-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HrZFDLdi/Y5FCTMkgoDDsjTqxJdVQflLGyZoGMSErpyb5qch1VD8cWZGHrNakDyk tl+B8TwRNK4fkbBJCvskZg== 0001091818-02-000263.txt : 20020520 0001091818-02-000263.hdr.sgml : 20020520 20020520165613 ACCESSION NUMBER: 0001091818-02-000263 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020520 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: 02657980 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: WORLD HOMES INC DATE OF NAME CHANGE: 20001109 FORMER COMPANY: FORMER CONFORMED NAME: AFFORDABLE HOMES OF AMERICA INC DATE OF NAME CHANGE: 19990518 10QSB 1 ciai020513_10qsb.txt QUARTERLY REPORT =============================================================================== QUARTERLY REPORT FOR SMALL BUSINESS ISSUERS SUBJECT TO THE 1934 ACT REPORTING REQUIREMENTS FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 2002 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 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) 5333 S. Arville St. # 206 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 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. [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 1O-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 MARCH 31, 2001 $.001 PAR VALUE CLASS A COMMON STOCK 43,164,481 VALUE Class A Convertible Preferred Stock 428,572 VALUE Class B Convertible Preferred Stock 0 ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA COMPOSITE HOLDINGS, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED CONDENSED BALANCE SHEETS MARCH 31, 2002 and JUNE 30, 2001
ASSETS (Unaudited) 2002 2001 --------- ---------- Cash $ 4,614 $ 667,142 Accounts receivable 71,530 - Machinery & equipment - net of accumulated depreciation of $93,547 and $40,232 as of March 31, 2002 and June 30, 2001, respectively 122,925 164,805 Patent - net of accumulated amortization of $2,258,750 as of June 30, 2001 - 14,939,349 Deferred tax asset - 2,390,000 Other assets 1,000 65,991 TOTAL ASSETS $ 200,069 $ 18,227,287 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001 --------- ---------- LIABILITIES Accounts payable and accrued expenses $ 252,981 $ 45,843 Loans payable and advances from related parties 268,282 458,730 Convertible debenture - net of unamortized discount of $1,250 and $68,250 as of March 31, 2002 and June 30, 2001, respectively 1,748,750 931,750 Deferred tax liability - 4,963,183 --------- ---------- TOTAL LIABILITIES 2,270,013 6,399,506 --------- ---------- COMMITMENTS AND CONTINGENCIES (NOTE 7) STOCKHOLDERS' EQUITY Convertible preferred stock class A, (5,000,000 shares authorized; 428,572 shares issued and outstanding at March 31, 2002 and June 30, 2001) 1,511,086 1,511,086 Convertible preferred stock class C (40,000,000 shares authorized: 2,000,000 shares issued and outstanding at March 31, 2002 and 0 shares issued and outstanding at June 30, 2001 2,000 - Common stock ($.001 par value, 150,000,000 shares authorized, 43,939,481 shares issued and 43,486,896 shares outstanding as of March 31, 2002 and 22,761,396 shares issued and outstanding as of June 30, 2001 43,939 22,761 Additional paid-in capital 24,564,005 17,347,521 Prepaid officers' compensation (3,453,125) - Treasury stock - at cost (197,931) - (Deficit) accumulated during the development stage (24,539,918) (7,053,587) ---------- ---------- TOTAL STOCKHOLDERS' (DEFICIT) EQUITY (2,069,944) 11,827,781 --------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 200,069 $18,227,287 ========= ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-2 COMPOSITE HOLDINGS, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 and 2001
2002 2001 ---------- --------- Net revenues $ 71,530 $ - Operating expenses: General and administrative expenses 355,829 162,312 Depreciation and amortization 84,593 274,044 Officers' and other compensation 818,117 19,615 Consulting fees 462,914 258,237 ---------- --------- Total operating expenses 1,721,453 714,208 ---------- --------- (Loss) from operations (1,649,923) (714,208) ---------- --------- Other income and (expense): Interest and other income 172 9,163 Interest (expense) (52,209) (1,443) Gain (loss) on cancellation of debt (18,089) 216,441 ---------- --------- (Loss) due to impairment of patent (14,418,099) - ---------- --------- (Loss) due to impairment of goodwill (2,000) - Gain on sale of automobile - 4,182 (Loss) on abandonment of land - (412,241) Total other (expense) - net (14,490,225) (183,898) Net (loss) before income taxes (16,140,148) (898,106) Benefit for income taxes 1,250,083 173,101 ---------- --------- Net (loss) $(14,890,065) $ (725,005) ========== ========= Net (loss) per common share $(.35) $(.03) ========== ========= Weighted average number of common shares outstanding 42,854,721 22,284,379 ========== ========= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-3 COMPOSITE HOLDINGS, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2002 and 2001
2002 2001 --------- --------- Net revenues $ 71,530 $ - Operating expenses: General and administrative expenses 789,832 286,681 Depreciation and amortization 614,797 822,132 Officers' and other compensation 2,650,054 19,615 Consulting fees 1,493,864 453,762 --------- --------- Total operating expenses 5,548,547 1,582,190 --------- --------- (Loss) from operations (5,477,017) (1,582,190) --------- --------- Other income and (expense): Interest and other income 3,728 4,985 Interest (expense) (148,037) (3,243) Gain (loss) on cancellation of debt (18,089) 216,430 (Loss) due to impairment of patent (14,418,099) - (Loss) due to impairment of goodwill (2,000) - (Loss) on sale of land - (197,650) Gain on sale of automobile - 4,182 (Loss) on abandonment of land - (412,241) ---------- ---------- Total other (expense) - net (14,582,497) (387,537) Net (loss) before income taxes (20,059,514) (1,969,727) Benefit for income taxes 2,573,183 259,652 ---------- ---------- Net (loss) $ (17,486,331) $(1,710,075) ========== ========== Net (loss) per common share $ (.46) $(.08) ========== ========== Weighted average number of common shares outstanding 38,054,799 $ 21,503,164 ========== ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-4 COMPOSITE HOLDINGS, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED MARCH 31, 2002
Convertible Convertible Common Preferred Preferred Stock Stock A Stock C .001 Par Value Shares Amount Shares Amount Shares Amount ------- ---------- ------- ------- ---------- -------- Opening balance - July 1, 2001 428,572 $1,511,086 - $ - 22,761,396 $ 22,761 Issuance of common stock for officers' and other compensation 531,600 531 Issuance of common stock to officers in lieu of cash compensation 17,000,000 17,000 Amortization of officers' compensation Issuance of common stock for legal and consulting services rendered 3,091,035 3,091 Issuance of common stock for cash 550,950 551 Issuance of convertible preferred C stock for the acquisition of 100% of the common stock of MJB Towers on October 1, 2001 1,000,000 1,000 Issuance of convertible preferred C stock for the acquisition of 100% of the common stock of Tribal Electric Assoc. on October 1,000,000 1,000 Purchase of treasury shares Adjustment 4,500 5 Net (loss) for the nine months ended March 31, 2002 -------- ---------- --------- ------- ---------- -------- Closing balance - March 31, 2002 428,572 $1,511,086 2,000,000 $ 2,000 43,939,481 $ 43,939
Additional Prepaid During the Total Paid-in Officers' Treasury Development Stockholders' Capital Compensation Stock Stage Equity ----------- ------------ ---------- ----------- ----------- Opening balance - July 1, 2001 $17,347,521 $ - $ - $( 7,053,587) $ 11,827,781 Issuance of common stock for officers' 246,710 247,241 and other compensation Issuance of common stock to officers in lieu of cash compensation 5,508,000 (5,525,000) - Amortization of officers' compensation 2,071,875 2,071,875 Issuance of common stock for legal and consulting services rendered 1,323,355 1,326,446 Issuance of common stock for cash 137,389 137,940 Issuance of convertible preferred C stock for the acquisition of 100% of the common stock of MJB Towers on October 1, 2001 1,000 Issuance of convertible preferred C stock for the acquisition of 100% of the common stock of Tribal Electric Assoc. on October 1,000 Purchase of treasury shares (197,931) (197,931) Adjustment 1,030 1,035 Net (loss) for the nine months ended March 31, 2002 (17,486,331) (17,486,331) ----------- --------- --------- ---------- ----------- Closing balance - March 31, 2002 $24,564,005 $(3,453,125) $ (197,931) $(24,539,918) $ (2,069,944)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. F - 5 COMPOSITE HOLDINGS, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED MARCH 31, 2001
Convertible Convertible Common Preferred Preferred Stock Stock A Stock B .001 Par Value Shares Amount Shares Amount Shares Amount ------- ---------- ----- ------- ---------- -------- Opening balance - July 1, 2000 428,572 $1,511,086 0 $ 0 20,417,379 $ 20,417 Issuance of common stock for legal and consulting services rendered 1,765,000 1,765 Issuance of common stock recorded as loan to officer to cover company expenses 300,000 300 Repayment of officer loans Reduction of officer loan for services rendered Advances to officers Net loss during the development stage for the nine months ended March 31, 2001 ------- ---------- ----- ------- ---------- -------- Closing balance - March 31, 2001 428,572 $1,511,086 0 $ 0 22,482,379 $ 22,482 ======= ========== ===== ======= ========== ========
COMPOSITE HOLDINGS, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED MARCH 31, 2001 (continued)
Deficit Accumulated Additional Officer during the Total Paid-in loan Development Stockholders' Capital receivable Stage Equity ------------ ---------- ------------ ------------ Opening balance - July 1, 2000 $ 16,195,761 $ (191,749) $ (4,312,689) $ 13,222,826 Issuance of common stock for legal and consulting services rendered 492,879 494,644 Issuance of common stock recorded as loan to officer to cover company expenses 130,800 (131,100) 0 Repayment of officer loans 163,000 163,000 Reduction of officer loan for services rendered 31,000 31,000 Advances to officers (6,000) (6,000) Net loss during the development stage for the nine months ended March 31, 2001 (1,710,075) (1,710,075) ------------ ---------- ------------ ------------ Closing balance - March 31, 2001 $ 16,819,440 $ (134,849) $ (6,022,764) $ 12,195,395 ============ ========== ============ ============
F-6 COMPOSITE HOLDINGS, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2001 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net cash (used) provided by operating activities (1,133,220) 232,022 CASH FLOWS FROM INVESTING ACTIVITIES: Net cash (used) provided by investing activities (51,667) 106,554 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Loans and advances (to) related parties (187,000) (293,427) Loans and notes payable - (repayments) (3,448) (3,170) Repayment of officer loans - (56,900) Issuance of convertible debentures 750,000 - Issuance of common stock 137,940 - Purchase of treasury shares (175,133) - --------- --------- Net cash provided (used) by financing activities 522,359 (353,497) --------- --------- Net (decrease) in cash (662,528) (14,921) --------- --------- Cash - beginning of period 667,142 18,516 --------- --------- Cash - end of period $ 4,614 $ 3,595 ========= ========= Supplemental Disclosure of cash flow information: Cash Paid During the Year for: Interest expense $ 611 $ 3,243 ========= ========= Income taxes $ - $ - ========= ========= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-7 COMPOSITE HOLDINGS, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) FOR THE NINE MONTHS ENDED MARCH 31, 2002 AND 2001 NON-CASH INVESTING AND FINANCING TRANSACTIONS During the nine months ended March 31, 2002, Composite issued 3,091,035 shares of common stock to various individuals valued at $1,326,446 for legal and consulting services performed and 531,600 shares of common stock valued at $247,241 to officers and employees of the Company in lieu of salary. During the quarter ended March 31, 2002, Composite purchased 261,860 shares of its common stock for $116,882 in cash. During November and December 2001, Composite purchased 190,725 shares of its common stock for $81,049, $58,251 in cash with the balance of $22,798 due to the former shareholders. 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 for two years. The shares are valued at $5,525,000 or $0.33 per share. This value reflects discounts totaling 50% for the trading restriction and the volume of shares issued. Accordingly, the unearned compensation of $5,525,000 related to this transaction will be amortized as a charge to compensation expense ratably over a two-year period. For the nine months ended March 31, 2002, compensation expense related to this amortization amounted to $2,071,875. The remaining unamortized compensation of $3,453,125 recorded as prepaid officers' compensation is included as a reduction to stockholders' equity. The Company issued 149,385 shares of common stock on July 11, 2001 to two individuals for $37,346 payable at a future date. These shares are valued at $0.25 per share based on discounts applied due to restrictions on transferability for a period of one year. The portion that remained unpaid and determined to be uncollectible as of March 31, 2002 amounted to $18,089 and was written off to (loss) on cancellation of debt in the other income and (expense) section of the consolidated condensed statements of operations. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F - 8 COMPOSITE HOLDINGS, INC. and SUBSIDIARIES (a development stage company) CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) FOR THE NINE MONTHS ENDED MARCH 31, 2002 AND 2001 NON-CASH INVESTING AND FINANCING TRANSACTIONS (continued) 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 was recognized as consulting expenses over a six month period which began July, 2001. For the nine months ended March 31, 2002, consulting expense amounted to 66,000. During the three months ended March 31, 2001, Composite issued 965,000 shares of common stock valued at $270,144 to various individuals for legal and consulting services performed. During the three months ended December 31, 2000, Composite issued 675,000 shares of common stock valued at $184,500 to various individuals for legal and consulting services performed and 125,000 shares of common stock valued at $40,000 to an officer of the Company in lieu of salary. During this quarter, $27,100 was repaid to the Company and an officer loan was reduced by an additional $101,749 in exchange for services. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS F-9 COMPOSITE HOLDINGS, INC. and SUBSIDIARIES (a development stage company) NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED MARCH 31, 2002 and 2001 NOTE 1 - General and Summary of Significant Accounting Policies (A) - Nature of Business Composite Holdings, Inc. ("Composite" - formerly known as Composite Industries 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. During the 2002 fiscal year, the Company underwent a name change to Composite Industries of America, Inc. The Company changed its name again to Composite Holdings, Inc. in April 2002. NOTE 2 - Write-off of Patent due to Impairment During the quarter ended March 31, 2002, Composite determined that although the Company believes that the patent for the product "Z-Mix", (a substitute for cement in building materials), continues to have intrinsic value and potential commercial viability, it no longer has value for financial accounting and reporting purposes. Accordingly, the patent and all related asset and liability accounts have been written off during the quarter. The net effect of the write-off is as follows: Patent $ 17,198,099 Accumulated amortization (2,780,000) $ 14,418,099 ---------- Deferred tax asset 3,540,000 Deferred tax liability (4,790,083) (1,250,083) ---------- ---------- Net Write-off $ 13,168,016 ========== The write-off of the patent less accumulated amortization was charged to Other income and expense and the write-off of the deferred tax asset and liability was credited to the Benefit for income taxes. F-10 NOTE 3 - 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 nine months ended March 31, 2002 and 2001, the income tax (benefit) was comprised of the following components: (Unaudited) (Unaudited) 2002 2001 --------- --------- Current - Federal $ - - State - - --------- --------- Total current - Deferred- Federal (2,573,183) (259,652) State - - --------- --------- Total deferred (2,573,183) (259,652) Total $(2,573,183) $ (259,652) ========= ========= 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. Due to the impairment of the patent, the deferred tax asset and liability were written off and benefit for income taxes was credited. 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) March June 2002 2001 --------- --------- Deferred tax assets- Tax benefit of net operating loss carryovers $ 1,740,000 $ 2,390,000 Valuation allowance 1,740,000 - --------- --------- $ - $ 2,390,000 ========= ========= Deferred tax liabilities- Patent rights acquired $ - $ 4,963,183 ========= ========= F-11 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 carryforwards. Composite incurred net operating losses for financial reporting purposes totaling $17,486,331 and $5,116,000 for tax purposes during the nine months ended March 31, 2002 available to offset future income for financial reporting purposes expiring in 2022. NOTE 4 - 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 nine months ended March 31, 2002 and 2001 were $2,650,054 (including $330,937 cash) and $453,762 respectively and are included in operating expenses in the consolidated condensed statements of operations. Management believes the transactions were at arm's length. The former Chairman of the Board has from time to time advanced funds to Composite or one of its subsidiaries to assist with working capital requirements. (See Note 5) 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 March 31, 2002 and June 30, 2001 amounted to $138,301 and $325,301, respectively, and are carried in loans payable and advances from related parties. No interest was charged for the nine months ended March 31, 2002 and 2001. F-12 NOTE 5 - Going Concern Considerations Composite Holdings, Inc. has operated as a development stage enterprise since February 10, 1997, its inception, and therefore has operated for over four years without generating a significant amount of 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. In many instances, consulting, legal and other professional fees are paid with the Composite's common stock and that stock is at times issued on a restricted basis. The failure to generate revenues from operations has caused Composite to experience liquidity shortfalls from time to time. In prior periods, Merle Ferguson, who was formerly Chairman of the Board, pledged to contribute funds to the Company so that it would remain solvent during the succeeding twelve-month period. Mr. Ferguson resigned as Chairman on April 10, 2002. Further, at March 31, 2002, Composite's liabilities to third parties exceed realizable assets by $1,900,000. Although Mr. Ferguson pledged 3,500,000 shares of Composite's common stock owned by him as collateral for $1,750,000 convertible debentures recorded as a current liability on Composite's financial statements, there is no guarantee that the value of that collateral would support the outstanding balance of the debentures when that debt is settled. It is for these reasons that management believes that there is substantial doubt about Composite's ability to continue as a going concern. F-13 COMPOSITE HOLDINGS, INC. and SUBSIDIARIES (a development stage company) NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED MARCH 31, 2002 and 2001 NOTE 6 - Stock Issued For Services During the nine months ended March 31, 2002, Composite issued 3,091,035 shares of common stock to various individuals valued at $1,326,446 for legal and consulting services performed and 531,600 shares of common stock valued at $247,241 to officers and employees of the Company in lieu of salary. 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 for two years. The shares are valued at $5,525,000 or $0.33 per share. This value reflects discounts totaling 50% for the trading restriction and the volume of shares issued. Accordingly, the unearned compensation of $5,525,000 related to this transaction will be amortized as a charge to compensation expense ratably over a two-year period. For the nine months ended March 31, 2002, compensation expense related to this amortization amounted to $2,071,875. The remaining unamortized compensation of $3,453,125 recorded as prepaid officers' compensation is included as a reduction to stockholders' equity. The Company issued 149,385 shares of common stock on July 11, 2001 to two individuals for $37,346 payable at a future date. These shares are valued at $0.25 per share based on discounts applied due to restrictions on transferability for a period of one year. The portion that remained unpaid and determined to be uncollectible as of March 31, 2002 amounted to $18,089 and was written off to (loss) on cancellation of debt in the other income and (expense) section of the consolidated condensed statements of operations. F - 14 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 was recognized as consulting expenses over a six month period which began July, 2001. For the nine months ended March 31, 2002, consulting expense amounted to 66,000. During the three months ended March 31, 2001, Composite issued 965,000 shares of common stock valued at $270,144 to various individuals for legal and consulting services performed. During the three months ended December 31, 2000, Composite issued 675,000 shares of common stock valued at $184,500 to various individuals for legal and consulting services performed and 125,000 shares of common stock valued at $40,000 to an officer of the Company in lieu of salary. During this quarter, $27,100 was repaid to the Company and an officer loan was reduced by an additional $101,749 in exchange for services. NOTE 7 - Commitments and Contingencies On December 15, 2001, Composite entered into an agreement to lease its Las Vegas, Nevada headquarters office for 3 years at $2,239 per month for year one, $2,301 per month for year two, and $2,454 per month for the remaining year on its lease ending December 15, 2004. Rent expense amounted to $12,642 and $5,120 for the nine months ended March 31, 2002 and 2001, respectively. F-15 NOTE 8 - Treasury Stock During the quarter ended March 31, 2002, the Company acquired additional shares of its common stock. The Company purchased 261,860 shares for a total of $116,882 or an average of $.45 per share. During the quarter ended December 31, 2001, the Company purchased 190,725 shares for a total of $81,049 or an average of $.43 per share. The Board authorized this repurchase program because it believed that the stock price was undervalued. NOTE 9 - Stock Options On March 1, 2002, a consultant was granted an option to purchase 400,000 shares of common stock at $.25 per share for a total price of $100,000. The value of the common stock on the date of issue was $140,000 or $.35 per share resulting in compensation of $40,000. On February 1, 2001, an attorney was granted an option to purchase 100,000 shares of common stock at $.00125 cent per share for a total price of $125. The value of the common stock on the date of issue was $37,000 or $.37 per share resulting in compensation of $36,875. On March 6, 2002, he exercised those options and the Company received $125. On January 30, 2001, a consultant was granted an option to purchase 375,000 shares of common stock at $0.00125 cent per share for a total price of $469. The value of the common stock on the date of issue was $120,469 or $0.32125 per share resulting in compensation of $120,000. On January 2, 2002, he exercised those options and the Company received $469. On December 1, 2001, a consultant was granted an option to purchase 400,000 shares of common stock at $.25 per share for a total price of $100,000. The value of the common stock on that day was $160,000 or $.40 per share resulting in the shares being discounted by approximately 37%. On January 24, 2002, those shares were exercised and the Company received $100,000. F-16 NOTE 10 - Joint Venture Agreement During the quarter ended March 31, 2002, Composite Holdings, Inc. entered into a joint venture agreement with Knockout Sports Network, Inc. a corporation owned 100% by Mr. William Morris, Composite's President and Chief Executive Officer. The purpose of the joint venture is to organize and promote sporting events such as kickboxing and other martial arts exhibitions. The joint venture agreement specifies that all funds expended by Composite will be reimbursed prior to the distribution of net profits between the joint venture parties. As of March 31, 2002, the joint venture sponsored one event resulting in revenues of $71,530 and expenses of $250,038. NOTE 11 - Subsequent Events On April 2, 2002, the Company re-capitalized it stock by decreasing the authorized amount of shares to 150,000,000 shares from 200,000,000 shares and authorized two new classes of stock; Class A common stock (100,000,000 shares) and Series 1 Class B common stock (10,000,000 shares) and decreasing the amount of various classes of preferred stock to 40,000,000 shares. NOTE 12 - Reclassifications Certain financial statement items during the fiscal period ended March 31, 2001 have been reclassified to reflect comparability with account classifications adopted for the current period presentation with no effect on previously reported net income. 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 the 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 through its two subsidiaries, World Homes and Affordable Homes of America, provides revolutionary building techniques for the construction of affordable fireproof and earthquake proof housing using the patented material Z MIX. The Corporation is engaged in the formation of compatible synergistic companies, Tribal Electric, MJB Towers and GTSwiss, each designed to be horizontally and/or vertically integrated with each other. RESULTS OF OPERATIONS Quarter ended March 31, 2001 vs. March 31, 2002 REVENUES. Composite Industries of America is presently a development stage company. The Company entered into a Joint Venture Agreement with KNOCKOUT! Sports Network and announced $71,530.00 in revenues from a March 25, 2002 kick boxing event. That was the only revenue for the three months ended March 31, 2002. There were no revenues in the Company prior to this. OPERATING EXPENSES. Operating expenses are comprised of General and Administrative Expenses which consist primarily of professional fees, officer compensation, consulting fees, and general and administrative expenses. Operating expenses increased from $714,208 for the three months ended March 31, 2001, to $1,721,453 (or by $1,007,245) for the three months ended March 31, 2002. The increase in operating expenses was primarily due to officers' compensation which increased from $19,615 for the three months ended March 31, 2001 to $818,117 (refer to Note 6 of the Financial Statement) for the three months ended March 31, 2002. NET LOSS. Due to the write-off of the patents due to impairment (refer to Note 2 of the Financial Statement), our net loss increased substantially for this quarter. As a result, our net loss after the tax benefit increased from $725,005 for the three months ended March 31, 2001 to $14,890,065 for the three months ended March 31, 2002. LIQUIDITY AND CAPITAL RESOURCES Composite Industries of America, Inc. is currently a development stage company. The Company is presently negotiating for a private placement to fund its operations. 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 were no pending or threatened litigation or other legal proceedings, material or otherwise, nor any claims or assessments with respect to Composite Industries of America, Inc. during this 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 March 31, 2002. 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 5333 S. Arville St. # 206, Las Vegas, Nevada 89118. Composite 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. The Company plans to build homes from a construction material known as Z MIX. Z MIX is 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. Z MIX construction will (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. The Company is engaged in completing the certification procedures necessary to sell its Z Mix products in the US. Once complete, the Company plans to begin sales and distribution of its products in US. 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. 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. 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. The Company announced the acquisition of MJB Towers, a telecommunications company, on October 3, 2001.and the acquisition of Tribal Electric Association-2000, a provider and distributor of electric power, on October 10, 2001. The Company also announced the acquisition of GTSwiss, the manufacturer of precision engineered telecommunications and consumer home electronics products on October 30, 2001. Composite Industries of America signed Joint Venture Agreements with KNOCKOUT! Sports Network (KSPN) for a kickboxing sports event which was staged on March 25, 2002 in Las Vegas, Nevada. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table shows the positions held by the Company's officers and directors this quarter. 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 55 President, CEO and Chairman of the Board William Morris 63 Vice President of Finance, CFO, Treasurer Susan Donohue 49 Vice President of Operations, Secretary 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 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 traded 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 1250 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 5. - OTHER SUBSEQUENT EVENTS. The Company changed its name to Composite Holdings, Inc. on April 4, 2002. Composite Holdings, Inc. has a new CUSIP number of 20461U103 and a new trading symbol of COHIA for the new authorized Class A stock, which will begin trading on the OTC BB shortly. The Company re-capitalized its stock by decreasing the authorized amount of shares to 150,000,000 shares from 200,000,000 shares and authorizing two new classes of stock, Class A common stock (100,000,000 shares) and Series 1 Class B common stock (10,000,000 shares) and decreasing the amount of the various classes of preferred stock to the amount of 40,000,000 shares. The Company accepted the resignation of Merle Ferguson as Chairman of the Board, President and CEO. Susan Donohue was appointed the new Chairman and Steve Nemergut, Esq. was appointed as a Director. William Morris, Executive Vice-President of Finance, CFO and Director, assumed the office of President and CEO of the Company. The Company filed a lawsuit against Lenore Avenue, LLC and certain other entities on April 4, 2002 alleging damages for breach of contract and other causes of action in connection with a financing. ITEM 6. EXHIBITS, LISTS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. Description (a) 3.1 Amendment to the Articles of Incorporation changing name to Composite Holdings, Inc. and Re-Capitalization. - Subsequent event reported on 8-K Filed April 18, 2002 (b) Reports on Form 8-K. The Company Reported One 8-K Filed as a Subsequent Event Date Filed: April 18, 2002 Item No. 1. Changes in Control of Registrant. William Morris is President, CEO and a Director of the Company and Susan Donohue is Chairman of the Board following the resignation of Merle Ferguson. Steve Nemergut has been appointed as a Director Item No. 5. Other Events. The Company changed its name to Composite Holdings, Inc. on April 4, 2002. Composite Holdings, Inc. has a new CUSIP number of 20461U103 and a new trading symbol of COHIA for the new authorized Class A stock, which is set to begin trading on the OTC BB on May 7, 2002. The Company re-capitalized its stock by decreasing the authorized amount of shares to 150,000,000 shares from 200,000,000 shares and authorizing two new classes of stock, Class A common stock(100,000,000 shares) and Series 1 Class B common stock (10,000,000 shares) and decreasing the amount of the various classes of preferred stock to the amount of 40,000,000 shares. The Company filed a lawsuit against Lenore Avenue, LLC et. al. on April 4, 2002. The Company accepted the resignation of Merle Ferguson as President and CEO on April 10, 2002. William Morris, current Executive Vice-President of Finance and CFO, assumed the office of President and CEO of the Company. Item No. 6. Resignation of Registrant's Directors. The Company accepted the resignation of Merle Ferguson as Chairman of the Board on April 10, 2002 and appointed Susan Donohue as new Chairman. Steve Nemergut, Esq. was appointed as a new director on April 16, 2002. William Morris remains a director. 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: May 20, 2002 By: /s/ Susan Donohue ----------------- Susan Donohue Chairman & Secretary Date: May 20, 2002 By: /s/ William Morris ----------------- William Morris President & CEO EX-3.1 3 ex3-1.txt AMENDMENT TO THE ARTICLES OF INCORPORATION Exhibit 3.1 AMENDMENT TO THE ARTICLES OF INCORPORATION OF COMPOSITE INDUSTRIES OF AMERICA, INC. (NAME CHANGED HEREIN TO COMPOSITE HOLDINGS, INC.) WHEREAS, there was issued by the Secretary of State a Charter constituting and creating COMPOSITE INDUSTRIES OF AMERICA, INC., a corporation organized under the laws of this state with its principal place of business in Las Vegas, Nevada, and a capital stock of One Hundred Thousand Dollars ($100,000.00) divided into Two Hundred Million (200,000,000) shares of a par value of one mill (1/10 cent) each, empowering it to engage in any activity or business not in conflict with the laws of the State of Nevada or of the United States of America. The undersigned, President and Secretary of COMPOSITE INDUSTRIES OF AMERICA, INC. hereby certify that by resolutions duly adopted unanimously by the Board of Directors of the Company pursuant to written action effective as of April 2, 2002; and by resolutions duly adopted by a majority of the shareholders of all classes of stock outstanding and entitled to vote thereon of the Company pursuant to written action effective as of April 2, 2002, amending the ARTICLES OF INCORPORATION That ARTICLE I be amended and changed to read as follows: The name of the Corporation is COMPOSITE HOLDINGS, INC. That ARTICLE IV be deleted in its entirety and replaced with the following new ARTICLE IV: ARTICLE IV: (a) The Company shall have the authority to issue two new classes of common stock, a new Class A Common Stock and a new Series 1 Class B Common Stock, that would replace the existing Common Stock. The existing Common Stock shall be exchanged as follow: For each one and one-tenth (1 1/10) of a share of the existing Common Stock, the stockholder will receive one (1) share of the new Class A Common Stock and one-tenth (1/10) of a share of the new Series 1 Class B Common Stock. The Common Stock exchanged for the new Class A Common Stock and new Series 1 Class B Common Stock shall be cancelled upon the issuance to the stockholder exchanging the existing Common Stock for the new Class A Common Stock and new Series 1 Class B Common Stock. There shall be no further issuance of the existing Common Stock and upon the completion of the exchange of all existing Common Stock for new Class A Common Stock and new Series 1 Class B Common Stock, the class of shares referred to herein as existing Common Stock will be eliminated. The number of shares of new Class A Common Stock is one hundred million (100,000,000) shares with a par value of $.001 per share and the number of shares of new Series 1 Class B Common Stock is ten million (10,000,000) shares with a par value of $.001 per share and the number of shares of Preferred Stock is forty million (40,000,000) shares with a par value of $.001 per share. (b) The Preferred Shares may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of Preferred Shares and to determine the designation of any such series. The Board of Directors is also authorized to determine or alter the voting powers, rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Shares, and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. The holders of each series of Preferred Shares may amend the provisions of such series of Preferred Shares without the consent of any holders of any class of Common Stock or any other series of Preferred Shares. IN WITNESS WHEREOF, the undersigned, being the President and Secretary of the Corporation, for the purpose of amending the Articles of Incorporation of the Corporation pursuant to Section 78.390 of the General Corporation Law of the State of Nevada, do make and file this Certificate of Amendment, hereby declaring and certifying that the facts herein stated are true, and accordingly have hereunto set their hand this 4th day of April, 2001. By: /s/ Merle Ferguson -------------------- Merle Ferguson President & CEO By: /s/ Susan Donohue -------------------- Susan Donohue Secretary -----END PRIVACY-ENHANCED MESSAGE-----