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 significant revenues from operations to date. The Company has an accumulated deficit of $621,872 as of September 30,
2016.
To
the extent that the Company's capital resources were insufficient to meet operating requirements, the Company has had extensive
talks with European investors to obtain loan funding for its future needs. If the company is unsuccessful in this endeavour, they
have obtained access to additional funds through a $5 million equity financing agreement with GHS Financial, which may have the
effect of diluting the holdings of existing shareholders. The plan is to use these funds to establish a manufacturing plant in
Rufus, OR. The Company does not anticipate that existing shareholders will provide any portion of the Company's future financing
requirements.
No
assurance can be given that the additional financing will be available when needed by the company as certain parts of the agreement
for drawdowns rely on share sales volume. 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 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 – RELATED PARTY TRANSACTIONS
On
September 27th. 2016, a related party advanced a short term loan of $50,000 to the company. The loan was repaid out of a convertible
note issued to ADAR Bays during October.
The
company contracted to purchase Assets from another company under common control. 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.
NOTE
4 – INVENTORY
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 at $6.52 per cu. ft.
Raw
Materials:
Raw
materials consists 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
5 – PROPERTY AND EQUIPMENT
During
2015, the company sold previously impaired assets, for $10,000 which is shown as a gain on disposal of assets. Most of the assets
were gifted back to the company at a value of $0 in the transaction discussed in Note 3.
Table
of Equipment
|
|
September
30, 2016
|
|
December
31, 2015
|
Mobile Equipment
|
|
|
—
|
|
|
|
—
|
|
Shop Equipment
|
|
$
|
12,000
|
|
|
$
|
12,000
|
|
Manufacturing Equipment
|
|
|
21,000
|
|
|
|
21,000
|
|
Building
|
|
|
—
|
|
|
|
—
|
|
Office Equipment
|
|
|
1,517
|
|
|
|
1,017
|
|
TOTAL
|
|
|
34,517
|
|
|
|
34,017
|
|
Accumulated
Depreciation - NET
|
|
|
(6,083
|
)
|
|
|
(2,162
|
)
|
TOTAL
Property & equipment - NET
|
|
$
|
28,434
|
|
|
$
|
31,855
|
|
NOTE
6 – NOTES PAYABLE
During
December 2015 and January 2016, the company issued 3 Convertible Notes. One note issued in December 2015 to ADAR Bays was for
$50,000 and, with the addition of $2,811 in interest, was converted into 35,623,095 common shares during this third quarter of
2016.
The
second Note is with EMA Financial Inc. It was a twelve month note at 10% interest. EMA completed conversion of this note during
this third quarter and, with interest, EMA converted $55,611.89 into 45,569,677 common shares.
In
January, 2016 the company issued a third convertible note in the amount of $45,000 to Fourth Man LLC. It was a nine month note
at 10% interest and, during the this third quarter, Fourth Man LLC converted the total of $45,000 , without requiring interest,
into 26,001,873 common shares.
During
September, ADAR bays bought the back end note associated with their first note for $50,000. It was converted completely during
September without interest for 43,605,515 common shares.
The
company accessed a $50,000 short term loan in September with the assistance of Mr. Sprovieri. The funds were due for repayment
in October and Mr. Sprovieri arranged a $50,000 convertible note with Adar Bays to repay this loan. The whole transaction was
completed in early October.
NOTE
7 – COMMON STOCK
Common
Stock:
During
the nine months ended September 30, 2016, the Company issued 500,000 common shares to Integrative Business Alliance LLC. for services
in Investor Relations for the company valued at $10,000.
The
company canceled a 2,000,000 share certificate on March 4, 2016 that was originally issued on October 8, 2015 as the original
contract for the issue was never completed
The
Company had authorized capital of 500,000,000 common shares at no par value as of September 30, 2016. Additionally, the company
issue a total of 150,800,160 shares to the 3 Convertible Note holders mentioned in NOTE 6 above that increased the total issued
and outstanding share base to 250,235,160 common shares.
The
company increased the authorized capital to 2,000,000,000 shares on October 11 and the current and previous financial statements
have been restated to reflect that change.
The
company also arranged an Equity Line of Credit in the amount of up to $5 million. The term is 3 years and the discount on the
share price is 20%. The maximum amount available to be drawn in one tranche is $250,000 and the financier can only own 4.99% of
the outstanding shares at any time. The company has not used this facility at the date of this submission.
NOTE
8 – 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.
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 September 30, 2016, the Company had a net operating loss carry forward of approximately $621,872, which will begin to expire
in the tax year 2033. The Company may have experienced control changes under IRC 382, which has not been fully analyzed and could
affect the NOL availability.
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 December 31, 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. The company
is current through the 2013 filing. Any valuations relating to these income tax provisions will comply with U.S. generally accepted
accounting principles.
NOTE
9 – SUBSEQUENT EVENTS
On
October 11, 2016, the Board of Directors of the Company approved an amendment and restatement of the Company's Articles of Incorporation.
The purpose of the amendment and restatement of the Articles of Incorporation was to: (i) Increase the number of authorized
shares of Common Stock to 2,000,000,000; (ii) Increase the number of authorized shares of Preferred Stock to 10,000,000;
(iii) Set the par value of the Common Stock to $0.0001; (iv) Designate the classes of Series A Preferred Stock and Series
B Preferred Stock and define the powers, preferences, rights, and restrictions thereof; (v) Define, with respect to the Preferred
Stock, the manner in which the Board may define the powers, preferences, rights, and restrictions thereof.
Additionally,
on October 11, 2016, the Company agreed to convert a certain debt due and payable on the books and records of the company as at
October 4th., to the Company's Chief Executive Officer John Sprovieri, as compensation for ongoing future services to the company
in management and fund raising in the principal amount of $60,000 (the "Debt Conversion"). Pursuant to the terms of the Debt Conversion,
the Company agreed to convert the outstanding debt into 4 shares of the Company's Series A Preferred Stock and 120,000,000 shares
of the Company's common stock. No solicitation was made and no underwriting discounts were given or paid in connection with this
transaction. The Company believes that the issuance of shares pursuant to the Agreement was exempt from registration with the
Securities and Exchange Commission pursuant to Section 4(2) of the Securities Act of 1933.
The
Company issued a convertible note on October 3rd. to ADAR Bays in the sum of $54,500. The funds were used in payment of fees and
repayment of a $50,000 short term loan taken out on September 27, 2016.
The
company also officially accepted the resignation of William Beers as a Director on October 11, 2016 due to ongoing Health Issues.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward
Looking Statements
Readers of this discussion are advised that the discussion
should be read in conjunction with the financial statements of Registrant (including related notes thereto) appearing elsewhere
in this Form 10-Q. Certain statements in this discussion may constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect Registrant's current expectations regarding
future results of operations, economic performance, financial condition and achievements of Registrant, and do not relate strictly
to historical or current facts. Registrant has tried, wherever possible, to identify these forward-looking statements by using
words such as "believe," "expect," "anticipate," "intend," "plan," "estimate" or words of similar meaning.
Although Registrant believes that the expectations
reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties,
which may cause the actual results to differ materially from those anticipated in the forward looking statements. Such factors
include, but are not limited to, the following: general economic and business conditions, which will, among other things, affect
demand for housing, the availability of prospective buyers; adverse changes in Registrant's real estate and construction market;
including, among other things, competition with other manufacturers, risks of real estate development and acquisitions; governmental
actions and initiatives; and environmental/safety requirements.
Results
of Operations
As at September 30, 2016, the Company had not commenced
manufacturing operations. Therefore there were no material operational changes from the last audited financials of December 31,
2015.
The company has established its operating base and
is currently preparing for the construction of two manufacturing buildings. A contract has been prepared for an experienced commercial
construction company to create and manage the complete construction of the new manufacturing buildings. Management has assembled
a complete specification set for the manufacturing process and have alerted machinery suppliers of the company's needs and probable
dates required.
During the three months and nine months ended September
30, 2016 the company was not operating and sustained losses of $2,978 and $177,768. These include regular expenses plus additional
expenses and sub contract labor were necessary as the company went ahead with fundraising activities.
The company had three month and nine month losses
at the period September 30, 2015 of $(289) and $14,223. These losses were representative of the ongoing costs of the company experiencing
little activity in fundraising activities at that time.
Liquidity.
For the nine months ending September
30th. 2016, the company received payments from convertible note and loans of $145,000 that enabled a net loss of $177,768 to be
covered. Even though there were considerable costs during the period in financing fees and interest, the company was able to end
the period with cash on hand of $55,060.
Overview
Auscrete Corporation 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 current technology is the
amalgamation of various material stages of Company development, 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 very competitive.
A turnkey house, ready to move in sells for around $95-$100 per square foot. That is very competitive in today's market but is
brought about by Auscrete's ability to manufacture large panels in mass production format. The house is very quickly constructed
on site to produce an attractive and functional 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 insect infestation or rot, it saves extensively on energy costs
and has very low maintenance needs.
Financing
Auscrete Corporation, a Wyoming public company was
incorporated on December 31, 2009 and initially became effective with the SEC for an IPO on August 16, 2012. Subsequently the
company had an S-1 become Effective on December 30, 2014. The company was established to finance and operate an expansion of a
current pilot facility operated by the founders in Rufus, OR.
The company has been quoted on the OTCPink Bulletin
Board under the symbol "ASCK" since February 2015 and is DTC registered..
In addition to ongoing negotiations with European
Lenders, the company has arranged an equity line of credit GHS Financial for up to $5 million that will enable the construction
of a factory campus on the Rufus, Oregon Industrial Estate and meet the commencement and ongoing financial needs of the company.
Financial Statements in this document represent the
full results of the company during this 9 month period. There are no "off balance sheet" arrangements.
Use of Funds
The company has plans to secure a little over 10
acres of land on the Rufus Industrial Estate. Initially it will cost $270,000 to purchase and develop the land. 2 buildings will
be constructed initially, 1 at 25,000 and 1 at 16,000 sq. ft. The cost of supply and erection of these buildings will be $ 695,000.
Plant & Production Line Equipment, which comprises concrete mixers and cement and sand handling equipment, fork lifts, casting
tables and specialized equipment, will cost approximately $900,000 and Shop Equipment will be $180,000. The balance will be used
for working capital and expenses including wages and salaries, marketing, IR services and other working capital and reserves.
Marketing
Principal marketing efforts will be initially aimed
at leveraging specific contacts and relationships that have developed over the last 9 years since the inception of the founders
pilot plant. The company has interviewed and chosen an experienced sales person who will have the luxury of dealing with existing
contracts and contacts.
At this point in time, the company has available
contracts for the immediate supply of houses and other structures (apartment block etc.) valued at over $2 million but also has
letters of intent from a developer and from a contractor to supply some 130 plus houses to their housing estates over the next
few years. Delivery will be paced at the rate of sales but is expected to initially be in excess of 40 units per year. Auscrete's
product is also extremely suitable for the construction of commercial and industrial structures. Company marketing will also explore
the commercial world for applications and it is believed that such construction will become a large part of the company's future
direction.
Financial Projections
Using a conservative estimate at an average value
per sale of $125,000, the company is projecting first year sales of $ 4-6 million range escalating from there, once the new campus
is up and running. At that rate, there are already approximately 3+ years of sales at hand. The typical structure will be a home
in the 1,100 - 3,000 sq. ft. range that will sell to the contractor or developer for around $ 80,000 to $200,000 with the average
being over $125,000. Obviously, the company will look to increase output to meet the demand and expects to do this through internal
financing. The typical net margin is in excess of 25% and, once in production, the company does not expect to incur first year
losses. The existing pilot facility can manage output (although at a considerable lesser rate than projections for the new plant)
until the new campus facility is complete and has commenced operations.
Operations Management
When the new Fabrication Building and Production
Building have been completed at the industrial site, production will be commenced. The Auscrete Team will comprise of a minimal
tiered management structure that enables control and knowledge to be firmly at the hands of senior management ensuring rapid and
simplified direct reporting.
Upon commencement of Auscrete's activity, under control
of the President will be marketing, manufacturing operations, design architecture and engineering, administration and safety compliance.
Additionally, there is a construction manager that will oversee Auscrete's own construction activities as well as liaise with
contractors and developers.
Operations
Design and Engineering will prepare new design concepts
and adapt customer's designs, either residential or commercial, to the Auscrete style of construction as well as preparing all
drawings for manufacturing on the production floor. Manufacturing will involve the use of initially 16 hydraulically operated
casting tables with each table able to produce 5 panels per 2 weeks. This allows for the concrete to cure adequately enabling
removal from the table. It is then taken to the finishing area where it is prepared for delivery and shipping.
A construction manager will be responsible for liaising
with contractors, developers and other customers to ensure the satisfactory completion of their contract. As well, the company
will have its own construction division that will not conflict with other contractors but will enable the company the ability
to carry out construction operations where no alternative exists. The construction manager will oversee these operations.
Future Strategy
The company has entered agreement with PN&N Enterprise,
a Jamacian developer consortium, to set up a manufacturing plant in Jamaica to construct 1,500 houses, valued at around $135 million,
over 7 years. Financing for this project does not form part of the Rufus initiative described herein. The agreement calls for
financing to be acquired from other sources specifically for the venture.
Auscrete Corporation intends to position itself as
a major supplier in the affordable housing market. Housing is generally considered "affordable" when its cost does not exceed
30 percent of the median family income in a given area. In many parts of the country, housing costs have shown signs of adversely
affecting corporations, workers and local economies. Yet still the availability of affordable housing is becoming increasingly
scarce.The company is promoting a product that will not only make housing affordable but also offers some luxuries as well, such
as incorporated heat pump air conditioning that would not be available in other houses at such comparable pricing. By constructing
with the Auscrete aerated concrete building system, those luxuries will result in lower cost utilities and a comfortable 'feel'
to the living environment, as can be achieved with a product offering excellent thermal and soundproofing qualities as well as
superb fire resistance.
Developers and contractors will offer the homes as
complete ready constructed site built units on suitable land. They will not be offered under the banner of such categories as
'pre-fabricated' or \'factory built' homes. They are just plain good value masonry homes built of a time proven product, concrete.The
company is establishing its expanded operations and manufacturing facility in the Industrial Estate area of Rufus, Oregon. Rufus
is a small city about 110 miles east of Portland. Construction of phase 1 of the plant should take 5-6 months. The advantage of
Rufus is it is located on 2 main highways, I-84 east/west and I-97 north/south. The location will help considerably with the delivery
of the pre-cast panels initially to the Northwest area and will also simplify the delivery of raw materials to the facility. It
is anticipated that in the initial year the company will be able to produce enough panel sets for the construction of over 30
homes.
Auscrete can economically deliver whole house panel
sets as far away as Arizona or Alberta, Canada. However, with a planned future facility to be set up in San Antonio, Texas, further
efficiencies will be achieved by servicing a fast emerging market in this above average (for affordable housing) growth area.
Additionally, a plant in Texas could quite easily address the Arizona and New Mexico market, once the market recovery in those
areas have taken effect. The company plans on selling most of its output to developers, contractors and builders who will purchase
the complete set of wall, roof and interior panels from Auscrete and use their own construction crew to construct the house.