Registration No. 333-______
As filed with the Securities and Exchange Commission on September 8, 2005
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ALTERNATIVE CONSTRUCTION COMPANY, INC.
(Name of small business issuer in its charter)
------------------------
(Commission File No.)
FLORIDA 3448 20-1776133
(State or Other Jurisdiction (Primary Standard (IRS Employer
of Incorporation or Industrial Classification Identification
Organization) Number) Number)
1900 South Harbor City Boulevard, Suite 315
Melbourne, FL 32901
(321) 308-0834
(Address and telephone of principal executive offices and
principal place of business)
Michael W. Hawkins
Chief Executive Officer
Alternative Construction Company, Inc.
1900 South Harbor City Boulevard, Suite 315
Melbourne, Florida 32901
(321) 308-0834
(Name, address and telephone number of agent for service)
Copies of all communication to be sent to:
Thomas G. Amon, Esq.
Law Offices of Thomas G. Amon
500 Fifth Avenue, Suite 1650
New York, NY 10110
Telephone: (212) 810-2430
Facsimile: (212) 819-2427
Approximate date of proposed sale to the public: AS SOON AS PRACTICABLE AFTER
THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box: [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this form is a post-effective registration statement filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434, check
the following box: [ ]
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT OF SHARES TO OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED BE REGISTERED (1) SHARE PRICE REGISTRATION FEE
- ------------------------------- ------------------- ------------------ ------------------ ----------------
Common Stock, par value $0.0001 332,388(2) $ 2.00 $ 664,776 $ 78.31
Common Stock, par value $0.0001 200,000(3) $ 2.65 $ 530,000 $ 62.43
Common Stock, par value $0.0001 132,075(3) $ 2.65 $ 349,999 $ 41.23
Common Stock, par value $0.0001 7,548(3) $ 2.65 $ 20,002 $ 2.36
Common Stock, par value $0.0001 4,000(3) $ 2.65 $ 10,600 $ 1.25
Common Stock, par value $0.0001 210,290(4) $ .50 $ 105,145 $ 12.39
Common Stock, par value $0.0001 75,000(5) $ .50 $ 37,500 $ 4.42
Common Stock, par value $0.0001 150,000(5) $ .50 $ 75,000 $ 8.84
Common Stock, par value $0.0001 75,000(5) $ .50 $ 37,500 $ 4.42
Common Stock, par value $0.0001 25,000(5) $ .50 $ 12,500 $ 1.47
Common Stock, par value $0.0001 25,000(5) $ .50 $ 12,500 $ 1.47
Common Stock, par value $0.0001 100,000(5) $ .50 $ 50,000 $ 5.89
Common Stock, par value $0.0001 50,000(5) $ .50 $ 25,000 $ 2.95
Common Stock, par value $0.0001 100,000(6) $ 1.00 $ 100,000 $ 11.78
Common Stock, par value $0.0001 100,000(6) $ 1.00 $ 100,000 $ 11.78
Common Stock, par value $0.0001 75,000(6) $ 1.00 $ 75,000 $ 8.84
Common Stock, par value $0.0001 75,000(6) $ 1.00 $ 75,000 $ 8.84
Common Stock, par value $0.0001 75,000(6) $ 1.00 $ 75,000 $ 8.84
Common Stock, par value $0.0001 75,000(6) $ 1.00 $ 75,000 $ 8.84
Common Stock, par value $0.0001 100,000(7) $ 1.50 $ 150,000 $ 17.67
Common Stock, par value $0.0001 75,000(7) $ 1.50 $ 112,500 $ 13.25
Common Stock, par value $0.0001 75,000(7) $ 1.50 $ 112,500 $ 13.25
Common Stock, par value $0.0001 75,000(7) $ 1.50 $ 112,500 $ 13.25
Common Stock, par value $0.0001 150,000(7) $ 1.50 $ 225,000 $ 26.51
Common Stock, par value $0.0001 25,000(7) $ 1.50 $ 37,500 $ 4.42
Common Stock, par value $0.0001 75,000(8) $ 2.00 $ 150,000 $ 17.67
Common Stock, par value $0.0001 75,000(8) $ 2.00 $ 150,000 $ 17.67
Common Stock, par value $0.0001 50,000(8) $ 2.00 $ 100,000 $ 11.78
Common Stock, par value $0.0001 20,000(8) $ 2.00 $ 40,000 $ 4.71
Common Stock, par value $0.0001 50,000(8) $ 2.00 $ 100,000 $ 11.78
Common Stock, par value $0.0001 5,000(8) $ 2.00 $ 10,000 $ 1.18
Common Stock, par value $0.0001 225,000(8) $ 2.00 $ 450,000 $ 53.01
Common Stock, par value $0.0001 75,000(9) $ 2.50 $ 187,500 $ 22.09
Common Stock, par value $0.0001 50,000(9) $ 2.50 $ 125,000 $ 14.73
Common Stock, par value $0.0001 75,000(9) $ 2.50 $ 187,500 $ 22.09
Common Stock, par value $0.0001 200,000(9) $ 2.50 $ 500,000 $ 58.90
Common Stock, par value $0.0001 100,000(9) $ 2.50 $ 250,000 $ 29.45
Common Stock, par value $0.0001 100,000(10) $ 3.00 $ 300,000 $ 35.34
Common Stock, par value $0.0001 170,000(10) $ 3.00 $ 510,000 $ 60.08
Common Stock, par value $0.0001 10,000(10) $ 3.00 $ 30,000 $ 3.53
Common Stock, par value $0.0001 35,000(10) $ 3.00 $ 105,000 $ 12.37
Common Stock, par value $0.0001 25,000(10) $ 3.00 $ 75,000 $ 8.84
Common Stock, par value $0.0001 110,000(10) $ 3.00 $ 330,000 $ 38.87
Common Stock, par value $0.0001 15,000(10) $ 3.00 $ 45,000 $ 5.30
Common Stock, par value $0.0001 35,000(10) $ 3.00 $ 105,000 $ 12.37
Common Stock, par value $0.0001 22,500(11) $ 0.01 $ 225 $ .03
Common Stock, par value $0.0001 10,000(11) $ 0.01 $ 100 $ .01
Common Stock, par value $0.0001 10,000(11) $ 0.01 $ 100 $ .01
Common Stock, par value $0.0001 5,000(11) $ 0.01 $ 50 $ .01
Common Stock, par value $0.0001 12,150(11) $ 0.01 $ 122 $ .01
Common Stock, par value $0.0001 1,000(11) $ 0.01 $ 10 $ .00
Common Stock, par value $0.0001 1,000(11) $ 0.01 $ 10 $ .00
Common Stock, par value $0.0001 1,000(11) $ 0.01 $ 10 $ .00
Common Stock, par value $0.0001 500(11) $ 0.01 $ 5 $ .00
Common Stock, par value $0.0001 1,500(11) $ 0.01 $ 15 $ .00
Common Stock, par value $0.0001 500(11) $ 0.01 $ 5 $ .00
2
Common Stock, par value $0.0001 1,250(11) $ 0.01 $ 13 $ .00
Common Stock, par value $0.0001 100(11) $ 0.01 $ 1 $ .00
Common Stock, par value $0.0001 100(11) $ 0.01 $ 1 $ .00
Common Stock, par value $0.0001 100(11) $ 0.01 $ 1 $ .00
Common Stock, par value $0.0001 100(11) $ 0.01 $ 1 $ .00
Common Stock, par value $0.0001 100(11) $ 0.01 $ 1 $ .00
Common Stock, par value $0.0001 100(11) $ 0.01 $ 1 $ .00
Common Stock, par value $0.0001 100(11) $ 0.01 $ 1 $ .00
Common Stock, par value $0.0001 100(11) $ 0.01 $ 1 $ .00
Common Stock, par value $0.0001 1,750(11) $ 0.01 $ 17 $ .00
Common Stock, par value $0.0001 330(11) $ 0.01 $ 3 $ .00
Common Stock, par value $0.0001 250(11) $ 0.01 $ 3 $ .00
Common Stock, par value $0.0001 1,350(11) $ 0.01 $ 14 $ .00
Common Stock, par value $0.0001 250(11) $ 0.01 $ 3 $ .00
Common Stock, par value $0.0001 250(11) $ 0.01 $ 3 $ .00
Common Stock, par value $0.0001 4,500(11) $ 0.01 $ 45 $ .01
Common Stock, par value $0.0001 120(11) $ 0.01 $ 1 $ .00
Common Stock, par value $0.0001 1,000(11) $ 0.01 $ 1 $ .00
Common Stock, par value $0.0001 1,000(11) $ 0.01 $ 1 $ .00
Common Stock, par value $0.0001 1,000(11) $ 0.01 $ 1 $ .00
Common Stock, par value $0.0001 1,000(11) $ 0.01 $ 1 $ .00
Common Stock, par value $0.0001 1,000(11) $ 0.01 $ 1 $ .00
Common Stock, par value $0.0001 1,000(11) $ 0.01 $ 1 $ .00
Common Stock, par value $0.0001 1,000(11) $ 0.01 $ 1 $ .00
Total 3,969,301 $ 6,931,291 $ 816.54
(1) Pursuant to Rule 416, the Registration Statement also covers an
indeterminate number of additional shares of common stock that may be
issuable to prevent dilution resulting from stock splits, stock dividends,
or similar events.
(2) Issuable on conversion of outstanding convertible debentures at a
conversion price of $2.00 per share.
(3) Issuable on conversion of outstanding convertible debentures at a
conversion price of $2.65 per share.
(4) Issuable on conversion of outstanding convertible debentures at a
conversion price of $0.50 per share.
(5) Issuable upon exercise of outstanding common stock purchase warrants at an
exercise price of $.50 per share.
(6) Issuable upon exercise of outstanding common stock purchase warrants at an
exercise price of $1.00 per share.
(7) Issuable upon exercise of outstanding common stock purchase warrants at an
exercise price of $1.50 per share.
(8) Issuable upon exercise of outstanding common stock purchase warrants at an
exercise price of $2.00 per share.
(9) Issuable upon exercise of outstanding common stock purchase warrants at an
exercise price of $2.50 per share.
(10) Issuable upon exercise of outstanding common stock purchase warrants at an
exercise price of $3.00 per share.
(11) Conversion of reverse split of original founders at 100 common shares for
one share.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(A) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(A),
may determine.
3
PRELIMINARY PROSPECTUS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion Dated September __, 2005
[LOGO OF ALTERNATIVE CONSTRUCTION COMPANY,INC]
3,969,301 SHARES OF COMMON STOCK
TO BE OFFERED BY CERTAIN HOLDERS OF SECURITIES OF
ALTERNATIVE CONSTRUCTION COMPANY, INC.
This prospectus relates to 3,969,301 shares of common stock of
Alternative Construction Company, Inc. which may be offered by the selling
shareholders listed in this prospectus for their own accounts. The shares
offered include 886,301 shares of our common stock issuable upon conversion of
outstanding secured convertible debentures, shares of our common stock that may
be issued on account of any interest or anti-dilution adjustments relating to
the debentures, 3,000,000 shares of our common stock issuable upon exercise of
outstanding common stock purchase warrants and 83,000 shares of our common stock
held by certain of our shareholders.
We are not selling any shares under this prospectus, and we will not
receive any of the proceeds from the sale of the shares of common stock by the
selling shareholders. Pursuant to registration rights granted to the selling
shareholders, we are obligated to register certain shares they hold or which
they will acquire upon conversion of debentures or exercise of warrants. We are
paying all the expenses incurred in registering the shares, but all selling and
other expenses incurred by the selling shareholders will be borne by the selling
shareholders.
The shares of common stock being offered pursuant to this prospectus are
"restricted securities" under the Securities Act of 1933, as amended (the
Securities Act), before their sale under this prospectus. This prospectus has
been prepared for the purpose of registering these shares of common stock under
the Securities Act to allow for a sale by the selling shareholders to the public
without restriction.
The selling shareholders may sell the shares of common stock covered by
this prospectus in a number of different ways and at varying prices. We provide
more information about how the selling shareholders may sell their shares in a
section entitled "Plan of Distribution" on page 41. You should read this
prospectus and any supplement carefully before you invest.
Our common stock is not currently traded on the OTCBB or an equivalent
replacement exchange, or, if applicable, the NASDAQ, the NYSE or AMEX.
THIS OFFERING IS HIGHLY SPECULATIVE. INVESTING IN OUR COMMON STOCK
INVOLVES A HIGH DEGREE OF RISK. PLEASE CONSIDER CAREFULLY THE RISK FACTORS
BEGINNING ON PAGE __ OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is September _____, 2005.
4
TABLE OF CONTENTS
PROSPECTUS SUMMARY 1
RISK FACTORS 3
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 10
WHERE YOU CAN FIND MORE INFORMATION 11
USE OF PROCEEDS 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 11
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 17
DESCRIPTION OF BUSINESS 19
LEGAL PROCEEDINGS 24
MANAGEMENT 29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 30
EXECUTIVE COMPENSATION 32
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 34
SELLING SHAREHOLDERS 35
PLAN OF DISTRIBUTION 41
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
DESCRIPTION OF SECURITIES 42
EXPERTS 46
LEGAL MATTERS 46
ADDITIONAL INFORMATION
INDEX TO THE FINANCIAL STATEMENTS F-1
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU SHOULD
NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO
SELL OR BUY ANY SHARES IN ANY STATE OR OTHER JURISDICTION IN WHICH IT IS
UNLAWFUL. THE INFORMATION IN THIS PROSPECTUS IS CURRENT AS OF THE DATE ON THE
COVER. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
5
PROSPECTUS SUMMARY
The following summary highlights selected information from this
prospectus and may not contain all the information that is important to you. To
understand our business and this offering fully, you should read this entire
prospectus carefully, including the financial statements and the related notes
beginning on page F-1. When we refer in this prospectus to "ACC" or the
"Company," "we," "us," and "our," we mean Alternative Construction Company,
Inc., a Florida corporation, together with our subsidiary, Alternative
Construction Technologies Corporation, a Delaware corporation and Universal Safe
Structures, Inc., a Florida corporation. This prospectus contains
forward-looking statements and information relating to the Company. See
Cautionary Note Regarding Forward Looking Statements on page __.
THE COMPANY
We are Alternative Construction Company, Inc., a Florida corporation. We
are a developer, manufacturer and wholesaler of proprietary structural insulated
panels ("SIP"s) for the use in commercial and private construction including
multi-story buildings. The ACC SIPs are marketed under the name ACTech
Panel(TM). Our SIPs provide the end user with a quality product with extensive
independent testing and certifications that is more efficient in building,
energy efficient, resistant to mold, mildew, termites and other insects, and
proven to withstand high winds and projectiles created by such winds from
hurricanes and tornadoes. Other benefits include acoustical advantages and fire
retardation. The SIPs can be installed by a seasoned construction professional
or, with short training, unskilled labor, both resulting in a superior building
structure. The purchasers of the ACTech Panel(TM) are individuals, companies,
school districts, government agencies, developers and various international
groups.
Our predecessor, Alternative Construction Technologies Corporation, a
Delaware corporation ("ACT"), was formed in 1997. It was acquired by ACC
effective January 21, 2005. In April 2005, we acquired 80% ownership of
Universal Safe Structures, Inc., a Florida corporation, which is now our
operating subsidiary for the sale of the proprietary safe rooms. Also in April
2005, we acquired 80% ownership of ProSteel Builders Corporation, a Florida
corporation, which is now our operating subsidiary for commercial and
residential development utilizing the ACTech Panel(TM).
In 2003 and 2004, the majority of our revenues were derived from the
sale of our ACTech Panel(TM) primarily in the United States. The principal
outlets for this product currently include approximately six developers and
distributors. We are in the process of expanding our distribution to the
international marketplace while expanding the current supply of the ACTech
Panel(TM) for the building of classrooms in Florida.
During 2005, we will be expanding our current marketing of the
classrooms by alliances with strategic partners that have the capacity to
produce more classrooms to attempt to meet the demands of the State of Florida.
The State of Florida has experienced significant growth due to normal migration,
both by retirees and families, compounded by the devastation created by the five
hurricanes in 2004.
CONTACT INFORMATION
Our principal operations and executive offices are located at 1900 South
Harbor City Boulevard, Suite 315, Melbourne, FL 32901 and our telephone number
is (321) 308-0834. We also maintain a web site at http://www.actechpanel.com.
The information on our web site is not, and should not be considered to be part
of this prospectus.
THE OFFERING
Common stock offered by
the selling shareholders: Up to 76,000 shares
Common stock underlying
convertible debentures and
stock purchase warrants
outstanding as of
August 15, 2005: Up to 3,872,586 shares
Terms of the Offering The selling shareholders will determine when and
how they will sell the common stock offered by
this prospectus. See "Plan of Distribution."
Use of proceeds We will not receive any of the proceeds from the
sale of common stock by the selling
shareholders. However, to the extent there are
cash exercises of warrants, we will receive
proceeds from such warrant exercises.
6
SUMMARY FINANCIAL INFORMATION
The following table provides selected consolidated financial and
operating data for the year ended December 31, 2004 and 2003 and the six months
ended June 30, 2005, and 2004:
STATEMENT OF OPERATIONS DATA
SIX MONTHS SIX MONTHS
YEAR YEAR ENDED ENDED
ENDED ENDED JUNE JUNE
DECEMBER DECEMBER 30, 2005 30, 2004
31, 2004 31, 2003 (Unaudited) (Unaudited)
--------------- --------------- --------------- ---------------
Revenue, net 1,161,751 920,156 2,121,825 558,284
Gross profit (loss) (189,816) (224,702) 283,161 (13,263)
Loss from operations (882,270) (1,019,830) (586,718) (295,513)
Net loss (889,000) (1,056,536) (646,307) (297,473)
BALANCE SHEET DATA
JUNE JUNE
DECEMBER DECEMBER 30, 2005 30, 2004
31, 2004 31, 2003 (Unaudited) (Unaudited)
--------------- --------------- --------------- ---------------
Current assets 256,112 260,077 1,194,017 325,762
Current liabilities 162,798 235,401 2,478,249 156,962
Total assets 913,100 942,791 2,559,436 982,750
Long-term debt 85,598 94,770 521,711 89,714
Stockholders' equity 677,937 707,390 1,550,476 749,307
7
RISK FACTORS
THE OFFERING INVOLVES SUBSTANTIAL INVESTMENT RISKS AND THE SECURITIES
SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN THE LOSS OF THEIR
ENTIRE INVESTMENT AND HAVE NO NEED FOR LIQUIDITY FROM SUCH INVESTMENT. IN
EVALUATING AN INVESTMENT IN THE COMPANY AND ITS BUSINESS PRIOR TO PURCHASE
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
RELATING TO THE BUSINESS OF THE COMPANY AND THE OFFERING, TOGETHER WITH THE
INFORMATION AND FINANCIAL DATA SET FORTH IN THIS PROSPECTUS BEFORE INVESTING IN
THE SECURITIES. PROSPECTIVE INVESTORS SHOULD NOTE THAT THIS PROSPECTUS CONTAINS
CERTAIN "FORWARD-LOOKING STATEMENTS," INCLUDING WITHOUT LIMITATION, STATEMENTS
CONTAINING THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS," "INTENDS," "SHOULD,"
"SEEKS TO" AND SIMILAR WORDS. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE
RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING BUT NOT
LIMITED TO THE RISK FACTORS SET FORTH IN THIS PROSPECTUS. THE ACCOMPANYING
INFORMATION CONTAINED IN THIS PROSPECTUS IDENTIFIES CERTAIN IMPORTANT FACTORS
THAT COULD CAUSE SUCH DIFFERENCES.
RISKS RELATED TO OUR BUSINESS
WE HAVE INCURRED SUBSTANTIAL LOSSES AND WE HAVE A NEGATIVE CASH FLOW AND
A WORKING CAPITAL DEFICIT. We have incurred substantial losses since the
inception. We had a working capital deficit of approximately $841,000 as of
December 31, 2004 and we have incurred negative cash flow from operations. As a
result, our auditors have qualified their report on our financial statements for
the year ended December 31, 2004 with respect to our ability to continue as a
going concern. We recently secured $1,830,000 from the sale of secured
convertible debentures, which in addition to paying off existing debt, will be
used for marketing and general corporate purposes. It can not be assured that
this financing will produce the revenues anticipated through our marketing
efforts and may therefore be inadequate if future operating cash flows do not
improve. If we cannot generate positive cash flow, it may be necessary to obtain
additional external financing. There can be no assurance that any additional
financing will be available, or if available, that it will be on terms and
conditions favorable to us. Our operations could be adversely affected if we are
unable to generate sufficient cash or obtain additional financing.
WE HAVE A LIMITED RELEVANT OPERATING HISTORY, AND WE MAY NOT MAINTAIN
PROFITABILITY. Our company has had a cumulative net loss from inception of
approximately $687,000. Our needs for continued expenditures for product
research and development and marketing, among other things, will make it
difficult for us to reduce our operating expenses in order to deal with lack of
sales growth or unanticipated reductions in existing sales. Our failure to
balance expenditures in any period with sales could have an adverse effect on
results of operations.
We have a limited relevant operating history upon which an evaluation of
our prospects can be made. Such prospects must be considered in light of the
risks, expenses and difficulties frequently encountered in the establishment of
a new company and the development of new products in established and crowded
markets in a highly-competitive construction industry. There can be no assurance
that we will be able to successfully increase development, manufacturing, and
marketing strategies, generate meaningful revenues, or attain or maintain
profitable operations. The possibility of our future success must be considered
relative to the problems, challenges, complications and delays frequently
encountered in connection with the development and operation of a new business,
and the development and marketing of a product that has been around for decades
but only recently actively marketed and manufactured.
WE MAY NEED SIGNIFICANT ADDITIONAL FINANCING TO IMPLEMENT OUR BUSINESS
PLAN. There can be no assurance that the recent debt financing will meet all of
our financing needs or that additional financing will not be required in the
future. We will continue to need additional financing, through debt or the
issuance of additional equity securities or a combination of both, to implement
business objectives such as marketing, research and development of new products.
If additional funding is required in the future, there is no assurance that we
will succeed in obtaining such financing or if available, that it will be on
terms favorable to us.
SUBSTANTIALLY ALL OF OUR ASSETS, BUT NOT INCLUDING U.S. PATENTS, ARE
COLLATERAL FOR LOANS TO THE COMPANY BY THIRD PARTIES. The debentures issued in
the recent debt financing are secured by substantially all of our assets, but
not including our U.S. patents. Certain debentures are convertible into common
stock, contain anti-dilution provisions and until the debentures are paid in
full, prohibit us from incurring other indebtedness without the consent of the
debenture holders, except for borrowings in existence on the date of the
debenture financing or indebtedness to trade creditors or financial institutions
incurred in the ordinary course of business. The maturity date of the debentures
vary. The debentures bear various interest rates. If we become in default of the
payment terms or other provisions of the debentures, there is no assurance that
we will be able to successfully negotiate new terms favorable to us. In that
event, the lenders may elect to accelerate the payment terms and may exercise
their right against our collateral, including our patents, which would have
material adverse consequences to our business and operations.
IF AN EVENT OF DEFAULT OCCURS UNDER ANY ONE OF THE DEBENTURES, IT COULD
RESULT IN A SERIOUS PROBLEM FOR US AND CAUSE US TO CURTAIL OUR OPERATIONS OR
SELL SOME OF OUR ASSETS TO REPAY ALL OF THE DEBENTURES. The Company has issued
convertible debentures to 3 independent investors in the aggregate principal
amount of $1,353,782. Each debenture provides for the following events of
default, and a default under one debenture is deemed a default under all
debentures:
8
- the initiation of any bankruptcy, insolvency, moratorium,
receivership or reorganization by or against the Company;
- a general assignment of assets by the Company for the benefit of
creditors.
OUR ABILITY TO IMPLEMENT OUR BUSINESS PLAN DEPENDS ON OUR ABILITY TO
ATTRACT AND RETAIN KEY PERSONNEL. Our future success will depend to a
significant extent on the continued services of the current officers and other
necessary personnel. The loss of any of these officers or directors would likely
have a detrimental effect on our business but another industry professional
should be able to be retained in the short-term and thereby there should be no
long-term detriment to the Company.
Our prospects will also depend on our ability to attract and retain
highly qualified sales, marketing, and managerial personnel. Competition for
such personnel is intense, and there can be no assurance that we will be able to
employ or retain such personnel.
IF THE ACTECH PANEL(TM) AND THE RELATED PRODUCTS DO NOT GAIN WIDESPREAD
MARKET ACCEPTANCE, RESULTS OF OPERATIONS WILL SUFFER. Although the current
marketplace readily accepts the ACTech Panel(TM), both domestically and
internationally, management cannot be certain that the products will achieve and
maintain widespread acceptance by the market. We have sought and received
independent testing and certification thereby assuring the marketplace of the
quality of the ACTech Panel(TM) which has received certification by what is
considered the toughest building codes, both domestically and internationally,
the Miami-Dade certification.
UNANTICIPATED PROBLEMS ASSOCIATED WITH PRODUCT DEVELOPMENT AND
COMMERCIALIZATION COULD ADVERSELY AFFECT OUR OPERATING RESULTS. The successful
development of our existing and new products is subject to the risks of failure
and delay inherent in the development and commercialization of products based on
innovative technologies. These risks include the possibilities that:
o we may experience unanticipated or otherwise negative research and
development results;
o existing or proposed products may be found to be ineffective or unsafe, or
may otherwise fail to receive required regulatory clearances or approvals;
o we may find that existing or proposed products, while effective, are
uneconomical to commercialize or market;
o existing or proposed products may not achieve broad market acceptance; or
o proprietary rights held by third parties preclude us from developing or
marketing existing or proposed products.
Our inability to develop and commercialize our existing products or any
new products on a timely basis and within our financial budgets could have a
material adverse effect on operating results and future prospects.
WE MAY FAIL TO COMPETE EFFECTIVELY AGAINST LARGER COMPANIES. The
construction industry is highly competitive. We compete with companies in the
United States and abroad that are engaged in the development of both traditional
and innovative building techniques and material. Many of these companies have
much greater financial and technical resources and production and marketing
capabilities than we do. Further, many of these companies have already achieved
significant product acceptance and brand recognition with respect to products
that compete directly with the ACC products. Our competitors may successfully
develop and market superior or less expensive products, which could render the
current ACC product and other future ACC products less valuable or unmarketable.
WE MAY FAIL TO COMPETE IN THE INTERNATIONAL MARKETS WHICH CONSTITUTES A
SIGNIFICANT AMOUNT OF THE PROJECTED COMPANY GROWTH. The Company is currently
negotiating with more than 20 different countries. The inability or cost
effectiveness to transport our product to these countries may limit significant
growth. While the Company will utilize World Banks, require Letters of Credit,
and other available resources to ensure payment, foreign governments may fall
and/or payment may be withheld requiring the company to proceed with
international claims costing the company significant cashflow.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY OR IF WE INFRINGE
ON THE INTELLECTUAL PROPERTY OF OTHERS, OUR FINANCIAL CONDITION AND FUTURE
PROSPECTS COULD BE MATERIALLY HARMED. We rely significantly on the protections
afforded by patent and trademark registrations that we routinely seek from the
U.S. Patent and Trademark Office (USPTO) and from similar agencies in foreign
countries. We cannot be certain that any patent or trademark application that is
filed will be approved by the USPTO or other foreign agencies. In addition, we
cannot be certain that we will be able to successfully defend any trademark,
trade name or patent that we hold against claims from, or use by, competitors or
other third parties. No consistent policy has emerged from the USPTO or the
courts regarding the breadth of claims allowed or the degree of protection
afforded under technology and similar patents. Our future success will depend on
our ability to prevent others from infringing on our proprietary rights, as well
as our ability to operate without infringing upon the proprietary rights of
others. We may be required at times to take legal action to protect our
proprietary rights and, despite our best efforts, we may be sued for infringing
on the patent rights of others. Patent litigation is costly and, even if we
prevail, the cost of such litigation could adversely affect our financial
condition. If we do not prevail, in addition to any damages we might have to
pay, we could be required to stop the infringing activity or obtain a license.
We cannot be certain that any required license would be available on acceptable
terms, or at all. If we fail to obtain a license, our business might be
materially adversely affected. In addition to seeking patent protection, we rely
upon a combination of non-disclosure agreements, other contractual restrictions
and trade secrecy laws to protect proprietary information. There can be no
assurance that these steps will be adequate to prevent misappropriation of our
proprietary information or that our competitors will not independently develop
technology or trade secrets that compete with our proprietary information.
WE MAY INCUR SIGNIFICANT COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS.
We could be subjected to significant liability should use or consumption of our
products cause injury, illness or death. Although we carry $1,000,000 in product
liability insurance, there can be no
9
assurance that our insurance will be adequate to protect us against product
liability claims or that insurance coverage will continue to be available on
reasonable terms. A product liability claim, even one without merit or for which
we have adequate coverage, could result in significant legal defense costs,
thereby increasing our expenses and lowering earnings. Such a claim, whether or
not proven to be valid, could have a material adverse effect on product branding
and goodwill, resulting in reduced market acceptance of our products. This in
turn could materially adversely affect our results of operations and financial
condition.
WE DO HAVE MANUFACTURING CAPABILITIES. We currently manufacture our
product with our owned equipment, some of which is a proprietary process. Our
manufacturing facility is in Bolivar, Tennessee, in a 154,000 square foot
building. We intend to expand that facility and/or open up a separate facility
in a strategic location, as needed. If, in the future, we were totally dependent
on our sole manufacturing facility and something were to cause it to not be
functioning for an extended period of time, this would have a materially adverse
effect on the Company. The replacement of the proprietary equipment could take
six to nine months or longer to design, assemble and have operational. It is not
possible to have a subcontractor manufacture the ACTech Panel(TM) unless it was
in a plant designed and built by ACC.
WE MAY BE REQUIRED TO INDEMNIFY OUR DIRECTORS AND OFFICERS. We have
authority under Section 607.0850 of the Florida Business Corporation Act to
indemnify our directors and officers to the extent provided in that statute. Our
Articles of Incorporation require the company to indemnify each of our directors
and officers against liabilities imposed upon them (including reasonable amounts
paid in settlement) and expenses incurred by them in connection with any claim
made against them or any action, suit or proceeding to which they may be a party
by reason of their being or having been a director or officer of the company. We
maintain officer's and director's liability insurance coverage with limits of
liability of $1,000,000. There can be no assurance that such insurance will be
available in the future, or that if available, it will be available on terms
that are acceptable to us. Furthermore, there can be no assurance that the
insurance coverage provided will be sufficient to cover the amount of any
judgment awarded against an officer or director (either individually or in the
aggregate). Consequently, if such judgment exceeds the coverage under the
policy, ACC may be forced to pay such difference.
We intend to enter into indemnification agreements with each of our
officers and directors containing provisions that may require us, among other
things, to indemnify our officers and directors against certain liabilities that
may arise by reason of their status or service as officers or directors (other
than liabilities arising from willful misconduct of a culpable nature) and to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified. Management believes that such indemnification
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
RISKS RELATED TO OUR COMMON STOCK
THE LARGE NUMBER OF SHARES ELIGIBLE FOR IMMEDIATE AND FUTURE SALES MAY
DEPRESS THE PRICE OF OUR STOCK. Our Articles of Incorporation authorize the
issuance of 100,000,000, shares of common stock, $0.0001 par value per share,
and 50,000,000 shares of preferred stock, $0.0001 par value per share. As of
August 15, 2005, we had outstanding 4,994,390 shares of common stock, of which
4,918,390 shares will become available for public resale under Rule 144 in
August 2006. Also as of August 15, 2005, we had outstanding a total of 3,510,000
shares of Series A and B preferred stock which are convertible into a total of
5,520,000 shares of common stock, of which 1,500,000 shares become eligible for
public resale under Rule 144 in January 2006, and 4,020,000 shares become
eligible for public sale under Rule 144 in May 2006. We have reserved 4,000,000
shares of common stock for issuance in respect of option grants under our stock
option plan. >From those available shares, options have been granted and vested
for 400,000 shares of common stock, additional options have been granted for
1,600,000 scheduled to vest in various increments over the next three years, and
there remain available for options under the plan 2,000,000 shares of common
stock. There are 3,000,000 shares that are issuable upon exercise of outstanding
warrants, and 832,658 shares that are issuable upon conversion of debentures,
and up to 39,928 shares that may be issued under the debentures on account of
interest or anti-dilution adjustments. Further, if we default under the terms of
the debentures, we may be required to issue additional common stock to the
debenture holders if we fail to make the default payment stated in the
debentures.
Our board of directors has the authority to issue additional shares of
common stock and preferred stock up to the authorized amount stated in our
Articles of Incorporation. Our board of directors may choose to issue some or
all of such shares to acquire one or more businesses or other types of property,
or to provide additional financing in the future. The issuance of any such
shares may result in a reduction of the book value or market price of the
outstanding shares of our common stock. If the company does issue any such
additional shares, such issuance also will cause a reduction in the
proportionate ownership and voting power of all other shareholders. Further, any
such issuance may result in a change of control of the company.
Holders of our securities have registration rights for approximately
76,000 shares of our restricted common stock, and approximately 3,832,658 shares
of common stock issuable upon exercise or conversion of outstanding warrants,
and debentures, and 39,928 shares of common stock that may be issued under the
debentures on account of interest or anti-dilution adjustments, all of which are
included in the registration statement of which this prospectus is a part. Sales
of substantial amounts of our common stock in the open market, including sales
of the shares offered for resale in this prospectus, could adversely affect the
market price of our common stock.
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE. Our shares are not
currently traded in the OTC Electronic Bulletin Board or any other recognized
security exchange. If a market develops for the sale of our stock, the market
price of our common stock may be highly volatile and may continue to be volatile
in the future. Any or a combination of the following factors could cause the
market value of our common stock to decline quickly:
o operating results that differ from market expectations;
10
o Negative or other unanticipated results of testing;
o delays in product development;
o technological innovations or commercial product introductions by our
competitors;
o Changes in government regulations;
o developments concerning proprietary rights, including pending or threatened
patent litigation;
o public concerns regarding the safety of any of our products; and,
o general economic and stock market conditions.
THE SALE OF THE STOCK ASSOCIATED WITH THIS OFFERING WILL CAUSE
SIGNIFICANT DILUTION TO EXISTING SHAREHOLDERS, WHICH MAY CAUSE A DECLINE IN THE
MARKET PRICE OF OUR STOCK. The selling shareholders intend to sell in the public
market the shares of common stock being registered in this offering. However, of
that amount, 3,000,000 shares are subject to issuance upon exercise of warrants
that have exercise prices ranging from $0.50 to $3.00 per share. The desire of
the holders of those warrants to sell will depend on the market price of our
common stock at any given time. In addition, this registration statement
includes 76,000 outstanding common shares. This registration statement also
includes 832,658 shares that are issuable upon conversion of outstanding
debentures, at a conversion rate randing from $0.50 to $2.65 per share, without
further payment for those shares. Further, this registration statement includes
an additional 39,928 shares of common stock that may be issued on account of
interest or anti-dilution adjustments relating to the debentures. A substantial
number of shares being sold in the market may cause our stock price to decline.
OUR COMMON STOCK MAY BE SUBJECT TO PENNY STOCK REGULATION, WHICH MAY
MAKE IT DIFFICULT FOR INVESTORS TO SELL OUR COMMON STOCK. The SEC has adopted
rules that regulate broker/dealer practices in connection with transactions in
penny stocks. Penny stocks generally are equity securities with a price of less
than $5.00 per share (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ Stock Market, provided that current
price and volume information with respect to transactions in such securities is
provided by the exchange system). The penny stock rules require a broker/dealer,
prior to completing a transaction in a penny stock not otherwise exempt from the
rules, to deliver a standardized risk disclosure document prepared by the SEC
that provides information about penny stocks and the nature and level of risks
in the penny stock market. The broker/dealer also must provide the customer with
bid and offer quotations for the penny stock, the compensation of the
broker/dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from such rules the broker/dealer must
make a special written determination that a penny stock is a suitable investment
for the purchaser and receive the purchaser's written agreement to the
transaction. Our common stock will likely be subject to the penny stock rules.
These disclosure requirements may have the effect of reducing the level of
trading activity in any secondary market for our common stock. Accordingly,
holders of our common stock may find it difficult to sell their shares, if they
are able to do so at all.
WE DO NOT EXPECT TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE. For the
foreseeable future, we intend to retain any earnings to finance the development
and expansion of our business, and we do not anticipate paying any cash
dividends on our common stock. Any future determination to pay dividends will be
at the discretion of our board of directors and will be dependent upon then
existing conditions, including our financial condition and results of
operations, capital requirements, contractual restrictions, business prospects,
and other factors that the board of directors considers relevant.
OUR PREFERRED STOCK MAY CAUSE DILUTION. Our Articles of Incorporation
authorize the issuance of up to 50,000,000 shares of "blank check" preferred
stock with such rights and preferences as our board of directors, without
further shareholder approval, may determine from time to time. Of these
preferred shares, 1,500,000 shares are designated as Series A preferred stock,
3,500,000 shares are designated as Series B preferred stock, and 1,000,000 has
been designated as Series C preferred stock. As of August 15, 2005, we had
1,500,000 shares of outstanding Series A preferred stock, 2,010,000 shares of
outstanding Series B preferred stock, and no shares outstanding Series C
preferred stock issued and outstanding. Our Series A preferred stock is
convertible into common and has voting rights with the common, on a one-for one
basis. The Series B preferred stock is convertible into common stock and has
voting rights with the common stock on a one for two basis. The Series C
preferred stock is convertible into common stock and has voting rights with the
common stock on a one for one basis. In January, 2006, a total of 1,500,000
shares of common stock issuable upon conversion of all of our outstanding Series
A preferred stock will become eligible for public resale under Rule 144. In May,
2006, a total of 4,020,000 shares of common stock issuable upon conversion of
all of our outstanding Series B preferred stock will become eligible for public
resale under Rule 144. Furthermore, each share of Series A and Series B
preferred stock has a liquidation preference of $1.00 per share on an as
converted basis before any holders of common would be entitled to receive
payment for their shares or dividends upon a liquidation of ACC. As of August
15, 2005, there remained 1,490,000 unissued shares of authorized Series B
Preferred Stock, 1,000,000 unissued shares of authorized Series C Preferred
Stock, and 14,000,000 shares of authorized but undesignated and unissued shares
of preferred stock that may be sold in the future and that can, at the
discretion of our board of directors, be designated as another series of
preferred stock with dividend, liquidation, conversion, voting or other rights
and preferences that are senior, and not available, to the holders of our common
stock. Thus, issuances of new series of preferred stock could adversely affect
the relative voting power, distributions and other rights of the common stock.
Holders of our common stock could realize less than the amount of dividends
and/or distributions to which they would otherwise be entitled.
Further, preferred stock could be used as a method of discouraging,
delaying, or preventing a take-over of our company. If we issue "blank check"
preferred stock, it could have a dilutive effect upon our common stock. This
would decrease the chance that our shareholders would realize a premium over
market price for their shares of common stock as a result of a takeover bid.
COMPLIANCE WITH THE SARBANES-OXLEY ACT OF 2002 MAY DIVERT A SUBSTANTIAL AMOUNT
OF OUR RESOURCES AND OF OUR MANAGEMENT'S TIME FROM OUR BUSINESS ACTIVITIES.
Once we are a reporting issuer we will be subject to compliance with the
reporting requirements of the Exchange Act of 1934 as well as the Sarbanes-Oxley
Act of 2002. We expect to incur additional expenses and diversion of
management's time as a result of the requirements imposed on small business
issuers by Sarbanes-Oxley. Moreover, we are a small company with limited
resources that will make it difficult for us to timely comply with the
requirements of the Exchange Act or Sarbanes-Oxley. If we are not able to timely
comply with the requirements of those acts, we might be subject to sanctions or
investigation by regulatory authorities. Any such action could materially
adversely affect out business and financial results as well as the market price
of our stock.
FORWARD-LOOKING STATEMENTS
Such forward-looking statements include statements regarding, among
other thins, (a) our projected sales, profitability, and cash flows, (b) our
growth strategies, (c) anticipated trends in our industries, (d) our future
financing plans and (e) our anticipated needs for working capital.
Forward-looking statements, which involve assumptions and describe our future
plans, strategies, and expectations, are generally identifiable by use of the
words "may," "will," "should," "except," "anticipate," "estimate," "believe,"
"intend," or "project" or the negative of these words or other variations on
these words or comparable terminology. This information may involve known and
unknown risks, uncertainties, and other factors that may cause our actual
results, performance, or achievements to be materially different from the future
results, performance, or achievements expressed or implied by any
forward-looking statements. These statements may be found under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as in this prospectus generally. Actual events or results
may differ materially from those discussed in forward-looking statements as a
result of various factors, including, without limitation, the risks outlined
under "Risk Factors" and matters described in this prospectus generally. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this filing will in fact occur. In
addition to the information expressly required to be included in this filing, we
will provide such further material information, if any, as may be necessary to
make the required statements, in light of the circumstances under which they are
made, not misleading.
The Private Securities Litigation Reform Act of 1995, which provides a
"safe harbor" for similar statements by existing public companies, does not
apply to our offering because, as this is our initial public filing, we are not
yet a reporting issuer. In addition, the Private Securities Litigation Reform
Act of 1995 does not apply to us because our stock qualifies as "penny stock."
11
WHERE YOU CAN FIND MORE INFORMATION
We intend to file annual, quarterly and current reports, proxy
statements and other information with the SEC. We have filed with the SEC a
registration statement on Form SB-2 under the Securities Act with respect to the
securities offered by this prospectus. These reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the SEC's regional offices located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 233 Broadway, New York,
New York 10279. You can obtain copies of these materials from the Public
Reference Section of the SEC upon payment of fees prescribed by the SEC. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC's web site, http://www.sec.gov, contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC, including us. Information contained on
our website should not be considered part of this prospectus.
You may also request a copy of our filings at no cost by writing or
telephoning us at:
Alternative Construction Company, Inc.
1900 South Harbor City Boulevard, Suite 315
Melbourne, Florida 32901
Attention: Bruce Harmon
Telephone: 321-308-0834
USE OF PROCEEDS
This prospectus relates to shares of common stock that may be offered
and sold from time to time by the selling shareholders. There will be no
proceeds to the Company from the sale of shares of common stock in this
offering, except upon exercise of the warrants. We will bear all expenses
incident to the registration of the shares of our common stock under federal and
state securities laws other than expenses incident to the delivery of the shares
to be sold by the selling shareholders. Any transfer taxes payable on these
shares and any commissions and discounts payable to underwriters, agents,
brokers or dealers will be paid by the selling shareholders.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
We are a manufacturing company engaged in the research, development and
marketing of proprietary products for the construction industry. We manufacture
and distribute the ACTech Panel(TM), a structural insulated panel (SIP),
throughout the United States and to select international markets. The marketing
of our products is through our internal sales staff and the use of distributors.
In 2003 and 2004, all of our revenues were derived from the sale of our
ACTech Panel(TM) in the United States. The primary customers for 2003 were
Advanced Construction Group, LLC, Advanced Building Company, Innovative
Construction and Doug Bell; combined equaling 48% of total sales. In 2004, the
primary customers were Nelson, LC, Enerloc, Sam Kelly and Advanced Building
Company; combined equaling 86% of total sales. In 2005, under the new ownership
after the acquisition of ACT by ACC in January 2005, we plan to expand our
distribution network to include the additional builders of classrooms in Florida
and expansion into other states, including but not limited to, Texas, Georgia
and California. The worldwide demand on housing and the proclamation by the
United Nations Environmental Programme to rebuild differently after the 2004
tsunami will be incorporated into the ACC mission statement of providing
worldwide housing material that can be used by skilled and unskilled labor
alike.
Alternative Construction Company, Inc. a Florida corporation ("ACC") was
formed on October 24, 2004. Alternative Technologies Corporation, a Delaware
corporation ("ACT"), was formed in 1997 and was acquired by ACC on January 21,
2005 (the "Transaction"). In the transaction, ACC also acquired certain assets
from Quality Metal Systems, LLC, a Florida limited liability company ("QMS"),
which was owned by the same owner of ACT. Subsequently, ACC acquired 80% of
Universal Safe Structures, Inc., a Florida corporation, to market its Universal
Safe Room(TM), and acquired 80% of ProSteel Builders Corporation, a Florida
corporation ("PSB"). After the acquisition of ACT by ACC, the operational and
marketing personnel continued employment with the Company.
The following information should be read in conjunction with the
consolidated financial statements of ACC and the notes thereto appearing
elsewhere in this prospectus. Statements in this section and elsewhere in this
prospectus that are not statements of historical or current fact constitute
"forward-looking statements". For information regarding risk factors that could
have a material adverse effect on our business, refer to the Risk Factors
section of this prospectus beginning on page 3.
SUMMARY FINANCIAL INFORMATION
The following table provides selected consolidated financial and
operating data for the year ended December 31, 2004 and 2003:
12
STATEMENT OF OPERATIONS DATA
YEAR YEAR
ENDED ENDED
DECEMBER DECEMBER
31, 2004 31, 2003
--------------- ---------------
Revenue, net 1,161,751 920,156
Gross profit (loss) (169,816) (224,702)
Loss from operations (882,270) (1,019,830)
Net loss (889,000) (1,056,536)
BALANCE SHEET DATA
DECEMBER DECEMBER
31, 2004 31, 2003
--------------- ---------------
Current assets 256,112 260,077
Current liabilities 162,798 235,401
Total assets 913,100 942,791
Long-term debt 85,598 94,770
Stockholders' equity 677,937 707,390
YEAR ENDED DECEMBER 31, 2004 COMPARED TO THE YEAR ENDED DECEMBER 31, 2003
RESULTS OF OPERATIONS
ACC was incorporated on October 22, 2004. Effective January 21, 2005,
ACC acquired ACT and certain assets of QMS. Prior to January 21, 2005, ACC had
only immaterial administrative activity. Prior to the acquisition, ACT had
operations but, accordingly, the following discussion and analysis of operations
is not indicative of future comparisons of ACC as the new ownership projects a
different marketing and expansion program as has already been evident in 2005.
Revenues for the year ended December 31, 2004 were approximately
$1,162,000 as compared to approximately $920,000 for the year ended December 31,
2003. These significant increases, amounting to approximately $242,000, resulted
from the expansion into the classroom marketplace in the State of Florida.
Gross losses for the year ended December 31, 2004 were approximately
$(170,000) compared to approximately $(225,000) for the corresponding period in
2003. These margins are indicative of the Company not being in production at a
level to maximize discounts, labor and the applicable manufacturing equipment
depreciation. The Company was not marketing its products at a level necessary to
provide the marketplace with the knowledge of the existence of ACT or bidding on
enough projects to facilitate higher revenues.
In 2004 and 2003, we did not invest in building the ACTech Panel(TM)
brand and infrastructure. Management believes that not spending in these two
categories negatively affected the growth of the Company. Marketing expenditures
for the year ended December 31, 2004 was $1,258 as compared to $1,610 in 2003.
Salaries and other compensation expenses were approximately $536,000 for
the year ended December 31, 2004 compared to approximately $646,000 for 2003.
This decrease is due to not maintaining production line staff in 2004 whereas
office staff was utilized for production work
13
in 2004. Professional fees amounted to approximately $46,000 for the year ended
December 31, 2004 as compared to approximately $70,000 during 2003. Professional
fees in 2004 were 6.5% of total operating expenses. This amount was primarily
due to legal, accounting and consulting expenses. General and administrative
expenses, consisting of rent and occupancy costs, communications and other
expenses related to operations amounted to approximately $657,000 for the year
ended December 31, 2004. General and administrative expenses for 2003 amounted
to approximately $687,000. The decrease for 2004 over 2003 reflects several
factors, primarily the reduction in payroll costs due to not having separate
manufacturing line employees in 2004.
For the year ended December 31, 2004, we reported operating losses of
approximately $882,000 and overall losses of approximately $889,000, compared to
operating losses of approximately $1,020,000 and overall losses of $1,057,000
for the year ended December 31, 2003.
Losses per common share were $1.78 for the year ended December 31, 2004,
as compared with $2.11 for the year ended December 31, 2003 as a result of the
foregoing discussion.
TAXES
ACT was owned by Mr. and Mrs. Paul Janssens, husband and wife and was a
S Corporation. QMS, a limited liability company, was owned solely by Mr.
Janssens. Therefore, all tax benefits associated with the years ended December
31, 2004 and 2003 were recorded on their personal tax returns.
CASH AND SOURCES OF LIQUIDITY
The Company historically satisfied its operating cash requirements
primarily through cash flow from operations and financing from its owners. At
December 31, 2004, we had $38,597 in cash and cash equivalents and $87,703 in
net accounts receivable compared to $44,032 and $52,814, respectively, for
December 31, 2003.
For the past eight months, operations have been financed by loans from
management, placement of equity and debt financing. We maintain a $800,000
credit line with various vendors who supply raw materials. The terms of payment
are net 30. In addition, we have secured $1,120,000 in convertible debt, and
$9,346,262 in additional paid in capital. We also secured Accounts Receivable
financing with The Hamilton Group (Delaware), Inc., a Delaware Corporation.
The Company projects that future liquidity and capital requirements will
be provided by operations, debt and equity sources. Such financing will depend
on a number of factors, including the timing and extent of expanded market
acceptance of its products, continued developing and testing of advancements in
the ACTech Panel(TM) and related products, and intellectual property protection.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition: We recognized revenue on our products in accordance
with the Securities Exchange Commission (SEC) Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements". Under these guidelines, we
deferred revenue recognition on transactions if any of the following existed:
persuasive evidence of an arrangement did not exist, title had not transferred,
product payment was contingent, the price was not fixed or determinable, or
payment was not reasonably assured. We accrued a provision for estimated returns
concurrent with revenue recognition.
We have adopted Emerging Issues Task Force Issue 01-9, "Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor's Products)" (EITF 01-9), which became effective for fiscal years
beginning after December 15, 2001. We concluded that EITF 01-9 is applicable to
the accounting for our cooperative agreements with certain customers, as the
benefits received from consideration given to those customers are not
sufficiently separable from the revenue derived. Accordingly, all such
cooperative expenses are recorded as reductions to revenues.
Asset Impairments: We have adopted Statement of Financial Accounting
Standards No. 141, "Business Combinations," (FAS 141) and Statement of
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (FAS 142).
FAS 141 requires business combinations completed after June 30, 2001 to be
accounted for using the purchase method of accounting. It also specifies the
types of acquired intangible assets that are required to be recognized and
reported separately from goodwill. Under FAS 142, goodwill and other intangible
assets (with indefinite lives) will not be amortized but will be tested for
impairment at least annually. We completed our transitional impairment test of
existing goodwill and patents as of December 31, 2003. This test was preformed
by an independent valuation specialist and involved the use of estimates related
to the fair value of the patents as well as the business in which the goodwill
had been allocated. There were no impairment losses as a result of this test.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Standards (SFAS) No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The statement amends and
clarifies accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. This
statement is designed to improve financial reporting such that contracts with
comparable characteristics are accounted for similarly. The statement, which is
generally effective for contracts entered into or modified after June 30, 2003,
is not anticipated to have a significant effect on our financial position or
results of operations.
14
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. This statement is effective for financial instruments entered into or
modified after May 31, 2003, and is otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. The statement is not
anticipated to have a significant effect on our financial position or results of
operations.
In December 2003, the FASB issued FASB Interpretation No. 46 (Revised),
"Consolidation of Variable Interest Entities". This interpretation clarifies
rules relating to consolidation where entities are controlled by means other
than a majority voting interest and instances in which equity investors do not
bear the residual economic risks. We currently have no ownership in variable
interest entities and therefore adoption of this standard currently has no
financial reporting implications.
OFF BALANCE SHEET ARRANGEMENTS
We do not currently have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future affect on our financial
condition, change in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to our shareholders.
SUMMARY FINANCIAL INFORMATION
The following table provides selected unaudited consolidated financial
and operating data for the six months ended June 30, 2005 and 2004:
STATEMENT OF OPERATIONS DATA
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE JUNE
30, 2005 30, 2004
--------------- ---------------
Revenue, net 2,121,825 558,284
Gross profit (loss) 283,161 (13,263)
Loss from operations (586,718) (295,513)
Net loss (646,307) (297,473)
BALANCE SHEET DATA
JUNE JUNE
30, 2005 30, 2004
--------------- ---------------
Current assets 1,194,017 325,762
Current liabilities 2,478,249 156,962
Total assets 4,550,436 982,750
Long-term debt 521,711 89,714
Stockholders' equity 1,550,476 749,307
15
SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2004
RESULTS OF OPERATIONS
ACC was incorporated on October 22, 2004. Effective January 21, 2005,
ACC acquired ACT and certain assets of QMS. Prior to January 21, 2005, ACC had
only immaterial administrative activity. Prior to the acquisition, ACT had
operations but, accordingly, the following discussion and analysis of operations
is not indicative of future comparisons of ACC as the new ownership projects a
different marketing and expansion program as has already been evident in 2005.
Revenues for the six months ended June 30, 2005 were approximately
$2,122,000 as compared to approximately $558,000 for the six months ended June
30, 2004. These significant increases, amounting to approximately $1,564,000,
resulted from the expansion into the classroom marketplace in the State of
Florida.
Gross profit / (losses) for the six months ended June 30, 2005 were
approximately $283,000 compared to approximately $(13,000) for the corresponding
period in 2004. This change in the margins are indicative of the Company under
new management in 2005 increasing production levels, negotiating lower material
prices and overall better utilization of personnel and equipment compared to
2004. In 2004, the Company was not marketing its products at a level necessary
to provide the marketplace with the knowledge of the existence of ACT or bidding
on enough projects to facilitate higher revenues. In 2005, the marketing budget
expanded thereby increasing the exposure of ACT and its products.
In 2004, the Company did not invest in building the ACTech Panel(TM)
brand and infrastructure. Management believes that not spending in these two
categories negatively affected the growth of the Company as evidenced by the
2005 change post-acquisition. Marketing expenditures for the six months ended
June 30, 2005 was approximately $114,000 as compared to $0 in 2004.
Salaries and other compensation expenses were approximately $269,000 for
the six months ended June 30, 2005 compared to approximately $232,000 for 2004.
This increase is partially due to additional management and support staff as
needed for the increase in marketing and production. In 2004, the existing staff
was under utilized to the minimal production levels. Professional fees amounted
to approximately $161,000 for the six months ended June 30, 2005 as compared to
approximately $26,000 during 2004. Professional fees in 2005 were 24.2% of total
operating expenses. This amount was primarily due to accounting and consulting
expenses associated with production. Cash procurement fees of approximately
$242,000 were incurred as the Company contracted for additional working capital.
General and administrative expenses, consisting of rent and occupancy costs,
communications, cash procurement fees and other expenses related to operations
amounted to approximately $871,000 for the six months ended June 30, 2005.
General and administrative expenses for 2004 amounted to approximately $282,000.
The increase for 2005 over 2004 reflects several factors, primarily the increase
in marketing and payroll costs, due to the new management in 2005 expanding its
marketing efforts thereby increasing production which required more support
staff and the fees associated with raising working capital.
For the six months ended June 30, 2005, we reported operating losses of
approximately $587,000 and overall losses of approximately $649,000, compared to
operating losses of approximately $296,000 and overall losses of $297,000 for
the six months ended June 30, 2004.
Losses per common share were $.11 for the six months ended June 30,
2005, as compared with $.59 for the six months ended June 30, 2004 as a result
of the foregoing discussion.
TAXES
For the six months ended June 30, 2005, no taxes were recorded as the
Company is operating at a net loss. For the six months ended June 30, 2004, ACT
was owned by Mr. and Mrs. Paul Janssens, husband and wife and was a S
Corporation. QMS, a limited liability company, was owned solely by Mr. Janssens.
Therefore, all tax benefits associated with the years ended December 31, 2004
and 2003 were recorded on their personal tax returns.
CASH AND SOURCES OF LIQUIDITY
Post-acquisition (January 21, 2005), the Company has satisfied its
operating cash requirements primarily through cash flow from operations,
financing and the utilization of funds in exchange for notes payable under
various terms and conditions. The Company historically satisfied its operating
cash requirements primarily through cash flow from operations and financing from
its owners. At June 30, 2005, we had $50,102 in cash and cash equivalents and
$602,127 in net accounts receivable compared to $67,520 and $107,567,
respectively, for June 30, 2004.
For the past eight months, operations have been financed by loans from
management, placement of equity and debt financing. We maintain an $800,000
credit line with various vendors who supply raw materials. The terms of payment
are Net 30. In addition, we have secured $2,164,000 in convertible debt, and
$48,405 in additional paid in capital. We also secured Accounts Receivable
financing with The Hamilton Group (Delaware), Inc., a Delaware Corporation.
The Company projects that future liquidity and capital requirements will
be provided by operations, debt and equity sources. Such financing will depend
on a number of factors, including the timing and extent of expanded market
acceptance of its products, continued developing and
16
testing of advancements in the ACTech Panel(TM) and related products, and
intellectual property protection.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition: We recognized revenue on our products in accordance
with the Securities Exchange Commission (SEC) Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements". Under these guidelines, we
deferred revenue recognition on transactions if any of the following existed:
persuasive evidence of an arrangement did not exist, title had not transferred,
product payment was contingent, the price was not fixed or determinable, or
payment was not reasonably assured. We accrued a provision for estimated returns
concurrent with revenue recognition.
We have adopted Emerging Issues Task Force Issue 01-9, "Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor's Products)" (EITF 01-9), which became effective for fiscal years
beginning after December 15, 2001. We concluded that EITF 01-9 is applicable to
the accounting for our cooperative agreements with certain customers, as the
benefits received from consideration given to those customers are not
sufficiently separable from the revenue derived. Accordingly, all such
cooperative expenses are recorded as reductions to revenues.
Asset Impairments: We have adopted Statement of Financial Accounting
Standards No. 141, "Business Combinations," (FAS 141) and Statement of
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (FAS 142).
FAS 141 requires business combinations completed after June 30, 2001 to be
accounted for using the purchase method of accounting. It also specifies the
types of acquired intangible assets that are required to be recognized and
reported separately from goodwill. Under FAS 142, goodwill and other intangible
assets (with indefinite lives) will not be amortized but will be tested for
impairment at least annually. We completed our transitional impairment test of
existing goodwill and patents as of December 31, 2003. This test was preformed
by an independent valuation specialist and involved the use of estimates related
to the fair value of the patents as well as the business in which the goodwill
had been allocated. There were no impairment losses as a result of this test.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Standards (SFAS) No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The statement amends and
clarifies accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. This
statement is designed to improve financial reporting such that contracts with
comparable characteristics are accounted for similarly. The statement, which is
generally effective for contracts entered into or modified after June 30, 2003,
is not anticipated to have a significant effect on our financial position or
results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. This statement is effective for financial instruments entered into or
modified after May 31, 2003, and is otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. The statement is not
anticipated to have a significant effect on our financial position or results of
operations.
In December 2003, the FASB issued FASB Interpretation No. 46 (Revised),
"Consolidation of Variable Interest Entities". This interpretation clarifies
rules relating to consolidation where entities are controlled by means other
than a majority voting interest and instances in which equity investors do not
bear the residual economic risks. We currently have no ownership in variable
interest entities and therefore adoption of this standard currently has no
financial reporting implications.
OFF BALANCE SHEET ARRANGEMENTS
We do not currently have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future affect on our financial
condition, change in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to our shareholders.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
There were approximately 72 record holders of the Company's common stock
as of August 15, 2005. The Company's shares are not currently traded in any
recognized public market. We expect that our shares will be traded on the OTC
Bulletin Board or Pink Sheets in the third quarter of the 2005 fiscal year.
DIVIDENDS AND DIVIDEND POLICY
We have not historically paid any cash dividends on our common or
preferred stock and we do not anticipate paying any cash dividends in the
foreseeable future. We currently intend to retain any future earnings for
reinvestment in the business. Any future determination to pay cash
17
dividends will be at the discretion of our board of directors and will be
dependent on our financial condition, results of operations, capital
requirements and other relevant factors.
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes share information about our equity
compensation plans, including our 2005 Stock Option Plan (the Plan).
NUMBER OF SECURITIES TO NUMBER OF SECURITIES
BE ISSUED UPON WEIGHTED-AVERAGE REMAINING AVAILABLE
EXERCISE OF EXERCISE PRICE OF FOR FUTURE ISSUANCE
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, UNDER EQUITY
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COMPENSATION PLANS
- ------------------------------ ----------------------- -------------------- --------------------
Equity Compensation Plans to 950,000(1) $ 0.75 1,050,000(2)
Employees Approved By
Shareholders
Equity Compensation Plans Not 1,050,000(1) $ 0.44 950,000(2)
Approved by Shareholders
Warrants Not Approved by 3,000,000(3) $ 1.75
Shareholders
Total 5,000,000 $ 1.29
(1) Represents shares subject to outstanding options under the Plan.
(2) Represents shares available for option grants under the Plan.
(3) Represents non-plan options and warrants.
Equity Compensation Plans Not Approved by Shareholders
Our board of directors currently administers the Plan. The Plan provides
for the grant of options (incentive and non-statutory) to officers, directors,
employees, and independent contractors capable of contributing to our
performance. We have reserved an aggregate of 4,000,000 shares of common stock
for grants under the Plan. Incentive stock options may be granted only to
employees eligible to receive them under the Internal Revenue Code of 1986, as
amended. As of August 15, 2005, we had outstanding non-statutory options for
2,000,000 shares of our common stock. Options have a term of five years, unless
earlier terminated in accordance with the provisions of the Plan and applicable
stock option agreements. The exercise prices of all of the options granted as of
August 15, 2005 are between the prices of $0.25 and $0.75 per share, and
generally have scheduled vesting except for options for 400,000 shares which
vested immediately upon grant. Upon expiration of unexercised options, the
unpurchased shares subject to such options will again be available for purposes
of the Plan.
DESCRIPTION OF BUSINESS
COMPANY HISTORY
Alternative Construction Technologies Corporation ("ACT") was
incorporated in Delaware in 1997 and was owned by Mr. and Mrs. Paul Janssens.
Quality Metal Systems, LLC, a Florida limited liability company ("QMS") was
formed in 2002 and is owned solely by Paul Janssens. QMS held the title to
various fixed assets including the Facility and production line. The three
patents utilized in the business were owned privately by Paul Janssens.
On January 21, 2005, Alternative Construction Company, Inc., a Florida
corporation ("ACC") acquired all of the assets of ACT and QMS and the patents
owned by Mr. Janssens.
Our corporate headquarters are located at 1900 South Harbor City
Boulevard, Suite 315, Melbourne, Florida 32901. Its website address is
http://www.actechpanel.com.
THE COMPANY AND ITS BUSINESS
OVERVIEW
Alternative Construction Company, Inc. is a leader in the production of
patented, galvanized-steel, interlocking Structural Insulated Panels (SIPs) that
are used in all facets of the construction industry. The company's panel systems
are used as an alternative to conventional materials
18
such as lumber and bricks and are at the forefront of "green" building
technology. Industry research and testing has demonstrated that SIPs are
superior to frame and block construction materials due to: superior strength and
load characteristics, superior wind ratings, superior R-factor and insulation,
labor costs, reduced construction labor costs, speed and ease of construction
and resistance capabilities to fire, moisture, mold and insects. The Company
also manufactures patented in-house safe rooms used for the protection of loved
ones and valuables in the event of weather disasters or home intrusions.
In 2003 and 2004, our revenues were derived from the sale of the ACTech
Panel(TM) SIPs. In 2003, the primary customers were commercial builders. In
2004, commercial builders continued to provide a significant portion of revenue
and the Company began providing SIPs for commercial school classroom builders in
Florida.
During 2005 after the acquisition of ACT by ACC, we began expanding our
marketing efforts on expanded school classroom production, other governmental
uses, international and domestic residential.
The Company and/or its predecessor have produced SIPs for nine years.
The predecessor company focused resources upon research and development,
endorsements, and product testing and quality control matters, as opposed to
sales and marketing related efforts. This is evidenced by static total sales and
no material marketing expenditures in years 2004 and 2003. The Company has
re-focused resources upon sales and marketing initiatives, building distributor
relationships, joint ventures, partnerships with international strategic
alliances, customer service, and operating, production and delivery
efficiencies. In light of this transition, the Company has improved its sales
outlook from two active customers and zero prospects to several customers and a
significant sales pipeline.
PRODUCTS AND SERVICES
STRUCTURAL INSULATED PANELS (SIPS)
The ACTech Panel(TM) is a patented SIP that has undergone extensive
testing performed by independent laboratories and agencies. The SIP is composed
of steel, both 26 and 20 gauges, as the outer skins of the wall with the
calculated injection of formulated foam serving as the insulation. The ACTech
Panels(TM) are environmentally friendly, sustainable and fully recyclable. They
are used as cost effective, energy efficient and disaster tolerant alternative
to conventional building materials. They allow for rapid building, both by
skilled and unskilled labor. Additionally, they are at the forefront of the
"green" building industry.
The patented process of building the ACTech Panels(TM) utilizing the
Interlocking Building System(TM) is unique and simple to use with applications
throughout the residential and commercial construction industries, providing
many benefits to contractors and their customers.
The primary characteristics of the ACTech Panel(TM) are superior
strength and load characteristics, superior wind ratings (up to 146 miles per
hour), superior R-factor, non-combustible, reduced labor costs and build time,
no measurable off-gassing, speed and ease of assembly, acoustical excellence,
moisture, mold and insect resistant and reduction in heating and air
conditioning costs of up 30-50%. Independent projectile testing verifies that
the ACTech Panel(TM) system's superiority to competitive products.
The Company's products are used in the construction of affordable
housing, high-end elegant homes, fabrication on demand housing, modular housing,
high rise buildings and modular portable classrooms among others.
SAFE ROOMS
The Universal Safe Room(TM), a patented safe room, is marketed under a
wholly-owned subsidiary, Universal Safe Structures(TM), Inc. The safe room's
typical installation is in residential construction, either at the time of
construction or added after building completion. The safe room, when built at
the initial building time, can be incorporated within a house, typically as the
master bedroom closet or as the pantry, with the appearance of normal walls.
After a house has been constructed, a safe room is typically installed inside a
garage. The Universal Safe Room(TM) has many attributes with the primary one
being the capability of withstanding up to 250 miles per hour winds.
Outside of the typical residential applications, commercial buildings,
schools and other places where people gather would be logical for the
installation of a safe room to protect against intruders, winds and other forms
of natural disasters.
CONSTRUCTION SERVICES
ProSteel Builders Corporation ("ProSteel"), a subsidiary of the Company,
will provide construction related services in the actual construction of
commercial structures. ProSteel is owned 50% by ACC and 50% by Advanced
Construction Partners, LLC ("ACP"). ACP has been performing these activities
historically and through ProSteel, will continue to market and to provide these
services. Additionally, ProSteel will use the ACTech Panel(TM) exclusively in
its projects.
RESEARCH AND DEVELOPMENT
Our research and development costs for the years ended December 31, 2003
and 2004 were minimal. In prior years, we performed various research and
development including independent laboratory testing and certifications. The
ACTech Panel(TM) has significant certifications
19
including meeting and exceeding the Miami-Dade requirements, all performed prior
to 2003. Under new management, we will continue with the research and
development to further validate the Company's claims as well as increase them to
further certify the value of the Company's products to its customers.
The Company's products have underdone extensive testing and have been
approved by the following organizations: Acoustical Testing Lab, Air Quality
Sciences, Florida Department of Community Affairs, Georgia Department of
Community Affairs, HUD (approved in 13 states), Miami Fenestration Lab, Omega
Point Laboratories, Radco Inc., Texas Tech University and ***** Energy Star
rating.
We will also continue to improve on current applications and research
new ones. The research will include the safe rooms that address a common as well
as a different marketplace.
REGULATORY MATTERS
Our business is subject to federal and state laws and regulations
adopted to protect the builders and end users of residential and commercial
construction. As stated above in the Research and Development discussion, the
Company has undergone and been approved by various regulatory and independent
groups and agencies. The Miami Fenestration Lab which verifies meeting the
stringent Miami-Dade code for construction to meet wind resistant requirements,
has tested and approved the ACTech Panel(TM), giving it a significant edge of
typical concrete block or wood construction, both inferior in withstanding the
winds related to hurricanes and tornadoes.
PATENTS AND TRADEMARKS
The Company maintains three patents. The first Patent, 5,373678, was
issued in 1994 for a "structural wall apparatus" with an "...intermediate
insulating core of foamed polymer", "at least one interlocking edge..." and
"...an elongated reinforcing member strengthening flange...". This patent covers
our structural insulated panel with "S" shaped fastened stiffener. The second,
Patent 5,827,458, covers the continuous method of making structural foam panels.
This patent covers and defines our manufacturing process including the
de-coiling of our galvanized steel skins and stiffeners, straighten-ers for
threading and attaching the stiffeners to the skins, roll formers for shaping
both skins and stiffeners into structural shape, a foam injector, a foam
conveyor, a curing oven, a cut-off saw and the computer that controls the saw.
This patent was issued in 1998 and prevents competition from manufacturing, via
continuous feed, a panel that introduces any structural reinforcing strip and,
essentially, precludes competition on an economic basis. The third Patent,
6,438,906, pertains to the production of the Company's in-house Safe Rooms used
for protection from natural disasters or home intrusions. The company's
continuous manufacturing process patent is also filed internationally in
Argentina, Bahamas, Brazil, Canada, China, Colombia, Poland and Russia.
PRODUCT DISTRIBUTION AND CUSTOMERS
The Company currently maintains two distribution agreements and a customer base
of more than five clients. As of June 2005, more than 85% of the company's
current year's business was from three customers that built and sold modular
classroom facilities within the State of Florida. Ultimately, each of the three
companies had an arrangement with Mobile Modular, a subsidiary of McGrath Rental
Corp (NYSE: MGRC), whereby they sold the completed building to Mobile Modular
who leased them to various counties and agencies within the Florida Department
of Education. The Company currently produces, for these three companies, product
based upon Purchase Orders submitted two weeks in advance of their expected
delivery date. The Company has committed resources to the fulfillment of these
expected Purchase Orders at least two months a head of production schedule. The
Company may witness significant declines in revenue should the three customers
go out of business or seek product from competitive sources.
The Company has expanded its customer base and has recently begun negotiating
with several governments and international privately owned companies to export
its product. The Company presented its product and solution for assisting in the
World Housing shortfalls at the United Nations under invitation by the United
Nations Environmental Program (UNEP) in May 2005. Subsequently, the Company has
entered into a distribution and sales agreement with International Construction
Technologies, Inc (ICT), a Washington D.C. based company and Global Resources
and Solutions Corporation (GRSC), a Ft Myers, Florida based company to
distribute our product to three international communities. The initial product
has been shipped to one of the foreign countries, with the remaining two
countries scheduled for shipment by September 30, 2005.
ProSteel Builders Corporation, a majority controlled company of ACC, entered
into a Management Agreement with Alternative Construction Partners, LLC, a
Georgia Limited Liability Company based in Palmetto, Georgia on August 15, 2005
to provide contractor and administrative management services to ProSteel
utilizing their expertise to build residential and commercial projects utilizing
the product of ACC.
The Company maintains an active sales force in the commercial and residential
building industry in Florida, Georgia, Tennessee, and Texas. The Company is
currently scheduled to attend five major trade shows over the next twelve month
period where it will attempt to grow its customer base and market share through
education and product awareness. In addition to the internal sales force, the
Company has multiple distribution and sales agreements with various entities.
The Company maintains no geographical distribution agreements within the United
States, as each distributor is authorized to sale the Company's product anywhere
within the United States. The Company has entered into agreements authorizing
exclusive rights of distribution to specific foreign countries. Each agreement
maintains specific milestones in product sales that must be achieved on an
annual basis throughout the term of the agreement in order to continue to enjoy
exclusive rights.
20
COMPETITION
The structural insulated panel ("SIP") industry has variations in the
manufacturing of SIPs. The Company manufactures its SIPs with steel skins and
injected foam as the insulation. Other manufacturers utilize the variations of
the steel and foam, wood skins with foam injection, and other various methods of
producing alternative building materials. The primary reasons that management
has determined that ACC's SIPs are dominant in the marketplace is the reliance
of the independent testing and certifications on the Company's SIPs. The ACTech
Panel(TM) has completed testing and been certified in regards to sustained
winds, acoustical, mold and mildew, insect resistance, wall bearing strength,
projectiles, through multiple national and state level testing facilities. It is
classified as a "green" product. A competitor that uses wood partially defeats
itself as wood is subject to termites and other bug infestations. The
utilization of trees to build its products loses any opportunities to derive
sales from the environmental community. In addition, wood is not as strong
against sustained winds especially since the projectile testing indicates its
weaknesses compared to steel.
The Company does recognize various entities that are considered as competition.
Management believes that it has a superior product with only one competitor that
produces a comparable product.
The SIP industry has existed since the 1940's in the United States.
Entrepreneurs have sought many alternative building models in which to
supplement the standard bricks and sticks. The SIP industry has many locally and
regionally based companies, with only a few manufacturing on a national level
and/or international level. Many SIP companies specialize in specific markets
(i.e., roofing panels, garage doors, portable sheds, etc.). The primary industry
today for SIPs is the commercial industry. SIPs are still in the introductory
phase as an alternative to residential building. ACC's primary business is in
the modular classroom industry with further emphasis on international sales.
ACC's management recognizes the competition and does not believe that any pose a
threat to the longevity of the Company in the short- or long-term. The
industries more than $1 trillion in the United States alone, with significant
growth annually in the SIP market. With these considerations, the marketplace is
large enough to have multiple quality companies without having one recognized as
a threat to another.
In the comparison of pricing, ACC is competitive in the marketplace. In many
circumstances, ACC is significantly lower per square foot than its SIP
competitors. In comparison to traditional construction utilizing wood or
concrete, the ACTech Panel(TM) is comparable but usually slightly higher. In a
detailed cost analysis using factors including energy efficiency, appraisals,
site material pilferage, speed of construction, waste and other integral aspects
of construction and valuation of a building, the ACTech Panel(TM) in a short
three-year period has a significantly better square foot cost.
The Company currently has only one product it sells, restricting its potential
growth in the marketplace by customer expansion. The Company is currently
considering, through its research and development division, other products that
will expand the Company's market share thereby allowing the Company to compete
on a more direct basis with some of its competitors.
EMPLOYEES
As of August 15, 2005, we had twenty-seven full-time employees and one
part-time employee. None of our employees are subject to collective bargaining
agreements. Over the next twelve months, we intend to hire additional employees
to fulfill staffing requirements as the need arises due to growth and expansion
of our company and its products and services.
SUPPLIERS
We currently use two primary material suppliers, Phoenix Metals Company
("Phoenix") and The Dow Chemical Company ("Dow"). Phoenix provides the steel for
the SIPs whereas Dow provides the foam for the insulation for the SIPs. Other
steel companies are capable of providing the steel, if needed. Other foam
suppliers are being investigated and tested for use, if needed.
MANUFACTURING
The Company manufactures its own SIPs at its 154,000 square foot
facility in Bolivar, Tennessee. The manufacturing line currently being utilized
is also owned and operated by the Company. The facility has the capability of
adding up to two additional manufacturing lines, all capable of round-the-clock
production. As deemed appropriate, the Company will evaluate the necessity of
additional facilities in other states and/or internationally.
MARKETING
ACC's comprehensive marketing plan was developed with a focus on
building brand awareness to help drive consumers to inform the commercial and
residential industries concerning the use of SIPs. ACC markets its product
through internal and external sales people as well as through distributorships.
We pay the distributors a percentage of gross revenue for all shipments that
occur within the United States. There are currently three distributors under
agreement with ACC with various expiration dates.
ACC works in concert with commercial and residential developers in
promoting the ACTech Panel(TM). ACC owns 50% of ProSteel Builders Corporation,
a Florida corporation, which builds commercial and residential properties solely
with ACTech Panels(TM). Current projects have commenced in Georgia, with future
projects scheduled for Mississippi, Alabama and Florida.
Every year, school districts release new Requests for Proposals that
range from 200 to 600 units each. ACC began 2005 with business only in the
Educational Field and with one customer. The risk associated with this model
prompted Management to take swift and decisive action.
21
ACC now courts four customers that build modular classrooms and has grown the
business in Florida and Louisiana. ACC is currently working with a group in
Texas to introduce the classroom market there. ACC has projected a conservative
30% annual growth in the educational market, representing just 1.3% of the
Florida educational capital improvement budget over the next five years. ACC
projected sales for Educational Facilities in 2005 represent 1.2% of the annual
budget approved by the Florida State Legislature.
In the United States, structural insulated panel systems, or SIPs, have
been bouncing around the far edges of the construction industry for decades.
Only 1% of new construction in the U.S. in 2002 used foam paneling, but the
application is growing 15% a year, says William Wachtler, executive director of
the Structural Insulated Panel Association (Forbes magazine). The panelized
classroom, while in its infancy stage (introduced into the education field in
June 2004) has become the fastest growing seller (per unit) to provide
classrooms throughout the State of Florida. ACC is gearing its manufacturing
plant for the rapid growth expected in this market.
ACC is currently in negotiations with approximately 20 foreign country's
governments and/or private companies looking to provide rapid growth solutions,
while securing its prompt and advance payments through U.S. banking
representatives. ACC has entered into an Letter of Understanding with the
Republic of Chad for the building of 1,000 homes in its country. The overall
cost for these homes represents $17M in potential revenue. The government of
Chad is expected to deliver its initial Purchase Order to ACC within the next 30
days, with mass shipments beginning in November 2005. The Republic of Chad
desires to build 5,000 a year for the next 20 years. ACC will conservatively
manage its international growth. The markets are ripe for rapid growth, but must
be maintained and developed cautiously and correctly.
The Commercial and Residential industries are the final two categories
ACC will continue to develop. Currently 10% of all sales during the first two
quarters of 2005 were from Commercial and Residential sales. The target
percentage of sales in these two markets is approximately 25% of ACC's business.
Diversification is important to substantiate growth and reduce risks. ACC is
currently negotiating commercial and residential contracts in Illinois, Georgia,
Florida, Tennessee, Louisiana, and Texas.
ACC maintains sole right to market and distribute its product through:
(i) Internet sales, (ii) catalog sales, (iii) sales through independent
developers and sales to United States military establishments.
ACC sales and marketing efforts will target the United States and
international countries that require rapid building created by third world
conditions and/or natural disasters. The Company will promote our products
through several marketing and media sources, including radio, television,
consumer and trade print, housing seminars and tradeshows, and online marketing
efforts through our website, http://www.actechpanel.com. Education of builders
and the consumer will be an important element in introducing our products to
potential users.
We anticipate that the educational capital improvements will continue to
provide a significant portion of the revenue from product sales. However,
commercial and residential developers, which currently account for less than 15%
of total sales, will continue to be an integral part of our sales and marketing
strategy.
PROPERTY
ACC owns a 154,000 square foot plant facility in Bolivar, Tennessee (the
"Manufacturing Facility") and leases corporate office space in Melbourne,
Florida at a cost of $950 per month. The lease expires in March, 2006 and has no
renewal options.
LEGAL PROCEEDINGS
There are no material legal proceedings against or by the Company and/or
its officers and directors.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth information with respect to persons who, as of
the date of this prospectus, were serving as directors and officers of the
Company. Each director holds office until the next annual meeting of
shareholders or until his successor has been elected and qualified.
NAME AGE POSITION HELD POSITION SINCE
------------------ ------ ---------------------------------- ---------------------------
Michael W. Hawkins 43 Chairman, Chief Executive Officer, October 22, 2004
Willis Kilpatrick 45 Director October 22, 2004
Steves Rodriguez 35 Chief Financial Officer, Director October 22, 2004
Thomas Amon 58 Secretary October 22, 2004
22
MICHAEL W. HAWKINS, CHIEF EXECUTIVE OFFICER (CEO) AND CHAIRMAN OF THE
BOARD OF DIRECTORS. Mr. Hawkins is the Founder and chairman of the Company. He
was named CEO in April 2005. Mr. Hawkins is also CEO of Avante Holding Group,
Inc. which helps innovators, entrepreneurs and startups with all facets of their
development and growth. Mr. Hawkins, through delegation of proxies, controls
more than 50% of the Avante stock. He has assisted in the development, funding
and transition to public venue for six small-cap companies. He has served at the
capacity of Chairman of the Board, Director or as a senior level officer of
other start-up and early stage corporations. He currently serves as a Managing
Member for Global Fasteners Technologies and Global Automotive Fasteners
Technologies. Mr. Hawkins served as Chief Financial Officer of Florida Tan. He
was the Technical Manager for Norrell Services where he served in the capacity
of Human Resource Manager for Boeing Corporation, under the Delta IV Rocket
Program. Mr. Hawkins holds a BS in Computer Studies from the University of
Maryland.
WILLIS H. KILPATRICK, JR. R.P.H., DIRECTOR. Mr. Kilpatrick a Founder
and a Director of the Company. He is currently the managing member of South
Residential Enterprises, LLC, a Delaware Limited Liability Company where he has
overseen multi-million dollar residential development projects in Mississippi.
He is a licensed Pharmacist working with the Indian Reservation hospitals in and
around Philadelphia, Mississippi. He has served as a Consultant and Board Member
for several publicly-traded and privately-held companies. He is a graduate from
the University of Mississippi.
STEVES RODRIGUEZ, CHIEF FINANCIAL OFFICER AND DIRECTOR. Mr. Rodriguez is
a Founder, Director and the Chief Financial Officer of the Company. He is a
Partner with London & Co., LLP, Certified Public Accountants, and has been for
fifteen years. His clients have included many large commercial production
companies in Beverly Hills. His clients have also included restaurants,
distributors, manufacturers, retail companies and individuals in show business,
including celebrities such as musical artists, television actors, and directors.
Services provided include business management, consultancy, taxes, mergers and
acquisition, corporate structuring, tax planning and more. His offices are
located in Santa Monica, CA and NY, NY.
THOMAS G. AMON, ESQ., SECRETARY. Mr. Amon is a Founder, Secretary and
Legal Counsel to the Company and has over thirty years experience as a
practicing attorney specializing in Venture Capital, International Banking and
Financial Law, Oil and Gas Law and Toxic and Mass Tort litigation. He is a
member of the Board of Directors of Venro Petroleum Corporation, an
international energy company located in New York City and Houston, Texas; and
Encore Networks, Inc., a supplier of signaling conversion and network access
products located in Dulles, VA. He is also General Counsel to SiVault Systems,
Inc (SVTL.OB) a provider of products for the secure authentication, processing
and storage of signature-based records, located in New York City and San Jose,
CA. Mr. Amon graduated from Harvard University and the University of Virginia
School of Law.
Our directors are elected at the annual meeting of the shareholders and
serve until their successors are elected and qualified, or their earlier
resignation or removal. Officers are appointed by the board of directors and
serve at the discretion of the board of directors or until their earlier
resignation or removal.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of our shares of voting stock as of August 15, 2005 by: (i)
each person who is known by us to beneficially own more than 5% of the issued
and outstanding shares of common stock; (ii) the Chairman and Chief Executive
Officer; (iii) the directors; and (iv) all of the executive officers and
directors as a group. For purposes of the beneficial ownership calculations
below, the Series A preferred stock, which is convertible into common stock on a
1-for-1 basis, and Series B preferred stock, which is convertible into common
stock on a 1-for-2 basis, options and warrants excercizable within 60 days, are
included on an as converted or exercised basis such that the total issued,
issuable and outstanding voting stock becomes 10,514,350. Unless otherwise
indicated, the persons named below have sole voting and investment power with
respect to all shares beneficially owned by them, subject to community property
laws where applicable.
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1)(2) BENEFICIAL OWNERSHIP PERCENT
- -------------------------------------------------------- -------------------- -------
Michael W. Hawkins, Chairman and Chief Executive Officer 2,695,200(3)(4) 25.4%
Willis Kilpatrick, Director 251,000(5) 2.4%
Steves Rodriguez, Chief Financial Officer, Director 151,000(6) 2.1%
Thomas G. Amon, Secretary 1,000,000(7) 9.5%
Paul Janssens 1,500,000(8) 19.2%
Avante Holding Group, Inc 2,150,120(9)(10) 20.4%
All officers and directors as a group (4 persons) 4,077,200 38.7%
23
*Represents less than 1% of all issued and outstanding voting stock of ACC.
(1) Unless otherwise noted, the address of each person or entity listed is
c/o Alternative Construction Company, Inc., 1900 South Harbor City
Boulevard, Suite 315, Melbourne, FL 32901.
(2) Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to
securities. Shares of common stock subject to options, warrants or
convertible securities that are currently exercisable or exercisable
within 60 days of August 15, 2005, are deemed outstanding for
computing the percentage of the person holding such options, warrants
or convertible securities but are not deemed outstanding for computing
the percentage of any other person. Except as indicated by footnote
and subject to community property laws where applicable, the persons
named in the table have sole voting and investment power with respect
to all shares of common stock shown as beneficially owned by them.
(3) Includes 5,000 shares of common stock owned by Hawkstone, Inc. which
is a corporation Mr. Hawkins is a 50% owner, 2,417,700 underlying
shares of common stock owned by GAMI, LLC which is a limited liability
company as to which Mr. Hawkins and his wife are 100% owners and
managing members, and 272,500 shares of common stock owned by
Ventures Unlimited, LLC which is a limited liability company as to
which Mr. Hawkins is a majority owner.
(4) Includes 555,200 shares of common stock, 2,120,000 shares of common
stock issuable upon conversion of 1,060,000 shares of Series B
preferred stock.
(5) Mr. Kilpatrick's address is 1012 Edgewater Drive, Philadelphia,
Mississippi 39350.
(6) Mr. Rodriguez's address is 11601 Wilshire Boulevard, Suite 2040, Los
Angeles, CA 90025.
(7) Mr. Amon's address is 500 Fifth Avenue, Suite 1650, New York, NY
10110.
(8) Represents 1,500,000 shares of common stock issuable upon conversion
of 1,500,000 shares of Series A preferred stock.
(9) Michael W. Hawkins is the Chairman and Chief Executive Officer and
majority shareholder of Avante Holding Group, Inc.
(10) Represents 1,900,000 shares of common stock issuable upon conversion
of 950,000 shares of Series B preferred stock.
EXECUTIVE COMPENSATION
The following table sets forth all the compensation earned by the person
serving as the Chief Executive Officer (Named Executive Officer) and each other
executive officer whose aggregate compensation was in excess of $100,000 during
the fiscal years ended December 31, 2004 and 2003 and the current fiscal year.
None of the other officers earned greater than $100,000 in total salary and
bonuses during fiscal 2003. These officers are no longer serving at these
positions.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION(1) COMPENSATION AWARDS
- ----------------------------------------------------------- ---------------------------------------
NAME AND PRINCIPAL FISCAL SECURITIES ALL OTHER
POSITION YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- ------------------------------------- -------- ---------- ----- ------------------ ------------------
Paul Janssens 12/31/05 $ 0 -
Chairman and Chief 12/31/04 $ 150,388 - -0- $ 14,744
Executive Officer(2) 12/31/03 $ 28,362 - -0- $ 1,000
Michael W. Hawkins 12/31/05 $ 56,000 - -0- $ 0
Chairman and Chief
Executive Officer(3)
Steves Rodriguez 12/31/05 $ 30,000 - -0- $ 0
Chief Financial Officer and
Director(3)
Thomas Amon 12/31/05 $ 0 - -0- $ 0
Secretary
Willis Kilpatrick 12/31/05 $ 0 - -0- $ 0
Director
(1) The amounts reflected in the above table do not include any amounts
for perquisites and other personal benefits extended to the Named
Executive Officer.
(2) Mr. Janssens resigned as CEO of the company's predecessor on
January 21, 2005
24
(3) The amounts reflected for the fiscal year ending December 31, 2005
includes salary for January 31, 2005 through July 31, 2005.
EMPLOYMENT AGREEMENTS
Following the acquisition, ACC brought in its own management staff while
retaining two members of the ACT management, Charles Young and Joseph Deming.
In April 2005, our board of directors appointed Michael W. Hawkins as
our Chief Executive Officer.
In January 2005, our board of directors appointed Steves Rodriguez as
our Chief Financial Officer and Treasurer.
DIRECTOR'S COMPENSATION
Our directors do not receive any stated salary for their services as
directors or members of committees of the board of directors, but by resolution
of the board, a fixed fee may be allowed for attendance at each meeting.
Directors may also serve the company in other capacities as an officer, agent or
otherwise, and may receive compensation for their services in such other
capacity. Upon their election to the board, non-employee directors are paid
$1,500 per day on days board meetings are held, with an annual limit of $4,000.
Reasonable travel expenses are reimbursed.
STOCK OPTION PLAN
The Alternative Construction Company, Inc, Year 2004 Stock Option Plan was
approved by the Board of Directors in October 2004 and was subsequently approved
by a meeting of the Shareholders. The plan allocated 4,000,000 shares of common
stock towards the Stock Plan, authorizing the Board of Directors to grant
the Stock Options under its guidance and direction. The Board of Directors
initially issued 2,000,000 Options to five key management and officers of the
company reserving the remaining 2,000,000 for future allocations. 400,000 was
issued without vesting, 700,000 after a year of continuous work, 700,000 after
two years of continuous work, and 200,000 after three years of continuous work.
ORGANIZATION WITHIN PAST FIVE YEARS
Our current directors may be considered founders or promoters. The
consideration paid to our directors is discussed elsewhere in this prospectus.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Paul Janssens, the former CEO and Chairman of ACT, contracted with ACC
for the assignment of the United States rights to the ACT product patents in
exchange for 1,500,000 shares of Series A preferred stock. By virtue of the
acquisition of ACT by ACC, the United States rights to the ACT product patents
formerly held by Paul Janssens have become the property of ACC.
ACC contracted with Avante Holding Group, Inc. (Avante) for certain
investment banking and consulting services to be provided pursuant to four
agreements between ACC and Avante. Avante is affiliated with Michael Hawkins,
who is a shareholder of ACC. The Company's independent Board members have
reviewed the agreements verifying that this transaction is fair to the Company
and was conducted at arms-length.
ProSteel Builders Corporation, a majority controlled company of ACC,
entered into a Management Agreement with Alternative Construction Partners, LLC,
a Georgia Limited Liability Company based in Palmetto, Georgia on August 15,
2005 to provide contractor and administrative management services to ProSteel
utilizing their expertise to build residential and commercial projects utilizing
the product of ACC. GAMI, LLC, a Florida Limited Liability Company controlled
by Mr. Hawkins is a member of Alternative Construction Partners.
ACC contracted with Steves Rodriguez, CPA, as its Chief Financial
Officer and Director. Mr. Rodriguez is a Partner with London & Company, a
California based CPA firm. Mr. Rodriguez's firm bills the Company on a monthly
basis for a set fee of $5,000. Additionally, in exchange for his services, was
granted 7,548 common shares issued in October 2004.
The Law Offices of Thomas G. Amon, New York, New York, represent ACC on
certain legal matters. Thomas G. Amon a principal in that firm owns 1,000,000
common shares of Company stock.
25
SELLING SHAREHOLDERS
The table below sets forth information concerning the resale of the shares of
common stock by the selling stockholders. We will not receive any proceeds from
the resale of the common stock by the selling stockholders. We will receive
proceeds from the exercise of the warrants. Assuming all the shares registered
below are sold by the selling stockholders, the selling stockholders will not
continue to own any shares of our common stock.
The following table also sets forth the name of each person who is offering the
resale of shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the offering, assuming they sell all of the shares
offered.
26
UNDERLYING UNDERLYING
COMMON COMMON UNDERLYING
SHARES OF SHARES OF COMMON
SERIES A SERIES B SHARES OF
RESTRICTED SHAREHOLDERS COMMON PREFERRED PREFERRED WARRANTS
- ------------------------------- ---------- ---------- ---------- ----------
Ventures Unlimited LLC 272,500
GAMI LLC 297,700 2,120,000
Avante Holding Group, Inc 382,195 1,900,000 155,000
Hawkstone Grey 5,000
Paul Janssens 200,000 1,500,000
John Fischer 0 250,000
Harry C. Stone II 200,000
Lift Station, Inc. 310,000 425,000
Thomas G. Amon 1,000,000
Willis Kilpatrick 461,290
Steves Rodriguez 158,548
John Julian 12,150
Peter Baker 4,500
Joseph Deming 101,000
Keith Deming 50,500
Charles Young 151,500
Derek Young 50,500
Bruce Harmon 251,250 25,000
Joey Evans 10,100
Carol Ash 100
Austin Woods 10,100
Mallena Urban 15,100
Ben Lamm 10,000
Ashak Shah 100
Kivvit Smart 100
Jennifer English 10,100
Anthony Francel 251,750 25,000
Christian L. Rishel 100,330 270,000
Jayson Benoit 25,250 10,000
Jason Dieterle 25,250
Gina Bennett 25,000
Leigh Gerke 25,250
21st Century, LLC 90,000
Elcid 100,000 100,000
R.A. Hank Henry 10,000
Joseph Sorci 10,000
Wenjun Li 10,000
Valli Sorci 10,000
Cecil Harmon 9,000
Jeffrey B. Saturday 1,000
Paul M. Snelling 1,000
Alex L. Dixon 1,000
Stephen V. Williams 1,000
Danny A. Toth 1,000
Stephen F. Ginn 1,000
Benjamin C. Harris 1,000
Gary Wilshire 25,000
Christine Shaw 0 20,000
Keith S. Fairchild & Associates 1,000
Margaret Williams 1,000
Debi Pettigrew 1,000
Joseph Nicolosi 1,000
New Century Structures, Inc. 0 100,000
Brekka I, Corp 0 750,000
Northwest Services, Ltda. 154,100 550,000
James C. Hawkins 0 170,000
Edward C. Beshara 0 25,000
Shannon Kane 0
John A. Depizzo Jr 0
James M. Beshara 0 110,000
Antoinette C. Pace 0 15,000
Cynthia Ariel Stone 1,000
Rose E. Stone 1,000
Saturday Enterprises, Inc 100,000
B&L Developing, LLC 100,000
Skeeter Enterprises, LLC 100,000
Pilot Management Group, LLC 100,000
DAT Holding Group, LLC 100,000
Ginn Enterprises, LLC 100,000
Sundown Enterprises, LLC 100,000
JMB Associates 332,388
---------- ---------- ---------- ----------
TOTAL 5,880,651 1,500,000 4,020,000 3,000,000
---------- ---------- ---------- ----------
% OF
OWNERSHIP
AFTER
SHARES REGISTRATION
% OF COVERED SHARES AND SALE,
TOTAL OWNERSHIP UNDER THIS REMAINING ASSUMING ALL
UNDERLYING BEFORE REGISTRATION AFTER SB-2 SHARES ARE
RESTRICTED SHAREHOLDERS SHARES REGISTRATION AGREEMENT REGISTRATION SOLD
- ------------------------------- ------------ ------------ ------------ ------------ ------------
Ventures Unlimited LLC 272,500 1.84% 22,500 250,000 1.69%
GAMI LLC 2,817,700 19.04% 11,350 2,806,350 18.97%
Avante Holding Group, Inc 2,337,195 16.47% 287,195 2,100,000 14.19%
Hawkstone, Inc. 5,000 .03% 5,000 0 0.0%
Paul Janssens 1,700,000 11.49% 200,000 1,500,000 10.14%
John Fischer 250,000 1.69% 250,000 - 0.00%
Harry C. Stone II 200,000 1.35% - 200,000 1.35%
Lift Station, Inc. 735,000 4.97% 425,000 310,000 2.10%
Thomas G. Amon 1,000,000 6.76% 10,000 990,000 6.69%
Willis Kilpatrick 461,290 3.12% 210,290 251,000 1.70%
Steves Rodriguez 158,548 1.07% 8,548 150,000 1.01%
John Julian 12,150 0.08% 12,150 - 0.00%
Peter Baker 4,500 0.03% 4,500 - 0.00%
Joseph Deming 101,000 0.68% 1,000 100,000 0.68%
Keith Deming 50,500 0.34% 500 50,000 0.34%
Charles Young 151,500 1.02% 1,500 150,000 1.01%
Derek Young 50,500 0.34% 500 50,000 0.34%
Bruce Harmon 276,250 1.87% 26,250 250,000 1.69%
Joey Evans 10,100 0.07% 100 10,000 0.07%
Carol Ash 100 0.00% 100 - 0.00%
Austin Woods 10,100 0.07% 100 10,000 0.07%
Mallena Urban 15,100 0.10% 100 15,000 0.10%
Ben Lamm 10,000 0.07% 100 9,900 0.07%
Ashak Shah 100 0.00% 100 - 0.09%
Kivvit Smart 100 0.00% 100 - 0.09%
Jennifer English 10,100 0.07% 100 10,000 0.07%
Anthony Francel 276,750 1.87% 26,750 250,000 1.69%
Christian L. Rishel 370,330 2.50% 270,330 100,000 0.68%
Jayson Benoit 35,250 0.24% 10,250 25,000 0.17%
Jason Dieterle 25,250 0.17% 250 25,000 0.17%
Gina Bennett 25,000 0.17% - 25,000 0.17%
Leigh Gerke 25,250 0.17% 250 25,000 0.17%
21st Century, LLC 90,000 0.61% - 90,000 0.61%
Elcid 200,000 1.35% 100,000 100,000 0.68%
R.A. Hank Henry 10,000 0.07% - 10,000 0.07%
Joseph Sorci 10,000 0.07% - 10,000 0.07%
Wenjun Li 10,000 0.07% - 10,000 0.07%
Valli Sorci 10,000 0.07% - 10,000 0.07%
Cecil Harmon 9,000 0.06% 4,000 5,000 0.03%
Jeffrey B. Saturday 1,000 0.01% 1,000 - 0.00%
Paul M. Snelling 1,000 0.01% 1,000 - 0.00%
Alex L. Dixon 1,000 0.01% 1,000 - 0.00%
Stephen V. Williams 1,000 0.01% 1,000 - 0.00%
Danny A. Toth 1,000 0.01% 1,000 - 0.00%
Stephen F. Ginn 1,000 0.01% 1,000 - 0.00%
Benjamin C. Harris 1,000 0.01% 1,000 - 0.00%
Gary Wilshire 25,000 0.17% - 25,000 0.17%
Christine Shaw 20,000 0.14% 20,000 - 0.00%
Keith S. Fairchild & Associates 1,000 0.01% - 1,000 0.01%
Margaret Williams 1,000 0.01% - 1,000 0.01%
Debi Pettigrew 1,000 0.01% - 1,000 0.01%
Joseph Nicolosi 1,000 0.01% - 1,000 0.01%
New Century Structures, Inc. 100,000 0.68% 100,000 - 0.00%
Brekka I, Corp 750,000 5.07% 750,000 - 0.00%
Northwest Services, Ltda. 704,100 4.76% 550,000 154,100 1.04%
James C. Hawkins 170,000 1.15% 170,000 - 0.00%
Edward C. Beshara 25,000 0.17% 25,000 - 0.00%
Shannon Kane 0 0.00% - - 0.00%
John A. Depizzo Jr 0 0.00% - - 0.00%
James M. Beshara 110,000 0.74% 110,000 - 0.00%
Antoinette C. Pace 15,000 0.10% 15,000 - 0.00%
Cynthia Ariel Stone 1,000 0.01% - 1,000 0.01%
Rose E. Stone 1,000 0.01% - 1,000 0.01%
Saturday Enterprises, Inc 100,000 0.68% - 100,000 0.68%
B&L Developing, LLC 100,000 0.68% - 100,000 0.68%
Skeeter Enterprises, LLC 100,000 0.68% - 100,000 0.68%
Pilot Management Group, LLC 100,000 0.68% - 100,000 0.68%
DAT Holding Group, LLC 100,000 0.68% - 100,000 0.68%
Ginn Enterprises, LLC 100,000 0.68% - 100,000 0.68%
Sundown Enterprises, LLC 100,000 0.68% - 100,000 0.68%
JMB Associates 332,388 2.25% 332,388 - 0.00%
------------ ------------ ------------
TOTAL 14,800,651 3,969,301 10,782,850
------------ ------------ ------------
None of the selling shareholders are registered broker-dealers or affiliated
with a registered broker-dealer.
27
PLAN OF DISTRIBUTION
We will not receive any proceeds from the sale of the shares covered by
this prospectus. The shares are being offered on behalf of the selling
shareholders. The shares may be sold or distributed from time to time by the
selling shareholders, or by pledgees, donees or transferees of, or other
successors in interest to, the selling shareholders, directly to one or more
purchasers (including pledgees) or through brokers, dealers or underwriters who
may act solely as agents or who may acquire the shares as principals, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices, or at fixed prices, which may be changed.
The sale of the shares may be effected in one or more of the following
methods:
o on any national securities exchange or quotation service on which our
common stock may be listed or quoted at the time of sale;
o in the over-the-counter market;
o in transactions otherwise than on such exchanges or services in the
over-the-counter market;
o through the writing of options, whether the options are listed on an
option exchange or otherwise;
o in an exchange distribution in accordance with the rules of the
applicable exchange;
o through the settlement of short sales;
o through privately negotiated transactions or
o through any other legally available method.
In addition, any shares that qualify for resale pursuant to Rule 144 of
the Securities Act of 1933, as amended (Securities Act) may be sold under Rule
144 of the Securities Act rather than pursuant to this prospectus.
The selling shareholders may pledge or grant a security interest in some
or all of the shares of common stock owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell these securities from time to time pursuant to this prospectus.
These transactions may include crosses or block transactions. Crosses
are transactions in which the same broker acts as agent on both sides of the
trade.
In addition, the selling shareholders or their successors in interest
may enter into hedging transactions with broker-dealers who may engage in short
sales of the shares in the course of hedging the positions they assume with the
selling shareholders. The selling shareholders or their successors in interest
may also enter into option or other transactions with broker-dealers that
require the delivery by such broker-dealers of the shares which may be resold
thereafter pursuant to this prospectus if the shares are delivered by the
selling shareholders.
Brokers, dealers, underwriters or agents participating in the
distribution of the shares as agents may receive compensation in the form of
commissions, discounts or concessions from the selling shareholders or
purchasers of the shares for whom such broker-dealers may act as agent, or to
whom they may sell as principal, or both (which compensation as to a particular
broker-dealer may be less than or in excess of customary commissions).
The staff of the SEC is of the view that selling security holders who
are registered broker dealers or affiliates of registered broker dealers may be
underwriters under the Securities Act. The SEC is also of the view that any
broker-dealers who act in connection with the sale of shares hereunder may be
deemed to be "underwriters" within the meaning of the Securities Act, and any
commissions they receive and proceeds of any sale of shares may be deemed to be
underwriting discounts and commissions under the Securities Act. Neither we nor
any selling shareholder can presently estimate the amount of such compensation.
We will not pay any compensation or give any discounts or commissions to any
underwriter in connection with the securities being registered in this
prospectus. We know of no existing arrangements between any selling shareholder,
any other shareholder, broker, dealer, underwriter or agent relating to the sale
or distribution of the shares.
The anti-manipulation rules under the Exchange Act may apply to sales of
shares in the market and to the activities of the selling shareholders and their
affiliates. The selling shareholders may not effect any sale or distribution of
the shares pursuant to this prospectus until after the prospectus has been
appropriately amended or supplemented, if required.
The selling shareholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities Act, as amended.
Any commissions paid or any discounts or concessions allowed to any such
broker-dealers, and any profits received on the resale of such shares, may be
deemed to be underwriting discounts and commissions under the Securities Act, as
amended if any such broker-dealers purchase shares as principal.
We have agreed with the selling shareholders holding debentures that we
will maintain the effectiveness of this registration statement until the earlier
of the sale of all the shares held by such holders or the date on which the
shares may be publicly resold under Rule 144(k). No sales may be made using this
prospectus after that date unless we amend or supplement this prospectus to
indicate that we have agreed to extend the period of effectiveness. We can not
assure you that the selling shareholders will sell any of the shares offered by
this prospectus. We have agreed to indemnify certain selling shareholders
against certain liabilities arising under the Securities Act and the Exchange
Act.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
We believe that the indemnification provisions of our Articles of
Incorporation and Bylaws will be useful to attract and retain qualified persons
as directors and officers. Our Articles of Incorporation limit the liability of
directors and officers to the fullest extent permitted by Nevada law. This is
intended to allow our directors and officers the benefit of Nevada's corporation
law which provides that directors and officers of Nevada corporations may be
relieved of monetary liabilities for breach of their fiduciary duties as
directors, except under circumstances which involve acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1993 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than our payment of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
28
DESCRIPTION OF SECURITIES
COMMON STOCK
The holders of ACC's common stock are entitled to equal dividends and
distributions per share with respect to the common stock when, as and if
declared by the board of directors from funds legally available therefore. No
holder of any shares of common stock has a preemptive right to subscribe for any
of our securities, nor are any common shares subject to redemption or
convertible into other securities. Upon our liquidation, dissolution or
winding-up, and after payment of creditors and preferred shareholders, if any,
our assets will be divided pro rata on a share-for-share basis among the holders
of the shares of common stock. Each share of the common stock is entitled to one
vote with respect to the election of any director or any other matter upon which
shareholders are required or permitted to vote. We have authorized 100,000,000
shares at $0.0001 par value common stock. As of August 15, 2005, there are
4,994,350 shares issued and outstanding and $5,250,000 warrant subscriptions
receivable.
We entered into registration rights agreements with holders of our
restricted common stock and agreed to register for resale for these holders
approximately 76,000 shares of common stock, which shares are included in the
registration statement of which this prospectus is a part.
PREFERRED STOCK
Our Articles of Incorporation authorize the issuance of up to 50,000,000
shares of "blank check" preferred stock with such rights and preferences as our
board of directors, without further shareholder approval, may determine from
time to time. Of these authorized preferred shares, ACC has designated 1,500,000
shares as Series A preferred stock, 3,500,000 shares as Series B preferred
stock, and 1,000,000 shares as Series C preferred stock. All preferred stock
ranks senior to common stock as to payment of dividends and distribution of
assets. Series A and B preferred stock ranks junior to Series C preferred stock,
and Series B preferred stock ranks junior to Series A preferred stock, as to
payment of dividends and distribution of assets. All three series of preferred
stock have a liquidation value of $1.00 per share. Series A and C preferred
shares are convertible into common stock on a one-for-one basis, while Series B
preferred shares are convertible on a one-for-two basis, and, all have voting
rights equivalent to the common stock into which they are convertible.
Holders of our Series A preferred stock have certain registration rights
pertaining to their underlying shares of common stock; however, the Company
believes that its obligations to register the stock are moot since the holders
of those shares will be able to convert and sell under Rule 144 prior to the
expiration of time required by the Company to file such registration. The terms
of the Series B preferred stock provide that shares issuable upon conversion of
the Series B preferred stock may be registered for resale at the sole discretion
of the Company.
CONVERTIBLE NOTES
On September 20, 2004 Quality Metal Systems, LLC renewed an agreement
with Merchants and Planters Bank of Bolivar, Tennessee in the amount of
$88,754.97 at an interest rate of 7.5% annually and a maturity date of September
20, 2006. As part of the Asset Purchase Agreement consummated by the Company,
whereby it acquired all of the assets of Quality Metal Systems on January 21,
2005, the Company assumed the liability under the terms and conditions of the
Agreement between Merchants and Planters Bank and Quality Metal Systems, LLC.
On November 1, 2004 the Company entered into a Revolving Credit Line
Agreement with Avante Holding Group, Inc providing up to five hundred thousand
dollars ($500,000) in working capital. The term of the agreement is one year
with automatic one-year extensions unless terminated 60 days in advance. The
interest rate is four percent plus Prime Rate, payable on a quarterly basis. As
of June 30, 2005 the current outstanding balance was three hundred eight
thousand one hundred and eighty-four dollars and seventeen cents ($308,184.17).
On January 22, 2005 the Company entered into a convertible promissory
note with Willis Kilpatrick in the amount of ninety-three thousand eight hundred
and eighty-eight dollars ($93,888) with a one year maturity date at an interest
rate of 18 percent per year. The total interest due, as of August 30, 2005, is
eleven thousand two hundred and sixty-five dollars ($11,265). In accordance with
the terms of the agreement, the debentures, with accrued interest, will be
converted into common stock of the Company during an initial SB-2 filing
process. The Company retains the right to pay the note in its entirety with the
consent of the lender.
The Company entered into two convertible promissory notes with JMB &
Associates, LLC, in the amount of two hundred and fifty thousand dollars
($250,000) and three hundred and eighty-thousand dollars ($380,000) with
maturity dates of September 30, 2005. The first debenture was signed on February
23, 2005 and contained an interest amount of 18% per year. The second debenture
of $380,000 was signed on June 30, 2005 containing an annual interest rate of 18
percent. The consolidated total interest due as of August 30, 2005 is
thirty-four thousand seven hundred and seventy-five dollars ($34,775). In
accordance with the terms of the agreement, the debentures, with accrued
interest, will be converted into common stock of the Company during an initial
SB-2 filing process. The Company retains the right to pay the note in its
entirety with the consent of the lender.
The Company entered into an amended and restated convertible promissory
note with Paul Janssens, the previous owner of ACT, on June 30, 2005 in the
amount of Six Hundred Twenty-Nine Thousand Eight Hundred and Ninety-Four Dollars
and Sixty Cents ($629,894.60) with a maturity date of August 30, 2005. The
amended and restated promissory note replace a previous amended and restated
promissory note dated March 10, 2005, which null and voided the original
Promissory Note signed at the closing of the acquisition on January 21, 2005. In
accordance with the terms of the agreement Five Hundred Twenty-Nine Thousand
Eight Hundred and Ninety-Four Dollars and Sixty Cents
PENNY STOCK
Our common stock is considered "penny stocks" under the rules the
Securities and Exchange Commission (the "SEC") under the Securities Exchange Act
of 1934. The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in penny stocks. Penny stock are generally equity
securities with a price of less than $5.00, other than securities registered on
certain national securities exchanges or quoted on the NASDAQ Stock Market
System, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or quotation system.
The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock, to deliver a standardized risk disclosure document prepared by the
Commission, that:
- - contains a description of the nature and level of risks in the market for
penny stocks in both public offerings and secondary trading;
- - contains a description of the broker's or dealer's duties to the customer and
of the rights and remedies available to the customer with respect to a
violation to such duties or other requirements of Securities' laws; contains a
brief, clear, narrative description of a dealer market, including bid and ask
prices for penny stocks and the significance of the spread between the bid and
ask price;
- - contains a toll-free telephone number for inquiries on disciplinary actions;
- - defines significant terms in the disclosure document or in the conduct of
trading in penny stocks; and
- - contains such other information and is in such form, including language, type,
size and format, as the Commission shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction
in a penny stock, the customer with:
- - bid and offer quotations for the penny stock;
- - the compensation of the broker-dealer and its salesperson in the transaction;
- - the number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the marker for
such stock; and
- - monthly account statements showing the market value of each penny stock held
in the customer's account.
In addition, the penny stock rules that require that prior to a
transaction in a penny stock not otherwise exempt from those rules; the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
acknowledgement of the receipt of a risk disclosure statement, a written
agreement to transactions involving penny stocks, and a signed and dated copy of
a written suitably statement.
These disclosure requirements may have the effect of reducing the
trading activity in the secondary market for our stock.
29
($529,894.60) with NO accrued interest, will be converted into common stock of
the Company during an initial SB-2 filing process. The remaining portion of the
promissory note may be converted at the option of the holder. The Company
retains the right to pay the note in its entirety with the consent of the
lender.
WARRANTS AND STOCK OPTIONS
WARRANTS
A total of 3,000,000 warrants were issued on January 25, 2005 to the
various individuals/entities identified below. Warrants consists of 500,000 at a
$0.50 conversion rate, 500,000 at a $1.00 conversion rate, 500,000 at $1.50
conversion rate, 500,000 at a $2.00 conversion rate, 500,000 at a $2.50
conversion rate, and 500,000 at a $3.00 conversion rate.
WARRANT NO. WARRANT HOLDER SHARES
- ----------- ---------------------------- ---------
A-1 Lift Station, Inc. 225,000
A-2 Northwest Services, Ltda. 75,000
A-3 Anthony Francel 25,000
A-4 Bruce Harmon 25,000
A-5 New Century Structures, Inc. 100,000
A-6 John Fischer 50,000
A-7 James Hawkins 100,000
A-8 Elcid 100,000
A-9 Northwest Services, Ltda. 75,000
A-10 Lift Station, Inc. 75,000
A-11 John Fischer 75,000
A-12 Avante Holding Group, Inc 75,000
A-13 Northwest Services, Ltda. 75,000
A-14 Lift Station, Inc. 75,000
A-15 John Fischer 75,000
A-16 Brekka I, Corp. 250,000
A-17 Avante Holding Group, Inc 25,000
A-18 Northwest Services, Ltda. 75,000
A-19 Lift Station, Inc. 50,000
A-20 John Fischer 50,000
A-21 Christina Shaw 20,000
A-22 Northwest Services, Ltda. 50,000
A-23 Avante Holding Group, Inc 30,000
A-24 Christian Rishel 225,000
A-25 Brekka I, Corp. 300,000
30
A-26 Northwest Services, Ltda. 200,000
A-27 Avante Holding Group, Inc 25,000
A-28 Christian Rishel 45,000
A-29 Brekka I, Corp. 200,000
A-30 Jayson Benoit 10,000
A-31 James C. Hawkins 70,000
A-32 Edward C. Beshara 25,000
A-33 Shannon Kane 15,000
A-34 John A. Depizzo Jr. 10,000
A-35 Antoinette C. Pace 15,000
A-36 James Beshara 85,000
TOTAL 3,000,000
STOCK OPTIONS
We have issued options to purchase 2,000,000 shares of common stock to
independent consultants at exercise prices ranging from $0.25 to $0.75 per
share. 400,000 of these options are currently exercisable with the remaining
options to expire at varying times between October 24, 2005 and January 31,
2008.
REGISTRATION RIGHTS AGREEMENTS
Registration Rights of the Holders of Debentures and Related Warrants.
We entered into a registration rights agreements with the holders of the
debentures and related warrants pursuant to which we are including in this
registration statement a total of 872,586 shares of common stock issuable upon
conversion of the debentures and that may be issuable under the debentures on
account of interest payments and certain anti-dilution adjustments, and
3,000,000 shares of common stock that are issuable upon exercise of the
warrants. If the registration statement is not declared effective within 60 days
of the filing date (or 135 days from the filing date if it is reviewed by the
SEC), or if sales of the shares may not be made pursuant to the registration
statement after effectiveness, or the common stock ceases to be traded on the
OTCBB or, if applicable, a national securities exchange or NASDAQ, the Company
will be obligated to pay to each holder of the debentures or the securities
underlying the debentures or the warrants an amount equal to the original
principal amount of the debentures, multiplied by the Applicable Percentage
(defined below) times:
(i) the number of months (prorated for partial months) after the end of
the aforementioned 135 day period and prior to the date the registration
statement is declared effective by the SEC, exclusive of delays attributable to
the investors; or
(ii) the number of months (prorated for partial months) that sales of
all of the registered shares cannot be made pursuant to the registration
statement after the registration statement has been declared effective,
excluding certain allowed delays as provided in the agreement; or
(iii) the number of months (prorated for partial months) that the common
stock is not listed or included for quotation on the OTCBB, NASDAQ or a national
securities exchange, or that trading in the common stock is halted after the
registration statement has been declared effective.
The "Applicable Percentage" means (i) one percent during the first 30
days that any of the foregoing events has occurred and is continuing, and (ii)
two percent after the first 30 days that any of the foregoing events has
occurred and is continuing.
The registration rights agreement also provides for piggyback
registration rights if we fail to file the mandatory registration statement or
fail to maintain its effectiveness until the earlier of (i) the date on which
all of the shares of common stock underlying the debentures and the related
warrants have been sold and (ii) the date such shares may be sold under Rule
144(k).
ACC and the holders of the debentures and related warrants have agreed
to indemnify each other for certain acts or omissions of the indemnifying party
in connection with the registration of the registered shares.
31
OTHER REGISTRATION RIGHTS. We have included in this registration
statement 76,000 shares of common stock held by certain shareholders, and no
shares of common stock issuable upon exercise of outstanding warrants, pursuant
to piggy-back registration rights provisions contained in related registration
rights agreements and/or warrants. Those agreements do not contain damages
provisions or other penalties for failure to obtain or maintain effectiveness of
the registration statement. Certain of the registration rights provisions
provide for cross-indemnification for certain acts or omissions of the
indemnifying party in connection with the registration of the shares.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock and our preferred
stock is Madison Stock Transfer Company, PO Box 290-145, Brooklyn, New York
11229.
INDEMNIFICATION AND LIMITED LIABILITY PROVISIONS
We have authority under Section 607.0850 of the Florida Business
Corporation Act to indemnify our directors and officers to the extent provided
in that statute. Our Articles of Incorporation require the company to indemnify
each of our directors and officers against liabilities imposed upon them
(including reasonable amounts paid in settlement) and expenses incurred by them
in connection with any claim made against them or any action, suit or proceeding
to which they may be a party by reason of their being or having been a director
or officer of the company. We maintain officer's and director's liability
insurance coverage with limits of liability of $1,000,000. There can be no
assurance that such insurance will be available in the future, or that if
available, it will be available on terms that are acceptable to us. Furthermore,
there can be no assurance that the insurance coverage provided will be
sufficient to cover the amount of any judgment awarded against an officer or
director (either individually or in the aggregate). Consequently, if such
judgment exceeds the coverage under the policy, then we may be forced to pay
such difference.
We intend to enter into indemnification agreements with each of our
officers and directors containing provisions that may require us, among other
things, to indemnify our officers and directors against certain liabilities that
may arise by reason of their status or service as officers or directors (other
than liabilities arising from willful misconduct of a culpable nature) and to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified. Management believes that such indemnification
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
EXPERTS
The financial statements as of and for the year ended December 31, 2004
and 2003 included in this prospectus have been so included in reliance on the
report of Liebman Goldberg & Drogin, LLP, an independent registered public
accounting firm, given on the authority of said firm as experts in auditing and
accounting.
LEGAL MATTERS
The Law Offices of Thomas G. Amon has rendered an opinion with respect
to the validity of the shares of common stock covered by this prospectus.
32
INDEX TO THE FINANCIAL STATEMENTS
PAGE
----
Report of Independent Registered Public Accounting Firm F-2
Combined Balance Sheets as of December 31, 2004 and 2003 F-3
Combined Statements of Operations - for the years ended December 31, 2004 and 2003 F-4
Combined Statements of Cash Flows for the years ended December 31, 2004 and 2003 F-5
Combined Statements of Changes in Shareholders' Equity for years ended December 31, 2004 and 2003 F-6
Notes to Combined Financial Statements F-7
Interim Consolidated Financial Statements (Unaudited) F-13
Notes to Interim Consolidated Financial Statements F-25
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Member
Alternative Construction Technologies Corporation
Quality Metal Systems LLC
Melbourne, Florida
We have audited the accompanying combined balance sheet of Alternative
Construction Technologies Corporation and Quality Metal Systems LLC as of
December 31, 2004 and 2003 and the related combined related statements of
operations, retained earnings and members' deficit and cash flows for the years
then ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of Alternative
Construction Corporation and Quality Metal Systems LLC at December 31, 2004 and
2003, and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company has suffered recurring losses from
operations and has negative working capital, which raises substantial doubt
about the Company's ability to continue as a going concern. Management's plans
regarding those matters are discussing in the Notes to financial statements.
/s/ Liebman Goldberg & Drogin, LLP
Certified Public Accountants
Garden City, New York
March 29, 2005
F-2
ALTERNATIVE CONSTRUCTION TECHNOLOGIES CORPORATION
QUALITY METAL SYSTEMS LLC
COMBINED BALANCE SHEETS
DECEMBER 31,
2004 2003
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 38,597 $ 44,032
Accounts receivable - trade 87,703 52,814
Inventories 105,137 148,859
Prepaid expenses and other 24,675 14,372
TOTAL CURRENT ASSETS 256,112 260,077
PROPERTY, PLANT AND EQUIPMENT - less accumulated depreciation 656,988 682,714
TOTAL ASSETS $ 913,100 $ 942,791
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Mortgage payable - current $ 13,233 $ 94,770
Accounts payable 86,949 117,963
Accrued expenses and taxes 50,616 22,668
Deferred revenue 12,000 0
TOTAL CURRENT LIABILITIES 162,798 235,401
Mortgage payable - non-current 72,365 0
TOTAL LIABILITIES 235,163 235,401
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock 500 500
Additional paid-in capital 7,346,262 6,486,715
Retained earnings deficit and member deficit (6,668,825) (5,779,825)
TOTAL SHAREHOLDERS' EQUITY AND MEMBER DEFICIT 677,937 707,390
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 913,100 $ 942,791
See accompanying independent auditors report and notes to combined
financial statements.
F-3
ALTERNATIVE CONSTRUCTION TECHNOLOGIES CORPORATION
QUALITY METAL SYSTEMS LLC
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
2004 2003
----------- ------------
Net sales $ 1,161,751 $ 920,156
Cost of sales 1,331,567 1,144,858
GROSS (LOSS) (169,816) (224,702)
OPERATING EXPENSES:
Selling and delivery 55,692 108,610
General and administrative 656,762 686,518
TOTAL OPERATING EXPENSES 712,454 795,128
OPERATING LOSS (882,270) (1,019,830)
Interest expense 6,730 36,706
NET LOSS $ (889,000) $ (1,056,536)
See accompanying independent auditors report and notes to combined
financial statements.
F-4
ALTERNATIVE CONSTRUCTION COMPANY, INC.
QUALITY METAL SYSTEMS LLC
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (889,000) $(1,056,536)
----------- -----------
Adjustments to reconcile net loss to net cash provided by operations activities:
Depreciation and amortization 44,185 144,184
Changes in assets and liabilities:
Accounts receivable - trade (34,889) (10,828)
Inventories 43,722 43,443
Prepaid expenses and other current assets (10,303) (14,372)
Accounts payable (31,014) 81,447
Accrued expenses and taxes payable 27,948 22,668
Deferred revenue 12,000 0
----------- -----------
Total adjustments 51,649 266,542
----------- -----------
Net cash (used in) operating activities (837,351) (789,994)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgage (9,172) (14,846)
Shareholder advances/paid-in capital 841,088 780,009
----------- -----------
Net cash provided by financing activities 831,916 765,163
----------- -----------
Net decrease in cash and cash equivalents (5,435) (24,831)
Cash and cash equivalents, beginning of year 44,032 68,863
----------- -----------
Cash and cash equivalents, end of year $ 38,597 $ 44,032
----------- -----------
See accompanying independent auditors report and notes to combined
financial statements.
F-5
ALTERNATIVE CONSTRUCTION TECHNOLOGIES CORPORATION
QUALITY METAL SYSTEMS LLC
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY AND MEMBER DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
TOTAL
RETAINED EARNINGS SHAREHOLDERS'
COMMON ADDITIONAL PAID-IN (DEFICIT) AND EQUITY AND
STOCK CAPITAL MEMBER DEFICIT MEMBER DEFICIT
------ ------------------ ----------------- --------------
Balance, January 1, 2003 $ 500 $ 5,116,995 $ (4,723,289) $ 394,206
Member contributed 10,000 10,000
capital
Shareholder loans 1,359,720 1,359,720
Net loss (1,056,536) (1,056,536)
------ ------------------ ----------------- --------------
Balance, December 31, 2003 $ 500 $ 6,486,715 $ (5,779,825) $ 707,390
Shareholder loans 859,547 859,547
Net loss (889,000) (889,000)
------ ------------------ ----------------- --------------
Balance, December 31, 2004 $ 500 $ 7,346,262 $ (6,668,825) $ 677,937
See accompanying independent auditors report and notes to combined
financial statements.
F-6
ALTERNATIVE CONSTRUCTION TECHNOLOGIES CORPORATION
QUALITY METAL SYSTEMS LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATIONS:
The combined financial statements include the accounts of Alternative
Construction Technologies Corp. ("ACTC") and Quality Metal Systems LLC ("Qual").
ACTC, an S-Corporation was formed as a Delaware Corporation in 1997. Qual is a
single-member Florida Limited Liability Company formed in 2002. The financial
statements of these entities (collectively referred to as the "Company") are
presented on a combined basis due to common ownership and control. All
significant intercompany balances and transactions have been eliminated.
NOTE 2 - OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS:
ACTC designs and manufactures wall and roof panels used in residential,
commercial and other infrastructures. In 2003, the sole member of Qual
contributed all fixed assets (including the building) to Qual.
REVENUE RECOGNITION:
Sales are recognized upon the shipment of finished goods to customers.
Allowances for cash discounts and returns are recorded in the period in which
the related sale is recognized.
USE OF ESTIMATES:
The Financial statements are prepared in accordance with accounting principles
generally accepted in the United States. The accounting principles used require
the Companies to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expense during the reporting periods presented. The Company believes in the
quality and reasonableness of its critical accounting policies; however, it is
likely that materially different amounts would be reported under different
conditions or using assumptions different from those that the Company has
consistently applied.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid cash instruments purchased with a
maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE:
Accounts receivable are uncollateralized customer obligations due for products
sold. The accounts receivable are due under normal trade terms requiring payment
within 30 days from the invoice date. Management reviews accounts receivable on
a monthly basis to determine if any receivables will potentially be
uncollectible and any balances determined to be uncollectible are written off.
Although no assurance can be given as to the collectibility of the accounts
receivable, based on the information available, management believes all balances
are collectible.
INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method.
F-7
ADVERTISING COSTS:
Advertising costs are charged to expense in the year incurred and amounted to
approximately $1,258 and $1,610 for the years ended December 31, 2004 and 2003,
respectively.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION:
Property, plant and equipment is stated at cost. Depreciation is computed using
both straight-line and accelerated methods over the estimated useful lives of
the assets for both financial reporting and income tax purposes.
LONG-LIVED ASSETS:
Long-lived assets are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows from the use of
these assets. When any such impairment exists, the related assets will be
written down to fair value. No such impairment existed through December 31,
2004.
TAXES ON INCOME:
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under this standard, deferred taxes on income are
provided for those items for which the reporting period and methods for income
tax purposes differ from those used for financial statement purposes using the
asset and liability method. Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
DERIVATIVES:
All derivatives, including foreign currency exchange contracts, are recognized
in the statement of financial position at their fair value. Derivatives that are
not hedges are recorded at fair value through earnings. If a derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of the
derivative are either offset against the change in fair value of underlying
assets or liabilities through earnings or recognized in other comprehensive
earnings until the underlying hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value is to be immediately
recognized in earnings.
CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to a concentration
of credit risk consist principally of temporary cash investments and accounts
receivable.
The Company places its temporary cash investments with financial institutions
insured by the FDIC.
Concentrations of credit risk with respect to trade receivables are limited due
to the diverse group of customers to whom the Companies sell. The Companies
review a customer's credit history and other public information where available
before extending credit. The Companies have not established an allowance for
doubtful accounts as none is considered necessary, based upon factors such as
the credit risk of specific customers, historical trends, other information and
past bad debt history which has been immaterial and within the Company's
expectations. Although, the Company has been dependent on a limited member of
suppliers related to its manufacturing, it does not believe that there would be
an adverse effect if the current suppliers would limit deliveries. There are
other suppliers to provide adequate supplies for manufacture.
SHIPPING AND HANDLING COSTS:
The Company has included freight out as a component of selling and delivery
expenses which amounted to $34,995 and $50,566 for the years ended December 31,
2004 and 2003, respectively.
F-8
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, and accounts payable, approximate fair value
because of the current nature of these instruments. The carrying amounts of debt
instruments approximate fair value based upon the terms of the instruments. The
fair value of the loans due to and from affiliates and shareholders are
difficult to estimate due to their related party nature.
RECENT ACCOUNTING POLICIES:
In April 2003, the FASB issued FAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". FAS No. 149 amends FAS No. 133
for decisions made by the FASB's Derivatives Implementation Group, other FASB
projects dealing with financial instruments, and in response to implementation
issues raised in relation to the application of the definition of a derivative.
This statement is generally effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003. The adoption of FAS 149 did not have a material effect on our financial
position or results of operations.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
("Statement 150"). The statement establishes standards for how a company
classifies and measures in it statement of financial position certain financial
instruments with characteristics of both liability and equity. In accordance
with the standard, financial instruments that embody obligations for the issuer
are required to be classified as liabilities.
The Company has not entered into any financial instruments within the scope of
Statement 150, nor do we currently hold any financial instruments within its
scope.
GOODWILL AND LONG-LIVED ASSETS:
In July 2001, the FASB issued Statements of Financial Accounting Standards No.
142, ("Goodwill and other Intangible Assets"). Under SFAS No. 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are reviewed
annually (or more frequently, if impairment indicators arise) for impairment.
Separable intangible assets that are not deemed to have indefinite lives will
continue to be amortized over their useful lives (but with no maximum life). The
Company intends to adopt this standard and, accordingly, those intangible assets
that will continue to be classified as goodwill or as other intangibles with
indefinite lives will not be amortized. Additionally, in accordance with SFAS
No. 142, intangible assets will be evaluated periodically for impairment.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
disposal of Long-Lived assets". The statement supersedes SFAS No. 121 and
Accounting Principles Board Opinion No. 30 "Reporting Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions". The Statement
retains the fundamental provisions of SFAS No. 121 for the recognition and
measurement of impairment.
F-9
GOING CONCERN UNCERTAINTY:
The accompanying combined financial statements have been prepared in conformity
with generally accepted accounting principles which contemplate continuation of
the Company as a going concern. Although the Company has working capital as of
December 2004 and 2003, it is minimal and the Company has continuously sustained
significant losses from operations, which raise substantial doubt about the
Company's ability to continue as a going concern. In view of these matters,
realization of the assets of the Company is dependent upon the Company's ability
to meet its financing requirements and the success of future operations. The
combined financial statements do not include adjustments relating to the
recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue
in existence.
Reference is made to Note 12 (Subsequent Event) which discusses the sale of the
Company including its property and equipment to a non-related party.
NOTE 3 - INVENTORIES:
Inventories are summarized at December 31, as follows:
2004 2003
--------- ---------
Raw materials $ 75,546 $ 81,194
Finished goods 29,591 67,665
--------- ---------
$ 105,137 $ 148,859
========= =========
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists at December 31, of the following:
2004 2003
----------- -----------
Land and building and improvements $ 737,976 $ 737,976
Machinery and equipment 1,433,580 1,433,580
Furniture and fixtures 76,445 76,445
----------- -----------
2,248,001 2,248,001
Less: accumulated depreciation and
amortization 1,591,013 1,565,287
----------- -----------
Net property and equipment $ 656,988 $ 682,714
=========== ===========
Depreciation and amortization expense was $44,185 for the year ended December
31, 2004 and $144,184 for the year ended December 31, 2003.
NOTE 5 - MORTGAGE PAYABLE:
On May 31, 2002, the Company entered into a mortgage agreement for $111,418
collateralized by the building located in Tennessee. The loan provided for 23
monthly payments of $1,600 and a final payment of $89,714 due June 1, 2004.
Interest on the mortgage was at 7.5%. After June 1, 2004, the bank agreed to an
extension of the balloon payment. The Company continues to make monthly payments
of $1,600. Subsequent to the Company's sale the mortgage was assigned to the
purchaser, who is continuing to make monthly payments.
NOTE 6 - SHAREHOLDERS LOAN PAYABLE/ADDITIONAL PAID-IN CAPITAL:
During the years ended December 31, 2004 and 2003, the Company received advances
of $859,547 and $759,217, respectively. These advances were used principally to
cover payroll and other operating costs. The shareholder previously agreed that
all advances would be considered additional paid-in capital.
NOTE 7 - RELATED PARTY TRANSACTION:
Beginning in 2004, the Company leased office space from its shareholder at
$1,500 a month. Rent is for office space in Florida. The space is in a
non-related facility used by the shareholder. Rent is on a month to month term
and all accounting functions for the Company were performed there.
F-10
NOTE 8 - COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL:
December 31, 2004 2003
-------------------------------------------- ----------- -----------
Common Stock:
ACTC - $.001 par value, 10,000,000 shares
authorized, 500,000 shares issued $ 500 $ 500
Additional Paid-in Capital:
ACTS - additional capital paid-in on
500,000 share issuance 49,500 49,500
Qual - member capitalization 10,000 10,000
Shareholder advances 7,286,762 6,427,215
----------- -----------
$ 7,346,262 $ 6,486,715
=========== ===========
NOTE 9 - MAJOR CUSTOMERS:
During the years ended December 31, 2004 and 2003, sales to the Company's four
major customers accounted for approximately 86% of revenues and 100% of accounts
receivable in 2004 and 48% of revenues and 12% of accounts receivable in 2003.
NOTE 10 - TAXES ON INCOME AND RETAINED EARNINGS (DEFICIT):
ACTC and Qual are accrual basis taxpayers. ACTC has elected to be treated as an
"S" Corporation, and Qual as a single-member LLC. The 2004 and 2003 losses are
reported on the individual tax returns of the shareholders and member. The
Company provides for certain State corporate-level income taxes.
NOTE 11 - STATEMENT OF CASH FLOWS:
(a) Supplemental disclosures of cash flow information are as follows:
Cash paid during the year for:
Year ended December 31, 2004 2003
- --------------------------- ---------- ----------
Interest $ 6,730 $ 36,706
========== ==========
Taxes $ - $ -
========== ==========
NOTE 12 - SUBSEQUENT EVENT:
On January 21, 2005, a newly formed acquisition Company, known as Alternative
Construction Company, Inc. ("ACCI") acquired all the stock of ACTC and
substantially all of the assets of Qual. In addition, ACCI received an
assignment of all the patents related to production by ACTC which were owned by
a shareholder of ACTC. The original purchase agreements entered into on December
14, 2004 between ACCI (purchaser) and ACTC and Qual (sellers) called for the
payment of $1,000,000 and issuance of 1,500,000 shares of ACCI Series B
Preferred Stock. During the closing transaction and in performing its due
diligence, the purchaser ("ACCI") discovered that both companies would require
substantial cash infusions to continue operations. The sellers agreed to offset
the cash down payment with notes payable of $350,000 due February 19, 2005. On
March 10, 2005, the notes were amended and restated with a due date of June 30,
2005. To date, any net balances payable by the purchaser to the sellers have not
been made as the purchasers continue to collect accounts receivable and
liquidate payables and other obligations.
F-11
ALTERNATIVE CONSTRUCTION COMPANY, INC
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
F-12
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Contents
Page
----
Consolidated Balance Sheet - June 30, 2005 F-14
For the Six Months Ended:
Consolidated Statement of Operations and Deficit F-16
Consolidated Statement of Cash Flows F-17
Consolidated Statement of Stockholders' Equity F-18
Consolidated Schedule of Cost of Sales F-19
Consolidated Schedule of Operating Expenses F-20
Supplemental Information
Divisional Balance Sheets F-21
Divisional Statement of Operations and Deficit F-23
Divisional Schedules of Cost of Sales F-24
Notes to Consolidated Financial Statements F-25
F-13
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Balance Sheet
June 30, 2005
- --------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 50,550
Accounts Receivable, Net 529,868
Due From Factor, Net 72,260
Other Receivables 10,921
Inventory 195,191
Prepaid Expenses 335,227
----------
Total Current Assets 1,194,017
----------
Land 67,000
----------
Property, Plant and Equipment, Net 2,657,561
----------
Other Assets
Product Consignment 21,155
----------
Total Other Assets 21,155
----------
Intangibles, Goodwill 610,703
----------
Total Assets $4,550,436
==========
(See Notes to Consolidated Financial Statements)
F-14
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Balance Sheet
June 30, 2005
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses $ 743,535
Accrued Payroll and Taxes 25,789
Capital Leases, Current Portion 4,217
Notes Payable, Current Portion 1,704,708
-----------
Total Current Liabilities 2,478,249
-----------
Noncurrent Liabilities
Deferred Revenue 12,000
Capital Leases, Noncurrent Portion 18,114
Notes Payable, Noncurrent Portion 491,597
-----------
Total Noncurrent Liabilities 521,711
-----------
Total Liabilities 2,999,960
-----------
Stockholders' Equity
Common Stock 1,760
Subscription Receivable (1,000)
Preferred Stock 1,500,236
Additional Paid In Capital 7,384,667
Accumulated Deficit (7,335,325)
Minority Interest 138
-----------
Total Stockholders' Equity 1,550,476
-----------
Total Liabilities and Stockholders' Equity $ 4,550,436
===========
(See Notes to Consolidated Financial Statements)
F-15
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Statement of Operations and Deficit
For the Six Months Ended June 30, 2005
- --------------------------------------------------------------------------------
% of
Sales
-----
Sales $ 2,121,825 100.0 %
Cost of Sales 1,838,664 86.7
----------- ------
Gross Profit 283,161 13.3
Operating Expenses 869,879 41.0
----------- ------
Loss From Operations (586,718) (27.7)
Interest Expense 59,589 2.8
Provision for Income Taxes - -
----------- ------
Net Loss Before Minority Interest (646,307) (30.5)
Minority Interest in Subsidiary (138) (0.0)
----------- ------
Net Loss (646,445) (30.5)%
=====
Accumulated Deficit - Beginning of Period (6,688,880)
-----------
Accumulated Deficit - End of Period $(7,335,325)
===========
(See Notes to Consolidated Financial Statements)
F-16
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 2005
Cash Flows From Operating Activities:
Net Loss $ (646,445)
Adjustments to Reconcile Net Loss to Net
Cash Used By Operating Activities:
Depreciation and Amortization 65,825
Minority Interest 138
Decrease (Increase) In:
Accounts Receivable, Net (442,165)
Due from Factor, Net (72,260)
Inventories (90,054)
Prepaid Expenses and Other Current Assets (321,473)
Other Assets (21,155)
Increase (Decrease) In:
Accounts payable, accrued expenses and taxes payable 602,611
-----------
Net Cash Used By Operating Activities (924,978)
-----------
Cash Flows From Investing Activities:
Acquisition of Property, Plant and Equipment (2,133,398)
Acquisition of ACT - Goodwill (610,703)
-----------
Net Cash Used By Investing Activities (2,744,101)
-----------
Cash Flows From Financing Activities:
Issuance of Common Stock 760
Issuance of Preferred Stock - Series A 1,500,000
Issuance of Preferred Stock - Series B 236
Issuance and Repayment, Net, of Notes Payable, Line
of Credit and Capital Leases 2,131,631
Shareholder Advances / Paid In Capital 48,405
-----------
Net Cash Provided By Financing Activities 3,681,032
-----------
Net Increase in Cash 11,953
Cash at Beginning of Year 38,597
-----------
Cash at End of Period $ 50,550
===========
(See Notes to Consolidated Financial Statements)
F-17
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Statement of Stockholders' Equity
For the Six Months Ended June 30, 2005
Preferred Preferred Additional Retained Total
Common Stock - Stock - Paid-in Earnings Minority Shareholders'
Stock Series A Series B Capital (Deficit) Interest Equity
----- -------- -------- ------- --------- -------- ------
Balance, January 1, 2005 - ACC $ - $ - $ - $ - $ (38,165) $ - $ (38,165)
Shareholder capital contribution - - - 48,405 - - 48,405
Issuance of ACC stock 760 - - - - - 760
Issuance of USS stock 1,000 - - - - - 1,000
Subscription receivable - USS (1,000) - - - - - (1,000)
Acquisition of ACT - 1,500,000 236 7,336,262 (6,650,715) - 2,185,783
Net Income (Loss) - - - - (646,445) 138 (646,307)
------- ----------- -------- ----------- ----------- -------- -----------
Balance, June 30, 2005 $ 760 $ 1,500,000 $ 236 $ 7,384,667 $(7,335,325) $ 138 $ 1,550,476
======= =========== ======== =========== =========== ======== ===========
(See Notes to Consolidated Financial Statements)
F-18
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Schedule of Cost of Sales
For the Six Months Ended June 30, 2005
- --------------------------------------------------------------------------------
% of
Sales
-----
Inventories at Beginning of Year $ - - %
---------- ----
Purchases 1,875,924 88.4
---------- ----
Factory and Warehouse Labor 60,691 2.9
---------- ----
Manufacturing Expense
Depreciation 63,540 3.0
Utilities 33,700 1.6
---------- ----
Total Manufacturing Expense 97,240 4.6
---------- ----
Total Cost of Goods Available for Sale 2,033,855 95.9
Inventories at End of Period 195,191 9.2
---------- ----
Cost of Sales $1,838,664 86.7 %
========== ====
(See Notes to Consolidated Financial Statements)
F-19
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Schedule of Operating Expenses
For the Six Months Ended June 30, 2005
- --------------------------------------------------------------------------------
% of
Sales
-----
Operating Expenses
Advertising $ 49,885 2.4 %
Automobile Expenses 401 0.0
Bank Charges 2,013 0.1
Commissions 207,900 9.8
Consulting 109,568 5.2
Depreciation and Amortization 2,285 0.1
Equipment Leases 6,328 0.3
Factoring Fees 34,178 1.6
Insurance 50,263 2.4
Legal and Professional Fees 54,884 2.6
Maintenance and Repairs 21,364 1.0
Office Expense 14,676 0.7
Payroll Processing Fees 1,052 0.0
Payroll Taxes 55,650 2.6
Postage and Delivery 10,594 0.5
Printing and Reproduction 671 0.0
Rent 2,613 0.1
Salaries 149,705 7.1
Taxes and Licenses 3,211 0.2
Telephone 18,763 0.9
Tools and Supplies 26,964 1.3
Travel and Entertainment 44,960 2.1
Utilities 1,951 0.1
--------- ----
Total Operating Expenses $ 869,879 41.0%
========= ====
(See Notes to Consolidated Financial Statements)
F-20
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Divisional Balance Sheets
June 30, 2005
- --------------------------------------------------------------------------------
Alternative Alternative Universal
Construction Construction Safe ProSteel
Company Technologies Structures Builders Eliminations Consolidated
------------ ------------ ---------- --------- ------------ ------------
ASSETS
Current Assets
Cash $ - $ 50,550 $ - $ - $ - $ 50,550
Accounts Receivable, Net - 529,868 - - - 529,868
Due from Factor, Net - 72,260 - - - 72,260
Other Receivables 337 10,584 - - - 10,921
Inventory - 134,201 12,091 48,899 - 195,191
Prepaid Expenses - 335,227 - - - 335,227
----------- ----------- ----------- ----------- ----------- -----------
Total Current Assets 337 1,132,690 12,091 48,899 - 1,194,017
----------- ----------- ----------- ----------- ----------- -----------
Land - 67,000 - - - 67,000
----------- ----------- ----------- ----------- ----------- -----------
Property, Plant and Equipment, Net 16,332 2,641,229 - - - 2,657,561
----------- ----------- ----------- ----------- ----------- -----------
Other Assets
Investment in ACT 500 - - - (500) -
Investment in USS 800 - - - (800) -
Investment in ProSteel 47,300 - - - (47,300) -
Due from ACT 1,876,854 - 83,051 - (1,959,905) -
Due from USS 100,000 - - - (100,000) -
Product Consignment - 15,606 5,549 - - 21,155
----------- ----------- ----------- ----------- ----------- -----------
Total Other Assets 2,025,454 15,606 88,600 - (2,108,504) 21,155
----------- ----------- ----------- ----------- ----------- -----------
Intangibles, Goodwill 610,703 - - - - 610,703
----------- ----------- ----------- ----------- ----------- -----------
Total Assets $ 2,652,826 $ 3,856,525 $ 100,690 $ 48,899 $(2,108,504) $ 4,550,436
=========== =========== =========== =========== =========== ===========
(See Notes to Consolidated Financial Statements)
F-21
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Divisional Balance Sheets
June 30, 2005
- --------------------------------------------------------------------------------
Alternative Alternative Universal
Construction Construction Safe ProSteel
Company Technologies Structures Builders Eliminations Consolidated
------------ ------------ ---------- --------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses 40,529 703,806 - - (800) 743,535
Accrued Payroll and Taxes 8,197 17,592 - - - 25,789
Capital Leases Payable, Current Portion 4,217 - - - - 4,217
Notes Payable, Current Portion 1,673,909 30,799 - - - 1,704,708
--------- --------- ---------- ------ ---------- ----------
Total Current Liabilities 1,726,852 752,197 - - (800) 2,478,249
--------- --------- ---------- ------ ---------- ----------
Noncurrent Liabilities
Deferred Revenue - 12,000 - - - 12,000
Intercompany Payables - 1,958,305 100,000 - (2,058,305) -
Capital Lease Payable, Noncurrent Portion 18,114 - - - - 18,114
Notes Payable, Noncurrent Portion 2,895 488,702 - - - 491,597
--------- --------- ---------- ------ ---------- ----------
Total Noncurrent Liabilities 21,009 2,459,007 100,000 - (2,058,305) 521,711
--------- --------- ---------- ------ ---------- ----------
Total Liabilities 1,747,861 3,211,204 100,000 - (2,059,105) 2,999,960
--------- --------- ---------- ------ ---------- ----------
Stockholders' Equity
Common Stock 760 500 1,000 1,000 (1,500) 1,760
Subscription Receivable - - (1,000) - - (1,000)
Preferred Stock 1,500,236 - - - - 1,500,236
Additional Paid In Capital - 7,384,667 - 47,899 (47,899) 7,384,667
Accumulated Deficit (596,031) 552 - - (7,335,325)
Minority Interest - - 138 - - 138
--------- --------- ---------- ------ ---------- ----------
Total Stockholders' Equity 904,965 645,321 690 48,899 (49,399) 1,550,476
--------- --------- ---------- ------ ---------- ----------
Total Liabilities and Stockholders'
Equity 2,652,826 3,856,525 100,690 48,899 (2,108,504) 4,550,436
========= ========= ========== ====== ========== ==========
(See Notes to Consolidated Financial Statements)
F-22
ALTERNATIVE CONSTRUCTION COMPANY, INC.
DIVISIONAL STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2005
- --------------------------------------------------------------------------------
Alternative Alternative Universal
Construction Construction Safe ProSteel
Company Technologies Structures Builders Eliminations Consolidated
------------- ------------ ---------- -------- ------------ ------------
Sales $ - $ 2,118,825 $ 3,000 $ - $ - $ 2,121,825
Cost of Sales - 1,836,354 2,310 - - 1,838,664
----------- ----------- --------- ----- --- -----------
Gross Profit - 282,471 690 - - 283,161
Operating Expenses 531,356 338,523 - - - 869,879
----------- ----------- --------- ----- --- -----------
Loss From Operations (531,356) (56,052) 690 - - (586,718)
Interest Expense 26,510 33,079 - - - 59,589
Provision for Income Taxes - - - - - -
----------- ----------- --------- ----- --- -----------
Net Income (Loss) Before Minority (557,866) (89,131) 690 - - (646,307)
Interest
Minority Interest in Subsidiary - - (138) - - (138)
----------- ----------- --------- ----- --- -----------
Net Income (Loss) (557,866) (89,131) 552 - - (646,445)
Accumulated Deficit - Beginning of Period (38,165) (6,650,715) - - - (6,688,880)
----------- ----------- --------- ----- --- -----------
Accumulated Deficit - End of Period $ (596,031) $(6,739,846) $ 552 $ - $ - $(7,335,325)
=========== =========== ========= ===== === ===========
(See Notes to Consolidated Financial Statements)
F-23
ALTERNATIVE CONSTRUCTION COMPANY, INC.
DIVISIONAL SCHEDULES OF COST OF SALES
For the Six Months Ended June 30, 2005
- --------------------------------------------------------------------------------
Alternative Alternative Universal
Construction Construction Safe ProSteel
Company Technologies Structures Builders Eliminations Consolidated
------- ------------ ---------- -------- ------------ ------------
Inventories at Beginning of Year $ - $ - $ - $ - $ - $ -
--- ---------- ---------- ---------- --- ----------
Purchases - 1,812,624 14,401 48,899 - 1,875,924
--- ---------- ---------- ---------- --- ----------
Factory and Warehouse Labor - 60,691 - - - 60,691
--- ---------- ---------- ---------- --- ----------
Manufacturing Expense
Depreciation - 63,540 - - - 63,540
Utilities - 33,700 - - - 33,700
--- ---------- ---------- ---------- --- ----------
Total Manufacturing Expense - 97,240 - - - 97,240
--- ---------- ---------- ---------- --- ----------
Total Cost of Goods Available for Sale - 1,970,555 14,401 48,899 - 2,033,855
Inventories at End of Period - 134,201 12,091 48,899 - 195,191
--- ---------- ---------- ---------- --- ----------
Cost of Sales $ - $1,836,354 $ 2,310 $ - $ - $1,838,664
=== ========== ========== ========== === ==========
(See Notes to Consolidated Financial Statements)
F-24
ALTERNATIVE CONSTRUCTION COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND OPERATION
Alternative Construction Company, Inc. ("ACC") of Florida was incorporated
in 2004. The Company provides administrative and marketing expertise to
several subsidiaries. Alternative Construction Technologies Corporation
("ACT") of Delaware, a wholly-owned subsidiary, was incorporated in 1997,
designs and manufactures wall and roof panels (ACTech Panel(TM)) used in
residential, commercial and other infrastructures. Universal Safe
Structures, Inc. ("USS") of Florida, an 80% owned subsidiary, was
incorporated in 2005, and designs and markets the Universal Safe Room(TM)
to residential, commercial and other infrastructures. ProSteel Builders
Corporation ("PSB") of Florida was incorporated in 2005, and is also an 80%
owned subsidiary, which contracts to build residential, commercial and
other infrastructures, but as of June 30, 2005, PSB had not begun any
projects.
On January 21, 2005, a newly formed acquisition Company, known as
Alternative Construction Company, Inc. ("ACC") acquired all the stock of
ACT and substantially all of the assets of Quality Metal Systems, LLC
("QMS"). In addition, ACC received an assignment of all the patents related
to production by ACT, which were owned by a shareholder of ACT. The
original purchase agreements entered into on December 14, 2004 between ACC
(purchaser) and ACT and QMS (sellers) called for the payment of $1,000,000
and issuance of 1,500,000 shares of ACC Series A Preferred Stock. During
the closing transaction and in performing its due diligence, the purchaser
("ACC") discovered that both companies would require substantial cash
infusions to continue operations. The sellers agreed to offset the cash
down payment with notes payable of $350,000 due February 19, 2005. On March
10, 2005, the notes were amended and restated with a due date of June 30,
2005. On July 1, 2005, the notes were amended and adjustments to the
reconciliation were mutually agreed to by all parties raising the
outstanding balance to $428,451. A new provision in the notes states that
if the Company were to file for public registration, the seller would
convert the remaining balance, less $100,000, to common stock at the value
of $2.65 per share. To date, any net balances payable by the purchaser to
the sellers have not been made as the purchasers continue to collect
accounts receivable and liquidate payables and other obligations.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Alternative Construction Technologies
Corporation ("ACT"), and its majority owned subsidiaries, Universal Safe
Structures, Inc. ("USS") (80%), and ProSteel Builders Corporation ("PSB")
(80%). All significant inter-company transactions have been eliminated in
consolidation. Inter-company transactions include the loans from the parent
to its subsidiaries.
REVENUE RECOGNITION
Sales for ACT and USS are recognized upon the shipment of finished goods to
customers. Allowances for cash discounts and returns are recorded in the
period in which the related sale is recognized.
F-25
ALTERNATIVE CONSTRUCTION COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
INVENTORIES
Inventories are valued at the lower of cost or market, using the first-in,
first-out method.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLES
Accounts receivables are uncollateralized customer obligations due for
products sold. The accounts receivable are due under normal trade terms
requiring payment within 30 days from the invoice date.
ACT utilizes the accounts receivable factoring service provided by The
Hamilton Group ("Hamilton") for a significant percent of its receivables.
Hamilton provides advances of 80% of the receivable they purchase for a fee
compounded daily. The factoring fee for the six months ended June 30, 2005
is $34,178. As of June 30, 2005, Hamilton had purchased $361,298 of
receivables, and they had advanced $289,038 to the Company, for a net due
from factor of $72,260. The amount is personally guaranteed by the CEO of
the Company.
In addition to Hamilton, ACT also utilizes JMB Associates as its secondary
financing source of accounts receivable for a monthly fee of 1.5%. As of
June 30, 2005 the Company had not factored any receivables through JMB
Associates.
DEPRECIATION
Depreciation of property and equipment are provided on the straight-line
method over the following estimated useful lives:
Years
-----
Transportation Equipment 5
Building 20
Machinery and Equipment 20
Computer Equipment 5
Capital Improvements 20
When assets are retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts, and any resulting gain or loss
is reflected in income for the period. The cost of maintenance and repairs
is charged to income as incurred, whereas significant renewals or
betterments are capitalized.
F-26
ALTERNATIVE CONSTRUCTION COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
LONG-LIVED ASSETS
Long-lived assets are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows from the
used of these assets. When any such impairment exists, the related assets
will be written down to fair value. No such impairment existed through June
30, 2005.
USE OF ESTIMATES
The preparation of consolidated 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 and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could
differ from those estimates.
CONCENTRATION OF RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of temporary cash
investments and accounts receivable.
The Company places its temporary cash investments with financial
institutions insured by the FDIC.
Concentrations of credit risk with respect to trade receivables are limited
due to the diverse group of customers to whom the Companies sell. The
Company has not established an allowance for doubtful accounts as none is
considered necessary, based upon factors such as the credit risk of
specific customers, historical trends, other information and past bad debt
history which has been immaterial and within the Company's expectations.
Although, the Company has been dependent on a limited member of suppliers
related to its manufacturing, it does not believe that there would be an
adverse effect if the current suppliers would limit deliveries. There are
other suppliers to provide adequate supplies for manufacture.
AMORTIZATION OF INTANGIBLE ASSETS
In July 2001, the FASB issued Statements of Financial Accounting Standards
No. 142, ("Goodwill and other Intangible Assets"). Under SFAS No. 142,
goodwill and intangible assets with indefinite lives are no longer
amortized but are reviewed annually (or more frequently, if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have indefinite lives will continue to be amortized over their
useful lives (but with no maximum life). The Company intends to adopt this
standard and, accordingly, those intangible assets that will continue to be
classified as goodwill or as other intangibles with indefinite lives will
not be amortized. Additionally, in accordance with SFAS No. 142, intangible
assets will be evaluated periodically for impairment.
F-27
ALTERNATIVE CONSTRUCTION COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
AMORTIZATION OF INTANGIBLE ASSETS
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or disposal of Long-Lived assets". The statement supersedes SFAS No. 121
and Accounting Principles Board Opinion No. 30 "Reporting Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions". The Statement retains the fundamental provisions of SFAS No.
121 for the recognition and measurement of impairment.
INCOME TAXES
The Company computes deferred income taxes in accordance with Financial
Accounting Standards Board Statement No. 109 (SFAS No. 109) "Accounting for
Income Taxes." The provision includes taxes currently payable plus the
deferred tax effect of temporary timing differences in financial statement
and income tax reporting. The principal differences in timing between the
income statement and taxable income involve depreciation expenses recorded
under the straight-line method in the income statements and by accelerated
methods for tax purposes, the timing of the franchise tax deduction and the
expensing of bad debt. The differences between income tax expenses and
taxes currently payable are reflected in deferred tax accounts in the
consolidated balance sheet. For the six months ended June 30, 2005, the
deferred tax is minimal.
SHIPPING AND HANDLING COSTS
The Company has included freight out as a component of selling and delivery
expenses, which amounted to $74,778 for the six months ended June 30, 2005.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, and accounts payable, approximate fair
value because of the current nature of these instruments. The carrying
amounts of debt instruments approximate fair value based upon the terms of
the instruments. The fair value of the loans due to and from affiliates and
shareholders are difficult to estimate due to their related party nature.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123(R), "Share-Based Payment" (SFAS 123R), which requires all
companies to measure compensation cost for all share-based payments
(including employee stock options) at fair value and to recognize cost over
the vesting period. In April 2005, the SEC announced that companies may
implement SFAS 123R at the beginning of their next fiscal year starting
after June 15, 2005 (or December 15, 2005 for small business issuers). This
new rule moves the Company's implementation date for SFAS 123R to the first
quarter of 2006.
F-28
ALTERNATIVE CONSTRUCTION COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
- --------------------------------------------------------------------------------
In May 2005, the FASB issued Statement of Financial Accounting Standards
No. 154, "Accounting Changes and Error Corrections" (SFAS No. 154), which
is effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005. SFAS 154 replaces APB
Opinion No. 20, "Accounting Changes," and FASB Statement No. 3, "Reporting
Accounting Changes in Interim Financial Statements," and changes the
requirements for the accounting for and reporting of a change in accounting
principle. SFAS 154 requires retrospective application to prior periods'
financial statements of changes in accounting principle, unless it is
impracticable to do so, in which case other alternatives are required. SFAS
154 is effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005, or for the Company's fiscal
2006. The Company is evaluating the effect that the adoption of SFAS No.
154 will have on its results of operations and financial position, but does
not believe it will have a material impact.
In April 2005, the SEC announced that companies may implement SFAS 123R at
the beginning of their next fiscal year. In March 2005, the SEC released
SEC Staff Accounting Bulletin No. 107, "Share-Based Payment" (SAB 107). SAB
107 provides the SEC staff's position regarding the application of SFAS
123R, which contains interpretive guidance related to the interaction
between SFAS 123R and certain SEC rules and regulations, and also provides
the staff's views regarding the valuation of share-based payment
arrangements for public companies. SAB 107 highlights the importance of
disclosures made related to the accounting for share-based payment
transactions. The Company is currently reviewing the effect of SAB 107, but
it does not believe SAB 107 will have a material impact on its financial
position, results of operations or cash flows.
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"), which clarifies the
term "conditional asset retirement obligations" as used in FASB Statement
No. 143, "Accounting for Asset Retirement Obligations." FASB Statement No.
143 refers to an entity's legal obligation to perform an asset retirement
activity in which the timing and/or method of settlement are conditional on
a future event that may or may not be within the control of the entity. If
an entity can reasonably estimate a liability for the fair value of a
conditional asset retirement obligation, the entity is required to
recognize the fair value of the liability when incurred. A company normally
incurs this liability upon acquisition, construction, or development of the
asset at issue. FIN 47 is effective for fiscal years ending after December
15, 2005. The Company is currently reviewing FIN 47, and at the current
time it does not believe that FIN 47 will have a material impact on its
financial position, results of operations or cash flows.
NOTE 2 - PREPAID EXPENSES
The Company paid a loan commitment fee to a loan broker in the amount of
$303,000 during the period. The amount is to be refunded by the broker if a
line of credit in the amount of $3,000,000 is not established. As of June
30, 2005 the Company is still in the process of procuring this line of
credit.
F-29
ALTERNATIVE CONSTRUCTION COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
NOTE 3 - INVENTORY:
Inventory consist of the following:
Raw materials $ 167,470
Finished goods 27,721
----------
$ 195,191
==========
NOTE 4 - PROPERTY AND EQUIPMENT:
Property and equipment is summarized as follows:
Land, building and improvement $1,029,518
Machinery and equipment 1,732,111
Furniture and fixtures 28,757
------------
2,790,386
Less Accumulated Depreciation 65,825
------------
$ 2,724,561
============
Depreciation expense was $65,825 for the six months ended June 30, 2005.
NOTE 5 - NOTES PAYABLE:
Notes payable consist of the following:
Dell Financial Services, collateralized by computer,
payable in monthly installments of $104 including
principal and interest at the variable rate of
14.99% per annum. Due on March 2009. $ 3,464
JMB Associates, principal, accrued and unpaid interest
at 18.00% per annum. Due on September 2005. The amount is
personally guaranteed by the CEO of the Company. 604,000
Paul Janssens, principal and interest at 12.00% per annum.
Due on August 2005. 428,451
South Residential Enterprises, principal and interest at 10.00%
per annum. The note may be converted into equity if the Company
is actively trading as on OTC stock. 101,591
Interbay, principal and interest at 9.00% per annum. Payable
in monthly installments of $6,005. Due on April 2020. The amount
is personally guaranteed by the CEO of the Company. 430,031
F-30
ALTERNATIVE CONSTRUCTION COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
NOTE 5 - NOTES PAYABLE: (continued)
Merchants & Planters Bank, line of credit, accrued interest
at 7.50% per annum. 13,126
Merchants & Planters Bank, collateralized by the building located in
Tennessee payable in monthly installments of $1,600 including
principal and interest at 7.49% per annum. Due on September 2006. 76,345
Avante Holding Group, revolving credit, principal and interest at
Prime plus 4% per annum. Due on October 2006. 539,297
----------
2,196,305
Less Current Portion $1,704,708
----------
$ 491,597
==========
NOTE 6 - MAJOR CUSTOMERS
During the six months ended June 30, 2005, sales to the Company's two major
customers accounted for approximately 83.9% of revenues and 70.6% of
accounts receivable.
NOTE 7 - RELATED PARTIES:
Michael W. Hawkins, the CEO for the Company, is also CEO and principal
shareholder for Avante Holding Group, Inc. ("Avante"), GAMI, LLC ("GAMI"),
Hawkstone, Inc. (Hawkstone") and Ventures Unlimited, LLC ("VUL"). GAMI,
Hawkstone and VUL each hold various amounts of shares of the Company. Mr.
Hawkins, through the issuance of stock to various companies controlled by
himself, owned approximately 51.3% of the Common Stock issued for ACC and
100% of the Series B Preferred Stock. After the Reverse Split effective
July 20, 2005, the issuance of Common Stock on August 1, 2005, and the
subsequent issuance of Common Stock on August 15, 2005, Mr. Hawkins'
companies owned approximately 37.35% of the outstanding Common Stock of the
Company and 100% of the Series B Preferred Stock.
ACC has contracted with Avante for certain investment banking and
consulting services to be provided pursuant to four agreements between ACC
and Avante.
ACC and Avante entered into a Consulting Agreement on October 24, 2004 to
provide corporate guidance and financial and accounting services. As
compensation, Avante receives $8,000 per month and bonus compensation.
Under this agreement Avante has the unilateral authority to hire additional
personnel required to perform investor relations, financial administration,
and executive oversight and request reimbursement from ACC on a
reimbursable expense basis. The term of this agreement is for three years
with one additional automatic three-year extension.
F-31
ALTERNATIVE CONSTRUCTION COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
- --------------------------------------------------------------------------------
NOTE 7 - RELATED PARTIES: (continued)
ACC and Avante entered into an Exclusive Investment Banking Services
Agreement on October 24, 2004 to provide merger and acquisition consulting
services. The term of the agreement is for three years. Compensation is
based upon a double Lehman Formula.
ACC and Avante entered into a Finder Agreement on October 24, 2004 for a
period of three years. The Agreement may be extended for consecutive terms
upon mutual consent of both parties. ACC pays Avante a standard 10% in cash
and 10% in warrants finder's fee with a 2% expense account.
ACC and Avante entered into a Sales Commission Agreement on January 20,
2005 for a period of five years with two automatic 5-year extensions. Under
this agreement Avante earns $0.10 per square foot of panels sold to its
registered customers as approved by ACC.
On August 1, 2005, ACC and Avante entered into a Compliance Consulting
Agreement for a period of five years with two automatic five year
extensions. Under this agreement, Avante is paid $250,000 per year, payable
in equal monthly installments.
PSB has a management contract with Alternative Construction Partners, LLC,
which is owned equally between GAMI and Alternative Construction Options,
LLC ("ACO").
The CEO of the Company has personally guaranteed several obligations. In
addition to the various notes identified above, he has also personally
guaranteed two of the Company payable balances with Dow Chemical and
Phoenix Metals.
NOTE 8 - INCOME TAXES:
Prior to 2005, ACT was an "S" Corporation and all tax benefits were
recognized by the prior owner. For the first five months of 2005, the
Company operated at a tax loss. At the appropriate time, the Company will
accrue the required tax obligations. At June 30, 2005, the Company accrues
no tax liability.
F-32
ALTERNATIVE CONSTRUCTION COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
- --------------------------------------------------------------------------------
NOTE 9 - COMMON STOCK AND ADDITIONAL PAID - IN CAPITAL:
Effective July 30, 2005, the Company authorized a Reverse Split at the
ratio of 100 shares for one share of Common Stock. Subsequent to the
Reverse Split, the Board of Directors of the Company authorized and
approved 5,099,451 additional shares of stock to be issued to select
management, officers, investors, corporations and entities.
The Series A Preferred Stock was issued to Paul Janssens in conjunction
with the purchase by the Company of ACC and select assets of Quality Metals
Systems, LLC. This stock has the conversion rights of one for one share of
common stock.
The Series B Preferred Stock was issued to GAMI, LLC or Avante Holding
Group, Inc in conjunction with the use of personal guarantees by Michael W.
Hawkins, CEO of the Company and principal shareholder in GAMI, LLC and
corporate guarantees by Avante Holding Group, Inc. The conversion rights
are one for two shares of common stock.
F-33
[BACK PAGE OF PROSPECTUS]
PROSPECTUS
3,969,301 SHARES OF COMMON STOCK
to be offered by Selling Shareholders
ALTERNATIVE CONSTRUCTION COMPANY, INC.
__________________, 2005
PART II - INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant has authority under Section 607.0850 of the Florida
Business Corporation Act to indemnify its directors and officers to the extent
provided in such statute. The Registrant's Articles of Incorporation provide
that the Registrant shall indemnify each of its executive officers and directors
against liabilities imposed upon them (including reasonable amounts paid in
settlement) and expenses incurred by them in connection with any claim made
against them or any action, suit or proceeding to which they may be a party by
reason of their being or having been a director or officer of the Registrant.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Florida law. In addition,
each director will continue to be subject to liability for (a) violations of the
criminal law, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful; (b)
deriving an improper personal benefit from a transaction; (c) voting for or
assenting to an unlawful distribution; and (d) willful misconduct or a conscious
disregard for the best interests of the Registrant in a proceeding by or in the
right of the Registrant to procure a judgment in its favor or in a proceeding by
or in the right of a shareholder. The statute does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1933 Act") may be permitted to directors, officers
or controlling persons of Registrant, pursuant to the foregoing provisions or
otherwise, Registrant has been advised that, in the opinion of the Securities
and Exchange Commission (the "Commission"), such indemnification is against
public policy as expressed in the 1933 Act, and is therefore unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of Registrant in the successful defense of any
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Registration fees $ 812.26
Legal fees and expenses $ 50,000*
Printing and engraving expenses $ 10,000*
Accounting fees and expenses $ 12,000*
Miscellaneous $ 7187.74*
Total $ 80,000*
*All of the above, except the SEC Registration Fee, are estimated and remain
subject to further contingencies.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
None
II-1
ITEM 27. EXHIBITS
3.1 Articles of Incorporation, dtd 10/26/2005*
3.2 Bylaws*
3.3 Articles of Amendment dated 1/10/05
3.4 Articles of Amendment of Articles of Incorporation, dated
1/14/05*
3.5 Articles of Amendment of Articles of Incorporation, dated
6/2/05*
3.6 Articles of Amendment of Articles of Incorporation, dated
8/9/05*
5.1 Opinion Regarding Legality*
10.1 Acquisition Agreement between Alternative Construction Company
and Alternative Construction Technology, dated 12/15/04*
10.2 Acquisition Agreement between Alternative Construction Company
and Quality Metal Systems, dated 12/15/04*
10.3 Patent Assignment, Patent Number 5827458, Continuous Method of
Making Structural Foam Panels*
10.4 Patent Assignment, Patent Number 6438906, Safe Room*
10.5 Patent Assignment, Patent Number 5373678, Structural Panel
System*
10.6 Alternative Construction Company, Inc. Year 2004 Stock Option
Plan*
10.7 Option Grant for GAMI, LLC, dated 10/26/04*
10.8 Employment Agreement - Charles Young*
10.9 Employment Agreement - Joseph Deming*
10.10 Consulting Agreement between Alternative Construction Company
and Avante Holding Group*
10.11 M&A Agreement between Alternative Construction Company and
Avante Holding Group*
10.12 Sales Agreement between Alternative Construction Company and
Avante Holding Group*
10.13 Compliance Consulting Agreement between Alternative Construction
Company and Avante Holding Group*
10.14 Sales of Accounts Factoring and Security Agreement*
10.15 Convertible Promissory Note with JMB Associates, dated 2/22/05*
10.16 Convertible Promissory Note with JMB Associates, dated 6/30/05*
10.17 Revolving Credit Agreement between Alternative Construction
Company and Avante Holding Group*
10.18 Amended and Restated Convertible Promissory Note with
Willis Kilpatrick, dated 1/21/05*
10.19 Amended and Restated Convertible Promissory Note with
Paul Janssens, dated 6/30/05*
10.20 Management Services Agreement between ProSteel Builders, Corp.
and Alternative Construction Partners, dated 8/15/05*
10.21 Form of Warrants*
23.1 Consent of LIebman Goldberg & Drogin LLP*
23.2 Consent of Law Offices of Thomas G. Amon**
23.4 Power of Attorney*
*Filed herewith.
** Included in Exhibit 5.1
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Sections 10(a)(3)of the Securities Act of
1933 (the "Act");
(ii) Reflect in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities
II-2
offered would not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) Include any additional or changed material information on the plan of
distribution;
(2) That, for the purpose of determining any liability under the Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Melbourne, State of Florida, on September, 8, 2005.
Alternative Construction Company, Inc
Signature Title Date
--------- ----- ----
By: /s/ Michael W. Hawkins Chief Executive Officer September 8, 2005
---------------------- and Chairman
Michael W. Hawkins
/s/ Steve S. Rodriguez Director September 8, 2005
---------------------
Steve S. Rodriguez
/s/ Willis Kilpatrick Director September 8, 2005
---------------------
Willis Kilpatrick
POWER OF ATTORNEY
We, the undersigned officers and directors of Alternative Construction
Company, Inc., hereby severally constitute and appoint Michael W. Hawkins our
true and lawful attorney-in-fact and agent, with full power of substitution,
for us and in our stead, in any and all capacities, to sign any and all
amendments (including pre-effective and post-effective amendments) to this
Registration Statement and all documents relating thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
U.S. Securities and Exchange Commission, granting to said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
necessary or advisable to be done in and about the premises, as full to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all the said attorney-in-fact and agent, or any of them, or their
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
SIGNATURE TITLE DATE
- ---------------------------- ------------------------------------ ---------------
/s/ Michael W. Hawkins Chief Executive Officer and Chairman September 8, 2005
- ---------------------------
Michael W. Hawkins
/s/ Steves Rodriguez Chief Financial Officer, Treasurer September 8, 2005
- ---------------------------
Steves Rodriguez
/s/ Willis Kilpatrick Director September 8, 2005
- ---------------------------
Willis Kilpatrick