NOTES TO FINANCIAL STATEMENTS
September 30, 2015
NOTE 1 – 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 Company follows the accounting guidance outlined in the Financial Accounting Standards Board Codification guidelines. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted principles for interim financial information and with the instruction to Form 10-Q of Regulation S-K. They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2014 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. The interim unaudited financial statements should be read in conjunction with those financial statements included in the Form 10-K. In the opinion of Management, all adjustments considered necessary for a fair presentation, which unless otherwise disclosed herein, consisting primarily of normal recurring adjustments, have been made. Operating results for the Nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.
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 following overview outlines the result of the amalgamation of various stages of development, taking an idea to a product and further developing that product to address an ongoing problem in the world's largest marketplace.
Recent Accounting Pronouncements
In June 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014- 10 ("ASU2014-10"), Development Stage Entities (Topic 915), Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. The objective of the amendments in this Update is to improve financial reporting by reducing the cost and complexity associated with incremental reporting requirements for developing entities. The amendments in this Update also eliminate an exception provided to developing entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity at risk. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively.
These amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. The amendment eliminating the exception to the sufficiency-of-equity-at-risk criterion for developing entities in paragraph 810-10-15-16 should be applied retrospectively for annual reporting periods beginning after December 15, 2015 and interim periods therein. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued. The Company adopted ASU 2014-10 in the fourth quarter of 2014 and does not expect this adoption to have a material impact on its financial condition, results of operations or cash flows.
In August 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-15 ("ASU 2014-15"), Presentation of Financial Statements-Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. The objective of the amendments in this Update is to provide guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if "conditions or events raise substantial doubt about the entity's ability to continue as a going concern." The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is evaluating the impact of ASU 2014-15 on its financial condition, results of operations and cash flows.
FASB ASU 2015-03: Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability, to be presented consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. This will be effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company does not anticipate significant impact upon its financial statements at this time and will continue to evaluation the potential for such impact.
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.
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 $73 and $149 in cash equivalents as of September 30,2015 and December 31, 2014 respectively.
Income taxes - The Company accounts for income taxes in accordance with generally accepted accounting principles, which requires the use of the liability method of accounting for income taxes. Accordingly, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Current income taxes are based on the year's income taxable for Federal and state income tax reporting purposes.
Reclassification - Certain amounts in the prior period financial statements have been reclassified to conform with the current period presentation. These reclassifications had no effect on previously reported losses, total assets or stockholders equity.
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 $420,523 as of September 30, 2015.
To the extent that the Company's capital resources are insufficient to meet current or planned operating requirements, the Company is seeking additional funds through equity or debt financing, collaborative or other arrangements with corporate partners, licensees or others, and from other sources, which may have the effect of diluting the holdings of existing shareholders. The Company has no current arrangements with respect to, or sources of, such additional financing and 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 additional financing will be available when needed or that such financing will be available on terms acceptable to the Company. If adequate funds are not available, the Company may be required to delay or terminate expenditures for certain of its programs that it would otherwise seek to develop and commercialize. This would have a material adverse effect on the Company and raises substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that may result from the outcome of this uncertainty.
NOTE 3 - PROPERTY AND EQUIPMENT, NET
The company acquired on July 15, 2015, Assets consisting of Production Plant and Equipment, Mobile Equipment, Tools and Equipment, Inventory and Technology used in the production of Auscrete AAC housing and other structures. This property, with an estimated value of $800,000, was acquired by the issue of 80 million treasury common shares. There was no cash component in the purchase.
NOTE 4 - COMMON STOCK
On May 26, 2014, the company performed a 10 for 1 forward split of its common shares. This increased the total outstanding shares of the company to 20,035,000 as of December 31, 2014.
During the six months ended June 30, 2015, the Company issued 600,000 shares valued at $0.02 per share for DTC Registration services on March 9, 2015
Subsequent to this reporting period, on July 15 and September 1, 2015, the Company issued a total of 80 million shares valued at $0.01 per share for the purchase of Manufacturing Equipment, Inventory, Designs and Updated Technology.
The Company has authorized capital of 500,000,000 common shares at no par value, of which 100,635,000 shares are now issued and outstanding
as of September 31, 2015.
NOTE 5 - 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, 2015, the Company had a net operating loss carry forward of approximately $421,000, 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 2015 and 2014.
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, 2015 and 2014.
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 6 – CORRECTIONS TO PRIOR FINANCIALS AS FILED
Due to a change in auditors subsequent to the previous period ending September 30, 2014 financials being filed, there were additional expenses discovered. The ending accumulated deficit as of December 31, 2014 remains unchanged. See the table below for the effects on Net loss, earnings per share and accumulated deficit.
||Earnings per Share
|Period Ended September 30, 2014
NOTE 7 – SUBSEQUENT EVENTS
Date of Management Evaluation
Management has evaluated subsequent events through September 30, 2015, the date of which the financial statements were available to be issued. The Company completed DTC Registration subsequent to the end of the period ended September 30, 2015; however, they applied for registration and issued common stock to finance the fee during the first quarter, 2015.
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, 2015, the Company had not commenced manufacturing operations. Therefore there were no material operational changes from the last audited financials of December 31, 2014. The change in miscellaneous income is attributed to internal changes and operational expenses consists primarily of accounting fees and DTC registration fees.
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 development company to create and manage the complete commencement of the new manufacturing process.
the Company has letters of intent for for the construction of 135 homes, valued at around $20 million over the next 3 years and has contracts for seven structures (houses and small commercial valued at $ 2.6 million) to be constructed immediatly the plant is operational
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 termites or rot, it saves extensively on energy costs and has very low maintenance needs.
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 enlisted the services of a registered broker-dealer and market maker, who applied with the Financial Industry Regulatory Authority to have the common stock eligible for quotation on the OTCPink Bulletin Board and to act as Market Maker. The company was subsequently listed in February 2015.
The company will use both private placement and other debt/equity financing of $3.5 million that will enable the construction of a factory campus on the Rufus, Oregon Industrial Estate and to meet the commencement and ongoing financial needs of the company. There is also an option of commencing operations in the available pilot plant facility with funding of $450,000 being required.
Use of Funds
The target funding is $3.5 million and 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 of around $1.4 million will be used for working capital and expenses including wages and salaries, marketing and other working capital and reserves.
Principal marketing efforts will be initially aimed at leveraging specific contacts and relationships that have developed over the last 8 years since the inception of the founders pilot plant. It is intended to take an experienced sales person on board 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 explore the commercial world for applications and it is believed that such construction will become a large part of the company's future direction.
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 $ 80-200,000 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 around 18% 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 will resume at the existing leased pilot plant immediately upon minimum level funding availability. When the new Fabrication Building and Production Building have been completed at the industrial site, production will be moved there. 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.
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.
Ae 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.
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 Central California, further efficiencies will be achieved by servicing a fast emerging market in this above average (for affordable housing) growth area.
Additionally, a plant in Central California could quite easily address the Arizona market once the market recovery in that area has 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 complete the house.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, our Chief Executive and Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this quarterly report. Based on this evaluation, our Chief Executive and Financial Officer concluded as of September 30, 2015, that our disclosure controls and procedures were not effective such that the information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our Chief Executive and Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal controls
There were no changes in our internal control over financial reporting during the nine months ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
At present, the Company is not engaged in or the subject of any material pending legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company issued 600,000 treasury shares in a non-cash transaction to pay for DTC registration and the company did not repurchase any of its equity securities during the nine months ended September 30, 2015.
The Company issued 40,000,000 treasury shares to pay the first payment of a Manufacturing Equipment purchase on July 15, 2015 in a non cash purchase and issued a further 40,000,000 treasury shares to pay the balance of a Manufacturing Equipment purchase on September 1, 2015 in a non cash purchase.
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
The exhibits listed in the Exhibit Index are furnished as part of this report. Exhibit 31.1 and 32.1
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|Date: October 1, 2015
/s/ A John Sprovieri
A. John Sprovieri
(Chief Executive and Financial Officer)