|EX-32 - EXHIBIT_32_CERTIFICATION - AUSCRETE Corp||Exhibit-32.1_2016-QA1.htm|
|EX-31 - EXHIBIT_31_CERTIFICATION - AUSCRETE Corp||Exhibit-31.1_2016-QA1.htm|
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
|x||QUARTERLY REPORT PURSANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
|For the quarterly period ended September 30, 2016|
|o||TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
|For the transition period from __________ to __________|
Commission File Number: 001-35923
(Exact name of registrant as specified in its charter)
|(State of Incorporation)||(IRS Employer ID Number)|
504 East First St. P.O. Box 847 Rufus, OR 97050
(Address of principal executive offices and Zip Code)
Registrant’s telephone number, including area code (541) 739-8298
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x yes o no
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x yes o no
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer," "accelerated filer," "non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
|Large accelerated filer o||Accelerated filer o|
|Non-accelerated filer o||Smaller reporting company x|
|(Do not check if a smaller reporting company)|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o yes x no
APPLICABLE TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. o yes o no
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common tock. The number of shares outstanding as of November 11th 2016 of the Issuer's Common Stock is 370,235,160.
September 30, 2016
TABLE OF CONTENTS
|PART I - FINANCIAL STATEMENTS|
|Item 1 - Financial Statements|
|Balance Sheet as at September 30, 2016 (Unaudited) and December 31, 2015||2|
|Statement of Operations (unaudited) for the 9 months ended September 30, and three months ended September 30, 2016 and 2015||3|
|Statement of Cash Flows (unaudited) for the nine months ended September 30, 2016 and 2015||4|
|Notes to Financial Statements||5|
|Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations||6|
|Item 3 - Quantitive and Qualitive Disclosures about Market Risk||9|
|Item 4 - Controls and Procedures||9|
|PART II - OTHER INFORMATION|
|Item 1 - Legal Proceedings||10|
|Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds||10|
|Item 3 - Defaults Upon Senior Securities||10|
|Item 4 - Mine Safety Disclosures||10|
|Item 5 - Other Information||10|
|Item 6 - Exhibits - Exhibit 31.1 and 32.1||Attached|
|September 30, 2016||December 31, 2015|
|TOTAL CURRENT ASSETS||102,130||103,959|
|NON-CURRENT ASSETS:|| |
|Property and Equipment, net||28,434||31,855|
|TOTAL NON-CURRENT ASSETS||28,434||31,855|
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)|
|Related Party Loans Payable||50,000|| ||95,000|
|Notes Payable Interest||-|| ||-|
|Notes Payable Discount||-|| ||(41,542||)|
|Related Party Advances||9,006||8,180|
|TOTAL CURRENT LIABILITIES||67,313||108,218|
|Commitments & Contingencies||-||-|
|STOCKHOLDERS' EQUITY (DEFICIT)|
|Common Stock, par value $0.0001, authorized 2,000,000,000 shares. (increased from 500,000,000)|
|250,235,160 and 100,935,000 as of September 30, 2016 and December 31, 2015 respectively, restated to APIC below for new Par Value.||25,024||10,094|
|Additional Paid In Capital||660,099||461,606|
|TOTAL STOCKHOLDERS' EQUITY (DEFICIT)||63,251||27,595|
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)||$||130,564||$||135,814|
The accompanying notes are an integral part of these financial statements
|STATEMENTS OF OPERATIONS|
|Three Months Ended||Nine Months Ended|
|September 30, 2016||September 30, 2015||September 30, 2016||September 30, 2015|
|Accounting and Legal||4,000||-||25,689||6,585|
|(Gain)/Loss on Derivatives||(125,379||)||-||(121,491||)||-|
|OTHER INCOME (EXPENSES)|
|Gain on Extinguishment of Debt||-||-||-||11,500|
|Gain on Disposal of Assets||-||10,000||-||10,000|
|TOTAL OTHER INCOME (EXPENSES)||$||-||10,000||$||-||21,500|
|NET LOSS Before Taxes||2,978||(289||)||177,678||(14,223||)|
|Provision for Income Taxes||-||-||-||-|
|NET LOSS PER COMMON SHARE - BASIC & DILUTED||$||0.00||0.00||$||0.00||0.00|
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES|
|OUTSTANDING - BASIC & DILUTED||148,666,000||53,965,000||$||115,333,000||42,857,000|
The accompanying notes are an integral part of these financial statements
|STATEMENT OF CASH FLOWS|
|Nine Months Ended|
|September 30, 2016||September 30, 2015|
|Net Income (Loss)||$||(177,678||)||(14,223||)|
|Services for Stock||10,000||-|
|Conversion Interest Expense||10,832||-|
|Change in Accounts Payable||1,547||(1,126||)|
|Change in Related Party Advances||826||1,991|
|Gain on Derivative||(121,491||)||-|
|Net Cash Used by Operating Activities||(146,329||)||(12,376||)|
|Purchase of Equipment||(500||)||-|
|Net Cash Used in Investing Activities||(500||)||-|
|Proceeds from Loans and Notes||145,000||-|
|Proceeds from Stock Sales||-||12,300|
|Net cash provided by (used in) financing activities||145,000||12,300|
|Increase (Decrease) in Cash and Cash Equivalents||(1,829||)||(76||)|
|Cash and Cash Equivalents at Beginning of Period||56,889||79|
|Cash and Cash Equivalents at End of Period||$||55,060||$||3|
|NON-CASH ACQUISITION OF EQUIPMENT AND INVENTORY FOR COMMON STOCK||$||-||80,000|
The accompanying notes are an integral part of these financial statements
UNAUDITED NOTES TO FINANCIAL STATEMENTS
September 30, 2016
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, 2015 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 three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
Auscrete Corporation ("the Company") was formed as an enterprise to take advantage of technologies developed for the construction of specialty Affordable and lightweight concrete based, thermally efficient and structurally superior housing. This "GREEN" product is the culmination of design and development since the early 1980's. Auscrete Corporation had its beginnings in 2005 when a private company that was owned by this company's President re-developed the 1980's technology to comply with, and exceed, International Building Codes. The Auscrete Corporation Public Company that now exists was started to enable financing of the operations so the company can address an ongoing problem in the world's largest marketplace, AFFORDABLE HOUSING.
Recent Accounting Pronouncements
The company is reviewing the affects of the following recent updates. We do not have an expectation that the following will have a material effect on the financial statements
In March 2016, the FASB issued Accounting Standards Update 2016-03-Intangibles-Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance (a consensus of the Private Company Council)
In January 2016, the FASB issued Accounting Standards Update Update 2016-01-Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
In March 2016, the FASB issued Accounting Standards Update 2016-07-Investments-Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.
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 $55,060 and $56,889 in cash equivalents as of September 30, 2016 and December 31, 2015 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 $625,617 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 $3 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 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|| |
|Office Equipment||1,517||1,017|| |
|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 coverted 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
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 $625,617, 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)&bsp;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.
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.
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.
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.
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.
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.
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.
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.
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, 2016, 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, 2016 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 500,000 treasury shares in a transaction exchange for Investor Relations Services on January 15, 2016 and a further 150,800,160 during the third quarter, 2016 for conversion of Convertible Notes. These were isuued to ADAR Bays (79,228,610 common shares), EMA Financial (45,569,677 common shares) and Fourth Man LLC (26,001,876 common shares)
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.
/s/ A John Sprovieri
A. John Sprovieri
(Chief Executive and Financial Officer)