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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
for quarterly period ended September 30, 2000
( ) 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
AFFORDABLE HOMES 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)
Registrant's 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 report
s reuired 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
heren, and will not be contained, to the best of registrant's knowledg
e, in definitive proxy or information statements incorporated by
reference in Part III of the Form 10-QSB or any amendment to this
Form 10-QSB. [x]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
<S> <C>
Class Outstanding as of September 30, 2000
$.001 PAR VALUE CLASS A COMMON STOCK 21,142,379
VALUE Class A Convertible Preferred Stock 428,572
VALUE Class B Convertible Preferred Stock 0
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Item 1. Business
On March 17, 1999, Kowtow, Inc. received 100% of the common stock of
Afforable 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. Affordable Homes of America maintains
its principle offices at 4505 W. Hacienda Ave., UnitI-1, Las Vegas,
Nevada 89118.
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. Affordable Homes of America maintains its principle
offices at 4505 W. Hacienda Ave., Unit I-1, Las Vegas, Nevada 89118.
The Company changed its name to World Homes, Inc. on October 12, 2000
and obtained a new trading symbol - WHME. The name change will not
affect this September 30, 2000 10QSB, but will affect any filings after
October 12, 2000.
Affordable Homes of America, Inc. is in the business of building homes
for low income and first time home buyers. Founded in 1997, the focus
of Affordable Homes of America 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 and are being
implemented this year. 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
averge home, and (ii) reduce the amount of wood used in building the a
verage home. Company research has shown that more Americans ages 25 t
o 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 establish
factories to supply Z Mix for construction.
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 establish factories to
supply Z Mix for construction.
To date, Affordable Homes 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.
Composite Industries of America, Inc. The acquisition of Composite
Industries of America, Inc. was accomplished by exchanging one share o
f Afordable's common stock for two shares of Composite's common stock.
All stock issued by Affordable pursuant to this acquisition is restricted.
Affordable the surviving entity, owns the patents formerly owned by
Composite. The patents cover a construction material call "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 by 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.
Affordable 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. Affordable 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. Affordable 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 Affordable Homes 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.
Affordable Homes of America, Inc. 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.
(c) Quadrant Resources Corporation and Affordable Homes signed a
strategic alliance agreement for the purpose of expanding the sale of
Affordable Homes' patented Z MIX material for home building and
manufactured products. Quadrant will bring to the Company funded
transactions, saving time and money in the International Sales market.
ITEM 2 PROPERTIES
The Company owns no properties. The Company leases its offices located
at 4505 W. Hacienda Ave. Unit I-1, Las Vegas, Nevada 89118 at an annual
rent of $7,680.00. The property is leased on a month-to-month agreement.
ITEM 3 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 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, 2000.
ITEM 5 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 "AHOA" until October 12, 2000, after which it is
trading under the symbol "WHME". The stock has traded between $3.125
per share and $0.25 per share. There are approximately 1231 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 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.
Affordable Homes of America, Inc, 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.
Affordable Homes' 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
Year ended September 30, 2000 vs. September 30, 1999
Revenues. Affordable Homes of America, Inc. is presently a development
stage company. Accordingly, the Company has no revenues for the Quarter
ended September 30, 2000. The Company has signed several joint vent
ures and agreements and projects significant revenues for the latter part
of this fiscal year.
Operation 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 amounted to $260,625 during the periods ended
September 30, 2000 and September 30, 1999. 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 decreased to $518,075 for the three months ended
September 30, 2000 from $1,341,847 for the three months ended September 30,
1999. The decrease in operating expenses was primarily due to professional
fees which decreased to $169,987 for the three months ended September 30,
2000 from $972,773 for the three months ended September 30, 1999.
Net Loss. As a result, our net loss decreased to $479,903 for the three
months ended September 30, 2000 from $907,087 for the three months ended
September 30, 1999.
Liquidity and Capital Resources
Affordable 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 Affordable 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 Affordable does not secure additional financing, the
company has made provisions for working capital, for the next twelve
months.
ITEM 6A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no market risk sensitive instruments or market risk
exposures.
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
F-1
AFFORDABLE HOMES OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 and 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
2000 1999
Cash in banks $ 32,095 $ 13,436
Employee advances 68,211 55,588
Advances to Kampen and Associates, Inc. 0 99,157
Advances to Omega International, Inc. 0 224,140
Land and land development costs 0 6,760,577
Capitalized costs 48,142 0
Capitalized interest expense 0 510,702
Other assets 125,060 239,131
Deferred tax asset 2,416,105 870,088
Machinery & equipment - at cost, less accumulated
depreciation of $81,542 and $55,775 as of
September 30, 2000 and 1999, respectively 87,652 107,351
Patents - at cost, less accumulated amortization
of $1,476,875 and $434,375 as of September 30,
2000 and 1999, respectively 15,721,224 16,763,724
Goodwill - net of accumulated amortization of $25,513
and $5,103 as of September 30, 2000 and
1999, respectively 382,684 403,094
------- -------
TOTAL ASSETS $ 18,881,173 $ 26,046,988
========== ==========
</TABLE>
AFFORDABLE HOMES OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 and 1999
<TABLE>
<CAPTION>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
LIABILITIES --------- ----------
Accounts payable $ 45,812 $ 50,593
Accrued expenses 110,562 381,144
Accrued interest payable 0 238,941
Notes payable 15,159 1,873,994
Loans and advances from related parties 352,674 301,545
Auto loan 11,483 0
Deferred tax liability 5,222,835 5,569,037
Land purchase options 0 3,400,000
--------- ----------
TOTAL LIABILITIES 5,758,525 11,815,254
========= ==========
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Convertible preferred stock class A ($.001 par value,
5,000,000 shares authorized; 428,572 shares
issued and outstanding as of September 30, 2000
and 1999, respectively) 1,511,086 1,511,086
Convertible preferred stock class B ($.001 par value,
5,000,000 shares authorized; no shares issued and
outstanding as of September 30, 2000 and 1999) - -
Common stock ($.001 par value, 100,000,000
shares authorized, 21,142,379 shares and
18,549,402 shares issued and outstanding as of
September 30, 2000 and 1999, respectively) 21,142 18,549
Additional paid-in capital 16,511,861 14,816,515
Officer loan receivable ( 128,849) 0
Deficit accumulated during the development stage ( 4,792,592) ( 2,114,416)
---------- ----------
Total Stockholders' Equity 13,122,648 14,231,734
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,881,173 $ 26,046,988
========== ==========
</TABLE>
F-2
AFFORDABLE HOMES OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
DURING THE DEVELOPMENT STAGE
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 and 1999
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
General and Administrative expenses
Operating expenses $ 244,031 $ 1,087,810
Depreciation and amortization 274,044 274,037
------- ---------
Total general and administrative expenses 518,075 $ 1,361,847
------- ---------
(Loss) from operations (518,075) (1,361,847)
Other income and expense ------- ---------
Interest and other income 1,024 1,479
Interest expense (5,202) (6,719)
(Loss) on sale of land (197,650) 0
------- ---------
Total other income and (expense) (201,828) (5,240)
------- ---------
Net (loss) before income taxes (719,903) (1,367,087)
------- ---------
Benefit for income taxes 240,000 460,000
------- ---------
Net (loss) $ (479,903) $ (907,087)
------- ---------
Net (loss) per common share $ (0.02) $ (0.05)
------- ---------
Weighted average number of
shares outstanding 20,823,698 17,799,402
========== ==========
</TABLE>
F -3
AFFORDABLE HOMES OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Deficit
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 425,000 425
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
Net loss during the
development stage
for the three months
ended September 30,
2000
------- --------- ---- ----- ---------- ------
Closing balance
- September 30, 2000 428,572 $1,511,086 0 $ 0 21,142,379 $21,142
======= ========= ==== ===== ========== ======
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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 185,300 185,725
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
Net loss during the
development stage
for the three months
ended September 30,
2000 (479,903) (479,903)
---------- ------- --------- ----------
Closing balance
- September 30, 2000 $ 16,511,861 $(128,849) $(4,792,592) $ 13,122,648
========== ======= ========= ==========
</TABLE>
F -4
AFFORDABLE HOMES OF AMERICA, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Deficit
Convertible Convertible Common
Preferred Preferred Stock
Stock A Stock B .001 Par Value
Shares Amount Shares Amount Shares Amount
------------- ------------- --------------
Opening balance
- July 1, 1999 657,144 $2,311,086 100,000 $550,000 17,549,402 $17,549
Rescission of
preferred A stock
to reverse the
acquisition of
100% of the common
stock of Realty
Center, Inc. and
a 25% interest in
the Heartland Homes
Joint Venture (228,572) (800,000)
Rescission of
preferred B stock
to reverse the
acquisition of
100% of the
common stock of
M.P. Hall
Enterprises, Inc. (100,000) (550,000)
Issuance of common
stock for legal and
consulting services
rendered 1,000,000 1,000
Net loss during the
development stage
for the three
months ended
September 30, 1999
------- --------- ----- -------- ---------- ------
Closing balance
- September 30, 1999 428,572 $1,511,086 0 $ 0 18,549,402 $18,549
======= ========= ===== ======== ========== ======
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Accumulated
Additional Officer during the Total
Paid-in loan Development Stockholders'
Capital receivable Stage Equity
---------- ---------- ----------- ------------
Opening balance
- July 1, 1999 $ 13,647,515 $ 0 $(1,207,329) $ 15,318,821
Rescission of
preferred A stock
to reverse the
acquisition of
100% of the common
stock of Realty
Center, Inc. and
a 25% interest in
the Heartland Homes
Joint Venture (800,000)
Rescission of
preferred B stock
to reverse the
acquisition of
100% of the
common stock of
M.P. Hall
Enterprises, Inc. (550,000)
Issuance of common
stock for legal and
consulting services
rendered 1,169,000 1,170,000
Net loss during the
development stage
for the three
months ended
September 30, 1999 (907,087) (907,087)
---------- ------- --------- ----------
Closing balance
- September 30, 1999 $ 14,816,515 $ 0 $(2,114,416) $ 14,231,734
========== ======= ========= ==========
</TABLE>
F - 5
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 and 1999
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net (loss) from
development stage operations $ (479,903) $ (907,087)
ADJUSTMENTS TO RECONCILE NET LOSS
FROM DEVELOPMENT STAGE OPERATIONS
TO CASH USED IN OPERATING ACTIVITIES
Depreciation and amortization 274,044 274,037
Benefit of deferred tax liability (86,550) (86,550)
Loss on sale of land 197,650 0
Stock issued for services 185,725 1,170,000
Reduction of officer loans as
repayment for services 31,000 0
(Increase) decrease in assets:
Employee and other advances (788) (109,145)
Other receivables 9,000
Capitalized costs (48,142)
Other assets (45,000) (240,576)
Deferred tax asset (153,450) (373,450)
Increase (decrease) in liabilities:
Accounts payable (9,212) 7,917
Accrued expenses (84,798) 735
Accrued interest payable 32,274
Total Adjustments 260,479 684,242
Net cash provided by (used in) operations (219,424) (222,845)
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment acquisitions ( ) (7,375)
Net cash (used in) investing activities ( ) (7,375)
Subtotal (219,424) (230,220)
F - 6
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from related parties 71,240 66,258
Repayment of officer loans 163,000 0
Repayments of loans (1,237) 0
Payments towards land purchase option (15,000) 0
Net cash from financing activities 233,003 51,258
Net Increase (decrease) in Cash in banks 13,579 (178,962)
Cash in banks - Beginning of period 18,516 192,398
Cash in banks - End of period $ 32,095 $ 13,436
Supplemental Disclosure of cash flow information:
Cash Paid During the Year for:
Interest expense $ 5,202 $ 6,719
Income taxes $ $
</TABLE>
F -7
NON-CASH INVESTING AND FINANCING TRANSACTIONS
On July 21, 1999, Affordable issued 300,000 shares of common stock valued
at $318,000 in connection with investment banking services.
During the three months ended September 30, 1999, Affordable issued
1,000,000 shares of common stock valued at $1,170,000 to various
individuals for legal and consulting services performed.
During the three months ended September 30, 2000, Affordable issued
425,000 shares of common stock valued at $185,725 for legal and consulting
services performed.
On May 25, 2000, Affordable 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 was 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.
F - 8
AFFORDABLE HOMES OF AMERICA, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 and 1999
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Business
Affordable Homes of America, Inc. (Affordable-Nevada), was incorporated
under the laws of the state of Nevada on February 10, 1997. On March 17,
1999, Affordable-Nevada was merged into Kowtow, Inc., a non-operating
public shell corporation, through exchange of 80% of the issued and
outstanding shares of Kowtow's common stock for 100% of the outstanding
common stock of Affordable. Kowtow, a Utah corporation, was incorporated
on March 7, 1986. Kowtow's legal name was changed to Affordable Homes
of America, Inc., (Affordable). The acquisition is considered to be a
capital transaction, in substance equivalent to the issuance of stock by
Affordable-Nevada for the net monetary assets of Kowtow, accompanied by a
re-capitalization of Affordable. Common stock and additional paid-in
capital have been restated to reflect the re-capitalization for all
periods presented.
Affordable is a development stage company primarily in the business of
land development and the construction of residential houses. In addition,
on April 15, 1999, Composite Industries, Inc. (Composite) was merged into
Affordable. Composite, also a development stage company, was in the
process of developing and commercializing a compound to be used in the
construction process referred to as Z-MIX as more fully described in
Note 2.
Affordable's operations include its wholly owned subsidiary Big Mountain
Construction Company, Inc. which is a general building contractor.
During the quarter ended September 30, 1999, Affordable's operations
also included Kampen associates, Inc., M.P. Hall Enterprises, Inc. and
Realty Center, Inc. Operations for those three subsidiaries terminated
during the quarter with the preferred stock issued to M.P. Hall and
Realty Center, Inc. rescinded.
Affordable's corporate headquarters are located in Las Vegas, Nevada.
F - 9
(B) - Consolidated Net (Loss) per Common Share
Consolidated net (loss) per common share is computed on the basis of the
wighted average number of common shares and equivalents 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 periods
from September 30, 2000 and 1999 as there were no stock options, warrants,
or other common stock equivalents outstanding during this period.
(C) - Cash and Cash Equivalents
Affordable considers all highly liquid debt instruments purchased with
maturities of 90 days or less to be cash equivalents for financial
statement purposes.
(D) - Income Taxes
No income taxes were provided during each of the fiscal years presented
since Affordable incurred losses during the development stage. Normally,
taxes are provided 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.
(E) - Depreciation
Affordable depreciates equipment, vehicles and machinery on a straight-line
basis over five to seven years for financial reporting purposes.
(F) - Patents
Affordable amortizes its patent rights from the date of acquisition on a
straight-line basis over its remaining life of 16 years and 3 months.
F - 10
(G) - Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, 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.
(H) - Basis of Presentation
The accompanying consolidated balance sheets and related statements of
operations during the development stage, stockholders' equity and cash
flows includes the accounts of Affordable Homes of America, Inc., Kampen
and Associates, Inc., Big Mountain Construction Company, Inc., Realty
Center, Inc. and Composite Industries of America, Inc. as of September 30,
1999 and for the three months then ended. Significant inter-company
transactions or balances have been eliminated. The financial statements
include the operations of Affordable and Big Mountain only for the three
months ended September 30, 2000.
Note 2 - Patent
Acquisition
On April 28, 1999 Affordable acquired Composite Industries of America, Inc.
for 6,514,270 shares of Common Stock of Affordable valued at $2.69 per share
or $17,523,386. Composite Industries of America, Inc.'s most significant
asset was a patent covering the construction material "Z-MIX". Z-MIX is a
cementitious building material that can be used in a two-step construction
method instead of cement, drywall or lumber. Affordable believes Z-MIX will
enable it to build a better quality home at a lower price than if other
building products were used. Management assigned a net value of $17,198,099
to the patent based upon the fair market value (the average of the closing
stock prices of Affordable's common
F - 11
stock two days prior to and two days after the acquisition date) of
Affordable's common stock issued to acquire Composite. The gross value
resulting from the application of the average fair market value less the
value of all other assets acquired was discounted by 25% in recognition of
the restricted nature of the stock issued as well as the fact that the common
stock was thinly traded during the period encompassing the acquisition date.
On June 12, 2000, Affordable signed a joint venture agreement with a major
construction contractor to build affordable homes utilizing Z-MIX, with gross
revenues projected to be in excess of $250,000,000. Management believes that
it is appropriate to continue to carry the original cost of the patent at
June 30, 2000 because the signing of the long -term contract demonstrates
the patent's immediate commercial viability. Furthermore, management believes
that the expected future cash flows on the long-term contracts will alone
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). Amortization expense amounted to $1,042,500 and $173,750
during the years ended June 30, 2000 and 1999 respectively.
Restatement
During the fiscal year ended June 30, 1999, Affordable originally recorded
the patent at the accumulated out-of-pocket costs incurred by Composite to
secure the patent ($394,313). That cost basis was subsequently deemed to be
incorrect as there was crucial information about the legal form of the
transaction that was not disclosed until the current year and which mandated
a different accounting treatment. Specifically, it was originally reported
that Composite Industries merged into Affordable. In fact, Affordable
acquired Composite by issuing 6,514,270 shares of its stock to acquire all
of the shares of Composite Industries then merged. Affordable's stock issued
to the shareholders of Composite for the acquisition of the patent was valued
at $17,198,099. Management believes that in light of the new information and
the resulting accounting ramifications that a revision was required in the
financial statements.
For accounting purposes, the upward adjustment of the carrying value of the
patent is being reflected as a restatement of financial statements as of
June 30, 2000 and 1999. The net increase in the acquisition value of the
patent was recorded as an increase to paid-in capital net of deferred tax
liabilities and amortization expense for 1999 was increased by $134,319 as
a result of the higher cost basis.
NOTE 3 - Officer loan receivable
On May 25, 2000, the company issued 327,511 shares of common stock valued
at $191,749 to an officer of the company as nominee for the purpose of
selling the shares on the open market and using the proceeds to pay
specific company expenses. Since the common stock was issued in the
officer's name, the officer has a liability to the company for the value
of the shares at the date of issuance. 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 was issued to the officer during the quarter ended
September 30, 2000. During this quarter, the $163,000 was repaid to the
company and the loan was reduced by an additional $31,000 for in exchange
for services.
F - 12
Note 4 - Acquisition of Subsidiaries
Kampen and Associates, Inc. - Effective April 14, 1999, Affordable
purchased 100% of the common stock of Kampen and Associates, Inc. for
428,572 convertible Class A preferred shares of Affordable valued at $3.53
per share for a total purchase price of $1,511,086. The cost basis of the
net assets acquired was increased by $1,511,086 to reflect the purchase
price of the company. The acquisition was treated as a purchase for
financial reporting purposes. No goodwill was recognized in the
transaction. The inability of Affordable to maintain current payments for
the land purchase options caused Affordable to abandon its entire
investment in Kampen during the fiscal year ended June 20, 2000.
Composite Industries, Inc. - Composite Industries was acquired by
Affordable under an agreement dated April 15, 1999 and immediately merged
into Affordable. The agreement called for the conversion of 100% of the
issued and outstanding shares of Composite in exchange for Affordable
common stock at the rate of two shares of Composite for each share of
Affordable. As of the effective date, there were 13,028,539 common shares
Composite outstanding. The acquisition was treated as a purchase for
financial reporting purposes.
M.P. Hall Enterprises, Inc. - On April 27, 1999, Affordable acquired 100%
of M.P. Hall's common stock in exchange for 100,000 shares of preferred B
stock for a total purchase price of $550,000. M.P. Hall's assets consisted
of land and development costs incurred to build a motel in Washington State.
The acquisition was treated as a purchase for financial reporting purposes.
No goodwill was recognized in the transaction. Affordable rescinded the
transaction during the year ended June 30, 2000.
Big Mountain Construction Company, Inc. - Effective June 28, 1999,
Affordable purchased 100% of the common and preferred stock of Big Mountain
Construction Company, Inc. for 215,983 restrictive common shares of
Affordable valued at $2.43 per share for a total purchase price of $525,120.
The acquisition was treated as a purchase for financial reporting purposes.
Goodwill in the amount of $408,197 was recognized in the transaction.
Goodwill is amortized on the straight-line basis over twenty years
commencing July 1, 1999.
Realty Center, Inc. - Effective June 28, 1999, Affordable purchased 100% of
the common stock of Realty Center, Inc. for 114,286 convertible Class A
preferred shares of Affordable valued at $3.50 per share for a total
purchase price of $400,000. Realty Center's assets consisted of a 25%
joint venture interest in a real estate development project known as
Heartland Homes. Further, Affordable acquired an additional 25% interest
in Heartland Homes directly by issuing an additional 114,286 shares of
convertible Class A preferred stock. Immediately after Affordable's
acquisition of Realty Center, Affordable transferred it's 25% in Interest
in Heartland into Realty Center. The acquisition was treated as a purchase
for financial reporting purposes. No goodwill was recognized in the
transaction. When the anticipated financing from Eurofederal Bank, NV failed
to materialize, (see Note 15) Affordable decided that it was in the best
interest of all parties to rescind the transaction during the year ended
June 30, 2000.
Note 5 - Commitments and contingencies
During the year ended June 30, 2000, Affordable issued 45,000,000 shares of
common stock to Eurofederal Bank, NV as collateral on an anticipated loan
and financing agreement. Funds were in fact not extended to Affordable and
the stock certificates were stopped. Eurofederal Bank has stated that it
will return the shares to Affordable.
F - 13
Note 6 - Machinery and Equipment
Machinery and equipment consists of the following as of September 30:
2000 1999
------- -------
Machinery $ 84,640 $ 84,640
Office equipment 17,982 17,982
Furniture and fixtures 3,032 3,032
Vehicles 63,540 57,472
------- -------
169,194 163,126
Less Accumulated
depreciation (81,542) (55,775)
------- -------
Total $ 87,652 $ 107,351
======= =======
Depreciation expense was incurred in the amount of $8,316 and $8,309 for
the three months ended September 30, 2000 and 1999 respectively, and is
included in general and administrative expense.
NOTE 7 - Income Taxes
Affordable accounts for income taxes on the liability method, as provided
by Statement of Financial Accounting Standards 109, Accounting for Income
Taxes (SFAS 109). At September 30, 2000 and 1999 the income tax (benefit)
was comprised of the following components:
2000 1999
------- -------
Current - Federal $ 0 $ 0
State 0 0
------- -------
Total current 0 0
Deferred- Federal (240,000) (460,000)
State 0 0
------- -------
Total deferred (240,000) (460,000)
Total $ (240,000) $ (460,000)
======= =======
The only differing method of reporting income for tax purposes as compared
to financial reporting purposes was in connection with the acquisition of
patent rights for common stock. 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:
2000 1999
------- -------
Deferred tax assets-
Tax benefit of net operating
loss carryovers $ 2,524,167 $ 978,150
Valuation allowance 108,062 108,062
--------- ---------
$ 2,416,105 $ 870,088
Deferred tax liabilities- ========= =========
Valuation of patent $ 5,655,587 $ 5,309,385
--------- ---------
$ 5,655,587 $ 5,309,385
========= =========
The valuation allowance provided for the periods are based on management's
valuation of the likelihood of realization. Management has concluded that
the income tax benefit provided in the Statements of Operations During the
Development Stage be limited to the amount of benefit accreted by the
amount of deferred liability in connection with the non-deductible portion
of the amortized patent since no other future benefit can be assured.
Affordable incurred net operating losses for financial reporting purposes
totaling $7,699,150 through September 30, 2000 available to offset future
income for financial reporting purposes expiring in 2021.
F - 14
NOTE 8 - Loans and Notes Payable
The following schedule summarizes loans and notes payable by subsidiary
as of June 30, 1999 and 2000:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
------- ---------
Kampen and Associates, Inc.
Cascade Land Depository included in the
acquisition of Kampen and Associates, Inc. (Note 4) $ 0 $ 1,550,000
Big Mountain Construction Company, Inc.
$33,000 equipment loan dated May 20, 1999
secured by excavating equipment payable at $1,664
per month including interest at 20.9% per annum
with the final installment due on May 20, 2001 15,159 24,502
Construction loan dated August 11, 1998 secured by
land and property with monthly payments on an interest
only basis and principal due October 1, 2000
including extension at prime + 2%, currently 11.5% 0 299,492
------- ---------
Total 15,159 1,873,994
Less current maturities 15,159 1,858,835
------- ---------
Long-term portion $ 0 $ 15,159
======= =========
</TABLE>
F - 15
NOTE 9 - Related Party Transactions
The company entered into consulting agreements with certain members of
the ompany's Board of Directors and stockholders to provide services on
various strategic and business issues. Total fees paid for such
services by the Company either in stock or cash during each of the
three months ended September 30, 2000 and 1999 amounted to $77,500 and
are included in General and Administrative fees in the statement 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 Affordable or one of its subsidiaries to assist with working
capital requirements. As of September 30, 2000 and 1999, such funds
advanced to the company amounted to $352,674 and 301,545 respectively.
In addition, 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.
NOTE 10 - Industry Segment Information
With the consolidation of operations and abandonment of certain assets,
management has determined that there are no major business segments in
that the company's operations are all related to the building and
construction industry. Accordingly, no such operations are reported.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable
ITEM 9 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
Michael Schulman 44 Chief Financial Officer
Susan Donohue 48 Secretary, Director
Merle Ferguson founded Affordable Homes of America, Inc. in 1997 and is
the President, CEO and Chairman of the Board of Directors. Prior to
starting Affordable Homes Mr. Ferguson spent 22 years in the
construction industry as a developer and builder. Mr. Ferguson built
commercial and residential buildings in California, Oregon and
Washington.
Mr. Ferguson attended Yakima Valley College in Washington State with
a focus in forestry. He honorably served his country with the United
States Marine Corps from 1966 to 1970. This included two tours in
Vietnam. 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 Affordable Homes of America
use no timber products.
Michael Schulman joined Affordable Homes of America as Chief Financial
Officer and Treasurer in June of 2000. He previously served as CFO
for two publically-traded companies; FindWhat.com, a pay for position
search engine and Gotham Apparel Corp, a women's apparel company.
Mr. Schulman also was a CFO for International Product Options Corp.
and a Controller for one of the Avnet Companies. Mr. Schulman received
a Masters Degree in Finance and a Bachelor's Degree in Accounting from
St. John's University and brings over 20 years of financial experience
to the position.
Susan Donohue is the Secretary and a Director of the Company. 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 when Composite
merged with Affordable Homes of America, Inc. 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.
ITEM 10 EXECUTIVE COMPENSATION
Affordable Homes of America, Inc. does not currently pay salaries to
its officers. Merle Ferguson and Susan Donohue are paid through
business management services agreements with the Company. The
agreements that were signed on March 19, 1999 are for a period of
five years. Merle Ferguson is to be paid $150,000 per year and Susan
Donohue is to be paid $60,000 per year. The compensation is for
services as directors and officers, specific senior roles, consulting
services with regards to corporate operations and day-to-day duties
and responsibilities of running the corporate office.
Michael Schulman, Chief Financial Officer has agreed to an annual
compensation of $150,000 per annum effective July 1, 2000, but has not
received any compensation as of this date. Any amounts not already
paid to Mr. Schulman will be paid as funding becomes available to
Affordable.
Dr. William T. Anton is paid $3,000 monthly for foreign travel and is
reimbursed for his travel expenses on behalf of the Company.
Dr. Anton has traveled extensively in Europe in order to market the
World Home in various countries, which include Turkey and Bulgaria.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 2000, information
regarding the beneficial ownership of shares by each person known by
the Company to own five percent or more of the outstanding shares,
by each of the directors and by the officers and directors as a group.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Title of class Name and address of beneficial owner Amount of Percent of class
beneficial ownership
Common Stock Merle Ferguson 9,563,000 45.2%
4505 W. Hacienda Ave. # I-1
Las Vegas,
Nevada 89118
Common Stock Susan Donohue 675,000 3.2%
4505 W. Hacienda Ave.#I-1
Las Vegas,
Nevada 89118
Common Stock Michael Schulman 0 0.0%
250 E. 87th St. Apt. 21E
New York, N.Y. 10128
All Officers as a Group and Directors 10,238,000 48.4%
</TABLE>
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into a consulting agreement with CS & S
Enterprise, Inc. to provide general and technical building-related
services, in the amount of $100,000 per year. Merle Ferguson is a
director and shareholder of Affordable and also owns 100% of the
stock of CS & S Enterprises, Inc.
The President and Chief Executive Officer has from time to time
advanced funds to Affordable or to one of its subsidiaries to assist
with working capital requirements. As of September 30, 2000 and 1999,
such funds advanced to the Company amounted to $352,674 and $301,545
respectively.
No officer, director, nominee for election as a director, or associates
of such officer, director or nominee is or has been in debt to the
Company during the past fiscal year except for the following.
On August 10, 2000, the Company issued 300,000 S-8 shares of common
stock valued at $131,100 to an officer of the Company as nominee for
the purpose of selling the shares on the open market and using the
proceeds to pay specific Company expenses. Since the common stock was
issued in the officer's name, the officer has a liability to the
Company for the value of the shares at the date of issuance.
ITEM 13 EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27.0 Financial Data Schedule
(b) Reports on Form 8-K.
Form 8-K filed with the USSEC on October 12,2000
Items Reported:
Item No.5- The Co. Changed its name to World Homes, Inc.
Item No.6-Resignation of Registrant's Directors
James Pratt resigns as Director
Item No.7-Financial Statements, Proforma, and
Exhibits; Co. amends articles of Inc. to reflect
name change.
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.
AFFORDABLE HOMES OF AMERICA, INC.
Date: November 14, 2000 By: /s/ Merle Ferguson
--------------
Merle Ferguson
President, CEO and Director
Date: November 14, 2000 By: /s/ Michael Schulman
----------------
Michael Schulman
Chief Financial Officer
