0001091818-01-500274.txt : 20011107 0001091818-01-500274.hdr.sgml : 20011107 ACCESSION NUMBER: 0001091818-01-500274 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011101 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPOSITE INDUSTRIES OF AMERICA INC CENTRAL INDEX KEY: 0000894501 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 870434297 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 033-55254-18 FILM NUMBER: 1773436 BUSINESS ADDRESS: STREET 1: 4505 W HACIENDA AVE STREET 2: UNIT I 1 CITY: LAS VEGAS STATE: NV ZIP: 89118 BUSINESS PHONE: 7025794888 MAIL ADDRESS: STREET 1: 3098 S HIGHLAND DR STE 460 CITY: SALT LAKE CITY STATE: UT ZIP: 84106 FORMER COMPANY: FORMER CONFORMED NAME: AFFORDABLE HOMES OF AMERICA INC DATE OF NAME CHANGE: 19990518 FORMER COMPANY: FORMER CONFORMED NAME: WORLD HOMES INC DATE OF NAME CHANGE: 20001109 10QSB 1 ciai_10q-110101.txt QUARTERLY REPORT =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-QSB ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for quarterly period ended September 30, 2001 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE OF 1934 for the transition period from ______________ to _________________ Commission File No. 33-55254-18 COMPOSITE INDUSTRIES OF AMERICA, INC. (exact name of Registrant as Specified in its charter) NEVADA 87-0434297 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 4505 W. Hacienda Ave. Unit I-1 Las Vegas, Nevada 89118 Address of principal executive office) (Zip Code) =============================================================================== Registrants telephone number, including area code (702) 579-4888 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to filed by Section 13 or 15(d) of the Securities Exchange A ct 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. [x] yes [ ] no Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) 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 the Form I O-QSB or any amendment to this Form I O-QSB. [x) Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding as of September 30, 2001 $.001 PAR VALUE CLASS A COMMON STOCK 40,065,281 VALUE Class A Convertible Preferred Stock 428,572 VALUE Class B Convertible Preferred Stock 0 ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2001 and JUNE 30, 2001
(Unaudited) ASSETS September June 2001 2001 ---------- ----------- Cash $ 189,752 $ 667,142 Land development costs 69,435 65,991 Prepaid consulting fees 33,000 - Other receivables 18,089 - Deferred tax asset 2,760,000 2,390,000 Machinery & equipment - net of accumulated depreciation of $44,308 and $40,232 as of September 30, 2001 and June 30, 2001, respectively 166,547 164,805 Patent - net of accumulated amortization of $2,519,375 and $2,258,750 as of September 30, 2001 and June 30, 2001, respectively 14,678,724 14,939,349 ---------- ----------- TOTAL ASSETS $17,915,547 $18,227,287 ========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F - 1 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED BALANCE SHEETS (continued) SEPTEMBER 30, 2001 and JUNE 30, 2001
(Unaudited) September June LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2001 ------------ ----------- LIABILITIES Accounts payable $ 24,683 $ 3,530 Accrued expenses 31,357 20,000 Accrued interest 42,438 22,313 Loans and notes payable 132,294 133,429 Loans and advances from related parties 125,301 325,301 Convertible debenture - net of unamortized discount of $45,250 and $68,250 as of September 30, 2001 and June 30, 2001, respectively 954,750 931,750 Deferred tax liability 4,876,633 4,963,183 ------------ ----------- TOTAL LIABILITIES 6,187,456 6,399,506 ------------ ----------- COMMITMENTS AND CONTINGENCIES (NOTE 15) STOCKHOLDERS' EQUITY Convertible preferred stock class A, (5,000,000 shares authorized; 428,572 shares issued and outstanding at September 30, 2001 and June 30, 2001) 1,511,086 1,511,086 Convertible preferred stock class B (5,000,000 shares authorized: 0 shares issued and outstanding at September 30, 2001 and June 30, 2001) - - Common stock ($.001 par value, 100,000,000 shares authorized, 40,065,281 shares issued and outstanding as of September 30, 2001; 22,761,396 shares issued and outstanding as of June 30, 2001) 40,065 22,761 Additional paid-in capital 22,959,598 17,347,521 Prepaid officers' compensation ( 4,834,375) - (Deficit) accumulated during the development stage ( 7,948,283) (7,053,587) ------------ ----------- Total Stockholders' Equity 11,728,091 11,827,781 ------------ ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,915,547 $ 18,227,287 ============ ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F - 2 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 and 2000 2001 2000 ------------ ----------- Operating expenses: General and administrative expenses $ 75,525 $ 101,127 Depreciation and amortization 264,701 274,044 Officers' compensation 816,242 - Consulting fees 153,685 142,904 ------------ ----------- Total operating expenses 1,310,153 518,075 ------------ ----------- (Loss) from operations ( 1,310,153) ( 518,075) ------------ ----------- Other income and (expense): Interest and other income 2,648 1,024 (Loss) on sale of land - ( 197,650) Interest (expense) ( 43,741) ( 5,202) ------------ ----------- Total other (expense) - net ( 41,093) ( 201,828) ------------ ----------- Net (loss) before income taxes ( 1,351,246) ( 719,903) ------------ ----------- Benefit for income taxes 456,550 240,000 ------------ ----------- Net (loss) $ ( 894,696) $ ( 479,903) ============ =========== Net (loss) per common share $ ( .03) $ ( .02) ============ =========== Weighted average number of common shares outstanding 30,250,755 20,823,698 ============ =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F - 3 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
Convertible Common Preferred Stock Additional Stock A .001 Par Value Paid-in Shares Amount Shares Amount Capital ------- --------- ---------- ---------- ----------- Opening balance - July 1, 2001 428,572 $1,511,086 22,761,396 $ 22,761 $17,347,521 Issuance of common stock to officers in lieu of cash compensation 17,000,000 17,000 5,508,000 Amortization of officers' compensation Issuance of common stock for consulting services 150,000 150 65,850 Issuance of common stock 149,385 149 37,197 Adjustment 4,500 5 1,030 Net (loss) for the three months ended September 30, 2001 ------- --------- ---------- ---------- ----------- Closing balance - September 30, 2001 428,572 $1,511,086 40,065,281 $ 40,065 $ 22,959,598 ======= ========= ========== ========== ===========
(Deficit) Accumulated Prepaid During the Total Officers' Development Stockholders' Compensation Stage Equity ------------- --------------- ------------ Opening balance - July 1, 2001 $ - $( 7,053,587) $ 11,827,781 Issuance of common stock to officers in lieu of cash compensation ( 5,525,000) - Amortization of officers' compensation 690,625 690,625 Issuance of common stock for consulting services 66,000 Issuance of common stock 37,346 Adjustment 1,035 Net (loss) for the three months ended September 30, 2001 ( 894,696) ( 894,696) ------------- --------------- ------------ Closing balance - September 30, 2001 $ ( 4,834,375) $ ( 7,948,283) $ 11,728,091 ============= =============== ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F - 4 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued) FOR THE YEAR ENDED JUNE 30, 2001
Convertible Common Preferred Stock Additional Stock A .001 Par Value Paid-in Shares Amount Shares Amount Capital ------- --------- ---------- ---------- ----------- Opening balance - July 1, 2000 428,572 $1,511,086 20,417,379 $ 20,417 $16,195,761 Issuance of common stock for officer's compensation 1,975,000 1,975 787,350 Issuance of common stock for legal and for consulting services rendered 90,000 90 44,910 Issuance of Common Stock through exercise of stock options 500,000 500 199,500 Issuance of stock option to consultant 120,000 120,000 Cancellation of restricted stock issued in the acquisition of Big Mountain Construction Company, Inc. ( 215,983) ( 216) Adjustment ( 5,000) ( 5) Officer loans converted to compensation Net (loss) for the year ended June 30, 2001 ------- --------- ---------- ---------- ----------- Closing balance - June 30, 2001 428,572 $1,511,086 22,761,396 $ 22,761 $ 17,347,521 ======= ========= ========== ========== ===========
(Deficit) Accumulated During the Total Officers' Development Stockholders' Loans Stage Equity ------------- --------------- -------------- Opening balance - July 1, 2000 $ (191,749) $ ( 4,312,689) $ 13,222,826 Issuance of common stock for officer's compensation 789,325 Issuance of common stock for legal and for consulting services rendered 45,000 Issuance of Common Stock through exercise of stock options 200,000 Issuance of stock option to consultant Cancellation of restricted stock issued in the acquisition of Big Mountain Construction Company, Inc. ( 216) Adjustment ( 5) Officer loans converted to compensation 191,749 191,749 Net (loss) for the year ended June 30, 2001 ( 2,740,898) ( 2,740,898) ------------- --------------- -------------- Closing balance - June 30, 2001 $ - $ ( 7,053,587) $ 11,827,781 ============= =============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F - 5 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
2001 2000 ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $( 894,696) $( 479,903) ADJUSTMENTS TO RECONCILE NET (LOSS) TO CASH (USED) IN OPERATING ACTIVITIES Depreciation and amortization 264,701 274,044 Deferred tax benefit ( 456,550) ( 240,000) Loss on sale of land - 197,650 Stock issued for services 724,660 185,725 Reduction of officer loans as repayment for services - 31,000 (Increase) decrease in assets: Employee advances - ( 788) Capitalized interest - ( 48,142) Land development costs ( 3,444) - Other assets - ( 45,000) Increase (decrease) in liabilities: Accounts payable 21,153 ( 9,212) Accrued expenses 11,356 ( 84,798) Accrued interest 43,125 - ---------- ----------- Total Adjustments 605,001 260,479 ---------- ----------- Net cash (used) by operating activities ( 289,695) ( 219,424) CASH FLOWS FROM INVESTING ACTIVITIES: Machinery and equipment acquisitions ( 5,818) - ---------- ----------- Net cash (used) by investing activities ( 5,818) - ---------- ----------- Subtotal ( 295,513) ( 219,424) ========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F - 6 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
2001 2000 ---------- ----------- Subtotal $( 295,513) $( 219,424) CASH FLOWS FROM FINANCING ACTIVITIES: Loans and advances from (to) related parties ( 200,000) 71,240 Repayment of officer loans - 163,000 Issuance of common stock 19,258 - Loans and notes payable - (repayments) ( 1,135) ( 1,237) ---------- ----------- Net cash (used) provided by financing activities ( 181,877) 233,003 ---------- ----------- Net (decrease) increase in cash ( 477,390) 13,579 ---------- ----------- Cash - beginning of period 667,142 18,516 ---------- ----------- Cash - end of period $ 189,752 $ 32,095 ========== =========== Supplemental Disclosure of cash flow information: Cash Paid During the Year for: Interest expense $ 91 $ 5,202 ========== =========== Income taxes $ - $ - ========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F - 7 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 NON-CASH INVESTING AND FINANCING TRANSACTIONS On May 25, 2000, Composite issued 327,511 shares of common stock valued at $191,749 to an officer of the Company to pay specific company expenses. Accordingly, an officer loan receivable was recorded for $191,749 and was reflected as a reduction of stockholders' equity at June 30, 2000. An additional 300,000 shares valued at $131,000 were issued to the officer during the quarter ended September 30, 2000. During this quarter, the $163,000 was repaid to the Company. The loan was also reduced by an additional $31,000 in exchange for services. During the three months ended September 30, 2000, Composite issued 425,000 shares of common stock valued at $185,725 for legal and consulting services performed. On July 2, 2001, the Company issued 150,000 shares of common stock to a financial consulting firm as a "commencement bonus" under an agreement wherein the financial consultant will perform certain evaluations and analyses for the Company. The agreement term is for six months effective July 1, 2001. These shares related to the commencement bonus have been valued at $.44 per share for a total valuation of $66,000. This will be recognized as consulting expenses over six months commencing July, 2001. For the three months ended September 30, 2001, consulting expense amounted to 33,000. The Company recorded the remaining $33,000 as prepaid consulting fees as a current asset. On July 11, 2001, a total of 149,385 shares of the Company's common stock were issued to two individuals for $37,346 to be paid at a future date. These shares are restricted as to transferability under SEC Rule 144 for a period of one year. The shares have been valued at $.25 per share for a total valuation of $37,346. The portion that remained unpaid as of September 30, 2001 amounted to $18,089. This was recorded as other receivables and is shown as a current asset. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F - 8 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 NON-CASH INVESTING AND FINANCING TRANSACTIONS (continued) Composite issued 17,000,000 shares of common stock to senior corporate officers on August 23, 2001. The shares were issued for future services to be rendered to the Company related to capital raising efforts, building alliances, and overall corporate strategy development. These shares are restricted as to transferability under SEC Rule 144. The trading restrictions run for a two-year period. The shares have been valued at $.33 per share for a total valuation of $5,525,000. This value reflects a discount of 50% for the two-year trading restriction as well as a discount related to the volume of shares in this transaction compared to the number of shares outstanding. Therefore, the unearned compensation of $5,525,000 related to this transaction will be amortized to compensation expense ratably over a two-year period. For the three months ended September 30, 2001, compensation expense amounted to $690,625. The remaining compensation of $4,834,375 was recorded as prepaid officers' compensation as a reduction of stockholders' equity. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F - 9 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 and 2000 NOTE 1 - General and Summary of Significant Accounting Policies (A) - Nature of Business Composite Industries of America, Inc. ("Composite"- formerly known as World Homes, Inc./ Affordable Homes of America, Inc.), is a development stage company primarily in the business of land development and the construction of residential houses. Composite owns the patent rights to a compound to be used in the construction process referred to as Z-MIX. The process is more fully described in Note 2. Composite's operations include its wholly owned subsidiary Big Mountain Construction Company, Inc., which is a general building contractor. During the fiscal quarter ended March 31, 2001, operations of Big Mountain terminated. Composite Industries' corporate headquarters are located in Las Vegas, Nevada. During the 2001 fiscal year, the Company underwent a name change to World Homes, Inc. The Company changed its name again to Composite Industries of America, Inc. in August 2001. (B) - Consolidated Net (Loss) per Common Share Consolidated net (loss) per common share is computed on the basis of the weighted average number of common shares outstanding during the period. Only the weighted average number of shares of common stock outstanding was used to compute basic loss per share for the three months ended September 30, 2001 and 2000 as the inclusion of stock options are anti-dilutive. There were no stock warrants, or other common stock equivalents outstanding during this period. (C) - Income Taxes Income taxes are provided or a benefit is accrued on all revenue and expense items included in the consolidated statements of operations, regardless of the period in which such items are recognized for income tax purposes, except for items representing a permanent difference between pretax accounting income and taxable income. F - 10 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 and 2000 NOTE 1 - General and Summary of Significant Accounting Policies (continued) (D) - Depreciation Composite depreciates equipment, vehicles, furniture and fixtures, and machinery on a straight-line basis over five to ten years for financial reporting purposes. (E) - Patents Composite amortizes its patent rights from the date of acquisition on a straight-line basis over its remaining life at acquisition of 16 years and 3 months. (F) - Use of Estimates In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (G) - Basis of Presentation The accompanying consolidated balance sheets and related consolidated statements of operations, stockholders' equity and cash flows during the development stage, includes the accounts of Composite Industries of America, Inc. and Big Mountain Construction Company, Inc. as of September 30, 2000 and for the three months then ended. Significant inter-company transactions or balances have been eliminated. The financial statements include only the operations of Composite Industries of America, Inc. for the three months ended September 30, 2001 since Big Mountain was terminated in March, 2001. F - 11 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 and 2000 Note 2 - Patent Composite believes that it is appropriate to continue to carry the cost of its Z-MIX patent at September 30, 2001 because the signing of these long-term contracts demonstrates the patent's immediate commercial viability. Furthermore, management believes that the expected future profits and cash flows will support the carrying value of the patent. The patent is being amortized on a straight-line basis over the remaining life of the patent (195 months as of the acquisition date). Patent amortization expense amounted to $260,625 for the three months ended September 30, 2001 and 2000. Note 3 - Machinery and Equipment Machinery and equipment consists of the following as of September 30, 2001 and June 30, 2001: (Unaudited) September June 2001 2001 ---------- ---------- Equipment and tools not placed in service $ 80,060 $ 80,060 Machinery and equipment 96,062 90,244 Office equipment 5,094 5,094 Furniture and fixtures 3,032 3,032 Vehicles 26,607 26,607 210,855 205,037 Less: accumulated depreciation ( 44,308) ( 40,232) ---------- ---------- Total $ 166,547 $ 164,805 ========== ========== Depreciation expense was incurred in the amount of $4,076 and $8,316 for the three months ended September 30, 2001 and 2000, respectively, and is included in operating expenses. F - 12 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 and 2000 NOTE 4 - Income Taxes Composite accounts for income taxes on the liability method, as provided by Statement of Financial Accounting Standards 109, Accounting for Income Taxes (SFAS 109). For the three months ended September 30, 2001 and 2000, the income tax (benefit) was comprised of the following components: 2001 2000 ---------- ---------- Current - Federal $ - - State - - ---------- ---------- Total current - - Deferred - Federal ( 456,550) ( 240,000) State - - ---------- ---------- Total deferred ( 456,550) ( 240,000) Total $( 456,550) $ ( 240,000) ========== ========== The only differing method of reporting income for tax purposes as compared to financial reporting purposes was in connection with the deferred tax liability resulting from the acquisition of patent rights described in Note 2. In addition, there is a deferred tax asset relating to the benefit provided by the net operating loss carry forward. As there are no state income taxes to be considered, the income tax provision is computed at the federal statutory rate of 34%. Deferred tax assets and liabilities consist of the following: (Unaudited) September June 2001 2001 ---------- ---------- Deferred tax assets- Tax benefit of net operating loss carryovers $ 2,760,000 $ 2,390,000 Valuation allowance - - ---------- ---------- $ 2,760,000 $ 2,390,000 ---------- ---------- Deferred tax liabilities- Patent rights acquired $ 4,876,633 $ 4,963,183 ========== ========== F -13 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 and 2000 NOTE 4 - Income Taxes (continued) No valuation allowance was required for the deferred tax asset for each of the periods presented because management determined that there is a strong likelihood of realization of the deferred tax asset. The deferred tax asset relates to the net operating loss carry forward. Composite incurred net operating losses for financial reporting purposes totaling $894,696 during the three months ended September 30, 2001 available to offset future income for financial reporting purposes expiring in 2020. NOTE 5 - Loans and Notes Payable The following schedule summarizes loans and notes payable as of September 30, 2001 and June 30, 2001:
(Unaudited) September June 2001 2001 ---------- ---------- Note payable to Joseph Vozka dated January 30, 2001 secured by forms built by Precise Forms, Inc. due on demand including interest at 15% per annum 125,000 125,000 Automobile loan dated April 11, 2000 payable at $412 per month including interest at 5.12% per annum with the final installment due on April 11, 2005 7,294 8,429 ---------- ---------- Total 132,294 133,429 Less: current maturities 129,685 129,627 ---------- ---------- Long-term portion $ 2,609 $ 3,802 ========== ==========
Interest expense related to these loans for the three months ended September 30, 2001 and 2000 amounted to $5,408 and $5,202, respectively. The carrying value of the Company's borrowings approximate their fair values. Additionally, included in interest expense for the three months ended September 30, 2001 is interest on the convertible debenture and the amortization of the related discount which total $38,333. F - 14 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 and 2000 NOTE 6 - Related Party Transactions Composite has entered into consulting agreements with certain members of the Company's Board of Directors and stockholders to provide services on various strategic and business issues. The agreements are renewable at the discretion of management. Total fees paid for such services by the Company either in stock or cash during the three months ended September 30, 2001 and 2000 were $816,242 (including $125,617 cash) and $77,500 respectively and are included in operating expenses in the consolidated statements of operations. Management believes the transactions were at arm's length. The President and Chief Executive Officer has from time to time advanced funds to Composite or one of its subsidiaries to assist with working capital requirements. These transactions are short-term in nature. The joint venture construction project known as Heartland Homes advanced $53,101 to Big Mountain Construction Company, Inc. These advances are non-interest bearing and are short-term in nature. Funds advanced to the Company as of September 30, 2001 and June 30, 2001 amounted to $125,301 and $325,301, respectively, and are carried in loans and advances from related parties. No interest was charged for the three months ended September 30, 2001 and 2000. NOTE 7 - Concentration of Credit Risk - Cash Composite maintains its cash balances at financial institutions located in Nevada. At times, the balance may exceed federally insured limits of $100,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash on deposit. The fair market value of this financial instrument approximates cost. F - 15 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 and 2000 NOTE 8 - Industry Segment Information Composite's operations are conducted in one industry segment. NOTE 9 - Other Receivables On July 11, 2001, 149,385 restricted shares of the Company's common stock were issued to two individuals for cash to be paid at a future date. The shares are valued at $37,346 or $.25 per share. As of September 30, 2001, $18,089 remained unpaid. NOTE 10 - Stock Issued For Services During the three months ended September 30, 2000, Composite issued 425,000 shares of common stock valued at $185,725 for legal and consulting services performed. NOTE 11 - Rent Composite rents office space for its Las Vegas, Nevada headquarters on a month-to- month basis. Rent expense amounted to $1,920 for each of the three months ended September 30, 2001 and 2000. NOTE 12 - Prepaid Consulting Fees On July 2, 2001, the Company issued 150,000 shares of common stock to a financial consulting firm as a "commencement bonus" under an agreement wherein the financial consultant will perform certain evaluations and analyses for the Company. The agreement term is for six months starting on May 23, 2001. These shares related to the commencement bonus have been valued at $66,000 or $.44 per share. This will be recognized as consulting expenses ratably over six months commencing July, 2001. For the three months ended September 30, 2001, consulting expense amounted to $33,000 with $33,000 remaining as prepaid consulting fees. F - 16 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 and 2000 NOTE 13 - Prepaid Officers' Compensation On August 23, 2001 Composite issued 17,000,000 shares of common stock to senior corporate officers. The shares were issued for future services to be rendered to the Company related to capital raising efforts, building alliances, and overall corporate strategy development for the period from July 1, 2001 to June 30, 2003 and are restricted as to transferability under SEC Rule 144 for two years. The shares have been valued at $5,525,000 or $.33 per share. This value reflects a discount for the restriction as well as the volume of shares. Therefore, the unearned compensation of $5,525,000 related to this transaction will be amortized ratably over a two-year period. For the three months ended September 30, 2001, compensation expense amounted to $690,625. The remaining compensation of $4,834,375 was recorded as prepaid officers' compensation as a reduction of stockholders' equity. NOTE 14 - Going Concern Considerations Composite Industries has operated as a development stage enterprise since February 10, 1997, its inception and therefore has operated for over four years without generating revenues. Funds have been generated primarily by the extension of loans and advances from officers and directors and the issuance of common and preferred stock and debentures. The failure to generate revenues from operations has caused Composite to experience liquidity shortfalls from time to time. The Chairman, Merle Ferguson has pledged to continue to contribute money to keep Composite solvent during the next twelve months. Further, the Company has contracts with joint venture partners and expects to commence construction operations during fiscal year 2002. It is for these reasons that management believes that substantial doubt about Composite's ability to continue as a going concern is alleviated. F - 17 COMPOSITE INDUSTRIES OF AMERICA, INC. and SUBSIDIARIES (a development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 and 2000 NOTE 15 - Subsequent Events Acquisitions: On October 1, 2001, Composite acquired 100% of the common stock of MJB Towers, Inc. a California corporation in the business of acquiring and leasing telecommunication towers, in exchange for 1,000,000 shares of preferred stock. In addition, the terms of the agreement specify a bonus payment first, beginning with the first month of operations, and there is a provision for an additional bonus based on future performance. Stock Exchange Agreement: On October 5, 2001, Composite has entered into a stock exchange agreement with Tribal Electric Association-2000, a California corporation, ("TEA") in the business of developing, constructing and operating power plants in the United States and throughout the World, in exchange for 1,000,000 shares of Class C convertible preferred non-voting shares at a strike price of $150 per share. All of the shares owned by ("TEA") constitute 100% of all the issued and outstanding capital stock of the Company. F - 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the Consolidated Financial Statements, including the corresponding footnotes, which is included within this report. The following discussion contains certain forward-looking statements within the meaning of Securities Act of 1933 as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, which are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from the results anticipated in those forward-looking statements. These risks and uncertainties include, but are not limited to those set forth below and the risk factors described in the Company's other filings with the Securities and Exchange Commission. Composite Industries of America (Affordable Homes/World Homes) is a homebuilding and development company in the development stage focusing on building for low-income and first-time homebuyers. The Company has and will continue to develop new building techniques and patented products that significantly reduce the overall cost and time, while maintaining or increasing the quality and integrity of new home construction. The Company's plan is to develop and build its "World Home" for sale outside the United States in developing nations where there is an immediate need for permanent affordable shelter. The patented Z MIX material used in the "World Home' provides protection from the elements; hurricanes, earthquakes, as well as being fireproof. Composite Industries of America's immediate focus is to enter into licensing and/or joint venture affiliations in which it will supply its proprietary, patent-protected Z MIX material to established companies for use outside the United States in home construction and other applications such as railroad ties, utility poles and environmental remediation. The Company believes this approach to be the fastest route for the penetration into the global marketplace. The Company projects that the revenues received from licensing Z MIX technology will be recognized by the Company without incurring the usual development and labor expenses associated construction projects. RESULTS OF OPERATIONS Quarter ended September 30, 2001 vs. September 30, 2000 REVENUES. Composite Industries of America is presently a development stage company. Accordingly, the Company has no revenues for the three months ended September 30, 2001. OPERATING EXPENSES. Operating expenses are comprised of General and Administrative Expenses which consists primarily of amortization of patent expense, professional fees, product development expense and office expense. Amortization expense related to the patent amounted to $260,625 and $260,625 during each of the periods ended September 30, 2001 and 2000. The patent is being amortized on a straight-line basis over the remaining life of the patent (195 months as of the acquisition date, April 28, 1999). Operating expenses increased from $257,450 for the three months ended September 30, 2000 to $1,049,528 (or by $792,078) for the three months ended September 30, 2001. The increase in operating expenses was primarily due to officers' compensation which increased from $0 for the three months ended September 30, 2000 to $816,242 (refer to Note 13 of the Financial Statement) for the three months ended September 30, 2001. NET LOSS. As a result, our net loss after the tax benefit increased from $479,903 for the three months ended September 30, 2000 to $894,696 for the three months ended September 30, 2001. LIQUIDITY AND CAPITAL RESOURCES Composite Industries of America is currently a development stage company, however management projects that during the next twelve months revenue derived from one or more of the signed joint ventures, or the proceeds from a private placement which is under negotiations should be sufficient to finance the Company's working capital and capital expenditures. Although Composite Industries of America believes that the revenues projected over the next twelve months will be significant, we are presently in negotiations for a private placement for immediate funds. The Company is confident that with its product and technology, signed joint ventures and stronger balance sheet, that it will successfully complete a private placement. In the event that the Company does not secure additional financing, the Company has made provisions for working capital, for the next twelve months. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has no market risk sensitive instruments or market risk exposures. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There is no pending or threatened litigation or other legal proceedings, material or otherwise, nor any claims or assessments with respect to Affordable Homes of America, Inc. at the present time. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS NONE ITEM 3. DEFAULTS UPON SENIOR INDEBTEDNESS NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to the Company security holders for a vote during the period ending September 30, 2001. ITEM 5. OTHER INFORMATION BUSINESS On March 17, 1999, Kowtow, Inc. received 100% of the common stock of Affordable Homes of America, Inc. in a merger. Additionally, Kowtow, Inc. issued 4,000,000 shares of common stock to SCS Enterprises, Inc. Trust, the sole shareholder of Affordable Homes of America, Inc. On the same date the company accepted the resignation of Krista Nielson and Sasha Belliston as Officers and Directors of the Company and elected Merle Ferguson as President, CEO and Chairman of the Board of Directors. The Company also elected Susan Donohue as Secretary and as a member of the Board of Directors. The Company changed its name to Affordable Homes of America, Inc. on March 19, 1999 and obtained a new trading symbol -AHOA. The Company restructured its common stock with a two for one forward split effective March 31, 1999. The Company changed its name to World Homes, Inc.(WHME) on October 10, 2000 and to Composite Industries of America, Inc. (CIAI) on August 23, 2001. Affordable Homes of America, Inc. and World Homes, Inc. are fully owned subsidiaries of the Company. Composite Industries of America maintains its principle offices at 4505 W. Hacienda Ave., Unit I-1, Las Vegas, Nevada 89118. Composite Industries of America is in the business of building homes for low income and first time home buyers. Founded in 1997, the focus of the Company is to develop and build homes for sale in the United States and international locations with little or no timber products. The Company's methods are patented. There are three methods for new home construction. These include: * Z Mix - A cementitious product that combines diatomaceous earth and used tires to create a lightweight building material that reduces the time and the cost for constructing a house. The Company currently holds the patent on Z Mix. * In-line Framing - A new method of construction that reduces the amount of wood used by one third. This reduces the cost of lumber used in construction, and thereby reduces the overall cost of the home. * Foam-Panelized Construction - This method of construction uses foam slabs covered with panels and strengthened with internal trusses. This allows for increased insulation and quick construction. All three methods (i) reduce the time and cost needed to construct the average home, and (ii) reduce the amount of wood used in building the average home. Company research has shown that more Americans ages 25 to 45 would prefer to purchase homes rather than rent. To make this option viable, the Company's homes are financed 100% by lending institutions and the monthly payments are comparable to the expense of renting. Additionally, older Americans are more inclined to move into homes that are less expensive, due to their retirement status and reduced monthly income. The Company is finishing the certification procedures necessary to sell its Z Mix products in the US. Once complete, the Company will begin sales and distribution of its products in US. The Company has been approached by several international entities to use Z Mix for construction. To date, the Company has made two (2) acquisitions: (a) On April 28, 1999, Affordable Homes acquired Composite Industries of America, Inc. the owner of a patent covering a construction material known as "Z Mix". Z Mix is a cementitious building material and can be used in a two step construction method instead of cement, dry wall or lumber. Affordable Homes believes Z Mix will enable it to build better quality homes at a lower price than if other products were used. (b) On June 28, 1999 Affordable Homes also acquired Big Mountain Construction Company which holds the exclusive right to build all the houses for the Heartland Homes development. The development is planned for the construction of 136 homes, each on an individual site. The inability to maintain the operations of Big Mountain caused the Company to abandon its entire investment in Big Mountain in March 2001. Composite Industries of America, Inc. The acquisition of Composite Industries was accomplished by exchanging one share of Affordable's/World Homes' common stock for two shares of the original Composite's common stock. All stock issued by Affordable/World Homes pursuant to this acquisition was restricted. Affordable Homes/World Homes was the surviving entity and acquired the patents owned by Composite. The patents cover a construction material called "Z MIX". Z MIX is a building material lighter than cement that can be used in home construction instead of cement, lumber or dry wall. The patented construction material is a lightweight cementitious insulating mixture with a high compression strength and thermal resistance values up to 30 to 40 times that of standard concrete. It is fire proof, insect proof, has excellent acoustical properties and is easy to clean up. Z MIX can be used for wall and roof panels and can easily be pumped for walls and floors. Z MIX makes a well insulated cost effective floor that has a slight give to it. Z MIX is excellent for gymnasium floors. This material is used for residential, light commercial and agricultural building. The composition has the unique property of being able to absorb contaminated or hazardous materials, especially petroleum based contaminants and is especially useful in cleaning up and controlling contaminants in underground storage tanks, especially in abandoned or closed service stations. The Company also acquired the plans for a "World Home" and a "US Home" made from this material. These plans have been certified by Larson Engineering, Inc. as earthquake resistant in all four seismic regions in the world. Larson Engineering, Inc. also certified that houses built from these materials are able to withstand hurricane winds up to 150 mph. Composite Industries of America believes that use of Z MIX will permit it to construct lower cost housing at substantial less that the present cost for such housing. Z MIX can also be used in the manufacturing of utility poles, railroad ties and pallets with substantial savings in the manufacturing cost of these items. The Company believes that the use of Z MIX will broaden its market and increase its profitability. Big Mountain Construction Company, Inc. The Company acquired Big Mountain Construction Company, Inc. for $500,000 paid in restrictive common stock in the amount of 215,983 shares. Big Mountain maintains a general contractor license and has the exclusive right to build out 136 homes for Heartland Homes Estates, an affordable housing project near Tacoma, Washington. Big Mountain's master appraisals are generally $10,000 - $12,000 higher than the selling price. This allows Big Mountain to feature 100% financing for their buyers, including VA and FHA programs. This feature will give the Company the ability to qualify more homebuyers and close more loans than their competition. Big Mountain Construction has had a presence in the entry-level and one step-up housing market for over 20 years in the State of Washington. The Company's business is not seasonal although during some snow storms on- site construction generally does not take place unless indoors. The Company uses no special raw materials and the materials it does use are available from numerous suppliers throughout the United States. Composite Industries of America (Affordable Homes/World Homes) has signed Joint Venture Agreements or strategic alliance agreements with the following companies: (a) Tristar USA of LA, Inc. and Affordable Homes signed a five-year Joint Venture Agreement on June 22, 2000. Tristar will act as the construction company and Affordable Homes will supply its proprietary Z MIX material for building affordable housing in Developing Nations, particularly in Nigeria. (b) AL NASR Trading & Industrial Corporation L.L.C. and Affordable Homes signed a three-year Joint Venture Agreement with a 25-year optional extension, on August 17, 2000. AL NASR is to provide a proposal for the establishment of a manufacturing plant for Z MIX in a Middle Eastern country and a working plan for at least four other countries in the Middle Eastern / Northern Africa area. Affordable Homes will provide its patented Z MIX material and its technical expertise in building affordable housing. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table shows the positions held by the Company's officers and directors. The directors were appointed and will serve until the next annual meeting of the Company's stockholders, and until their successors have been elected and have qualified. The officers were appointed to their positions, and continue in such positions at the discretion of the directors. NAME AGE POSITION -------------- --- ----------------------------------------- Merle Ferguson 54 President, CEO and Chairman of the Board William Morris 63 Vice President of Finance, CFO, Treasurer Susan Donohue 49 Vice President of Operations, Secretary Randy Vozka 37 Vice President of R & D Merle Ferguson, President, CEO and Chairman of the Board, founded Affordable Homes of America, Inc. in 1997 after a successful career in the construction industry. Mr. Ferguson's goal was to form a national construction company able to create affordable, quality homes for first-time and low-income homebuyers. Prior to starting the Company, Mr. Ferguson spent 24 years in the construction industry as a builder and real estate developer in California, Oregon and Washington States. Mr. Ferguson attended Yakima Valley College from 1964-1966 with a major in forestry and a minor in Business Management. In April of 1966, he enlisted in the United States Marine Corps, serving two tours in Vietnam, and was honorably discharged in 1970. For the past 7 years, Mr. Ferguson has been researching new construction products used to reduce deforestation. Some of the construction methods under development by the Company use no timber products. William Morris joined Composite Industries of America as Vice President of Finance, Chief Financial Officer and Treasurer of the Board in May of 2001. Mr. Morris brings over 30 years of financial and accounting experience to the Company. The majority of the 30 years were performing the duties of Chief Financial Officer. He was the CFO for (Sony) / Superscope, Inc. and Maranatz Company, Inc., and at one time was the youngest CFO of a New York Stock Exchange company. Susan Donohue is the Vice President of Operations, and Secretary of the Board. She was one of the two founders of Zawada Technologies, Inc. At Zawada Technologies she worked directly with Joseph Zawada on the research of the Z Mix product. Zawada Technologies merged with Composite Industries, Inc. Ms. Donohue joined Affordable Homes/World Homes when the original Composite merged with the Company. Ms. Donohue attended the University of Wisconsin at Stevens Point with a focus in sociology and psychology. Ms. Donohue also attended Cardinal Stritch College of Madison, where she majored in Business Administration. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is currently trading on the NASD Over-the-Counter Bulletin Board under the symbol "CIAI" since September 4, 2001, and traded under the symbol "WHME" prior to that date. The stock has traded between $3.125 per share and $0.14 per share. There are approximately 850 record holders of the Company's common stock. The Company has not previously declared or paid any dividends on its common stock and does not anticipate declaring any dividends in the foreseeable future. ITEM 6. EXHIBITS, LISTS AND REPORTS ON FORM 8-K (a) Exhibits - No exhibits to report this quarter (b) Reports on Form 8-K. (i)Form 8-K Filed on 08-31-2001. Item No. 5- Other Events. The Company changed its name to Composite Industries of America, Inc. on August 24, 2001. Composite Industries of America, Inc. has a new CUSIP number of 20461M101 and a new trading symbol of CIAI. Item No. 7-Financial statements proforma and Exhibits; Company: Amendment to the Articles of Incorporation changing name to Composite Industries of America, 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. COMPOSITE INDUSTRIES OF AMERICA, INC. Date: October 30, 2001 By: /s/ Merle Ferguson ----------------- Merle Ferguson Chairman, President & CEO Date: October 30, 2001 By: /s/ William Morris ----------------- William Morris VP of Finance, CFO & Treasurer