist in our quality control and security requirements. Ms. Laeser was relieved of her duties as CFO and Director in September 2004 for cause.

Mr. Ryan Malone has many years' hands on supervisory experience in the communication/construction business in overseas and North America projects. Present duties include execution of all Sales contracts including arranging schedules for production, construction, delivery of housing, Recruitment, as well as management of all project management staff.

Kenneth Olsen, B.Sc. (Eng), MBA, is a member of the CRH Board of Directors and CRH's Vice-President, Manufacturing. Mr. Olsen holds a degree in Mechanical Engineering and an Masters of Business Administration from the University of Saskatchewan. Mr. Olsen has sixteen (16) years of progressive professional experience with both small and large manufacturing companies including ten (10) years with Nortel Networks. Mr. Olsen has developed particular expertise in the areas of Operations Management, Supply Chain Management, Quality Management, People Leadership, and New Product Introduction. Mr. Olsen is a member of Mensa Canada.

Shannon Downs is has been a Member of the Company's Board of Directors since December, 2004 and serve in the capacity of the Company's Chief Financial Officer and the Office Manager of the Company's Vancouver office.

16

Canadian Rockport Homes International, Inc.

She was with her previous employer, Vancouver Mill Fuels, for over twenty-six years, during which time that company underwent 3 changes of ownership. Her responsibilities there comprised all aspects of office management including, accounting, sales, staffing, scheduling, and day to day operations in collaboration with the owner. Ms. Downs' post secondary education includes certification in Bookkeeping and a Real Estate designation earned at the University of British Columbia.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires the company's directors and officers, and persons who own more than ten-percent (10%) of the company's common stock, to file with the Securities and Exchange Commission reports of ownership on Form 3 and reports of change in ownership on Forms 4 and 5. Such officers, directors and ten-percent stockholders are also required to furnish the company with copies of all Section 16(a) reports they file. Based solely on its review of the copies of such forms received by the company and on written representations from certain reporting persons, the company believes that all Section 16(a) reports applicable to its officers, directors and ten-percent stockholders with respect to the fiscal year ended December 31, 2004 were not filed and are delinquent.

Executive Compensation

Securities   All
Name and Other   Restricted Underlying   Other
Principal   Annual   Stock   Options   LTIP   Comp-
Position Year Salary Bonus   Compensation   Awards SARS(#)   Payouts   sation
                             
                             
William 2004 $ -- $   -- $ 254,813(1)(2) $ -- -- $ -- $ --
Malone, CEO 2003 $ 32,000 $   -- $ 39,100(1) -- 200,000(8) $ -- $ --
Director 2002 $ 60,000 $   -- $ -- $ -- -- $ -- $ --
                             
Nelson Riis 2004 $ -- $   -- $ 204,147(1)(3) $ -- -- $ -- $ --
Director 2003 $ 46,800 $   -- $ 24,700(1) $ -- 200,000(8) $ -- $ --
2002 $ 60,000 $   -- $ -- $ -- -- $ -- $ --
                             
Carol Laeser 2004 $ 142,151(4) $   -- $ -- $ -- -- $ -- $ --
CFO, 2003 $ 50,800 $   -- $ -- $ -- 200,000(8) $ -- $ --
Director 2002 $ 38,500 $   -- $ -- $ -- -- $ -- $ --
                             
Harry Gordon 2004 $ -- $   -- $ -- $ -- -- $ -- $ --
Director 2003 $ -- $   -- $ -- $ -- 100,000(7) $ -- $ --
2002 $ -- $   -- $ -- $ -- -- $ -- $ --
                             
Ryan Malone 2004 $ 120,484(5) $   -- $ -- $ -- -- $ -- $ --
Director 2003 $ 38,500 $   -- $ -- $ -- 200,000(8) $ -- $ --
Of CRHZL 2002 $ 38,000 $   -- $ -- $ -- -- $ -- $ --
                             
Kenneth Olsen 2004 $ 100,000(6) $   -- $ -- $ -- 100,000(10) $ -- $ --
VP Marketing 2003 $ 3,300 $   -- $ -- $ -- 50,000(9) $ -- $ --
and Director 2001 $ -- $   -- $ -- $ -- -- $ -- $ --
Of CRHL
                             
Shannon Downs 2004 $ -- $   -- $ -- $ -- -- $ -- $ --
CFO, Director 2003 $ -- $   -- $ -- $ -- -- $ -- $ --
2002 $ -- $   -- $ -- $ -- -- $ -- $ --

All amounts reflected above are in United States currency.
1) Amounts paid to the respective executive's wholly owned corporation for services rendered by them through the corporation.
2) Of the $254,813, $72,961 was paid in 2004 and the remaining $181,852 is accrued compensation.
3) Of the $204,147, $53,470 was paid in 2004 and the remaining $150,677 is accrued compensation.
4) Of the $142,151, $61,302 was paid in 2004 and the remaining $80,849 is accrued compensation.
5) Of the $120,484, $58,622 was paid in 2004 and the remaining $61,862 is accrued compensation.
6) Of the $100,000, $58,143 was paid in 2004 and the remaining $41,857 is accrued compensation.

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Canadian Rockport Homes International, Inc.

7) Options to acquire 100,000 shares of common stock at $2.00 per share exercisable eights months after Canadian Rockport Homes International's common stock is trading publicly.
8) Options to acquire 200,000 shares of common stock at $2.00 per share currently exercisable through October 31, 2005.
9) Options to acquire 50,000 shares of common stock at $5.00 per share exercisable eights months after Canadian Rockport Homes International's common stock is trading publicly.
10) Options to acquire 100,000 shares of common stock at $5.00 per share exercisable eights months after Canadian Rockport Homes common stock is trading publicly.

Security Ownership of Certain Beneficial Owners and Management

The following tables set forth certain information regarding the beneficial ownership of our common stock as of December 31, 2004, by each person or entity known to be the beneficial owner of more than 5% of the outstanding shares of common stock, each of our directors and named executive officers, each of the directors and named executive officers of CRH, each of the directors and executive officers of RHCL, and our subsidiary CRH's directors and named executive officers and all directors and executive officers of our company as a group.

Security Ownership of Certain Beneficial Owners

Name and Address Amount and Nature Percentage
Title of Class of Beneficial Owner of Beneficial Ownership of Class
       
Common Stock TWiC Housing Corp. 2,100,000 11
#309-7600 Moffat, Richmond,
B.C. Canada, V6Y 3Y1
       
Common Stock Nelson Riis 1,786,326 11
700 West Pender, Suite 507
Vancouver, BC V6C 1G8
       
       
Common Stock Ryan Malone 866,371 6
201-2182 W. 2nd Avenue
Vancouver, B.C. Canada
V6K 1H6
       
Common Stock William Malone 433,186 3
700 West Pender, Suite 507
Vancouver, BC V6C 1G8
       
       
Common Stock Malone Int'l Group Services Inc. 433,186 3
700 West Pender, Suite 507
Vancouver, BC V6C 1G8
       
       
Common Stock Donald Belsby 791,000 4
2902 Belsby Road
Cheney, WA 99004
U.S.A.
       
Common Stock Bernard Smith 1,732,650 9
Box 45
Caslan, Alberta
Canada, TOA ORO

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Canadian Rockport Homes International, Inc.

Notes:

a) The above percentage s assumes 2,350,000 stock options have been exercised as of December 31, 2004
b) Harry Gordon and his family, through their ownership in Hamor Investments Ltd., have a 33 1/3% ownership interest in TWiC Housing Corp. Thus Mr. Gordon and his family own an approximate 33 1/3% interest in the 2,100,000 shares of CRHI's Common Stock.

Security Ownership by Management of the Company, CRH and RHCL.

Name and Address Amount and Nature Percentage
Title of Class of Beneficial Owner of Beneficial Ownership of Class
       
Common Stock William Malone 300,000 options
       
Common Stock Nelson Riis 1,375,304 11
#11-1555 Summit Drive, 300,000 options
Kamloops, B.C. Canada
V2E 1E9
       
Common Stock Ryan Malone 1,841,329 10
201-2182 West 2nd Avenue 300,000 options
Vancouver, B.C.
Canada, V6K 1H6
       
       
       
       
Common Stock Bernard Smith 1,841,209 10
Box 45
Caslan, Alberta
Canada, TOA ORO
       
Common Stock Harry Gordon 150,000 options
#309-7600 Moffat
Richmond, B.C. Canada
V6Y 3Y1
       
Common Stock Donald P. Belsby 870,570 5
2902 Belsby Road
Cheny, Washington 99004
U.S.A.
       
Common Stock Directors and Officers 6,451,356 36
(As A Group) (Not Including Options)

Notes:

a) Percentage of Class assumes all 2,350,000 stock options have been exercised.
b) Mr. Riis' wife owns an additional 60,040 shares of the company's common stock.
c) Mr. Belby's immediate family member Anne Belsby owns an additional 4,503 shares.

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Canadian Rockport Homes International, Inc.

Certain Relationships and Related Transactions

a. On February 5, 2001, the Company acquired all of the intellectual properties owned by TWiC Housing Corporation relating to the TWiC system for the construction of houses. Included in the assets acquired were the patents pertaining to the TWiC System. In exchange for the assets acquired, the Company issued 2,000,000 shares of its common stock. Under the terms of the purchase agreement, the shares issued have restricted covenants as to when the shares are free to sell or transfer. TWiC is wholly owned by Harry Gordon, a shareholder and director of the Company. The Company valued the assets purchased at their estimated historical cost of $10,057. The Company is amortizing the purchase price over 18 years, the remaining life of the related patent.
   
Pursuant to the purchase agreement, the Company guaranteed that the market price of the shares received by TWiC will exceed $2.50 Canadian within four years from the commencement date of trading. If the shares do not reach such a price within the period, the Company will issue sufficient additional shares in order that the total number of shares issued multiplied by the highest market price of the stock during the four year period equals $5,000,000 Canadian.
   
b. On January 10, 2001, the Company entered into an agreement with TWiC for the manufacturing of 32 molds and the supply of the services required to construct the Company's Chilean plant. For these molds and services, the Company agreed to pay $1,600,000 consisting of $1,400,000 cash, and 100,000 shares of common stock valued at $2.00 per share. Under the terms of the agreement the Company is to make a $300,000 down payment and pay the remainder of the balance due in progressive draws. During the year ended December 31, 2001, the Company paid $285,000 and issued the 100,000 shares of its common stock. The $485,000 has been included in construction in progress. No payments were made in 2002. On June 9, 2004, this agreement was concluded and the Company and TWiC each released each other from any further obligations that they had under it.
   
c. The Company's President has advanced funds to the corporation. These advances are non-interest bearing and due upon demand. The balance due the President as of December 31, 2002 was $2,117. The balance due the Company by the President as of December 31, 2003 was $2,492. The balance due the President by the Company as of December 31, 2004 was $39,979.

Principal Accountants Fees and Services

Audit Fees

The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements and for services provided by the accountant in connection with statutory and regulatory filings or engagements for the last two fiscal years were: $22,719 for Fiscal Year 2003 and $28,682. for Fiscal Year 2004.

Audit-Related Fees

The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the registrant's financial statements are $21,185 for fiscal year 2003 and $4,313 for fiscal year 2004.

Tax Fees

The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were $3,055 for fiscal year 2003 and $0 for fiscal year 2004..

All Other Fees

No other services were provided, nor aggregate fees billed, other then such services or fees which have been previously disclosed herein.

The registrant's Audit Committee, or officers performing such functions of the Audit Committee, has approved the principal account's performance of services for the audit of the registrant's annual financial statements; and review of financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal year ending December 31, 2004. Audit-related fees, tax fees, and all other fees, if any, were approved by the Audit Committee or officers performing such functions of the Audit Committee.

The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work preformed by persons other than the principal accountant's full-time, permanent employees was less than 50 percent.

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Canadian Rockport Homes International, Inc.

Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) The following are filed as exhibits with this report:

  31.1 Certification of Principal Executive Officer pursuant to Section 302
  31.2 Certification of Principal Accounting Officer pursuant to Section 302
  32 Certification of Principal Executive Officer and Principal Accounting Officer pursuant to Section 1350

(b) The following documents are incorporated by reference, as noted in each description, to this report:

Number Description
   
3 (a)
Articles of Incorporation of the registrant (filed as Exhibit 3.1 to the registrant's Registration Statement on Form S-1 (Number 333-62786) as amended, filed October 30, 2001), and incorporated herein by reference.
3 (b)
Bylaws and Amendments of the registrant (filed as Exhibit 3.5 to the registrant's Registration Statement on Form S-1 (Number 333-62786) as amended, filed October 30, 2001), and incorporated herein by reference.
4
Stock Purchase Agreements (filed as Exhibits 4.1 through 4.6 to the registrant's Registration Statement on Form S-1 (Number 333-62786) as amended, filed October 30, 2001), and incorporated herein by reference.
10 (a)
Stock Purchase Agreements (see Exhibit 4 above)
10 (b)
Option to Purchase Agreement (filed as Exhibit 10.02 to the registrant's Registration Statement on Form S-1 (Number 333-62786) as amended, filed October 30, 2001), and incorporated herein by reference.
10 (c)
February 15, 2001 Canadian Rockport Homes, Ltd. and TwiC Housing Corp. Purchase Agreement (filed as Exhibit 10.03 to the registrant's Registration Statement on Form S-1 (Number 333-62786) as amended, filed October 30, 2001), and incorporated herein by reference.
10 (d)
Plant Construction Agreement between CRH and TwiC Housing Corp. (filed as Exhibit 10.04 to the registrant's Registration Statement on Form S-1 (Number 333-62786) as amended, filed October 30, 2001), and incorporated herein by reference.
10 (e)
Lease Agreement of Quilicura Plant (filed as Exhibit 10.05 to the registrant's Registration Statement on Form S-1 (Number 333-62786) as amended, filed October 30, 2001), and incorporated herein by reference.
10 (f)
Employee Agreement with William Malone (filed as Exhibit 10.06 to the registrant's Registration Statement on Form S-1 (Number 333-62786) as amended, filed October 30, 2001), and incorporated herein by reference.
10 (g)
Employment Agreement with Nelson Riis (filed as Exhibit 10.07 to the registrant's Registration Statement on Form S-1 (Number 333-62786) as amended, filed October 30, 2001), and incorporated herein by reference.
11
Computation of Loss Per Common Share (filed as Exhibit 11.01 to the registrant's Registration Statement on Form S-1 (Number 333-62786) as amended, filed October 30, 2001), and incorporated herein by reference.
21
List of the Registrant's Subsidiaries (filed as Exhibit 21.01 to the registrant's Registration Statement on Form S-1 (Number 333-62786) as amended, filed October 30, 2001), and incorporated herein by reference.
24
Powers of Attorney, appears on signature page in Part II of the registrant's Registration Statement on Form S-1 (Number 333-62786) as amended, filed October 30, 2001), and incorporated herein by reference.

(c) Reports on Form 8-K

No reports on Form 8-K were filed in fiscal year 2003.

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Canadian Rockport Homes International, Inc.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  Canadian Rockport Homes International, Inc.
  Registrant
   
   
  By: /s/ William R. Malone, CEO
  William R. Malone, CEO
   
  Date: August 23. 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: August 23, 2005 By: /s/ Nelson Riis, Director
Nelson Riis, Director
     
Date: August 23, 2005 By: /s/ Shannon Downs, Treasurer
Shannon Downs, Treasurer

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