NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY
Auscrete Corporation ("the Company") was formed as an enterprise to take advantage of technologies developed for the construction of affordable, thermally efficient and structurally superior housing. This "GREEN" product is the culmination of design and development since the early 1980's. The company's Registration Statement outlines the result of the amalgamation of various material development stages, taking an idea to a product and further developing that product to address an ongoing problem in the world's largest marketplace, the quest for affordable, efficient and enduring housing. Auscrete's structures are monetarily highly competitive. A turnkey house, ready to move in sells for around $95-100 per square foot. That is very low in today's market but is brought about by Auscrete's ability to manufacture large panels in mass production format. The house is virtually "fastened" together on site to produce an attractive site built home, a home that will stay where it is put through all kinds of adverse weather and age conditions. It will not burn, is not affected by bugs, termites or rot, it saves extensively on energy costs and has very low maintenance needs.
INCOME TAXES
The Company follows the guidance of the Financial Accounting Standards Board's Accounting Standards Codification Topic 740 related to Income Taxes. According to Topic 740, deferred income taxes are recorded to reflect the tax consequences in future years of temporary differences between the tax basis of the assets and liabilities and their financial amounts at year-end.
For federal income tax purposes, substantially all expenses incurred prior to the commencement of operations must be deferred and then they may be written off over a 180-month period. Tax deductible losses can be carried forward for 20 years until utilized for federal tax purposes. The Company will provide a valuation allowance in the full amount of the deferred tax assets since there is no assurance of future taxable income.
The Company utilizes the Financial Accounting Standards Board's Accounting Standards Codification Topic 740 related to Income Taxes to account for the uncertainty in income taxes. Topic 740 for Income Taxes clarifies the accounting for uncertainty in income taxes by prescribing rules for recognition, measurement and classification in financial statements of tax positions taken or expected to be in a tax return. Further, it prescribes a two-step process for the financial statement measurement and recognition of a tax position. The first step involves the determination of whether it is more likely than not (greater than 50 percent likelihood) that a tax
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position will be sustained upon examination, based on the technical merits of the position. The second step requires that any tax position that meets the more likely than not recognition threshold be measured and recognized in the financial statements at the largest amount of benefit that is a greater than 50 percent likelihood of being realized upon ultimate settlement. This topic also provides guidance on the accounting for related interest and penalties, financial statement classification and disclosure. The Company's policy is that any interest or penalties related to uncertain tax positions are recognized in income tax expense when incurred. The Company has no uncertain tax positions or related interest or penalties requiring accrual at December 31, 2016 and 2015.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of cash in banks and highly liquid investments with original maturities of 90 days or less. There were $23 cash equivalents as of December 31, 2016 and $56,889 as of December 31, 2015.
REVENUE RECOGNITION POLICY
The Company recognizes revenues and the related costs when persuasive evidence of an arrangement exists, delivery and acceptance has occurred or service has been rendered, the price is fixed or determinable, and collection of the resulting receivable is reasonably assured. Revenue from licensing our technology is recognized over the term of the license agreement. Costs and expenses are recognized during the period in which they are incurred. Revenues earned for the period is solely from maintenance services performed. The Company recognizes these sales once delivery time is confirmed to the customer.
COST OF SALES
Amounts that will be recorded as cost of sales relate to direct expenses incurred in order to fulfill orders of our products. Such costs are recorded as incurred. Our cost of sales will consist primarily of the cost of product; labor, selling costs and the cost of G&A expenses.
Fair Value of Financial Instruments
The Financial Accounting Standards Board issued ASC (Accounting Standards Codification) 820-10 (SFAS No. 157),
“
Fair Value Measurements and Disclosures" for financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. FASB ASC 820-10 defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required by the standard that the Company uses to measure fair value:
·
Level 1: Quoted prices in active markets for identical assets or liabilities.
·
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Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
·
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The carrying amounts of the Company
’
s financial instruments as of August 31, 2016, reflect:
·
Cash: Level 1 Measurement based on bank reporting.
§
Level 2 Loans from Officers and related parties
·
Level 2 Based on promissory notes and calculation of derivative liabilities.
PROPERTY AND EQUIPMENT
Property and Equipment was stated at historical cost less accumulated depreciation and amortization. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Depreciation is provided on a straight-line basis over the assets' estimated useful lives. The useful lives of the assets are as follows: equipment 7-years, vehicles 7-years, and buildings 30-years. Additions and improvements are capitalized while routine repairs and maintenance are charged to expense as incurred. Upon sale or disposition, the historically recorded asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to other income or expense.
IMPAIRMENT OF LONG-LIVED ASSETS We evaluate long-lived assets for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate their net book value may not be recoverable. When these events occur, we compare the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. There can be no assurance, however, that market conditions will not change or demand for the Company's products will continue. Either of these could result in the future impairment of long-lived assets. Estimates of fair value are determined through various techniques, including discounted cash flow models and market approaches, as considered necessary.
LOSS PER COMMON SHARE
Basic loss per common share is computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share consists of the weighted average number of common shares outstanding plus the dilutive effects of options and warrants calculated using the treasury stock method. In loss periods, dilutive common equivalent shares
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are excluded as the effect would be anti-dilutive. As of December 31, 2016, we had outstanding convertible notes in the amount of $465,000 which could potentially convert into approximately 83,000,000 shares of additional dilutive common stock equivalents.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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 periods. Actual results could differ from those estimates and assumptions.
NOTE 2 - GOING CONCERN AND PLAN OF OPERATION
The Company's financial statements have been presented on the basis that it will continue as a going concern. The Company has not generated revenues from construction related operations to date. The Company has an accumulated deficit of $1,153,221 as of December 31, 2016.
To the extent that the Company's capital resources are insufficient to meet current or planned operating requirements, the Company has explored additional funds through equity or debt financing, collaborative or other arrangements with corporate partners, licensees or others, and from other sources, which may have the effect of diluting the holdings of existing shareholders. The Company has subsequent current arrangements with respect to, or sources of, such additional financing and the Company does not anticipate that existing shareholders will be required to provide any portion of the Company's future financing requirements.
No assurance can be given that additional financing will be available when needed or that such financing will be available on terms acceptable to the Company. If adequate funds are not available, the Company may be required to delay or terminate expenditures for certain of its programs that it would otherwise seek to develop and commercialize. This would have a material adverse effect on the Company and raises substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that may result from the outcome of this uncertainty.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements.
A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, the Company
’
s management has not determined whether implementation of such standards would be material to its financial statements.
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The Company is reviewing the effects of following recent updates. The Company has no expectation that any of these items will have a material effect upon the financial statements.
In April 2017, the FASB Update 2017-04
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Intangibles
—
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. A public business entity that is an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. All other entities, including not-for-profit entities, that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
In January 2017, the FASB Update 2017-01
—
Business Combinations (Topic 805): Clarifying the Definition of a Business. Public business entities should apply the amendments in this Update to annual periods beginning after December 15, 2017, including interim periods within those periods. All other entities should apply the amendments to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019.
In 2016 the FASB UPDATE 2016-15
—
STATEMENT OF CASH FLOWS (TOPIC 230): CLASSIFICATION OF CERTAIN CASH RECEIPTS AND CASH PAYMENTS (A CONSENSUS OF THE EMERGING ISSUES TASK FORCE. Stakeholders indicated that there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement ofcash flows under Topic 230, Statement of Cash Flows, and other Topics. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice.
NOTE 4 -RELATED PARTY
During 2015, the company contracted to purchase Assets from another company under common control (Auscrete Corporate a private company owned by Clifford Jett and John Sprovieri,). Clifford Jett and John Sprovieri are both members of the board of directors of Auscrete Corporation (the public company). The company has determined that fair market value is not allowable where there are entities under common control and cost should be based on the carrying book value of the seller's assets. They were acquired on July 15, 2015. Assets consisted of Production Plant and Equipment, Mobile Equipment, Tools and Equipment and Inventory used in the production of Auscrete AAC housing and other structures. This property, with an estimated value of over $300,000 was acquired for a value $80,000 by the issue of 80 million common shares. There was no cash component in the purchase.
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During the year ended 2015, John Sprovieri an officer and director of the company, advanced $8,180 to the company. As of December 31, 2016, and 2015 the balance owed to John Sprovieri was $0 and $8,180 respectively.
NOTE 5 - PROPERTY, INVENTORY AND EQUIPMENT
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December 31,
|
|
2016
|
2015
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Property Plant and Equipment (Gross)
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$
34,517
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$
34,017
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Accumulated Depreciation
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(7,390)
|
(2,162)
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Property Plant and Equipment (net)
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$
27,127
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$
31,855
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Depreciation expense for the years ended December 31, 2016 and 2015 was $5,228 and $2,162 respectively.
Notes to Inventory Type and Value:
Inventory consists of Finished Product and Raw Materials that are valued at the lower of cost or market.
Finished product of $44,900 is a full set of insulated AAC cast panels for wall and roof of an approx. 1,600 sq. ft house. Panel cost is actual size of all panels in sq. ft. of just under 7,000 sq. ft. calculated as follows.
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Material
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Cost per sq. ft.
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Cement
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2.42
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XPS Insulation
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0.98
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Surfactant
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0.32
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Rebar @ Steel
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1.02
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Labor
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1.78
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TOTAL COST PER SQ. FT. $
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6.52
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Raw Materials:
Raw materials consist of rebar, insulation, surfactant, powdered cement, threaded inserts and sundry items. The cost of $2,100 is based on the cost of purchase from a non related supplier.
Note 6 - Notes Payable and Completed
During December 2015, the company issued 2 Convertible Notes.
1. CONVERTED and completed. A note to ADAR Bays was for $50,000 and was completely converted August 31, 2016. It was a twelve month note at 8% interest.
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2. CONVERTED and completed. The second Note was with EMA Financial Inc. It was a twelve month note at 10% interest and it completely converted before September 31, 2016. The company had determined that the EMA note had an embedded derivative that was shown on the 2015 Balance Sheet.
During January and during September to December 2016, the company issued 7 Convertible Notes.
1. CONVERTED and completed. This Note, issued in January, 2016 was a $45,000 note to Fourth Man LLC. which has completely converted.
2. CONVERTED and completed. A second note to ADAR Bays for $50,000 was a back-end note and completely converted during September, 2016.
3. A third note to ADAR Bays for $54,000 is convertible after March 22, 2017. It is a twelve month note at 8% interest.
4. A fourth note to ADAR Bays for $230,000 is convertible after April 13, 2017. It is a twelve month note at 12% interest but is secured by already issued shares belonging to John Sprovieri, the CEO of the company.
5. A note to JSJ Investments for $84,500 is convertible after October 7, 2017. It is a twelve month note at 12% interest.
6. A note to Crown Bridge Partners, LLC for $43,000 is convertible after October 17, 2017. It is a twelve month note at 10% interest.
7. A note to Fourth Man, LLC for $45,000 and is convertible after July 26, 2017. It is a nine month note at 10% interest
As a result of these convertible notes, we recognized and imbedded derivative liability, as of December 31, 2016 and 2015. Our derivative liability was $117,759 and $39,818
Note 7
–
Loss on deposit
We made a security deposit in the amount of $219,998 in October 2016 to an overseas company as a security deposit on a loan. Management has elected to impair this deposit due to the uncertainty of its security and collectability in the amount of $219,998.
NOTE 8 - COMMON STOCK
Common Stock:
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On October 11, 2016, the Company increased its Authorized Capital to 2,000,000,000 common shares at $0.0001 par value. There are 370,235,160 shares issued and outstanding as of December 31, 2016.
During the twelve months ended December 31, 2015, the Company issued 80,900,000 common shares described as follows:
On March 9, 2015, the company issued 600,000 shares to Globex for DTC Registration ($12,000)
On June 25, 2015, the company issued 100,000 shares to Colonial Stock Transfer for Services ($1,000)
On June 25, 2015, the company issued 200,000 shares to StockVest for Consulting fees ($2,000)
On June 25, 2015, the company issued 40,000,000 shares as half payment of an asset purchase. (see note 4)
On September 1, 2015, the company issued 40,000,000 shares as the balance of the payment of an asset purchase. (see note 4)
During the year ended December 31, 2016, the Company issued 271,300,160 shares and cancelled 2,000,000 as described as follows:
On October 11, 2016, we issued 120,500,000 shares of our common stock @ $.0006 for consulting services.
During the year ended December 31, 2016 we issued 150,800,160 shares of our common stock for conversions of our convertible notes payable and accrued interest, in the amount of $207,853 with an average conversion price of $.0014.
On May 15, 2016, we cancelled 2,000,000 shares of our common stock @ $.01 in the amount of $20,000, these shares were previously issued in 2014 for services, which were never performed.
NOTE
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- INCOME TAXES
The Company has incurred net operating losses since inception. The Company has not reflected any benefit of such net operating loss carry forwards in the financial statements.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.
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Based on the level of historical taxable losses and projections of future taxable income (losses) over the periods in which the deferred tax assets can be realized, management currently believes that it is more likely than not that the Company will not realize the benefits of these tax deductible differences. Accordingly, the Company has provided a valuation allowance against the gross deferred tax assets as follows:
As of December 31, 2016, the Company had a net operating loss carry forward of approximately $1,153,221, and a deferred tax asset of approximately $392,095 using the statutory rate of 34%. The deferred tax asset may be recognized in future periods, not to exceed 20 years. However, due to the uncertainty of future events we have booked valuation allowance of $(392,095). The Company may have experienced control changes under IRC 382, which has not been fully analyzed and could affect the NOL availability.
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December 31,
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|
2016
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2015
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Deferred Tax Asset
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$ 392,095
|
$ 150,995
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Valuation Allowance
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(392,095)
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(150,995)
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Deferred Tax Asset (net)
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$ -
|
$ -
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Reconciliations between the provision for income taxes and the expected tax benefit using the federal statutory rate of 34% and the state statutory rate of 6.9% for a total effective rate of 40.9% for 2016 and 2015.
The Company adopted the uncertain tax position disclosure in accordance with ASC 740 and has not recognized any material increase in the liability for unrecognized income tax benefits as a result of the implementation. The Company estimates that the unrecognized tax benefit will change within the next twelve months. The Company will continue to classify income tax penalties and interest, if any, as part of interest and other expenses in its statements of operations. The Company has incurred no interest or penalties as of September 30, 2016 and 2015.
The Company files income tax returns in the U.S. and Oregon federal jurisdictions. These filings are subject to a three year statute of limitations unless the returns have not been filed at which point the statute of limitations becomes indefinite. No filings are currently under examination. No adjustments have been made to reduce the estimated income tax benefit at year end. Any valuations relating to these income tax provisions will comply with U.S. generally accepted accounting principles.
NOTE - 10 SUBSEQUENT EVENTS
Subsequent to December 31, 2016. The company Issued a convertible note with Power Up Lending Group Ltd in the amount of $38,000 and signed an Equity Purchase Agreement for $2 Million with Kodiak Capital Group, LLC. If this financing facility is used, it will require the company to submit an S-1 to the SEC. The company also issued a convertible promissory note to Kodiak Capital Group, in the amount of $30,000.
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