NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2018
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.
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, 2018 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 December 31, 2018 and 2017.
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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 $15,948 cash equivalents as of December 31, 2018 and $14,975 as of December 31, 2017.
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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Level 1
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Level 2
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Level 3
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Total
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Fair value of convertible notes derivative liability – December 31, 2017
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$
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–
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$
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–
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$
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309,487
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$
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309,487
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Level 1
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Level 2
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Level 3
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Total
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Fair value of convertible notes derivative liability – December 31, 2018
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$
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–
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$
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–
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|
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$
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372,151
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$
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372,151
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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 December 31, 2018 and 2017:
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Derivative
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Liability
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Balance, December 31, 2017
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$ 309,487
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Additions recognized as debt discount
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362,262
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Note Conversions
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(613,781)
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Mark-to-market at December 31, 2018
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314,183
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Balance, December 31, 2018
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$ 372,151
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REVENUE RECOGNITION POLICY
The Company recognizes revenues in accordance with ASC 605and 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.
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.
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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 the Company will issue 15,500,000 as a result of conversion of notes. As of December 31, 2018, and 2017. Fully diluted weighted average common shares and equivalents were withheld from the calculation as they were considered anti-dilutive.
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.
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.
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 $6,708,160
as of December 31, 2018 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. 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
Recent Accounting Pronouncements
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In December 2018, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities - FASB ASU 2016-01
Summary - The amendments in ASU 2016-01, among other things:
Requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.
§
Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
§
Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables).
§
Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost.
Effective - Effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The company is in the process in determining effect it with have on the financial statements.
The new guidance permits early adoption of the own credit provision.
Update 2018-07
—Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
In April 2017 the FASB Update 2017-04—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. 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.
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 of cash 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.
The company is in the process in determining effect it with have on the financial statements.
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NOTE 4 -RELATED PARTY TRANSACTIONS
During quarter 1, 2 and in to quarter 3, the Company did not have banking credit cards to assist with the normal everyday purchases and payments of corporate needs such as utilities etc. The CEO and other involved parties often used their own cards for this purpose and, to represent this, the company had a continuous Related Party Advances section in its financial statements. This was adjusted typically at the end of each reporting period. The Company since mid-quarter 3 has started using a corporate business card for Company related purchases.
As of December 31, 2018, and December 31, 2017, the balance owed to John Sprovieri was $1,079 and $1,099 respectively.
NOTE 5 - PROPERTY, INVENTORY AND EQUIPMENT
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 ACH 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 $2,100 is based on the cost of purchase from a non-related supplier.
Property and Equipment at December 31, 2018 were comprised of the following at:
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December 31, 2018
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December 31, 2017
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Capital Equipment
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$ 34,517
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$ 34,517
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Property
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100,000
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-
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Vehicles
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4,844
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-
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Accumulated Depreciation
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(17,846)
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(12,618)
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Net Fixed Assets
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$ 122,035
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$ 21,899
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Depreciation expense was $5,228 for the years ended December 31, 2018 and 2017
NOTE 6 - COMMON STOCK
Common Stock:
On July 6, 2017 the Company increased its Authorized Capital to 20,000,000,000 common shares at $0.0001 par value.
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During July 2018 the company performed a reverse split in the ratio of 1 for 1,000.
There were 57,227,427 shares issued and outstanding as of December 31, 2018.
During the Period January 1, 2018 to December 31, 2018, the Company issued 56,456,751 shares based on post-split numbers Including, for services rendered, the following were issued on 8/17/2018:
35,000,000 shares to our Company CEO, John Sprovieri for Management Services.
5,500,000 shares to Kathleen Jett, wife of (deceased) Director, Clifford Jett for Director services
2,000,000 to Director (retired), William Beers. for Director Services.
2,500,000 to IR director, Lee Odom for IR services.
5,000,000 to Kimberly Grimm for Management Services.
The above shares were issued for previous services to the Company and were valued at the share price on the day of issue.
The following table is a list of the foremost 7 shareholders of the Company as of December 31, 2018.