ASCK Auscrete Corporation (CE)

UNAUDITED NOTES TO FINANCIAL STATEMENTS

September 30, 2020

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 $100-110 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.

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The summary of significant accounting policies of Auscrete Corporation is presented to assist in the understanding of the Company's financial statements.  The financial statements and notes are representations of the Company’s management, who is responsible for their integrity and objectivity.

The financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The financial statements are presented in condensed format and should be read in conjunction with the audited financial statement on the form 10K for the year ended December 31, 2019.

INCOME TAXES

Federal Income taxes are not currently due since we have had losses since inception. On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted.  Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018.  The Company will compute its income tax expense for the nine Months ended September 30, 2020 using a Federal Tax Rate of 21%.

Income taxes are provided based upon the liability method of accounting pursuant to ASC 740-10-25 Income Taxes – Recognition.  Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end.  A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard required by ASC 740-10-25-5.

Deferred income tax amounts reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes.

The Company has no uncertain tax positions or related interest or penalties requiring Accrual at September 30, 2020 and 2019.

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 $309 in cash equivalents as of September 30, 2020 and $15,634 as of December 31, 2019.

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Accounts Receivable

We grant credit to our customers and do not require collateral. Our ability to collect receivables is affected by economic fluctuations in the geographic areas and industries served by us. Reserves for un-collectable amounts are provided, based on past experience and a specific analysis of the accounts. Although we expect to collect amounts due, actual collections may differ from the estimated amounts. As of September 30, 2020, and December 31, 2019, we had a reserve for potentially un-collectable accounts of $0 and $0 respectively. The three and nine months ended September 30, 2020; our bad debt expense was $0 compared to $0 for the same period in 2019.

Fair Value Measurements

The Company adopted guidance which defines fair value, establishes a framework for using fair value to measure financial assets and liabilities on a recurring basis, and expands disclosures about fair value measurements. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent sources. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

Level 1 - Valuation is based upon unadjusted quoted market prices for identical assets or liabilities in accessible active markets.

Level 2 - Valuation is based upon quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable in the market.

Level 3 - Valuation is based on models where significant inputs are not observable. The unobservable inputs reflect a company’s own assumptions about the inputs that market participants would use.

The Company’s financial instruments consist of cash, prepaid expenses, inventory, accounts payable, convertible notes payable, advances from related parties, and derivative liabilities. The estimated fair value of cash, prepaid expenses, investments, accounts payable, convertible notes payable and advances from related parties approximate their carrying amounts due to the short-term nature of these instruments.

The Company’s derivative liabilities have been valued as Level 3 instruments.

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The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of September 30, 2020

REVENUE RECOGNITION POLICY

The Company recognizes revenue under ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASC 606”).    The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:



·Identify the contract with the customer  

·Identify the performance obligations in the contract  

·Determine the transaction price  

·Allocate the transaction price to the performance obligations in the contract  

·Recognize revenue when the company satisfies a performance obligation  

For the three months ended September 30, 2020 we completed and sold one unit for $13,000.

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.

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.

Share-Based Compensation

The Company has adopted the use of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (SFAS No. 123R) (now contained in FASB Codification Topic 718, Compensation-Stock Compensation), which supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance and eliminates the alternative to use Opinion 25’s intrinsic value method of accounting that was provided in

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Statement 123 as originally issued. This Statement requires an entity to measure the cost of employee services received in exchange for an award of an equity instruments, which includes grants of stock options and stock warrants, based on the fair value of the award, measured at the grant date (with limited exceptions). Under this standard, the fair value of each award is estimated on the grant date, using an option-pricing model that meets certain requirements. We use the Black-Scholes option-pricing model to estimate the fair value of our equity awards, including stock options and warrants. The Black-Scholes model meets the requirements of SFAS No. 123R; however, the fair values generated may not reflect their actual fair values, as it does not consider certain factors, such as vesting requirements, employee attrition and transferability limitations. The Black-Scholes model valuation is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We estimate the expected volatility and estimated life of our stock options at grant date based on historical volatility. For the “risk-free interest rate,” we use the Constant Maturity Treasury rate on 90-day government securities. The term is equal to the time until the option expires. The dividend yield is not applicable, as the Company has not paid any dividends, nor do we anticipate paying them in the foreseeable future. The fair value of our restricted stock is based on the market value of our free trading common stock, on the grant date calculated using a 20-trading-day average. At the time of grant, the share-based compensation expense is recognized in our financial statements based on awards that are ultimately expected to vest using historical employee attrition rates and the expense is reduced accordingly. It is also adjusted to account for the restricted and thinly traded nature of the shares. The expense is reviewed and adjusted in subsequent periods if actual attrition differs from those estimates.

We re-evaluate the assumptions used to value our share-based awards on a quarterly basis and, if changes warrant different assumptions, the share-based compensation expense could vary significantly from the amount expensed in the past. We may be required to adjust any remaining share-based compensation expense, based on any additions, cancellations or adjustments to the share-based awards. The expense is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The three months ended September 30, 2020 and 2019 we had $1,150,000 and $0 respectively, in share-based expense, due to the issuance of common stock. As of September 30, 2020, we had no further non-vested expense to be recognized.

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 are excluded as the effect would be anti-dilutive. It is estimated that approximately 400,000,000 shares of common stock could be issued as a result of conversion of notes payable. As of September 30, 2020, and 2019. Fully diluted weighted average common shares and equivalents were withheld from the calculation as they were considered anti-dilutive. All calculations reflect the effects of the 200 to 1 reverse stock split completed November 13th, 2019.

RECLASSIFICATION

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported income, total assets, or stockholders’ equity as previously reported.

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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.

EMERGING GROWTH COMPANY

The Company qualifies as an Emerging Growth Company, thus takes advantage of the 1-year deferral period for the adoption of all new accounting standards updates.   

LEASES

ASB ASU 2016-02 “Leases (Topic 842)” – In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but has been updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoptions of this standard has not significantly impacted the company.

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.

During the three-month period ending September 30, 2020 the Company had started generating revenues from construction related operations. This involved the sale of 420 square foot contracted display home for $13,000.

During the prior six months of 2020 the Company had not generated revenues from construction related operations. The Company has an Accumulated deficit of $9,781,227 as of September 30, 2020 which raises substantial doubt about the Company’s ability to continue as a going concern.

The Company will use additional funds through equity and 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. This also may be affected given the uncertainties surrounding the Covid 19 pandemic. 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 raise 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

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 June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses [codified as Accounting Standards Codification Topic (ASC) 326]. ASC 326 adds to US generally accepted accounting principles (US GAAP) the current expected credit loss (CECL) model, a measurement model based on expected losses rather than incurred losses. Under this new guidance, an entity recognizes its estimate of expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses. This will become effective in January 2023 and the impact on the company is under evaluation.

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Update 2018-07—Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This was early adopted and there were no outstanding equity awards to be re-valued.

Update 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This was issued in August of 2020 and will become effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. We are in the process of evaluating the impact to the company.

NOTE  - 4 RELATED PARTY TRANSACTIONS

As of, September 30, 2020 and December 31, 2019, the balance owed to Company CEO, John Sprovieri was $0 and $6,766 respectively. These advances were primarily for operating expenses.

NOTE 5 - PROPERTY, INVENTORY AND EQUIPMENT

During July 2019, the Company sold their Industrial Property they had bought from the city of Goldendale in February 2018. The original purchase price was $100,000 for the 5 acre lot. The Company sold the land back to the City under the original contract for a discounted price of $90,000.

Notes to Inventory Type and Value:

Inventory consists of Raw Materials that are valued at the lower of cost or market.

Raw Materials:

Raw materials consist of rebar, insulation, surfactant, powdered cement, threaded inserts and sundry items. The cost of $8,359 is based on the cost of purchase from a non-related supplier.

Property and Equipment at September 30, 2020 were comprised of the following at:

During the nine months ended September 30, 2020, the Company purchased $3,690 in manufacturing equipment. The Depreciation expense for the three and nine months ended September 30, 2020 and 2019 was $1,307 and $3,921 respectively.

NOTE 6 - COMMON STOCK

Common Stock:

The Company Authorized Capital to 20,000,000,000 common shares at $0.0001 par value.

During the Period January 1, 2019 to December 31, 2019, the Company issued 5,250,000 shares for services based on post-split numbers.

During the Period January 1, 2019 to December 31, 2019, the Company issued 10,061,438 shares for convertible note conversions based on post-split numbers.

During the Period January 1, 2020 to September 30, 2020, the Company issued 48,442,859 shares for convertible note conversions based on post-split numbers. On one of the conversions the conversion price was modified during the period to induce the share settlement, resulting in loss on the conversion of $19,250.

During the Period January 1, 2020 to September 30, 2020 there were 50,000,000 shares issued to

these individuals to recompense post-split roll back numbers issued for service compensation to the Company.

These shares were valued on the date of issuance using the closing stock price on that day resulting in share based expense of 1,150,000.

During the three-month period July 1, 2020 to September 30, 2020, the Company issued 21,419,834 shares for convertible note conversions. Total shares issued for the period January 1, 2020 to September 30, 2020 was 98,442,859. On one of the conversions prior to the third quarter the conversion price was modified to induce the share settlement, resulting in loss on the conversion of $19,250.

NOTE 7 - INCOME TAXES

Federal Income taxes are not currently due since we have had losses since inception.

On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted.  Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018.  The Company will compute its income tax expense for the nine months ended September 30, 2020 using a Federal Tax Rate of 21%.

Income taxes are provided based upon the liability method of accounting pursuant to ASC 740-10-25 Income Taxes – Recognition.  Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end.  A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard required by ASC 740-10-25-5.

Deferred income tax amounts reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes.

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As of September 30, 2020, we had a net operating loss carry-forward of approximately $(9,781,227) and a deferred tax asset of approximately $2,054,058 using the statutory rate of 21%. 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 $(2,054,058).  FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  At September 30, 2020, the Company had not taken any tax positions that would require disclosure under FASB ASC 740. 

he Company is subject to tax in the U.S. federal and Washington 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 8 – Notes Payable and Derivative Liabilities

On May 8, 2018, the company issued a 12-month Convertible Note for the sum of $50,000 to RB Capital at 12%. Convertible at $.004. No beneficial conversion was recognized as the conversion price was higher than the stock price.

On June 28, 2018, the company issued a 12-month Convertible Note for the sum of $10,000 to RB Capital at 12%. Convertible at $.004. No beneficial conversion was recognized as the conversion price was higher than the stock price.

On December 7, 2018, the company issued a 12-month Convertible Note for the sum of $25,000 to RB Capital at 12%. Convertible at $.004. No beneficial conversion was recognized as the conversion price was higher than the stock price.

On October 25, 2019, the company issued a 12-month Convertible Note for the sum of $15,000 to RB Capital at 12%. Convertible at $.01. As a result we recognized a beneficial conversion cost of $45,000.

On November 15, 2019, the company issued a 12-month Convertible Note for the sum of $25,000 to RB Capital at 12%. Convertible at $.01. As a result, we recognized a beneficial conversion cost of $7,500.

On December 13, 2019, the company issued a 12-month Convertible Note for the sum of $20,000 to RB Capital at 12%. Convertible at $.03. No beneficial conversion was recognized as the conversion price was higher than the stock price.

On May 28, 2019 we entered into a one-year convertible promissory note in the amount of $27,500 with and interest rate of 12% and a conversion rate of 55% of the lowest prior 25 days trading period.

On August 20, 2019, the company issued a 12-month Convertible Note for the sum of $40,000 to LG Capital at 8%. Convertible at 60% of lowest of the prior 20 days trading period.

On December 16, 2019, the company issued a 12-month Convertible Note for the sum of $32,000 to LG Capital at 8%. Convertible at 60% of lowest of the prior 20 days trading period.

On January 13, 2020, the company issued a 12-month Convertible Note for the sum of $20,000 to RB Capital at 12%. Convertible at $.1. No beneficial conversion was recognized as the conversion price was higher than the stock price.

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On February 10, 2020, the company issued a 12-month Convertible Note for the sum of $25,000 to RB Capital at 12%. Convertible at $.15. No beneficial conversion was recognized as the conversion price was higher than the stock price.

On March 6, 2020, the company issued a 12-month Convertible Note for the sum of $35,000 to LG Capital at 8%. Convertible at 60% of lowest of the prior 20 days trading period.  We recognized a derivative liability of $66,811, an original debt discount of $35,000 and a loss on issuance of $31,811

On April 7, 2020, the company issued a 12-month Convertible Note for the sum of $15,000 to RB Capital at 12%. Convertible at $.05. No beneficial conversion was recognized as the conversion price was higher than the stock price.

On June 5, 2020, the company issued a 12-month Convertible Note for the sum of $20,000 to RB Capital at 12%. Convertible at $.1. No beneficial conversion was recognized as the conversion price was higher than the stock price.

On June 25, 2020, the company issued a 12-month Convertible Note for the sum of $30,000 to Samuel Rotbard at 8%. Convertible at 60% of lowest of the prior 20 days trading period.  We recognized a derivative liability of $66,811, an original debt discount of $35,000 and a loss on issuance of $31,811

On July 23, 2020 the company issued a 12-month Convertible Note to RB Capital for the sum of $15,000 at 10% interest at a rate of $0.05.

On August 17, 2020 the company issued a 12-month Convertible Note to RB Capital for the sum of $50,000 at 10% interest at a rate of $0.05.

As a result of the convertible notes we recognized the embedded derivative liability on the date that the note was convertible. We also revalued the remaining derivative liability on the outstanding note balance on the date of the balance sheet. The inputs used were a weighted volatility of 101% to 130% and a risk free discount rate of .11% to .42 The remaining derivative liabilities valued using the level 3 inputs in the fair value hierarchy were:

The convertible notes have interest rates that range from 8% to 12% per annum and default rates that range from 12% to 24% per annum. The maturity dates range from nine months to one year. The conversion rates range from 55% discount to the market to 62% discount to the market.

For the nine months ended September 30, 2020 the convertible notes had converted into 48,442,859 shares of common stock and we recognized $107,797 in finance fees on the conversions.

Outstanding Derivative Liabilities: 

NOTE - 9 COMMITMENTS

On June 14, 2019 the company signed a 6 month lease on a 8,000 sq. ft. facility located in outer Goldendale and monthly lease cost is $2,000. The lease converted to a month to month on December 14, 2019 at $2,000 per month. The total lease payments for 2019 were $18,000.

ASB ASU 2016-02 “Leases (Topic 842)” – In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model but has been updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning

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after December 15, 2018, including interim periods within those fiscal years. We are not materially impacted by this, as we have no long-term leases.