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 $1,592,844 as of June 30, 2017.
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 endeavor, they have obtained access to additional funds through a $2 million equity financing agreement with Kodiak Capital, which may have the effect
11
of diluting the holdings of existing shareholders. These funds will be used to establish a manufacturing plant in Goldendale, WA. 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
During the three months ended June 30, 2017, John Sprovieri an officer and director of the company, advanced $6,238 to the company. As of June 30, 2017, and December 31, 2016, the balance owed to John Sprovieri was $9,966 and $0 respectively.
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 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.
12
NOTE 5 - PROPERTY AND EQUIPMENT
Property and Equipment is as listed below in the depreciation table.
|
|
|
|
June 30, 2017
|
December 31, 2016
|
Property Plant and Equipment (Gross)
|
$
34,517
|
$
34,517
|
Accumulated Depreciation
|
(10,004)
|
(7,390)
|
Property Plant and Equipment (net)
|
$
24,513
|
$
27,127
|
NOTE 6 - NOTES PAYABLE
Since the Company
’
s most recent 10-Q filing at March 31, 2017, the company has not issued any further Convertible Notes. In addition to the notes issued in 2016 as stated on the Company's most recent 10-K, A 12-month Convertible Note for $38,000 was issued January 25, 2017 to PowerUp Lending Group and on February 7, 2017 a $60,000 Convertible Note was issued to Auctus Fund, LLC. These funds were used to continue company operations during organization of the projected company Factory Campus. The company in the year ended 2016, impaired a security deposit in the amount of $219,998 due to the uncertainty of its security and collectability of the total amount. The funds subject to this impairment placed considerable hardship on the company's funds availability.
As a result of these convertible notes, we recognized an embedded derivative liability. As of December 31, 2016 and June 30, 2017, our derivative liability was $117,759 and $391,150.
NOTE 7 - COMMON STOCK
Common Stock:
During the six months ended June 30, 2017, the Company issued 2,449,687 shares to noteholders during conversion representing a total value of $ 55,129. During the year ended December 31, 2016, the Company had issued 2,713,001 shares and cancelled 20,000.
13
The Company had authorized capital of 5,000,000,000 common shares at $.0001 par value as of May 31, 2017.and subsequently on June 6, 2017, the company increased the authorized capital to 20,000,000,000 shares.
On June 6, 2017, our board of directors and holders of a majority in interest of our voting capital stock approved a 1-for 100 reverse split of our common shares1. As a result of the Reverse Split, each shareholder of record as of June 6, 2017, would receive one (1) share of common stock for each one hundred (100) shares of common stock they held prior to the Reverse Split.
On July 22, 2017, the Company had FINRA perform a 100 for 1 Reverse Split. There were 615,203,831common shares issued and out at the date of the action and this reduced the number of shares issued and out to 6,152,052 including partial shares that were rounded up. A
ll share figures have been retroactively updated to reflect the split.
The company also previously arranged an Equity Line of Credit in the amount of up to $2 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 June 30, 2017, the Company had a net operating loss carry forward of approximately $1,592,844, and a deferred tax asset of approximately $651,473 using the statutory rate of 40.9%. 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 $(651,473). The Company may have experienced control changes under IRC 382, which has not been fully analyzed and could affect the NOL availability.
|
|
|
|
June 30, 2017
|
December 31, 2017
|
Deferred Tax Asset
|
$
651,473
|
$
471,667
|
Valuation Allowance
|
(651,473)
|
(471,667)
|
Deferred Tax Asset (net)
|
$
-
|
$
-
|
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 2017 and 2016.
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 June 30, 2017 and 2016.
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 9
–
SUBSEQUENT EVENTS
On July 22, 2017, the Company had FINRA perform a 100 for 1 Reverse Split. There were 615,203,831common shares issued and out at the date of the action and this reduced the number of shares issued and out to 6,152,052 including partial shares that were rounded up. A
ll share figures have been retroactively updated to reflect the split.
Additionally, the company had made an offer to the City of Goldendale, WA to purchase 10 acres of land on the City
’
s Industrial Estate. The company offered $100,000 ($20,000 per acre) for 5 acres and an option to purchase the remaining 5 acres for $125,000 ($25,000 per acre) within 2 years. On July 3, the City Council met and approved the offer. Subsequent to that, the City prepared a sales contract that is acceptable to the Company and was approved at a meeting of the Council on August 7. At the time of this report, both parties have just entered escrow.
15
On July 12, 2017, two note holders converted $1,013 into 337,650 shares (post reverse split amt.) and on August 11, 2017, and $1,509 into 361,551 (post-split) shares. These issuances increased the Company
’
s Issued and Out shares to 6,851,239.
16
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 June 30, 2017, the Company had not commenced manufacturing operations. Therefore, there were no material operational changes from the last audited financials of December 31, 2016.
The company plans to establish its operating base in Goldendale, WA 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.
17
During the Six months ended June 30, 2017, the company was not operating and, with allowances for Derivative allowances, sustained losses of $439,623. These include regular expenses plus additional expenses and sub contract labor were necessary as the company went ahead with fundraising activities.
Liquidity.
For the 6 months ending June 30, 2017, the company received payments from convertible note and loans of $98,000 that enabled a net loss of $439,623 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 $23,763.
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 with Kodiak Finance for up to $2 million that will enable the construction of a factory facility on Industrial Land and meet the commencement and ongoing financial needs of the company.
18
Financial Statements in this document represent the full results of the company during this 6-month period. There are no "off balance sheet" arrangements.
Use of Funds
As at June 30, 2017 the company had planned the acquisition of land on the Rufus Industrial Estate. However, in May, the Rufus initiative changed with many added costs related to undeveloped land so the management approached the City of Goldendale WA, some 16 miles away to explore setting up the company
’
s Flagship Manufacturing Plant in that city
’
s Industrial Estate. With positive results, the Company extricated itself from the previous commitments and work done with little cost.
Initially, the company will use $1.1 million and the Stage 1-All In costs are $100,000 to purchase 5 acres of already developed land. 2 buildings are to be constructed, 1 Production Building at 25,000 sq. ft. and 1 Support Building at 16,000 sq. ft. The cost of supply and erection of these buildings will be around $470,000. Plant & Production Line Equipment, which comprises level 1 Concrete Mixers and sand handling Equipment, Fork Lifts, casting tables and specialized equipment, will cost approximately $160,000 and Shop Equipment will be $90,000. The balance of of $280,000 will be used for working capital and expenses including wages and salaries, marketing, IR services and other working capital and reserves to commence production and revenues.
Marketing
Principal marketing efforts will be initially aimed at leveraging specific contacts and relationships that have developed over the last 10 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 $3 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
19
Using a conservative estimate at an average value per sale of $150,000, 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 $150,000. 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 losses.
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
20
Recently, the company had entered agreement with PN&N Enterprise, a Jamaican 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 Goldendale, WA 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 Goldendale, WA. Goldendale is a city of around 4,500 people about 110 miles east of Vancouver, WA.
Construction of phase 1 of the plant should take 5-6 months. The advantage of Goldendale is it is located very close to 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 New Mexico 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, now that 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.