AUSCRETE Corp - Quarter Report: 2019 September (Form 10-Q)

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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The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of September 30, 2019

REVENUE RECOGNITION POLICY

The Company recognizes revenue under ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASC 606”).    The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:



·Identify the contract with the customer 

·Identify the performance obligations in the contract 

·Determine the transaction price 

·Allocate the transaction price to the performance obligations in the contract 

·Recognize revenue when the company satisfies a performance obligation 

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.

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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.

LOSS PER COMMON SHARE

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

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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 $7,570,140 as of September 30, 2019 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.

Recent Accounting Pronouncements

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.

The Company has no expectation that any of these items will have a material effect upon the financial statements.

Update 2019-04—Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments 

Update 2019-01—Leases (Topic 842): Codification Improvements
 

Update 2018-17—Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities 

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Update 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
  

Update 2018-08—Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities 

Update 2018-05—Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets  

Update 2018-04—Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment  

Update 2018-03—Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2017 and November 17, 2017 EITF Meetings  (SEC Update)  

Update 2018-01—Business Combinations (Topic 805): Clarifying the Definition of a Business  

Update 2018-07—Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting

NOTE 4 -RELATED PARTY TRANSACTIONS

As of, September 30, 2019 and December 31, 2018, the balance owed to Company CEO, John Sprovieri was $5,953 and $1,079 respectively.

NOTE 5 - PROPERTY, INVENTORY AND EQUIPMENT

During July, the Company sold their Industrial Property they had bought from the city of Goldendale in February 2018. The original purchase price was $100,000 for the 5 acre lot. The Company sold the land back to the City under the original contract for a discounted price of $90,000.

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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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 September 30, 2019 were comprised of the following at:

During the quarter, the Company purchased $18,891 in manufacturing equipment so there was an increase to $63,336 in Gross equipment. The Depreciation expense was $1,307 for the three months ended September 30, 2019. And $3,921 for the nine months ended September 30, 2019 and 2018.The increase in property plant and equipment was offset by the sale of land for $100,000.

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.

During July 2018 the company performed a reverse split in the ratio of 1 for 1,000.

There were 286,387 shares issued and outstanding as of December 31, 2018.

During the June 30, 2019 Qtr. the Company issued 77,667 shares for note conversions for a reduction of principle of $35,265.

During the Period July 1, 2019 to September 30, 2019, the company issued 4,387,625 shares for note conversions. Total shares issue for the period January 1, 2019 to September 30, 2019 was 4,493,585.

As a result, $95,116 was reclassified from common stock to additional paid in capital.

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NOTE 7 - 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.

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The Company is subject to tax in the U.S. federal and Washington 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 8 –  Notes Payable and Derivative Liabilities

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On January 28, 2019 we entered into a one year convertible promissory note in the amount of $38,000 with and interest rate of 12% and a conversion rate of 55% of the lowest prior 20 days trading period.

On May 28, 2019 we entered into a one year convertible promissory note in the amount of $27,500 with and interest rate of 12% and a conversion rate of 55% of the lowest prior 25 days trading period.

On May 1, 2019 we entered into a one year convertible promissory note in the amount of $13,000 with and interest rate of 12% and a conversion rate of 55% of the lowest prior 25 days trading period.

During the Period July 1, 2019 to September 30, 2019, the company issued 1 12 month Convertible Note for the sum of $40,000 to LG Capital on 8/28/19 for $40,000 at 8%. Convertible at 60% of lowest of the prior 20 days trading period

As a result of the convertible notes we recognized the embedded derivative liability on the date that the note was convertible. We also revalued the remaining derivative liability on the outstanding note balance on the date of the balance sheet. The inputs used were a weighted volatility of 290% and a risk free discount rate of 2.44% The remaining derivative liabilities valued using the level 3 inputs in the fair value hierarchy were:

NOTE 9 – SUBSEQUENT EVENTS

Subsequent to September 30, 2019 through the date of this filing we issued 6,968,083 shares of common stock for note conversions.

November 2019 the company performed a reverse split in the ratio of 1 for 200. All stock references are stated to reflect the reverse split. All share references herein have been adjusted to reflect the reverse split. As a result, $95,116 was reclassified from common stock to additional paid in capital.

 In accordance with ASC 855, the Company has analyzed its operations subsequent to September 30, 2019 through the date these financial statements were issued, and has determined that it does not have any other material subsequent events to disclose in these financial statements.

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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, 2019, the Company had not commenced manufacturing operations. Therefore, there were no material operational changes from the last audited financials of December 31, 2018.

During the three months ended September 30, 2019, the company was not operating as a revenue producing manufacturer and, with allowances for Derivative allowances, sustained losses of $647,814. These include regular expenses plus additional expenses and sub contract labor that were necessary as the company went ahead with Design Engineering and Fundraising activities.

Liquidity

During the three months ending September 30, 2019, the company did receive payments totaling $38,000 less legal fees and OID, from the sale of convertible notes. Even though there were considerable costs during the period in financing fees, interest and G&A operating costs, the company was able to end the period with cash on hand of $32,129.

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 $105 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

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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. The IPO was never exercised and expired.

Subsequently the company had an S-1 become Effective on December 30, 2014. This was not an Offering and not used for fundraising.

The company has been quoted on the OTCQB Bulletin Board under the symbol "ASCK" since February 2019 and is DWAC registered.

Financial Statements in this document represent the full results of the company during the three-month period to September 30, 2019. There are no "off balance sheet" arrangements.

Production Startup Commencement

The Plant facility has been renovated and installation of most Production Line Equipment is in various stages in the direction of operational readiness.

The Company’s few remaining major specialized equipment asset purchases are in shipping transit with most arriving at the time of this filing.

After final remaining purchased equipment is fully installed and raw materials arrive at plant the finished housing materials should be in production within 4 to 6 weeks.

Adequate startup working capital has been secured to start Production with reserves to support funding for expenses including wages and salaries, marketing, IR services and contingencies and building materials.

Housing construction commitments are currently in the production planning stages between The Company, Builders and Marketing agents.

Marketing

Principal marketing efforts will be initially aimed at leveraging specific contacts and relationships that have developed over the last 12 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 contacts as well as the multitude of inquiries received every week.

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.

Current Financial Projections

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Using a conservative estimate at an average 1,500 sq. ft. home with a value per sale of $150,000, management estimates first year sales revenues could reach $4-5 million from the current production plant.

Operations Management

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 to action.

Under control of the CEO will be marketing, manufacturing operations, design architecture and engineering, administration and safety compliance. Additionally, the Construction Manager 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.

The 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 also oversee these operations.

Future Strategy

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 units that would not be available in other houses at such comparable pricing. By constructing with the Auscrete 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 are NOT and will not be offered under the banner of such categories as 'pre-fabricated', ‘modular” or 'factory built' homes. They are just plain good value masonry homes built of a time proven product, concrete.

Although Auscrete can economically deliver whole house panel sets as far away as New Mexico or Alberta, Canada, the Company will concentrate mostly on its home markets here in the Northwest where future growth will be achieved by servicing this fast-emerging market in this above average (for affordable housing) evolving area.

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 crews to construct the houses. 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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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^th, that our disclosure controls and procedures are 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 three months ended September 30, 2019 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 has sold shares for the purpose of Note Conversion but has not received proceeds from any of these sales during the three months ended September 30, 2019.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

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* Filed herewith.

SIGNATURES

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.

AUSCRETE CORPORATION

Date: November 19, 2019  

By:

/s/ A John Sprovieri

A. John Sprovieri
(Chief Executive and Financial Officer)

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