Registration No. 333-128191
As filed with the Securities and Exchange Commission on September 22, 2006
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
(Amendment No. 10)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ALTERNATIVE CONSTRUCTION COMPANY, INC.
(Name of small business issuer in its charter)
(Commission File No.)
3448
----------
FLORIDA 20-1776133
(State or Other (Primary Standard Industrial (IRS Employer
Jurisdiction Classification Number) Identification Number)
of Incorporation
or Organization)
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 registration statement amendment filed pursuant
to Rule 462(d) under the Securities Act, check the following box and list 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 Number of Shares to Offering Price per Aggregate Offering Amount of
Registered be Registered (1) Share (2) Price Registration Fee(6)
- --------------------------------- -------------------- ------------------ ------------------ ----------------
Common Stock, par value $0.0001 396,761(3) $2.65 $ 1,051,417 $ 111.50
Common Stock, par value $0.0001 200,000(3) $2.65 $ 530,000 $ 56.71
Common Stock, par value $0.0001 132,075(3) $2.65 $ 349,999 $ 37.45
Common Stock, par value $0.0001 7,548(3) $2.65 $ 20,002 $ 2.14
Common Stock, par value $0.0001 4,000(3) $2.65 $ 10,600 $ 1.13
Common Stock, par value $0.0001 210,290(3) $2.65 $ 557,269 $ 59.63
Common Stock, par value $0.0001 3,120,000(4) $2.65 $ 8,268,000 $ 884.68
Common Stock, par value $0.0001 83,000(5) $2.65 $ 219,950 $ 23.54
--------- ----- ----------- ---------
Total 4,153,674 -- $11,007,237 $1,177.78
(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) The offering price has been estimated solely for the purpose of computing
the amount of the registration fee in accordance with Rule 457(c). Our common
stock is not traded on any national exchange. In accordance with Rule 457(c),
the offering price was determined by the price shares were sold to our
shareholders in a private placement memorandum. The price of $2.65 is a fixed
price at which the selling shareholders may sell their shares until our common
stock is quoted on the OTC Bulletin Board at which the shares may be sold at
prevailing market prices or privately negotiated prices.
(3) Issuable on conversion of outstanding convertible debentures at conversion
prices of $2.00, $2.65 and $0.50 per share.
(4) Issuable upon exercise of outstanding common stock purchase warrants at
exercise prices of $.50, $1.00, $1.50, $2.00, $2.50 and $3.00 per share.
(5) Represents shares of the registrant's common stock being registered for
resale that have been issued to the selling shareholders named in this
registration statement.
(6) Previously Paid.
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.
2
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 __, 2006
[Company Logo]
4,153,674 SHARES OF COMMON STOCK
TO BE OFFERED BY CERTAIN HOLDERS OF SECURITIES OF
ALTERNATIVE CONSTRUCTION COMPANY, INC.
This prospectus relates to 4,153,674 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
950,674 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,
3,120,000 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 founding shareholders.
We are not selling any shares of our common stock in this offering and therefore
will not receive any proceeds from this offering. Instead, the shares may be
offered and sold from time to time by the selling shareholders and/or their
registered representatives at a fixed price of $2.65 per share until our shares
are quoted on the OTC Bulletin Board and thereafter at prevailing market prices
or privately negotiated prices. As a result of such activities, the selling
shareholders may be deemed underwriters as that term is defined in the federal
securities laws.
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 31. 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 7 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 __, 2006.
3
TABLE OF CONTENTS
PROSPECTUS SUMMARY 5
RISK FACTORS 7
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 18
LEGAL PROCEEDINGS 25
MANAGEMENT 25
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 26
EXECUTIVE COMPENSATION 27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 28
SELLING SHAREHOLDERS 29
PLAN OF DISTRIBUTION 31
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES 32
DESCRIPTION OF SECURITIES 32
EXPERTS 36
LEGAL MATTERS 36
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.
4
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, ProSteel Builders Corporation, a Florida
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 10.
The Company
We are Alternative Construction Company, Inc., a Florida corporation, which was
formed in October 2004 for the purpose of conducting any legal business. 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 and developers.
Our Predecessor, Alternative Construction Technologies Corporation, a Delaware
corporation ("ACT" or the "Predecessor"), 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 formed in April 2005,
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 Corp.,
a Florida corporation formed in April 2005, which is now our operating
subsidiary for commercial and residential development utilizing the ACTech
PanelTM.
ACT was primarily performing research and development on its patented ACTech
Panel(tm) and the patented safe room prior to the acquisition. During this time,
ACT sold its product primarily to builders for commercial buildings and had
introduced the product to Nelson LC in designing the school modular classroom
known as the "Hybrid Classroom" as designed and developed by Florida Architects,
Inc. in the state of Florida.
In 2004, the majority of the Predecessor's revenues were derived from the sale
of our ACTech Panel(TM) primarily in the United States. The principal outlet for
this product is commercial building developers. We are expanding the current
supply of the ACTech Panel(TM) for the building of classrooms in Florida.
During 2006, 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 Up to 4,153,674 shares the selling shareholders
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.
5
SUMMARY FINANCIAL INFORMATION
The following table provides selected consolidated financial and operating data
for the year ended December 31, 2004 for the Predecessor company, for the period
January 1 through January 20, 2005 for the Predecessor company, for the period
January 21, 2005 (date of acquisition) through December 31, 2005 for ACC, for
the six months ended June 30, 2006, the three months ended June 30, 2006, for
the period January 21, 2005 (date of acquisition) through June 30, 2005 and for
the three months ended June 30, 2005 for ACC and the combined balance sheet data
at December 31, 2004 for the Predecessor company and at December 31, 2005 and
June 30, 2006 for ACC have been derived from consolidated financial statements
included elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA
ACC Predecessor
--------------------------------------------------------- ---------------------
For the For the
Period Period For the
Three Three Six January January Period For the
Months Months Months 21, 2005 21, 2005 January Year
Ended Ended Ended through through 1 through Ended
June 30, June 30, June 30, June 30, December January December
2006 2005 2006 2005 31, 2005 20, 2005 31, 2004
--------- --------- --------- --------- --------- --------- ---------
Revenue, net 1,564,759 1,466,581 3,614,599 2,037,673 9,528,984 84,152 1,161,751
Gross profit (loss) 359,945 262,326 1,133,283 279,795 2,056,722 3,366 (169,816)
Loss from operations (430,211) (108,299) (341,231) (555,408) (72,593) (31,310) (882,270)
Net loss (525,717) (148,506) (484,929) (615,135) (318,177) (31,310) (889,000)
BALANCE SHEET DATA
ACC Predecessor
--------------------- -----------
June December December
30, 2006 31, 2005 31, 2004
--------- --------- -----------
Current assets 2,257,242 2,688,363 256,112
Current liabilities 3,802,854 4,235,450 162,798
Total assets 5,349,552 5,826,017 913,100
Long-term debt 429,365 513,996 85,598
Stockholders' equity 1,128,873 1,091,047 677,937
6
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 MEMORANDUM BEFORE INVESTING IN THE SECURITIES.
PROSPECTIVE INVESTORS SHOULD NOTE THAT THIS MEMORANDUM 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 MEMORANDUM. THE ACCOMPANYING
INFORMATION CONTAINED IN THIS MEMORANDUM IDENTIFIES CERTAIN IMPORTANT FACTORS
THAT COULD CAUSE SUCH DIFFERENCES.
Risks Related to our Business
WE MAY NEED ADDITIONAL FINANCING TO MEET CASH FLOW REQUIREMENTS. We incurred
substantial losses for the period January 21, 2005 (date of acquisition) through
December 31, 2005 offset with a profitable trend that began in the third quarter
of 2005 and continued for the three months ended March 31, 2006. For the three
months ended June 30, 2006, as the Company had projected due to seasonal sales,
the Company was not profitable. We have a negative cash flow and a working
capital deficit. The Company required additional financing for working capital
from the date of acquisition through the current period to overcome a negative
cash flow from operations. As a result, our auditors have qualified their report
on our financial statements for the period January 21, 2005 (date of
acquisition) through December 31, 2005 with respect to the Company's ability to
continue as a going concern. If we are unable to obtain future financing the
daily operations of the company would eventually become strained to the point
that ongoing operations would not be possible. In addition, the company is
dependent on purchasing materials from outside vendors to manufacture its
products. Should cash flow not be sufficient to support these relationships, in
addition to financing not being available, it would become increasingly
difficult to support ongoing operational expenses associated with the company's
business. There is no guarantee that we will succeed in obtaining additional
financing, or if available, that it will be on terms favorable to us, or that
raw material prices will be in the range necessary to support ongoing
operations.
IF THE PRICE OF RAW MATERIALS CONTINUES TO FLUCTUATE IT WILL CREATE A REDUCTION
IN MANUFACTURING CAPACITY. We may need significant additional financing to
acquire raw materials in order to meet demand. In the current market for steel
and foam, key ingredients to our product rise and fall in cost, which could
affect our abilities to procure enough raw materials based on cash and credit
availability to produce enough products to meet demand and sell finished
products at a profit. With an increase in raw material pricing, which often
fluctuates because of availability, natural disasters, and force majures, the
company may not maintain adequate cash to procure raw materials to meet current
demand and expanded growth. If additional funding is required in the future,
obtaining such financing is at the sole discretion of numerous third party
financial institutions. Therefore, the company cannot predict its ability to
obtain future financing or the specific terms associated with such agreements.
As such, the Company would be required to adjust production schedules based on
cash availability and market pricing for its finished products which could
therefore reduce production and limit its sales growth potential.
WE HAVE A LIMITED RELEVANT OPERATING HISTORY, AND WE MAY NOT BE ABLE TO ACHIEVE
PROFITABLILITY IN THE NEAR TERM. Our company and management team is newly formed
and has limited experience working together in this area of production and
sales. Such limits could adversely effect our near term performance in the
management of our assets. Our company has had a cumulative net loss from
inception of approximately $1,087,000. 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 will create losses for the company
that would require additional financing to meet cash flow requirements. 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 rapid growth business, and the development
and marketing of a product that has been around for decades but only recently
actively marketed and manufactured.
7
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 dates 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. The Company has issued convertible debentures to 3
independent investors' in the aggregate principal amount of $1,360,059. In
addition, the Company has a revolving credit agreement with Avante Holding
Group, Inc., for up to $500,000 with an amendment for up to an additional
$500,000, which as of June 30, 2006 had withdrawn a net of $691,588. Each
debenture and revolving credit agreement provides for the following events of
default, and a default under one debenture is deemed a default under all
debentures. In the event the collateral is inadequate to cover the accelerated
payment, the lenders may exercise all avenues available under the law to collect
its debt to include non-collateralized assets, such as our patents, in a forced
reorganization or other bankruptcy proceedings where our U.S. Patents may be
subject to the claims of general creditors.
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. 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 DO HAVE MANUFACTURING CAPABILITIES. The company relies on one production line
to manufacture its products. While adequate replacement parts are maintained and
regularly scheduled maintenance conducted, the company has the risk of shutting
down if a key processing line component fails. 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. 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.
8
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 June 30, 2006, we
had outstanding 4,994,350 shares of common stock, of which 4,918,350 shares
became available for public resale under Rule 144 in August 2006. Also as of
June 30, 2006, 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 June 2006. As of June 30, 2006, we had outstanding a total of
188,680 shares of Series C preferred stock which are convertible into a total of
188,680 shares of common stock. 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 1,100,000
shares of common stock, additional options have been granted for 900,000
scheduled to vest in various increments over the next two years, and there
remain available for options under the plan 2,000,000 shares of common stock.
There are 3,120,000 shares that are issuable upon exercise of outstanding
warrants, and 886,401 shares that are issuable upon conversion of debentures,
and up to 64,273 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 83,000
shares of our restricted common stock, and approximately 4,006,301 shares of
common stock issuable upon exercise or conversion of outstanding warrants, and
debentures, and 64,273 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. 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;
o Negative or other unanticipated results of clinical trials or other
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, 3,120,000 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
83,000 outstanding common shares. This registration statement also includes
886,401 shares that are issuable upon conversion of outstanding debentures, at a
conversion rate ranging from $0.50 to $2.65 per share, without further payment
for those shares. Further, this registration statement includes an additional
64,273 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
and22 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.
9
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 June 30, 2006, we had 1,500,000
shares of outstanding Series A preferred stock, 2,010,000 shares of outstanding
Series B preferred stock, and 188,680 shares of 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 June 30, 2006, there remained
1,490,000 unissued shares of authorized Series B Preferred Stock. Furthermore,
each share of Series C preferred stock has a liquidation preference of $2.65 per
share on an as converted basis before any holders of common, Series A preferred,
and Series B preferred would be entitled to receive payment for their shares or
dividends upon a liquidation of ACC. In May 2006, a total of 188,680 shares of
Series C preferred was issued. Additionally, 811,321 unissued shares of
authorized Series C Preferred Stock, and 44,000,000 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 (el 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, 'I "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.
10
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."
WHERE YOU CAN FIND MORE INFORMATION
In addition, we 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. 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. In addition, we 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 (File No. 333-128191)
under the Securities Act with respect to the securities offered by 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. There are no guarantees that these warrants will ever
be exercised. 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
CRITICAL ACCOUNTING POLICIES
Revenue Recognition: We recognized revenue on our products in accordance with
the Securities Exchange Commission (SEC) Staff Accounting Bulletin No. 104,
"Revenue Recognition in Financial Statements", which contain revisions to Topic
13: Revenue Recognition, in the Staff Accounting Bulletin No. 101. 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.
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.
11
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.
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. The marketing of our products is through our
internal sales staff and the use of distributors.
In 2004, all of our Predecessors' revenues were derived from the sale of our
ACTech Panel(TM) in the United States. 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 expanded our distribution network to include the
additional builders of classrooms in Florida. In 2006, we plan to expand into
other states, including but not limited to, Texas, Georgia and California.
Alternative Construction Company, Inc. a Florida Corporation ("ACC"), was formed
on October 24, 2004. Alternative Construction Technologies Corporation, a
Delaware corporation ("ACT"), was formed in 1997 by Mr. Paul Janssens, sole
shareholder and beneficial owner, and was acquired by ACC on January 21, 2005
(the "Transaction") for the purchase price of One Million Two Hundred and Fifty
Thousand ($1,250,000.00) Dollars. After the transaction was completed, continued
due diligence determined that an agreed upon reduction in the purchase price for
ACT was required to reflect various adjustments resulting in an adjusted
purchase price of Eight Hundred and Seventy-Nine Thousand Eight Hundred and
Ninety-Four Dollars ($879.894). ACC also acquired certain assets from Quality
Metal Systems, LLC, a Florida limited liability company ("QMS"), which was also
owned by Paul Janssens for One Million Two Hundred and Fifty Thousand
($1,250,000.00) Dollars. Subsequently, Avante Holding Group, Inc. incorporated
Safe Rooms, Inc. on April 27, 2005. After the incorporation, the company changed
its name to Universal Safe Structures, Inc. ("USS"). On June 28, 2005 ACC
acquired 80% of the Company stock for Eight Hundred Dollars ($800.00). Prior to
the time of acquisition by ACC, USS conducted no business. USS has two
shareholders, ACC and Avante Holding Group, Inc. Avante Holding Group, Inc.
incorporated ProSteel Builders Corporation ("PSB") on April 28, 2005 with the
initial shareholders being ACC (80%) and Avante Holding Group, Inc. (20%). PSB
was incorporated to function utilizing the ACC products in the commercial and
residential construction marketplaces. After the acquisition of ACT by ACC, the
operational and marketing personnel continued employment with the Company.
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.
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.
The following information should be read in conjunction with the consolidated
financial statements of ACC and ACT, our Predecessor, 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.
12
SUMMARY FINANCIAL INFORMATION
The following table provides selected consolidated financial and operating data
for ACC for the three months ended June 30, 2006 and the three months ended June
30, 2005.
STATEMENT OF OPERATIONS DATA
Three Months Ended
---------------------
June 30, June 30,
2006 2005
--------- ---------
Revenue, net 1,564,759 1,466,581
Gross profit 359,945 262,326
Loss from operations (430,211) (108,299)
Net loss (525,717) (148,506)
BALANCE SHEET DATA
ACC
---------------------
June December
30, 2006 31, 2005
---------------------
Current assets 2,257,242 2,688,363
Current liabilities 3,802,854 4,235,450
Total assets 5,349,552 5,826,017
Long-term debt 429,365 513,996
Stockholders' equity 1,128,873 1,091,047
THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2005
RESULTS OF OPERATIONS
Revenues for the three months ended June 30, 2006 were approximately
$1,565,000 as compared to approximately $1,467,000 for the three months ended
June 30, 2005. Revenue increased approximately $98,000 or 6.7%. The second
quarter has historically lower revenues in comparison to other quarters due to
the seasonal ordering by the classroom marketplace in the State of Florida which
historically orders are higher in the third and fourth quarters.
Gross profit for the three months ended June 30, 2006 was approximately
$360,000 (23.0% of revenue) compared to approximately $262,000 (17.9%) for the
same period in 2005. The change in the margins is a direct response to the
increased revenues complemented by the significant reduction in cost of goods
sold as a percent of revenue. The effects of continued negotiations and volume
pricing from the primary vendors continued throughout 2005 and 2006.
For the three months ended June 30, 2006 compared to the same period in
2005, the Company had marketing expenditures of approximately $33,000 compared
to approximately $86,000, respectively. The expenditures for the second quarter
of 2006 were approximately 28% lower than the first quarter due to seasonal
marketing requirements. The reduction of expenses in 2006 versus 2005 was due to
the implementation of new management's marketing plan in 2005 that enabled the
significant increase in revenues for the last two quarters of 2005. Those
expenditures were not necessary in 2006.
Salaries and other compensation expenses were approximately $164,000
(10.5% of revenue) for the three months ended June 30, 2006 compared to
approximately $130,000 (8.9% of revenue) for the three months ended June 30,
2005. This increase of approximately $34,000 or 26.2%, is primarily due to
ProSteel Builders Corporation becoming a subsidiary in 2006. Professional fees
were approximately $188,000 (12.0% of revenue) for the three months ended June
30, 2006 compared to approximately $85,000 (5.8% of revenue) for the three
months ended June 30, 2005. The increase in 2006 compared to 2005 was due to
increased expenses for compliance consulting ($67,500) which was contracted in
August 2005, accounting fees (approximately $15,000 increase) and the increased
usage of third party consultants. The accounting fees increased primarily
related to services related to the public registration of the Company. Cash
procurement fees (as recorded in General and Administrative expenses) were
approximately $34,000 (2.3% of revenue) for the three months ended June 30, 2005
compared to approximately $80,000 (5.1% of revenue) for the three months ended
June 30, 2006. The increase was primarily related to the factoring of accounts
receivable.
13
Interest expense was approximately $117,000 (7.5% of revenue) for the
three months ended June 30, 2006 compared to approximately $40,000 (2.7% of
revenue) for the three months ended June 30, 2005. This significant increase is
directly related to the cost of capital.
For the three months ended June 30, 2006, we reported a loss from
operations of approximately $430,000 compared to approximately $108,000 in
losses from operations for the three months ended June 30, 2005. Net loss for
the three months ended June 30, 2006 was approximately $526,000 compared to
approximately $149,000 for the three months ended June 30, 2005. The impact of
the addition of ProSteel Builders Corporation in the third quarter of 2005 as
related to the implementation of their marketing plan with limited revenues,
this subsidiary contributed a loss from operations of approximately $102,000 and
a net loss of approximately $84,000 as a portion of the above losses for the
three months ended June 30, 2006.
TAXES
For the three months ended June 30, 2006 and 2005, no taxes were recorded
as the Company operated at a net loss.
SUMMARY FINANCIAL INFORMATION
The following table provides selected consolidated financial and operating data
for ACC for the six months ended June 30, 2006 and the period January 21, 2005
(date of acquisition) through June 30, 2005.
STATEMENT OF OPERATIONS DATA
For the
Period
Six January
Months 21, 2005
Ended through
June 30, June 30,
2006 2005
--------- ---------
Revenue, net 3,614,599 2,037,673
Gross profit 1,133,283 279,795
Loss from operations (341,231) (555,408)
Net loss (484,929) (615,135)
SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO THE PERIOD JANUARY 21, 2005 (DATE OF
ACQUISITION) THROUGH JUNE 30, 2005
RESULTS OF OPERATIONS
ACC acquired ACT and certain assets of QMS on January 21, 2005. Prior to
the acquisition, ACC had only immaterial administrative activity. The period in
2005 reflects the change of ownership and the transition to management's
approach to the business compared to the Predecessor.
Revenues for the six months ended June 30, 2006 were approximately
$3,615,000 as compared to approximately $2,038,000 for the period January 21,
2005 (date of acquisition) through June 30, 2005. These significant increases,
amounting to approximately $1,577,000 or 77.4%, resulted from the expansion into
the classroom marketplace in the State of Florida. Subsequent marketing and
expansion after June 30, 2005 is reflective in the significant growth for the
last two quarters of 2006.
Gross profit for the six months ended June 30, 2006 was approximately
$1,133,000 (31.3% of revenue) compared to approximately $280,000 (13.7% of
revenue) for the period January 21, 2005 (date of acquisition) through June 30,
2005. The change in the margins is a direct response to the increased revenues
complemented by the significant reduction in cost of goods sold as a percent of
revenue. The effects of continued negotiations and volume pricing from the
primary vendors continued throughout 2005 and 2006.
For the period January 21, 2005 (date of acquisition) through June 30,
2005, the Company had marketing expenditures of approximately $114,000 compared
to approximately $79,000 for the six months ended June 30, 2006. The
expenditures for 2005 were higher in comparison to the same period in 2006 as
new management implemented a program in 2005 to facilitate increased revenues
for the remaining portion of 2005 and most of these expenses were not repetitive
in the current period.
14
Salaries and other compensation expenses were approximately $320,000 (8.9%
of revenue) for the six months ended June 30, 2006 compared to approximately
$197,000 (9.7% of revenue) for the period January 21, 2005 (date of acquisition)
through June 30, 2005. This increase of approximately $123,000 or 62.4%, is
partially due to the addition of management personnel and support staff as
needed along with the effect of the addition of ProSteel Builders Corporation
and its respective personnel costs. Professional fees were approximately
$327,000 (9.0% of revenue) for the six months ended June 30, 2006 compared to
approximately $161,000 (7.9% of revenue) for the period January 21, 2005 (date
of acquisition) through June 30, 2005. The increase in 2006 compared to 2005
related to the Company utilizing outside professionals for compliance consulting
(approximately $143,000 for 2006), accounting and legal (combined approximately
$54,000 for 2006). The fees associated with the factoring of accounts receivable
was approximately $170,000 (4.7% of revenue) for the six months ended June 30,
2006 compared to approximately $34,000 (1.7% of revenue) for the period January
21, 2005 (date of acquisition) through June 30, 2005. The significant increase
was due to the Company factoring its accounts receivable beginning in April 2005
along with the significant increases in accounts receivable.
Interest expense was approximately $187,000 (5.2% of revenue) for the six
months ended June 30, 2006 compared to approximately $60,000 (2.9% of revenue)
for the period January 21, 2005 (date of acquisition) June 30, 2005. This
significant increase is directly related to the cost of capital.
For the six months ended June 30, 2006, we reported a loss from operations
of approximately $341,000 compared to approximately $555,000 in losses from
operations for the period January 21, 2005 (date of acquisition) through June
30, 2005. Net loss for the six months ended June 30, 2006 was approximately
$485,000 compared to approximately $615,000 for the period January 21, 2005
(date of acquisition) through June 30, 2005. The impact of the addition of
ProSteel Builders Corporation in the third quarter of 2005 as related to the
implementation of their marketing plan with limited revenues, this subsidiary
contributed a loss from operations of approximately $210,000 and a net loss of
approximately $171,000 as a portion of the above losses for the six months ended
June 30, 2006.
TAXES
For the six months ended June 30, 2006, no taxes were recorded as the
Company operated at a net loss. For the period January 21, 2005 (date of
acquisition) through June 30, 2005, no taxes were recorded as the Company
operated at a net loss.
15
Summary Financial information
The following table provides selected consolidated financial and operating data
for the period January 21, 2005 (date of acquisition) through December 31, 2005
for ACC, the period January 1, 2005 through January 20, 2005 for our Predecessor
and for the year ended December 31, 2004 for our Predecessor, the consolidated
balance sheet for ACC at December 31, 2005, and the combined balance sheet data
at December 31, 2004 for the Predecessor company which have been derived from
consolidated and combined financial statements included elsewhere in this
Prospectus:
STATEMENT OF OPERATIONS DATA
ACC
----------- Predecessor
For the -----------------------
Period For the
January 21, Period
2005 January 1 For the
through through Year Ended
December January 20, December
31, 2005 2005 31, 2004
----------- ----------- ----------
Revenue, net 9,528,984 84,152 1,161,751
Gross profit (loss) 2,056,722 3,366 (169,816)
(Loss) from operations (72,593) (31,310) (882,270)
Net (loss) (318,177) (31,310) (889,000)
BALANCE SHEET DATA
ACC Predecessor
--------- -----------
December December
31, 2005 31, 2004
--------- --------
Current assets 2,688,363 256,112
Current liabilities 4,235,450 162,798
Total assets 5,826,017 913,100
Long-term debt 513,996 85,598
Stockholders' equity 1,091,047 677,937
RESULTS OF OPERATION
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.
16
Revenues for the period January 21, 2005 (date of acquisition) through December
31, 2005 were approximately $9,529,000 as compared to approximately $1,162,000
for the year ended December 31, 2004 for our Predecessor. These significant
increases amounting to approximately $8,367,000, resulted from the expansion
into the classroom marketplace in the State of Florida.
Gross profit/(losses) for the period January 21, 2005 (date of acquisition)
through December 31, 2005 were approximately $2,057,000 compared to an
approximately $(170,000) for the corresponding period in 2004 for our
Predecessor. 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. Raw materials represent 69% of the cost of goods for the manufacturing of
the product. As such, management negotiated firm pricing for its steel and foam
for a period of twelve months that maintained step decreases in cost based upon
volume. As the sales volume grew, the cost of raw materials per unit decreased.
In addition, the company conducted a complete review of its raw material
requirements and shopped around for better pricing and alternate vendors, which
directly improved the Gross Profit Margin. 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. This was at the directive of prior ownership as the Company
focused on research and development without implementing a full marketing plan.
In 2005, current management implemented a marketing budget thereby increasing
the exposure of ACT and its products. The change in marketing included the
hiring of marketing professionals, maintaining a high profile web site to
include payment for metatag key words that increase awareness through
pay-per-click programs, enrollment in five trade shows in Florida and Texas,
development of professional marketing material, and conducting presentations to
interest groups, such as the United Nations Environmental Programme (UNEP).
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 period January 21, 2005 (date
of acquisition) through December 31, 2005 was approximately $263,000 as compared
to $56,000 in 2004 for our Predecessor.
Salaries and other compensation expenses were approximately $589,000 (6.2% of
revenue) for the period January 21, 2005 (date of acquisition) through December
31, 2005 compared to approximately $536,000 (46.1% of revenue) for 2004. This
increase of approximately $53,000 or 9.9%, is partially due to additional
management and support staff as needed for the increase in marketing and
production. In 2004, our Predecessor's existing staff was under utilized due to
the minimal production levels. Professional fees amounted to approximately
$654,000 (6.9% of revenue) for the period January 21, 2005 (date of acquisition)
through December 31, 2005 as compared to approximately $46,000 (4.0% or revenue)
during 2004 for our Predecessor. Professional fees in 2005 were 30.7% of total
operating expenses. This amount for 2005 was primarily due to accounting
(approximately $98,000) and consulting expenses (approximately $556,000 for
various outside professional consultants for the duties of CEO, corporate
communication expenses, legal, manufacturing analysis and other related
activities) associated with production. Cash procurement fees (as recorded in
General and Administrative expenses) of approximately $349,000 (3.7 % of
revenue) were incurred as the Company contracted for additional working capital
through the factoring of accounts receivable (approximately $182,000) and the
raising of additional cash and the applicable fees under the Investment Banking
Agreement with Avante Holding Group, Inc. (approximately $167,000). General and
administrative expenses, consisting of rent and occupancy costs, communications,
cash procurement fees and other expenses related to operations amounted to
approximately $1,866,000 (19.6% of revenue) for the period January 21, 2005
(date of acquisition) through December 31, 2005. General and administrative
expenses for 2004 amounted to approximately $657,000 (56.5% of revenue). The
increase of approximately $1,209,000 or 184.0%, for 2005 over 2004 for our
Predecessor 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 period January 21, 2005 (date of acquisition) through December 31, 2005,
we reported operating losses of approximately $73,000 and overall losses of
approximately $318,000, compared to our Predecessor's operating losses of
approximately $882,000 and overall losses of $889,000 for the year ended
December 31, 2004. The decrease in the operating loss as compared to 2004 is
primarily due to increased revenues and the reduction in the cost of goods sold
as a percent of revenues. The overall loss for 2005 reflects the related
interest expense for the financing of working capital throughout 2005.
TAXES
For the period January 21, 2005 (date of acquisition) through December 31, 2005,
no taxes were recorded as the Company is operating at a net loss. For the year
ended December 31, 2004, ACT and QMS were owned by Mr. Paul Janssens. ACT was an
S Corporation and QMS was a limited liability company.
17
CASH AND SOURCES OF LIQUIDITY
The Company has satisfied its operating cash requirements primarily through cash
flow from operations and debt and equity financing. At June 30, 2006, we had
$180,513 in cash and cash equivalents and $826,447 in net accounts receivable
compared to $133,547 and $1,294,288, respectively, at December 31, 2005.
Operations have been financed by loans from management, placement of equity and
debt financing. As of June 30, 2006 we had outstanding Three Million Nineteen
Thousand Four Hundred and Thirty ($3,019,430) Dollars in Short-Term and/or
Current Portion of Long-Term Debt and Four Hundred Seventy-Two Thousand
Twenty-Three ($472,023) Dollars in Long-Term Debt.
The Company entered into a long-term debt arrangement with Interbay Funding LLC
in March 2005 in the amount of Four Hundred Thirty Thousand Five Hundred Dollars
($430,500). The note, which is due on April 2020, bears interest at 9% per
annum. The note is secured by a personal guarantee of Michael W. Hawkins, the
Chief Executive Officer. As of June 30, 2006, the current balance is Four
Hundred Seven Thousand Five Hundred and Thirty-Three ($407,533) Dollars and is
owed to M&T Mortgage Corporation, a subsequent purchaser of the note. The
Company assumed, as part of the Acquisition of the assets of QMS, the ongoing
long term debt with Merchants and Planters Bank. The loan bears interest at
7.49% and as of June 30, 2006, the outstanding balance was Sixty-Eight Thousand
Eight Hundred Seventy-Eight ($68,878) Dollars. The remaining portion of the
long-term debt consists of multiple capital leases and a note with Dell
Financial Services for computers and related peripherals.
As of June 30, 2006, the short-term debt balance of Two Million Nine Hundred
Ninety-Three Thousand Two Hundred and Ten ($2,993,210) Dollars (does not include
the current portion of long-term debt) include One Million Eight Hundred
Ninety-six Thousand and Eighty-Two ($1,896,082) Dollars which will convert to
equity as part of this filing and the shares will be registered accordingly.
This registration statement is registering the resale of the common stock
underlying this convertible debt rather than registering the conversion of the
debt. The following table reflects the short-term debt of the Company as of June
30, 2006:
JMB Associates, principal, accrued and unpaid interest at 18.00% per
annum. Due on September 30, 2006. $314,644
JMB Associates, principal, accrued and unpaid interest at 18.00% per
annum. Due on September 30, 2006. $452,289
Sharon Beshara, principal, accrued, and unpaid interest at 24% per annum
on revolving 30-day term. Note is extended every 30 days. Due on September
30, 2006. $176,323
Antoinette Pace, principal, accrued, and unpaid interest at 24% per annum
on revolving 30-day term. Notes are extended every 30 days. The amount is
guaranteed by Avante Holding Group, Inc. Due on September 30, 2006.
$114,807
Edward Beshara, principal, accrued, and unpaid interest at 24% per annum
on revolving 30-day term. Note is extended every 30 days. The amount is
guaranteed by Avante Holding Group, Inc. Due on September 30, 2006.
$101,500
18
Antoinette Pace and James Beshara, principal, accrued, And unpaid interest
at 24% per annum on revolving 30-day term. Note is extended every 30 days.
The amount is guaranteed by Avante Holding Group, Inc. Due on September
30, 2006. $200,000
Paul Janssens, principal and interest at 12.00% per annum. Due on
September 30, 2006. $629,894
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. $117,637
Cecil H. Harmon, principal and interest at 10% per annum. Due on July 1,
2007. $11,618
Avante Holding Group, revolving credit, principal and interest at Prime
plus 4% per annum. Due on October 2006. $691,588
PhoenixSurf.com, principal. Non-interest bearing note. The note is
convertible into common stock of the Company at the per share price of
$2.65. Shares underlying this debt and not being registered in this
Registration Statement. $75,000
Steves Rodriguez, convertible promissory note at No interest, Due
September 30, 2006. $20,000
On November 1, 2004 the Company entered into a Revolving Credit Agreement with
the Avante Holding Group, Inc., for up to Five Hundred Thousand ($500,000.00)
for a period of one year, with an automatic one year extension. Interest is
earned at Prime Rate plus four percent. As of June 30, 2006, the balance was
$691,588. Subsequently, the balance as of August 15, 2006 was $826,223. As this
balance exceeded the $500,000 limit of the LOC, an amendment has been added to
the LOC extending the total LOC to $1,000,000.
We also secured Accounts Receivable financing with The Hamilton Group
(Delaware), Inc., a Delaware Corporation. Upon satisfactory completion of a
credit review of our customers, The Hamilton Group will purchase the account
receivable for the purchase price of 0.133% per day of the total face value of
the invoice. The Hamilton Group will fund eighty percent (80%) of the invoice.
Upon receipt of payment from the customer, The Hamilton Group releases to us the
balance of the purchase price of the invoice, minus the 80% advancement and
purchase fee.
We maintain a $500,000 credit line with one primary vendor (Phoenix Metals,
Inc.) for the purchase of raw materials. The credit line with Phoenix Metals is
secured by a corporate guarantee by Avante Holding Group, Inc. The terms of
payment for the credit line is standard 30 day terms upon receipt of invoice
with no discount.
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. As part of
projected growth, we require 50% down payment on all orders for first time
customers with the remaining portion due and payable upon delivery of product.
This measure ensures we can sustain our current growth without requiring vast
amounts of financing and capital. In the event of future growth higher than
expected, we recognize that according to the Almanac of Business and Industrial
Ratios, a Company within our industry should be able to support a long-term debt
ratio of .53 of all assets, which based upon the June 30, 2006, we should be
able to sustain $2.8 million in long-term debt financing. As such, when and if
needed, we will first attempt to acquire debt through our various banking
institutions prior to the raising of additional equity capital.
The Alternative Construction Company marketing efforts are based on both push
and pull strategies. The push strategy is the more predominant at this time. The
ACC push strategy utilizes internal sales agents (3), outside sales consultants
(1) and distributors (3). These three components of the push strategy utilize
the Company web site, brochures, fact sheets, product samples and corporate
videos or PowerPoint presentations to inform and educate prospective buyers of
the features and benefits of the ACTech panel. Marketing efforts are directed at
builder/developers, commercial builders, residential builders and individual
consumers. The current pull strategy utilizes various Internet advertising
techniques, primarily pay for click advertising, spot advertising, media hits
and trade shows to attract sales leads and hands those sales leads over to the
push strategy member most suited to contact the prospect.
19
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
There were 72 record holders of the Company's common stock as of June 30, 2006.
The Company's shares are not currently traded in any recognized public forum.
Park Financial Group, Orlando, Florida has elected to sponsor our securities on
the Pink Sheets and/or OTC Bulletin Board. Park Financial submitted an
application to the NASD and has received clearing for listing effective on the
effective date of this Prospectus. The NASD reference number is 20050026748.
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 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 2004 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 2,000,000(1) $0.55 2,000,000(2)
Employees 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 June 30, 2006, we had outstanding non-statutory options to
purchase 2,000,000 shares of our common stock. Options have a term of eight
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 June 30, 2006 are between the prices of $0.25 and $0.75
per share, and generally have scheduled vesting except for options to purchase
for 400,000 shares which vested March 1, 2005, options to purchase 200,000
shares which vested March 1, 2006 and options to purchase 500,000 shares which
vested on June 1, 2006. Upon expiration of unexercised options, the unpurchased
shares subject to such options will again be available for purposes of the Plan.
20
DESCRIPTION OF BUSINESS
COMPANY HISTORY
Alternative Construction Technologies Corporation ("ACT") was incorporated in
Delaware in 1997 and was owned by Mr. Paul Janssens. Quality Metal Systems, LLC,
a Florida limited liability company ("QMS") was formed in 2002 and is owned 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 ACT, selected assets of 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. produces patented, galvanized-steel,
interlocking Structural Insulated Panels (SIPs) that are used in all facets of
the construction industry. The company's SIP system is used as an alternative to
conventional materials such as lumber and bricks and is considered "green"
building technology. Specifically, our foam integrated system is
Chlorofluorocarbons ("CFC") free, as we are a strictly hydrocarbon and water
foam interjection system. In addition, we have completed the GREENGUARD(TM)
Emissions Test for General Construction, conducted by Air Quality Sciences,
Inc., on August 16, 2004 (AQS Report No. 12619-02) with the finding that our
product, to include the foam purchased from Dow Chemicals, Inc., met all of the
emission level requirements of the GREENGUARD Product Guide(TM) Listing.
According to SIPSTech, Inc., www.sipstech.com, (not incorporated by reference
into this Prospectus) a leading provider of SIPS technologies headquartered in
Calgary, Canada, when you build with SIPs, you're building homes and commercial
properties that can save 50% or more on energy costs when compared to
conventional stick frame construction. That means less fossil fuel consumption
and less greenhouse gas emissions. SIP technology provides higher "whole-wall"
R-value, tightens the building envelope, and reduces air infiltration. That
allows the consumer to downsize the heating and cooling equipment. It's the
combination of these systems that makes up the technology of a high-performance
SIP building. You will also enjoy the green building benefits of less job-site
waste, better utilization of material resources, and more environmentally
friendly building practices. 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.
Michael Morley, the author of "Building with Structural Insulated Panels
(SIPS)", a book endorsed by the Structural Insulated Panel Association in Gig
Harbor, Washington, further states, "Every once in a while a new technology
comes along that makes its Predecessors obsolete.... SIPs produce a structurally
superior, better insulated, faster to erect, and more environmentally friendly
house than ever before possible." In 2000, the International Residential Code
("IRC") replaced the Council of American Building Officials ("CABO"), the
International Conference of Building Officials ("ICBO"), Building Officials and
Code Administrators International ("BOCA"), and the Southern Building Congress
International ("SBCCI"). The newly organized IRC contains a section specifically
establishing energy-related requirements for new construction. Efforts by the
Office of Science and Technology under the U.S. Government led to the
development of the Partnership for Advancing Technology in Housing ("PATH"). The
PATH initiative seeks to reduce the environmental impact and energy use of new
housing by 50% or more by 2010. SIPs are a featured technology in PATH's vision.
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
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, SIPs are at the forefront of the "green"
building industry
In 2004, revenues were derived from the sale of the ACTech Panel(TM) SIPs to
commercial builders whom continued to provide a portion of revenue and the
Company began providing SIPs for commercial school classroom builders in
Florida. The Company's products are used in the construction of affordable
housing, high-end elegant homes, modular housing, commercial buildings, modular
portable classrooms and safe rooms, among others. In 2004, those markets
accounted for 9.0%, 1.1%, 5.2%, 21.4%, 63%, and 0.3% respectively. In 2005,
those markets accounted for 1.4%, 7.5%, 0%, 1.5%, 89.5%, and 0.1%.
21
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 2004 and previous years. The Company has
re-focused resources upon sales and marketing initiatives, building distributor
relationships, joint ventures, 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 sales pipeline consisting of ten (10) customers where we have received a
Purchase Order from or other correspondence stating that they are going to
utilize our system in the future, more than ten (10) customers where we have
qualified and are in direct competition with a competitor for business, and more
than twenty (20) customers in which we have entered into negotiations for
potential sales.
PRODUCTS AND SERVICES
STRUCTURAL INSULATED PANELS (SIPS)
The ACTech Panel(TM) has undergone extensive testing by various independent
accredited agencies, such as RADCO, Inc., Omega Point Laboratories, Inc. and
Hurricane Engineering & Testing, Inc. These tests were commissioned by the
company in 1999 through 2004 as required by the company's ongoing quality
control program in support of the manufacturing of our product. The overview for
all applicable testing can be viewed by the public at the company's website
www.actechpanel.com. (Information contained in the Company's website is not part
of this Prospectus, nor incorporated herein, by reference.)
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 strength and load
characteristics, wind ratings up to 146 miles per hour, R-factor (R- factor is a
measurement of the insulating properties of a given material), non-combustible,
reduced labor costs and build time, no measurable off-gassing (refers to certain
toxic emissions from a given product or material that used chemicals in its
manufacturing process), speed and ease of assembly, acoustical excellence,
moisture, mold and insect resistant and reduction in heating and air
conditioning costs of up 30-50%. The ACTech panel's has achieved the ability to
meet or exceed specific hurricane related building codes levied by Miami-Dade
County Florida and maintains Florida product approval. Independent projectile
testing verifies that the ACTech Panel(TM) system's superiority to competitive
products.
During 2005 after the acquisition of ACT by ACC, we began expanding our
marketing efforts on expanded school classroom production, other governmental
uses and domestic residential. On May 22, 2005, the Company conducted a
presentation at the United Nations, sponsored by the United Nations Environment
Programme (UNEP), where it presented its product and solutions for the
development of low-income housing. We have sold panels in Mexico, Canada,
Turkey, Columbia, Guyana, Barbados, Jamaica, Belize, and Kazakhstan.
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.
In 2004, the Company sold one safe room (0.26% of total sales) as there were no
marketing efforts concentrating on this sector of the business. In 2005, the
Company has continued with 100% of its focus on the sale of the ACTech
Panel(TM). The Company projects a marketing campaign to be established in 2006
for the Universal Safe Room(TM).
CONSTRUCTION SERVICES
ProSteel Builders Corporation ("ProSteel"), a subsidiary of the Company, builds
commercial and residential buildings utilizing the ACTech PanelTM.
22
ProSteel is owned 80% by ACC and 20% by Avante Holding Group, Inc. ("Avante").
ProSteel entered into a Management Agreement with Alternative Construction
Partners, LLC ("ACP") to manage the day-to-day operations. ACP, through its
members, has more than 20 years experience in the construction industry and has
been building facilities with the ACTech PanelTM for more than five years. On
March 31, 2006, the agreement between ProSteel and ACP was canceled and members
of ACP involved in the day to day activities of ProSteel were hired as employees
of the company,
RESEARCH AND DEVELOPMENT
Our research and development costs for the year ended December 31, 2004 was
minimal. In prior years, we performed various research and development including
independent laboratory testing and certifications. 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.
Our company has obtained the following certifications in relation to our
product.
1. Florida - Product Approval for Factory Build Schools
2. Certificate of Compliance - Structural Insulated Metal Panel Product is
manufactured in accordance with the Florida Building Code 2004 and Chapter 9B-72
Department of Community Affairs - Florida Building Commission
3. Georgia Department of Community Affairs - Industrialized Buildings Component
Systems Approval No. 90250-C
4. Miami Fenestration Lab
The Company's products have underdone extensive testing and have been approved
or received favorable test results from the following organizations:
Acoustical Testing Lab, Air Quality Sciences, Florida Department of Community
Affairs, Georgia Department of Community Affairs, 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. We recognize that the Company is currently essentially a
"one-product" company and as such, management has a responsibility to develop
new and improved ways of utilizing our products in expanding the markets we
compete in. The company has no concrete spending and sourcing plan for research
and development. The first step in the company's product expansion is the
development of a roof panel, which it has begun its own in-house testing and
development.
REGULATORY MATTERS
The regulation of the use of the ACTech Panel (TM) is completed by state or
local building officials responsible for Building Code relevant to the area in
which our product is being utilized. In Florida, we obtained state wide product
approval by Clemens, Rutherford, and Associates, Inc., the Third Party
Administrator and governing body for the State building Codes. In addition to
obtaining state wide approval, we were issued Florida Product Approval specific
to the ACTech Panel (TM) by the Florida Department of Community Affairs ("DCA"),
Florida Product ID # FL5343. We are currently in the process of obtaining
International Code Council ("ICC") certification. The International Building
Code ("IBC") is the code adopted by the ICC. The ICC was established in 1994 as
a nonprofit organization dedicated to developing a single set of comprehensive
and coordinated national model construction codes. The founders of the ICC are
Building Officials and Code Administrators International, Inc. (BOCA),
International Conference of Building Officials (ICBO), and Southern Building
Code Congress International, Inc. (SBCCI). Since the early part of the last
century, these nonprofit organizations developed the three separate sets of
model codes used throughout the United States. Although regional code
development has been effective and responsive to our country's needs, the time
came for a single set of codes. The nation's three model code groups responded
by creating ICC and by developing codes without regional limitations, called the
International Codes. The IBC is now adopted in 47 states, plus Washington, D.C.
Our Company has contracted the services of RADCO, Inc., a national testing
laboratory, to assist with obtaining the IBC Certification of our Product. The
IBC is currently under revisions, with completed comments, and expected 2006 IBC
published guidelines to be released by the ICC. Once the new codes are
effective, our Company will continue to proceed and obtain said Certification.
This certification is considered the industry standard relevant to our business
and will enable our product to be used in any state throughout the country. Our
company maintains a strong compliance program in support of all products. The
cost of this program annually runs at Two Hundred and Fifty Thousand ($250,000)
Dollars per year plus filing and certification fees and other miscellaneous
charges as applicable. 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.
23
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, straighteners 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 insofar as no other manufacturer can utilize the protected
process to manufacture such products in a continuous form feed without
infringing on our patent. 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, Columbia, Poland and Russia.
The Company has filed for five trademarks. They are: 1) ACTech Panel(TM), 2)
Interlocking Building System(TM), 3) Universal Safe Room(TM), 4) Universal Safe
Structures(TM), and 5) the company "A" logo as seen at the front of this filing.
PRODUCT DISTRIBUTION AND CUSTOMERS
The Company currently maintains distribution agreements with Alternative
Construction Options, LLC, a Georgia Limited Liability Company and Southern
Building Systems, a Louisiana Corporation and a customer base of more than ten
clients. The standard terms associated with our distributor agreement grant a
non-exclusive license to sale within the United States and Canada. The terms are
for an initial two year period with one automatic two year renewal period unless
cancelled in writing. Each agreement defines payment terms as mutually agreed
upon with set purchase prices based upon volume of sales during a 12 month
period commencing upon first sale.
For the six months ended June 30, 2006, 77.6% of the company's business was from
Nelson, LC ("Nelson") in Orlando, Florida. Nelson built and sold modular
classroom facilities within the State of Florida. Ultimately, Nelson has an
arrangement with Mobile Modular, a subsidiary of McGrath Rental Corp (NYSE:
MGRC), whereby they sell the completed building to Mobile Modular who, in turn,
leases them to various counties and agencies within the Florida Department of
Education. The Company currently produces 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 ahead of production schedule. The Company may witness
significant declines in revenue should this customer go out of business or seek
product from competitive sources. We do not have any long-term contracts with
this company.
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. This agreement was canceled on March 31, 2006 and the
members of ACP involved in the day to day operations were hired as employees of
ProSteel.
The Company made two international sales in 2005 and 2006 which include one-time
shipments to Mexico, which consisted of three sample homes, and Kazakhstan,
which consisted of one sample home. There has been no commitment for additional
sales in either country since the initial sample orders were shipped.
24
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, insulated concrete forms,
and other various methods of producing alternative building materials. In
addition, the missile projectile study completed by Texas Tech University
demonstrates the strength of our panels against sustained winds caused by
hurricanes and tornadoes. 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 (see "Research and Development"). 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 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 and residential and commercial building. 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. According to
the U.S. Census Bureau, as of August 2004, the "value of construction put in
place - seasonally adjusted annual rate", was $1.015 trillion, with significant
growth annually in the SIP market. Only 1% of new home construction in the U.S.
in 2002 used foam paneling, but the application is growing 15% a year, according
to William Wachtler, executive director of the Structural Insulated Panel
Association ("SIPA"), the principal SIP trade association. Mr. Wachtler was
quoted in Forbes magazine in an article titled "Foam" written by David Armstrong
in the June 21, 2004 edition The Structural Insulated Panel Association ("SIPA")
(www.sipa.org) states that the SIP industry has grown by more than 35% per year
since 1994. 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 that utilize steel and foam as raw materials. Due to the capability
of a continuous form feed processing line that inserts the structural steel
foam, protected by our patents, our competitors are required to utilize molds
which require additional time for processing, additional cost for personnel, and
additional maintenance and cleaning cost, effectively pricing them higher than
we are. In comparison to traditional construction utilizing wood or concrete,
the ACTech Panel(TM) is comparable but usually slightly higher in initial
up-front cost. In a cost analysis, conducted in-house, 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. According to Fannie Mae home builders receive up to a 5%
appraisal increase on the value of their home if built from SIPS as documented
at www.panelwrights.com/sipsave.htm. Insurance companies often issue savings
between 5-20% of the premium for housing built utilizing SIPS. Energy savings
can reach through better thermal performance (Building With Structural Insulated
Panels (SIPS), Strength and Energy Efficiency Through Structural Panel
Construction, Michael Morley, The Taunton Press, 2000). In 1998, the Oak Ridge
National Laboratory in Oak Ridge, Tennessee completed thorough testing of SIP
wall configurations. The results showed that a SIP wall with 3 inch core (our
standard size) EPS core had a 31% better insulation value than a conventional
wall framed with 2x4s and insulated with fiberglass batts. The Energy Studies in
Building Laboratory at the University of Oregon conducted extensive tests on SIP
panels that closely monitored the labor required to erect a SIP structure. The
result concluded that a SIP structure required 34% less on-site construction
time.
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 June 30, 2006, we had twenty six (26) full-time employees. 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, Inc ("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. We maintain a
$500,000 credit line with one primary vendor (Phoenix Metals, Inc.) who supplies
raw materials. The credit line with Phoenix Metals is secured by a guarantee by
Avante Holding Group, Inc. The terms of payment for the credit line is standard
30 day terms upon receipt of invoice with no discount. The Company purchases
from Dow on an order by order cash basis in exchange for a 6% pricing discount.
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.
25
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. The Company currently has two International Distributors and
two Domestic Distributors. Because of the political and financial instability of
foreign markets where the Company has been exploring sales opportunities, the
Company has decided to only concentrate on domestic sales prospects, at this
time.
ACC works in concert with commercial and residential developers in promoting the
ACTech Panel(TM). ACC owns 80% of ProSteel Builders Corporation ("ProSteel"), 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. ACC now courts four customers that build modular classrooms
and has grown the business in Florida and Louisiana. ACC has established a
presence in the State of Texas opening an office in San Antonio, Texas. The
Company's Vice President of Sales is currently located in Texas where he is
marketing our product to classroom industry, and other commercial and
residential opportunities. We have entered into Sales Agreements with Bill
Carter, a former local State Representative and Guinella Gillespie to help
introduce the classroom market there. Individuals are paid on a commission basis
for square foot of panel sold. The terms of the agreements are for two years.
Based upon projected orders forecast from Nelson LC, and New Century Structures,
Inc., 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. As outlined in the Florida K-12 5 Years Work
Plan, and the Florida CC and SUS Capital Improvements, the projected need for
classrooms in the next five years exceeds $25 billion in cost. ACC projected
sales for panels to be utilized to build facilities purchased under the
Educational Facilities Budget in 2005 represent 1.2% of the 2004 and 2005 K-20
Fixed Outlay Budget approved by the Florida State Legislature.
In January 2006, Avante Holding Group, Inc. ("Avante") and New Century
Structures, Inc. ("NCSI") agreed to an agreement whereas Avante would provide
management, operations, administrative and financing services to NCSI. In
exchange for said services, NCSI is paying Avante a monthly fee similar to the
agreement between ACC and Avante. Additionally, Gina Bennett and Bruce Harmon,
both officers of Avante, are serving as unpaid officers, COO and CFO,
respectively, of NCSI. Ms. Bennett and Mr. Harmon serve similar roles for
Avante. For ACC, Ms. Bennett serves as the Chief Compliance Officer and Mr.
Harmon serves as the Comptroller. Avante, its officers and related parties hold
shares of stock in NCSI. Ms. Bennett and Mr. Harmon do not own any shares of
Avante stock. All transactions between ACC and NCSI are conducted on an arms
length basis.
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 2006 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.
The Commercial and Residential industries are the final two categories ACC will
continue to develop sales in. In 2005, approximately 10% of all sales were from
Commercial and Residential sales. The target percentage of sales in these two
markets in 2006 is approximately 20% to 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 that require rapid
building created by natural disasters and/or a need for a non conventional
building method. 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. (Information contained in the Company's
website is not part of this Prospectus, nor incorporated herein, by reference.)
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. On February 13, 2006 we elected to remain on a month-to-month
basis for the Melbourne Headquarters, with a 30 day required notice to vacate.
LEGAL PROCEEDINGS
In July 2006 the Company was advised by New Millenium Enterprises ("NME")that it
seeks rescission of the investment by NME and its subsidiary PhoenixSurf.com of
an Aggregate of $575,000 in the Company's Convertible Notes and Series C
Preferred stock. The Company has advised NME that there are no grounds for such
rescission and the investment was properly made. Management of the Company does
not believe that a material loss is possible with respect to this claim. There
are no other 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 44 Chairman, Chief Executive Officer, October 22, 2004
Willis Kilpatrick 44 Director October 22, 2004
Steves Rodriguez 35 Chief Financial Officer, Director October 22, 2004
Thomas Amon 59 Secretary, Director October 22, 2004
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. Since 1997, Mr. Hawkins has served as the Founder and CEO of
Avante Holding Group, Inc. (also known as 2Play Corporation and MWH Information)
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 many
other start-up and early stage corporations. Mr. Hawkins has never and currently
does not serve as an Officer or Director of any publicly trade companies. In
1999, Mr. Hawkins served as Chief Financial Officer of Florida Tan and raised
$15 million in equity capital through Private Placement. Prior to this, 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. In 2001, Mr. Hawkins acquired ownership of Integrity Messenger
Corporation where he developed and procured an instant messenger service. Mr.
Hawkins resigned his position as Director and President in January 2004. Mr.
Hawkins, through Avante Holding Group, Inc, maintains 87.9% ownership of
Integrity Messenger Corporation. Under the services of Banyan Capital Partners
and Sargon Capital, Inc., Mr. Hawkins assisted SinoFresh Healthcare, Inc., in
securing funding through its "C" and "D" rounds of private funding and provided
administrative oversight during a reverse merger into a publicly held company in
October 2003. Mr. Hawkins holds a BS in Computer Studies from the University of
Maryland.
26
WILLIS H. KILPATRICK, JR. R.P.H., DIRECTOR. Mr. Kilpatrick a Founder and a
Director is currently the managing member of South Residential Enterprises, LLC,
a sole-proprietor company owned jointly by Mr. and Mrs. Kilpatrick since 1994,
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 Investor with SinoFresh Healthcare, Inc., (OTCBB: SFSH) and a Board Member
for Integrity Messenger Corporation prior to its reverse merger into a public
shell. In addition, he has served as a Board Member for the privately held
companies of Adyton Technologies, Inc., a Delaware Corporation established in
2001 that manufactures wellness products, Global Fastener Technologies, LLC, a
Florida Limited Liability Company established in 2003 that manufacturers screws
(hardware), and Galen Uniphyd Health Plan Corporation, a Florida Corporation
established in 2003 that acts as a Physician Services Organization. He is a
graduate of 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 AND DIRECTOR. Mr. Amon is a Founder, Director,
Secretary and Legal Counsel to the Company and has over thirty years experience
as a practicing attorney specializing in Venture 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, 2006 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 are included on an as converted 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 3,295,200(3)(4) 31.3%
Willis Kilpatrick, Director 251,000(5) 2.4%
Steves Rodriguez, Chief Financial Officer, Treasurer 151,000(6) 1.4%
Thomas Amon, Secretary, Director 1,000,000(7) 9.5%
Paul Janssens 1,500,000(8) 14.3%
Avante Holding Group, Inc 2,150,120(9)(10) 20.4%
--------- ----
All officers and directors as a group (4 persons) 4,697,200 44.7%
27
(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 May 26, 2006,
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) Represents 5,000 shares of common stock owned by Hawkstone, Inc. which is a
corporation Mr. Hawkins is a 50% owner, 3,017,700 underlying shares of common
stock owned by GAMI, LLC which is a limited liability company Mr. Hawkins and
his wife is 100% owner and managing members, and 272,500 shares of common stock
owned by Ventures Unlimited, LLC which is a limited liability company Mr.
Hawkins is a majority owner.
(4) Represents 575,200 shares of common stock, 2,120,000 shares of common stock
issuable upon conversion of 1,060,000 shares of Series B preferred stock and
600,000 shares of common stock upon exercising of warrants.
(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, 2005, 2004 and 2003 (both years for our
Predecessor) and the current fiscal year. None of the other officers earned
greater than $100,000 in total salary and bonuses during fiscal 2003 for our
Predecessor.
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 (2) 12/31/05 $ 0 --
Chairman and Chief 12/31/04 $150,388 -- -0- $14,744
Executive Officer 12/31/03 $ 28,362 -- -0- $ 1,000
Michael W. Hawkins (3) 12/31/05 $ 96,000 -- -0- $ 0
Chairman and Chief
Executive Officer
Steves Rodriguez 12/31/05 $ 30,000 -- -0- $ 0
Chief Financial Officer and
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.
(3) Does not include options to purchase up to 800,000 shares issued to GAMI,
LLC. Mr. Hawkins is the control person of GAMI, LLC. See "Certain Relationships
and Related Transactions"
28
(3) "Stock Option Plan". Compensation paid is paid to Avante Holding Group,
Inc., as to which Mr. Hawkins is CEO and majority shareholder. See "Certain
Relationships and Related Transaction"
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. Mr. Hawkins is not an employee of the Company and is not
compensated for this position but is compensated under a consulting agreement
for services other than those of Chief Executive Officer.
In January 2005, our board of directors appointed Steves Rodriguez as our Chief
Financial Officer and Treasurer. Mr. Rodriguez serves under a consulting
agreement and is not an employee of the Company.
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 2005 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 distribute
the Stock Options under its guidance and direction. The Board of Directors
initially issued 2,000,000 Options to five key management personnel and
consulting firms of the company reserving the remaining 2,000,000 for future
allocations. 1,100,000 options have currently vested, 200,000 vest on March 1,
2007, 350,000 vest on June 1, 2007, and 350,000 vest on June 1, 2008.
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 (the Company's Predecessor),
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 and international
rights to the ACT product patents formerly held by Paul Janssens have become the
property of ACC. In addition, the company owes Mr. Janssens Six Hundred Twenty
Nine Thousand Eight Hundred and Twenty-Four ($629,894) Dollars as evidenced by a
convertible Promissory Note with interest at the rate of 12% per annum. Mr.
Janssens has no other agreement with the company or its affiliates, and is not
involved in the operations of the Company or its subsidiaries.
The Company is a party to a number of agreements with Avante Holding Group, Inc.
("Avante") Michael Hawkins is the Chief Executive Officer and principal
shareholder of Avante.
The scope of the Exclusive Investment Banking Services Agreement between the
Company and Avante provides "... services including the merger of the Company
with or into another entity, or the sale of part or all of the Company's fixed,
technology or intangible assets including the Company's IT product(s), its
website and any related systems.". The Agreement compensates Avante using the
"Double Lehman Formula" (10% of the first million, 8% of the second million, 6%
of the third million, 4% of the fourth million and 2% for all amounts over $4
million) for all transactions. Additionally, the Investment Agreement provides a
fixed 2% expense account for out-of-pocket expenses to be paid in conjunction
with the stated Transaction Fees.
The Consulting Agreement between the Company and Avante provides the Company
with a Vice President of Finance. The monthly fee is $8,000 under a term of
three years commencing October 24, 2004 with a renewable three-year term. If the
Company meets certain revenue and/or profitability levels, the Agreement
provides a bonus structure.
29
The Revolving Credit Agreement between the Company and Avante provides the
Company with a $500,000 line of credit with interest at the rate of prime plus
4%. The term of the Agreement is from November 1, 2004 through October 31, 2005.
The lender can extend the Agreement for one year at its option. Avante extended
the Agreement at October 31, 2005 for one additional year. In March 2006, an
amendment to the Agreement for an additional $500,000 was added. The balance as
of September 6, 2006 was $932,161.
The Sales Commission Agreement between the Company and Avante provides Avante
with a commission of $.10 per square foot for any sales of ACTech Panels(TM)
and/or any other affiliate's product and/or services. The term of the Agreement
is for five years with two automatic renewable terms of five years each
effective January 20, 2005.
The Compliance Consulting Agreement between the Company and Avante provides the
Company with specialized corporate compliance in regards to the Company's
product(s) and the required regulatory issues and other areas construed as
compliance. The monthly fee for said services is $22,500 per month for a
three-year period with one automatically renewable three-year term. The
Agreement has various rate increase clauses and a clause for the conversion of
fees to the stock of the Company. This Agreement was effective August 1, 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. GAMI, LLC, a Florida Limited Liability Company controlled by
Michael Hawkins is a member of Alternative Construction Partners.
ProSteel Builders Corporation, on June 30, 2006, was assigned a note between
Advanced Construction Options LLC and GAMI, LLC, originally issued on July 10,
2005 for $50,000. The balance of the note, $29,036 ($25,000 principal and $4,036
of accrued interest) bears interest at 10% per annum and expires March 31, 2007.
A Revolving Credit Agreement between ProSteel Builders Corporation and Advanced
Construction Options LLC provides ProSteel Builders Corporation with a $500,000
line of credit with interest at the rate of prime plus 4%. The balance as of
June 30, 2006, was $58,874.
ACC contracts Steves Rodriguez, CPA, as its Chief Financial Officer and
Director. Mr. Rodriguez is a Partner with London & Company, a California CPA
firm. Mr. Rodriguez's firm bills the Company on a monthly basis for a set fee of
$5,000. The Company issued a convertible promissory note for $20,000 payable to
Mr. Rodriguez on July 31, 2005. This note is due on September 30, 2006. This
note is convertible into 7,548 shares of stock.
The Law Offices of Thomas G. Amon, New York, New York, represents ACC on certain
legal matters. Thomas G. Amon a principal in that firm owns 1,000,000 common
shares of Company stock.
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.
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.
30
Shares % of owner
% of owner covered Shares -ship after
Under-lying Under-lying -ship under remaining Registra
Common Common Under-lying before this after -tion Sale,
Shares of Shares of Common Registra registra SB-2 assuming
Series A Series B Shares of -tion -tion registra all shares
Selling Shareholders (10) Common Preferred Preferred Warrants (1) agree-ment -tion sell are sold
- --------------------------------- --------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Ventures Unlimited LLC (5) (7) (10) 272,500 1.72% 22,500 250,000 1.57%
Hawkstone, Inc. (5) (10) 5,000 0.03% 5,000 -- 0.00%
GAMI LLC (5) (6) (7) (10) 297,700 2,120,000 19.01% 11,350 3,006,350 18.94%
Avante Holding Group, Inc (1)(4)
(6)(7) (10) 382,195 1,900,000 155,000 15.35% 287,195 2,150,000 13.54%
Paul Janssens (1) (5) 200,000 1,500,000 10.71% 200,000 1,500,000 9.45%
John Fischer (1) (7) 0 250,000 1.57% 250,000 -- 0.00%
Lift Station, Inc. (1) (7) (10) 310,000 425,000 4.63% 425,000 310,000 1.95%
Thomas G. Amon (5) (7) 1,000,000 6.30% 10,000 990,000 6.24%
Willis Kilpatrick (1) (4) (6) (7) 461,290 2.91% 211,290 250,000 1.57%
Steves Rodriguez (1) (6) (7) 158,548 1.00% 8,548 150,000 0.94%
John Julian (6) 12,150 0.08% 12,150 -- 0.00%
Peter Baker (6) 4,500 0.03% 4,500 -- 0.00%
Joseph Deming (6) (7) 101,000 1.27% 1,000 200,000 1.26%
Keith Deming (6) (7) 50,500 0.32% 500 50,000 0.31%
Charles Young (6) (7) 151,500 1.58% 1,500 250,000 1.57%
Derek Young (6) (7) 50,500 0.32% 500 50,000 0.31%
Bruce Harmon (1) (3) (6) (7) 251,250 25,000 2.69% 26,250 400,000 2.52%
Joey Evans (6) (7) 10,100 0.06% 100 10,000 0.06%
Ashok Shah (6) 100 0.00% 100 -- 0.00%
Kirrit Smart (6) 100 0.00% 100 -- 0.00%
Carol Ash (6) 100 0.00% 100 -- 0.00%
Austin Woods (6) (7) 10,100 0.06% 100 10,000 0.06%
Mallena Urban (6) (7) 15,100 0.10% 100 15,000 0.09%
Ben Lamm (6) (7) 10,000 0.06% 100 9,900 0.06%
Jennifer English (6) (7) 10,100 0.06% 100 10,000 0.06%
Anthony Francel (1) (3) (6) (7) 251,750 25,000 2.69% 26,750 400,000 2.52%
Christian L. Rishel (1) (2) (6)
(7) 100,330 270,000 2.33% 270,330 100,000 0.63%
Jayson Benoit (1) (2) (6) (7) 25,250 10,000 0.22% 10,250 25,000 0.16%
Jason Dieterle (2) (6) (7) 25,250 0.16% 250 25,000 0.16%
Leigh Gerke (3) (6) (7) 25,250 0.16% 250 25,000 0.16%
Elcid (1) (7) (10) 100,000 100,000 1.26% 100,000 100,000 0.63%
Cecil Harmon (7) 9,000 0.06% 4,000 5,000 0.03%
Jeffrey B. Saturday (7) 1,000 0.01% 1,000 -- 0.00%
Paul M. Snelling (7) 1,000 0.01% 1,000 -- 0.00%
Alex L. Dixon (7) 1,000 0.01% 1,000 -- 0.00%
Stephen V. Williams (7) 1,000 0.01% 1,000 -- 0.00%
Danny A. Toth (7) 1,000 0.01% 1,000 -- 0.00%
Stephen F. Ginn (7) 1,000 0.01% 1,000 -- 0.00%
Benjamin C. Harris (7) 1,000 0.01% 1,000 -- 0.00%
Christine Shaw (1) (7) 0 20,000 0.13% 20,000 -- 0.00%
New Century Structures, Inc. (1)
(7) (10) 0 100,000 0.63% 100,000 -- 0.00%
Brekka I, Corp (1) (7) (10) 0 750,000 4.72% 750,000 -- 0.00%
Northwest Services, Ltda. (1) (7)
(10) 154,100 550,000 4.44% 550,000 154,100 0.97%
James C. Hawkins (1) (7) 0 170,000 1.07% 170,000 -- 0.00%
Edward C. Beshara (1) (7) 0 25,000 0.16% 25,000 -- 0.00%
James M. Beshara (1) (7) 0 130,000 0.82% 130,000 -- 0.00%
Antoinette C. Pace (1) (7) 0 15,000 0.09% 15,000 -- 0.00%
JMB Associates (1) (9) (10) 396,761 100,000 3.13% 496,761 -- 0.00%
--------- --------- --------- --------- ------ --------- ---------- -----
Total 1,500,000 4,020,000 3,120,000 4,153,674 11,531,350
========= ========= ========= ========= ====== ========= ========== =====
None of the selling shareholders are registered broker-dealers or affiliated
with a registered broker-dealer.
31
(1) Based upon 15,873,703 shares; includes shares underlying 1,100,000 vested
options; includes shares issuable upon conversion of debt [consisting of Avante
Holding Group, Inc (132,075 shares), Paul Janssens (200,000 shares), James
Beshara (392,356), Steves Rodriguez (7,548), and Willis Kilpatrick (210,290)]
and exercise of warrants.
(2) Christian Rishel, J. Jason Dieterle, and Jayson Benoit are current minority
shareholders of Avante Holding Group, Inc., and/or hold officer positions within
Avante Holding Group, Inc.
(3) Leigh Gerke, Anthony Francel and Bruce Harmon are current employees or
consultants of Avante Holding Group, Inc.
(4) Willis Kilpatrick has invested and served as a strategic partner in
Integrity Messenger Corporation and Global Fasteners Technologies, LLC two
companies which Avante Holding Group, Inc and/or Michael Hawkins worked in
developing.
(5) Founders Shares issued on October 24, 2004.
(6) Private Placement on April 1, 2005.
(7) Private Placement on August 1, 2005 to employees, management, and
consultants.
(8) Private Placement on August 15, 2005 to seven individuals in connection with
an acquisition.
(9) Shares underlying convertible debt.
(10) Set forth below is a listing of those persons having voting and investment
control over the shares owned by the listed companies.
Registered Agent Company Officers Directors
- ----------------------------------------------------------------------------------------------------------------------------------
Harry Stone 21 Century, LLC Gordon Cantley, Harry Stone Gordon Cantley, Harry Stone
Paul Snellings B& L Developing, LLC Paul Snelling Paul Snelling
(Alex Dixon) DAT Holding Group,LLC Danny A. Toth Danny A. Toth
- ----------------------------------------------------------------------------------------------------------------------------------
HawkStone Group, Inc. Michael W. Hawkins, Leigh Gerke Michael W. Hawkins
Lift Station, Inc. Kate Miles Kate Miles
NorthWest Services, LTDA Lucia Shum Lucia Shum
Alex Dixon Pilot Management Group, LLC Stephen V. Williams Stephen V. Williams
Alex Dixon Skeeter Enterprises, LLC Alex L. Dixon Alex L. Dixon
Elcid Maritza Sanabria Miranda Maritza Sanabria Miranda
GAMI, LLC Michael W. Hawkins, Ioanna A. Hawkins Michael W. Hawkins, Ioanna A. Hawkins
Alex Dison Ginn Enterprises, LLC Stephen F. Ginn Stephen F. Ginn
Alex Dixon Sundown Enterprises, LLC Benjamin C. Harris Benjamin C. Harris
Ventures Unlimited, LLC Jason Dieterle, Jason Benoit Jason Dieterle, Jason Benoit
Saturday Enterprises, Inc. Jeffrey B Saturday, Karen R. Saturday Jeffrey B Saturday, Karen R. Saturday
Avante Holding Group, Inc. Michael W. Hawkins, Leigh Gerke Michael W. Hawkins, Leigh Gerke
Brekka I, Corp Juan Montes Juan Montes
Keith S. Fairchild & Associates Keith Fairchild Keith Fairchild
New Century Structures, Inc. Joseph Sorci Joseph Sorci
JMB & Associates James Beshara James Beshara
Phoenixsurf.com Jonathan Mikula Jonathan Mikula
Registered Agent Significant Shareholders
- --------------------------------------------------------
Harry Stone Gordon Cantley, Harry Stone
Paul Snellings Paul Snelling
(Alex Dixon) Danny A. Toth
- --------------------------------------------------------
Michael W. Hawkins, Leigh Gerke
Kate Miles
Lucia Shum
Alex Dixon Stephen V. Williams
Alex Dixon Alex L. Dixon
Maritza Sanabria Miranda
Michael W. Hawkins, Ioanna A. Hawkins
Alex Dison Stephen F. Ginn
Alex Dixon Benjamin C. Harris
Michael W. Hawkins
Jeffrey B Saturday, Karen R. Saturday
Michael W. Hawkins
Juan Montes
Keith Fairchild
Joseph Sorci
James Beshara
Jonathan Mikula, Chase Shuman
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. To the
extent that any successors to the named selling stockholders wish to sell under
this Prospectus, the Company must file a Prospectus supplement identifying such
successors as selling shareholders.
The sale of the shares may be affected 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.
32
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 affect 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.
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 June 30, 2006, there are
4,994,350 shares issued and outstanding and $5,250,000 warrant subscriptions
receivable. If a selling shareholder enters into an agreement, after
effectiveness, to sell its shares to a broker-dealer as principal and the
broker-dealer is acting as an underwriter, the Company must file a
post-effective amendment to this registration statement identifying the
broker-dealer, providing the required information on the plan of distribution
and revise the disclosures in the registration statement, and filing the
agreement as an exhibit to the registration.
33
We entered into registration rights agreements with holders of our restricted
common stock and agreed to register for resale for these holders approximately
83,000 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 and Series C 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 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. The maximum
barrowing limit was increased in March 2006 to 1,000,000. As of June 30, 2006
the current outstanding balance was six hundred ninety-one thousand five hundred
and eighty-eight dollars ($691,588). Three hundred and fifty thousand dollars
($350,000) is identified as part of this Prospectus, but does not constitute a
reduction in the terms and conditions of said agreement.
On January 22, 2005 the Company entered into a convertible promissory note with
Southern Residential Enterprises (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 June 30, 2006, is twenty-three thousand seven hundred and
forty-nine dollars ($23,749). 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. The note converts at $0.50 per share and contains
no anti-dilution clauses. The term of the debenture is one year. Subsequently,
the note was extended for one additional year.
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 15, 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 June 30, 2006 is one hundred
thirty-six thousand nine hundred and thirty-three dollars ($136,933). 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. The note converts at $2.00 per share and contains no anti-dilution
clause. The notes have been extended until September 30, 2006.
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
($629,894) with a maturity date of August 30, 2005. The amended and restated
promissory note replaces 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 ($529,894) 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. The note converts at $2.65 per share and contains no anti-dilution
clause. The term of the agreement was extended On September 1, 2005 for a period
of 90 days. Subsequently, the notes were extended until September 30, 2006 and
remain current.
On June 30, 2005, the Company entered into a convertible promissory note with
Steves Rodriguez in the amount of twenty thousand dollars ($20,000) with a
maturity date of June 30, 2006. The note does not bear interest. Mr. Rodriguez
is the Company's Chief Financial Officer and a Director. In accordance with the
terms of the agreement, the debentures 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. The note converts at $2.65 per share into 7,548
shares of stock and contains no anti-dilution clauses. Subsequently, the note
was extended until September 30, 2006 and remains current.
On August 1, 2005, the Company entered into a convertible promissory note with
Cecil Harmon in the amount of ten thousand and six hundred dollars ($10,600)
with a one year maturity date at an interest rate of 10 percent per year. The
total interest due, as of June 30, 2006, is one thousand eighteen dollars
($1,018). In accordance with the terms and 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. The note converts at $2.65 per share and contains no anti-dilution
clauses.
On March 17, 2006, the Company entered into a convertible promissory note with
PhoenixSurf.com in the amount of seventy-five thousand dollars ($75,000) with no
maturity date and is non-interest bearing. In accordance with the terms of the
agreement, the debentures 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. The note converts at $2.65 per share into 28,302 shares of
stock and contains no anti-dilution clauses.
The following convertible debt, totaling $1,896,082 at June 30, 2006, is being
converted to equity as part of this registration:
Convertible
Debt as of
Name 6/30/06
---- ---------
JMB Associates 314,644
JMB Associates 452,289
Paul Janssens 629,894
South Residential 117,637
Cecil H. Harmon 11,618
Avante Holding Group, Inc. 350,000
Steves Rodriguez 20,000
---------
Total 1,896,082
=========
34
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 stocks 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:
o contains a description of the nature and level of risks In the market for
penny stocks in both public offerings and secondary trading;
o 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;
o contains a toll-free telephone number for inquiries on disciplinary
actions;
o defines significant terms in the disclosure document or in the conduct of
trading in penny stocks; and
o 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:
o bid and offer quotations for the penny stock;
o the compensation of the broker-dealer and its salesperson in the
transaction;
o 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
o 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.
WARRANTS AND STOCK OPTIONS
WARRANTS
A total of 3,000,000 warrants were issued on August 1, 2005 to the various
individuals/entities identified below (A - 1 to A - 36). These warrants were
issued for services, as an inducement to provide financing or refinancing of
debt and for strategic business purposes. All warrants were fully vested on the
date of issue. 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. An additional 120,000 warrants were issued on July 15, 2006 to
two individuals/entities identified below (A - 37 to A - 38). These warrants are
exercisable at $3.00 per share.
35
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
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
A-37 James Beshara 20,000
A-38 JMB Associates 100,000
---------
TOTAL: 3,120,000
For the purposes of valuing the Company's options and warrants, its consultant,
Stenton Leigh Valuation Group, Inc. ("Valuation Consultant"), utilized computer
model to calculate fair value under the Black-Scholes method.
In making this calculation the Stock Price utilized was based upon our
determination of the Fair Market Value of the Company at the various Valuation
Dates, based upon the expected price of the Company's common stock at the
effective date of the merger. To determine the value of the Stock Price at each
respective Valuation Date, the Company's Valuation Consultant, examined the
three approaches to value and concluded that since ACCI has had a history of
losses and a very small asset base that the relevant approach to value would be
to perform a discounted cash flow ("DCF").
Based upon this analysis and the Black-Scholes model results concluded by the
Valuation Consultant, at the Valuation Dates the Option value was determined to
be as follows:
Option Value/
Share Exercise Price 10/24/04 5/31/05
- -------------------- -------- -------
$0.50 $0.00
=====
$0.75 $0.00
=====
Warrant Value/
Share Exercise Price 8/1/05
- -------------------- ------
$0.50 $0.001*
======
$1.00 $0.00
=====
$1.50 $0.00
=====
$2.00 $0,00
-----
$2.50 $0.00
-----
$3.00 $0.00
-----
*For the 5/31/05 Warrants with exercise prices of $1.00 or greater, there is
little sensitivity in the Black-Scholes model, they all will result in a
conclusion of zero. However, for the $0.50 Warrants, of which there are 500,000,
at 1.42 years of expected exercise date, results in approximately $0.003/share
value, but since there is sensitivity at 2 years or more, the Valuation
Consultant valued these 500,000 Warrants at $0.01/share, being a reasonable
estimate of value in its opinion.
STOCK OPTIONS
We have issued options to purchase 2,000,000 shares of common stock to employees
of the Company at exercise prices ranging from $0.25 to $0.75 per share.
1,100,000 of these options are currently vested with the remaining options to
expire at varying times between March 7, 2006 and June 1, 2008.
REGISTRATION RIGHTS
We have included in this registration statement 950,674 shares of common stock
underlying outstanding debentures, 3,120,000 shares underlying warrants, and
83,000 shares of common stock held by certain founding shareholders. $630,000 in
convertible debentures are convertible into common shares upon certain
registration events specified in their governing instruments.
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.
36
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 for our Predecessor 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. The financial statements for the period
January 21, 2005 (date of acquisition) through December 31, 2005 included in
this Prospectus have been so included in reliance on the report of Liebman,
Goldberg & Drogin, LLP.
The Appraisal of our facility and land located in Bolivar, Tennessee, dated
December 21, 2004 included in this Prospectus have been so included in reliance
on the report of Johnstone Group, Inc., an independent certified general real
estate appraiser, given on the authority of said firm as experts in appraising
real estate.
The Appraisal of our manufacturing equipment located in Bolivar, Tennessee,
dated January 31, 2005 included in this Prospectus have been so included in
reliance on the report of Neiman-Ross Associates, Inc., an independent appraiser
belonging to the American Society of Appraisers, given on the authority of said
firm as experts in business and equipment valuations.
The valuation of our stock options and warrants included in this Prospectus,
have been so included in reliance on the report of Stenton Leigh Valuation
Group, Inc., an independent valuator, given on the authority of said firm as
experts in the valuation of stock option and warrants.
LEGAL OPINION
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.
37
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Financial Statements
For the Six Months Ended June 31, 2006
Unaudited
ALTERNATIVE CONSTRUCTION COMPANY, INC.
CONTENTS
For the Six Months Ended June 30, 2006
Page #
-------
Consolidated Financial Statements:
Consolidated Balance Sheet 2 - 3
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 22
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Balance Sheet
Unaudited
June 30, December 31,
2006 2005
---------- ------------
ASSETS
Current Assets
Cash $ 180,513 $ 133,547
Notes Receivable 275,000 395,000
Accounts Receivable, Net 826,447 1,294,288
Due From Factor, Net 102,846 92,543
Inventory 538,829 539,153
Prepaid Expenses 310,207 233,832
Unbilled Revenue 23,400 --
---------- ----------
Total Current Assets 2,257,242 2,688,363
---------- ----------
Property, Plant and Equipment, Net 3,092,310 3,137,654
---------- ----------
Total Assets $5,349,552 $5,826,017
========== ==========
See accompanying notes to consolidated financial statements.
-2-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Balance Sheet
Unaudited
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2006 2005
----------- ------------
Current Liabilities
Notes Payable, Current Portion $3,019,430 $2,628,594
Accounts Payable and Accrued Expenses 619,080 1,440,942
Accrued Payroll and Taxes 38,880 95,305
Capital Leases, Current Portion 5,250 4,806
Billings in Excess of Costs 9,400 --
Deferred Revenue 110,814 65,803
---------- ----------
Total Current Liabilities 3,802,854 4,235,450
---------- ----------
Noncurrent Liabilities
Notes Payable, Noncurrent Portion 472,023 481,943
Capital Leases, Noncurrent Portion 11,346 17,577
---------- ----------
Total Noncurrent Liabilities 483,369 499,520
---------- ----------
Total Liabilities 4,286,223 4,734,970
---------- ----------
Minority Interest (65,544) (22,425)
---------- ----------
Stockholders' Equity
Preferred Stock
Series A convertible preferred stock, voting, $1.00 par value, 1,500,000
shares authorized, 1,500,000 shares issued and outstanding 1,500,000 1,500,000
Series B convertible preferred stock, voting, $.0001 par value,
3,500,000 shares authorized, 2,010,000 shares issued and outstanding 201 201
Series C convertible preferred stock, voting, $.0001 par value,
1,000,000 shares authorized, 188,680 shares issued and outstanding 19 --
Common Stock
Alternative Construction Company, Inc.: $.0001 par value,
100,000,000 shares authorized, 4,994,350 shares issued and outstanding 853 853
Minority Interest in Subsidiaries 400 400
Subscription Receivable -- (331)
Additional Paid In Capital 499,981 --
Accumulated Deficit (872,581) (387,652)
---------- ----------
Total Stockholders' Equity 1,128,873 1,113,472
---------- ----------
Total Liabilities and Stockholders' Equity $5,349,552 $5,826,017
========== ==========
See accompanying notes to consolidated financial statements.
-3-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Statement of Operations
Unaudited
For the Period
Three Months Ended Six Months January 21,
----------------------------- Ended 2005 Through
June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005
------------- ------------- ------------- --------------
Sales $1,564,759 $1,466,581 $3,614,599 $2,037,673
Cost of Sales 1,204,814 1,204,255 2,481,316 1,757,878
---------- ---------- ---------- ----------
Gross Profit 359,945 262,326 1,133,283 279,795
Operating Expenses 790,156 370,625 1,474,514 835,203
---------- ---------- ---------- ----------
Loss From Operations (430,211) (108,299) (341,231) (555,408)
Interest Expense (116,929) (40,207) (186,817) (59,589)
---------- ---------- ---------- ----------
Net Loss Before Minority Interest (547,140) (148,506) (528,048) (614,997)
Minority Interest in Subsidiary 21,423 -- 43,119 (138)
---------- ---------- ---------- ----------
Net Loss $ (525,717) $ (148,506) $ (484,929) $ (615,135)
========== ========== ========== ==========
Net Loss Per Share:
Basic and diluted based upon 8,610,093
weighted average shares outstanding $ (0.06)
==========
Basic and diluted based upon 11,110,000
weighted average shares outstanding $ (0.06)
==========
Basic and diluted based upon 8,557,514
weighted average shares outstanding $ (0.06)
==========
Basic and diluted based upon 9,014,125
weighted average shares outstanding $ (0.02)
==========
See accompanying notes to consolidated financial statements.
-4-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Statement of Cash Flows
Unaudited
Six Months Ended
----------------------------
June 30, 2006 June 30, 2005
------------- -------------
Cash Flows From Operating Activities:
Net Loss $(484,929) $ (615,135)
Adjustments to Reconcile Net Loss to Net
Cash Used By Operating Activities:
Depreciation and Amortization 84,719 65,825
Minority Interest (43,119) 138
Decrease (Increase) In:
Accounts Receivable, Net 467,841 (442,165)
Due from Factor, Net (10,303) (72,260)
Inventories 324 (90,054)
Prepaid Expenses and Other Current Assets (99,774) (342,628)
Increase (Decrease) In:
Accounts payable, accrued expenses and taxes payable (878,289) 602,611
Deferred Revenue and Other Current Liabilities 54,411 --
--------- -----------
Net Cash Used By Operating Activities (909,119) (893,668)
--------- -----------
Cash Flows From Investing Activities:
Acquisition of Property, Plant and Equipment (39,375) (2,775,411)
--------- -----------
Net Cash Used By Investing Activities (39,375) (2,775,411)
--------- -----------
Cash Flows From Financing Activities:
Issuance and Repayment, Net, of Notes Payable, Line
of Credit and Capital Leases 375,129 2,131,631
Issuance of Common Stock -- 760
Issuance of Series A Preferred Stock -- 1,500,000
Issuance of Series B Preferred Stock -- 236
Issuance of Series C Preferred Stock 500,000 --
Receipt of Stock Subscriptions 331 --
Shareholder Advances / Paid In Capital -- 48,405
Repayment of Note Receivable 120,000 --
--------- -----------
Net Cash Provided By Financing Activities 995,460 3,681,032
--------- -----------
Net Increase in Cash 46,966 11,953
Cash at Beginning of Year 133,547 38,597
--------- -----------
Cash at End of Period $ 180,513 $ 50,550
========= ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 182,781 $ --
========= ===========
Taxes Paid $ -- $ --
========= ===========
See accompanying notes to consolidated financial statements.
-5-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operation
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair statement of results for the interim period. The results of
operations for the six months ended June 30, 2006 are not necessarily
indicative of the results to be expected for the full year. The
accompanying unaudited consolidated financial statements and footnotes
have been condensed and, therefore, do not contain all required
disclosures. Reference should be made to the Company's annual audited
financial statement for the period January 21, 2005 (date of acquisition)
through December 31, 2005.
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.
On January 21, 2005, a newly formed acquisition Company, known as
Alternative Construction Company, Inc. ("ACC") acquired all the
outstanding stock of ACT, a privately held company, 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
$629,894. Therefore, the cost of the acquisition of ACT after the net
adjustments as a result of further due diligence, was $879,894 of which
$750,000 was Series A Preferred Stock. The acquisition of the assets of
QMS did not change. 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.
-6-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In accordance with SFAS No. 141, "Business Combinations", the acquisition
has been accounted for under the purchase method of accounting. The
purchase price was allocated to ACT and QMS's tangible and intangible
assets acquired and liabilities assumed based on their estimated fair
values as ascertained by an independent certified appraisal as of December
2004 (facility and land prepared by Johnstone Group, Inc. of Jackson, TN)
and January 2005 (manufacturing equipment prepared by Neiman-Ross of
Nashville, TN), with any excess being ascribed to goodwill. Management is
responsible for determining the fair value of these assets. The fair value
of the assets acquired and liabilities assumed represent management's
estimate of fair values. Goodwill, as the result of the net of assets and
liabilities, was a negative therefore management determined that there
would be no value associated with the acquired patents and the fixed
assets acquired would be reduced on an equal basis by the negative
goodwill thereby reducing goodwill to zero. The following table summarizes
the components of the purchase price and the activity and balance sheet of
the acquired company at January 20, 2005:
COMPONENTS OF PURCHASE PRICE
Note Payable $ 629,894
Series A Preferred Stock 1,500,000
----------
Total Purchase Price $2,129,894
==========
BALANCE SHEET and ACTIVITY at JANUARY 20, 2005:
Assets:
Cash $ 43,634
Accounts Receivable, net 158,674
Inventory 70,738
Prepaid Expenses 16,378
Property, Plant and Equipment, net 658,588
----------
Total Assets $ 948,012
==========
Liabilities and Stockholders' Equity:
Accounts Payable and Accrued Expenses $ 167,452
Debt 85,528
Stockholders' Equity 695,032
----------
Total Liabilities and Stockholders' Equity $ 948,012
==========
STATEMENT of OPERATIONS for the Period JANUARY 1 - 20, 2005:
Sales $ 84,152
Cost of Sales 80,786
----------
Gross Profit 3,366
Operating Expenses 34,676
----------
(Loss) from Operations (31,310)
----------
Net (Loss) ($31,310)
----------
-7-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The following table is a detail of the reduction (net) of $370,106 from
the acquisition price of $2,500,000 to $2,129,894:
ACT ACT QMS QMS
Stock Cash Stock Cash Total
------- -------- ------- ------- ---------
Purchase Price
Series A Preferred Stock 750,000 -- 750,000 -- 1,500,000
Note Payable -- 500,000 -- 500,000 1,000,000
------- -------- ------- ------- ---------
Total Purchase Price 750,000 500,000 750,000 500,000 2,500,000
------- -------- ------- ------- ---------
Adjustments to Purchase Price:
Accounts Receivable (a) -- (202,611) -- -- (202,611)
Accounts Payable (b) -- (134,441) -- -- (134,441)
Unrecorded Lease (c) -- (16,271) -- -- (16,271)
Fixed Assets (d) -- (1,982) -- -- (1,982)
Physical Inventory (e) -- (7,245) -- -- (7,245)
Unpaid Payroll at Acq
Date (f) -- (7,556) -- -- (7,556)
------- -------- ------- ------- ---------
Total Adjustments -- (370,106) -- -- (370,106)
------- -------- ------- ------- ---------
Net Purchase Price 750,000 129,894 750,000 500,000 2,129,894
------- -------- ------- ------- ---------
(a) Uncollectible accounts receivable on books at acquisition date.
(b) Unrecorded liabilities not on books at acquisition date.
(c) Contractual lease for forklifts not recorded on books at acquisition date.
(d) Fixed assets on books that had previously disposed of or transferred to
unrelated party.
(e) Adjustment to reflect physical inventory at date of acquisition.
(f) Predecessor liability for payroll at date of acquisition and subsequently
paid by Purchaser.
-8-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The purchase price of ACT and the select assets of QMS was $2,500,000. The
actual value of the assets (net) purchased was $2,564,984 as shown below:
Purchase Adjustments
Before From
Adjustments Above Total
----------- ----------- ----------
Appraised value of fixed assets 2,528,540 2,528,540
Other assets & liabilities, net 36,444 (370,106) (333,662)
--------- -------- ---------
Acquired assets, net 2,564,984 (370,106) 2,194,878
Purchase price 2,500,000 (370,106) 2,129,894
--------- -------- ---------
Value in excess of purchase price 64,984 -- 64,984
========= ======== =========
Allocation to reduce the value of
acquired fixed assets
On April 28, 2005, the Company acquired an 80% interest in USS for a purchase
price of $800. As no tangible assets or liabilities were acquired, the full
value was booked to Common Stock.
On June 28, 2005, the Company acquired an 80% interest in PSB for a purchase
price of $800. As no tangible assets or liabilities were acquired the full value
was booked to Common Stock.
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
The Company recognized revenue on our products in accordance with the Securities
Exchange Commission (SEC) Staff Accounting Bulletin No. 104, (which superseded
Staff Accounting Bulletin No. 101) "Revenue Recognition in Financial
Statements". Under these guidelines, revenue is recognized on sales transactions
when all of the following exist: persuasive evidence of an arrangement did
exist, delivery of product has occurred, the sales price to the buyer is fixed
or determinable and collectibility is reasonably assured. We accrued a provision
for estimated returns concurrent with revenue recognition.
-9-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company has 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.
Sales for ACT and USS are generated from customer's purchase orders. The
sales are recognized upon the shipment of finished goods from the
Company's plant to the customer at which time the product changes title.
Allowances for cash discounts and returns are recorded in the period in
which the related sale is recognized. Our 80% owned subsidiary, PSB,
contracts to build residential, commercial and other infrastructures to
its customers, none of which are related to ACC. As such, PSB recognizes
its revenue under the percentage of completion method as work on a
contract as progresses, recognition of revenue and profits generally is
related to costs incurred in providing the services required under the
contract. Statement of Position 81-1 discusses accounting for performance
of construction contracts. The use of the percentage of completion method
depends on our ability to make reasonable dependable estimates.
Additionally, contracts executed by PSB and their customers include
provisions that clearly specify the enforceable rights of our services
that are provided and received by our customers. Our estimates assume that
our customers will satisfy their obligations under the contract and our
performance requirements will be completed.
Freight revenue is recognized as the cost of shipping the product to the
customer plus a nominal markup.
The Company recognizes product returns as a reduction to revenue. Other
forms of customer adjustments are accounted for in the same manner.
The Company will on occasion place finished goods on consignment with a
customer. Finished goods are recorded on the Balance Sheet as part of
Inventory until the product is purchased.
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. Management reviews
accounts receivable 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 collectibles of the
accounts receivable, based on the information available, management
believes all balances are collectible.
-10-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ACC utilizes the accounts receivable factoring service provided by The
Hamilton Group ("Hamilton") for a significant percentage of its
receivables. Under the terms of the Sale of Accounts Factoring and
Security Agreement, 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, 2006 was $169,901. As of June 30, 2006, Hamilton had
purchased $472,919 of receivables, and they had advanced $370,073 to the
Company, for a net due from factor of $102,846.
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.
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, 2006.
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.
-11-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
For the six months ended June 30, 2006, sales to the Company's primary
customer accounted for approximately 77.6% of revenues and 52.9% of
accounts receivable as of June 30, 2006.
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.
-12-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Shipping and Handling Costs
The Company has included freight out as a component of selling and
delivery expenses, which amounted to $184,951 for the six months ended
June 30, 2006.
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.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplate
continuation of the Company as a going concern. At June 30, 2006, the
Company had negative working capital of $1,588,731. However, a substantial
portion of the current notes payable are anticipated to be converted into
equity upon successful completion of the Company's registration. The
Company operated at a loss for the three months ended June 30, 2006.
Realization of the assets of the Company is dependent upon the Company's
ability to meet its financing requirements and the continued success of
future operations. The consolidated 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.
-13-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 2 - NOTES RECEIVABLE
The Company had one note receivable as of June 30, 2006. The note is with
Peter Baker and originally was in the amount of $300,000. As of June 30,
2006, the balance was $275,000 as a payment in the amount of $25,000 was
received. This amount was advanced to Mr. Baker as a loan commitment fee
that was for a line of credit of $3,000,000 that never was finalized. The
note is payable in full as of September 30, 2006 with interest at prime
plus 3%.
NOTE 3 - PREPAID EXPENSES
The Company has prepaid expenses of $310,207 as of June 30, 2006. The
amount represents insurance payments and other amounts for various future
expenses.
NOTE 4 - INVENTORY
Inventory as of June 30, 2006 consists of the following:
Raw materials $235,843
Finished goods 22,078
Safe Room Kits 12,091
Finished Goods on Consignment 100,817
--------
$370,829
========
The Company has provided the Company's finished goods products to third
parties on a consignment basis. The items remain the property of the
Company.
-14-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
Capitalized Lease Equipment:
Computer Equipment $ 22,383
----------
Total Capitalized Lease Equipment 22,383
Land, building and improvement 1,068,121
Machinery and equipment 2,198,254
Computer Equipment 28,601
Furniture and fixtures 3,870
----------
3,321,229
Less Accumulated Depreciation (228,919)
----------
Property, Plant, and Equipment, Net $3,092,310
==========
Depreciation expense was $84,719 for the six months ended June 30, 2006.
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following:
Dell Financial Services, collateralized by computer, payable in
monthly installments of $388 including principal and interest at
the variable rate of 14.99% per annum. Due on January 2010. $ 11,799
JMB Associates, principal, accrued and unpaid interest at 18.00%
per annum. Due on September 30, 2006. 314,644
JMB Associates, principal, accrued and unpaid interest at 18.00%
per annum. Due on September 30, 2006. 452,289
Sharon Beshara, principal, accrued, and unpaid interest at 24% per
annum on revolving 30-day term. Note is extended every 30 days.
Due on Sept, 2006. 176,323
Antoinette Pace, principal, accrued, and unpaid interest
at 24% per annum on revolving 30-day term. Notes are extended
every 30 days. The amount is guaranteed by Avante Holding Group,
Inc. Due on September 30, 2006. 114,807
Edward Beshara, principal, accrued, and unpaid interest at 24% per
annum on revolving 30-day term. Note is extended every 30 days. The
amount is guaranteed by Avante Holding Group, Inc. Due on
September 30, 2006. 101,500
-15-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 6 - NOTES PAYABLE (continued)
Antoinette Pace and James Beshara, principal, accrued, and unpaid
interest at 24% per annum on revolving 30-day term. Note is
extended every 30 days. The amount is guaranteed by Avante Holding
Group, Inc. Due on September 30, 2006. 200,000
Paul Janssens, principal and interest at 12.00% per annum.
Due on September 30, 2006. 629,894
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. 117,637
M & T Mortgage Corporation, 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. 407,533
Merchants & Planters Bank, line of credit, accrued interest
at 7.50% per annum. 10,033
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. 68,878
Cecil H. Harmon, principal and interest at 10% per annum. Due on
July 1, 2007. 11,618
Avante Holding Group, revolving credit, principal and interest at
Prime plus 4% per annum. Due on October 2006. 691,588
PhoenixSurf.com, principal. Non-interest bearing note. The note is
convertible into common stock of the Company at the time of
registration at the per share price of $2.65. 75,000
Steves Rodriguez, convertible promissory note at no interest,
due September 30, 2006. 20,000
GAMI, LLC, principal and interest at 10% per annum due March 31,
2007. 29,036
Advanced Construction Options, LLC, revolving credit, principal
and interest at prime plus 4% per annum. No expiration date. 58,874
----------
3,491,453
----------
Current Portion 3,019,430
----------
Notes Payable, Long Term $ 472,023
==========
-16-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 7 - CAPITAL LEASE OBILIGATIONS
Dell Financial Services, secured by computer equipment, payable at
13.9% at 10% per annum. Due March 2009. Monthly payments are $29
including principal and interest. $ 775
Dell Financial Services, secured by computer equipment, payable at
18% at 10% per annum. Due March 2009. Monthly payments are $626
including principal and interest. 15,821
-------
16,596
Less Current Portion (5,250)
=======
Non-Current Obligation Under Capital Lease $11,346
=======
Future minimum capital lease obligations at June 30, 2006 are as follows:
2006 $ 2,107
2007 5,735
2008 6,845
2009 1,909
-------
Total Capital Lease Obligations $16,596
=======
NOTE 8 - COMMITMENTS
The Company leases a forklift. The lease expires in August 2007. Monthly
lease payments are $546.00.
Future minimum obligations for the above lease are as follows:
2006 $3,276
2007 4,368
------
Total Minimum Lease Obligations $7,644
======
NOTE 9 - 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 30, 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.
-17-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 9 - RELATED PARTIES (continued)
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.
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 $270,000 per year,
payable in equal monthly installments.
PSB has a management contract with Advanced Construction Partners, LLC,
which is owned equally between GAMI and Advanced Construction Options, LLC
("ACO").
On June 30, 2006, ACO assigned to PSB a note dated July 10, 2005, between
ACO and GAMI for $50,000. At June 30, 2006, at the time of the assignment,
the balance due GAMI was $29,036 which included accrued interest. The note
included interest at the rate of 10% per annum.
On November 1, 2004, ACC and Avante entered into a Revolving Credit
Agreement for $500,000. The terms of the Agreement includes interest at
the rate of prime plus 4%. An Amendment to the Agreement was executed in
March 2006 providing an additional $500,000 credit for a total of
$1,000,000. The Agreement terminates on October 31, 2006 with an available
extension of one year at the discretion of the Lender. As of June 30,
2006, the balance due to Avante under this Agreement was $690,868.
The CEO of the Company has personally guaranteed several obligations to
non-supply vendors. Additionally, Avante Holding Group, Inc., of which
Mr. Hawkins is the CEO, has provided a corporate guarantee of the
Company's payable balance with Dow Chemical, Inc. and Phoenix Metals, Inc.
-18-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 10 - EARNINGS PER SHARE
The Company presents both basic and diluted earnings per share (EPS)
amounts. Basic EPS is calculated by dividing net income by the weighted
average number of common shares outstanding during the year. Diluted EPS
Is based upon the weighted average number of common and common equivalent
shares outstanding during the year which is calculated using the treasury
stock method for stock options and assumes conversion of the Company's
convertible notes. Common equivalent shares are excluded from the
computation in periods in which they have an anti-dilutive effect. Stock
options for which the exercise price exceeds the average market price over
the period have an anti-dilutive effect on EPS and, accordingly, are
excluded from the calculation.
A reconciliation of net income and the weighted average number of common
and common equivalent shares outstanding for calculating diluted earnings
per share is as follows:
For the Six
Months Ended
June 30, 2006
-------------
Numerator for basic loss per share, as reported $ (484,929)
Preferred stock dividends --
-----------
Loss for basic EPS calculations $ (484,929)
-----------
Effect of dilutive securities, as reported
Interest on convertible debt 78,578
-----------
DILUTED LOSS FOR EPS CALCULATIONS $ (406,351)
-----------
WEIGHTED AVERAGE NUMBER OF SHARES FOR BASIC EPS 8,557,514
Effect of dilutive securities, as reported
Stock options 617,680
Warrants 3,000,000
Convertible debt 1,130,738
-----------
13,305,927
-----------
BASIC AND DILUTED LOSS PER SHARE $ (0.06)
-----------
-19-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 11 - INCOME TAXES
A reconciliation of income tax computed at the statutory federal rate to
income tax expense (benefit) is as follows:
June
30, 2006
---------
Tax benefit at the statutory rate of 35% $ --
State income taxes, net of federal income tax --
Change in valuation allowance --
--------
Total $ 0
========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
June
30, 2006
---------
Deferred tax assets:
Net operating loss carryforward $ 111,362
=========
Total deferred tax assets $ 111,362
Less valuation allowance (111,362)
---------
Total net deferred tax assets $ 0
=========
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies
in making this assessment.
Because of the historical earnings history of the Company, the net
deferred tax assets for 2005 were fully offset by a 100% valuation
allowance. The valuation allowance for the net deferred tax assets was
approximately $111,362 as of December 31, 2006.
At December 31, 2005, the Company had net operating loss carryforward
available for U.S. tax purposes of $318,177. The carryforward expires in
2025. The Company utilized $155,025 of the net operating loss carryforward
for the six months ended June 30, 2006.
-20-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 12 - COMMON STOCK AND ADDITIONAL PAID - IN CAPITAL
On July 30, 2005, the Board of Directors, pursuant to 607.0821 of the
Florida Business Corporation Act, authorized the consolidation of our
outstanding common shares, also known as a reverse split, of the Company
that caused each one hundred shares of outstanding shares of its common
stock to be converted into one share of its common stock. All share and
per share amounts have been adjusted for this reverse stock split.
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.
The Series C Preferred Stock was issued to New Millennium Entrepreneurs in
conjunction with an investment of $500,000. The conversion rights are one
for one shares of common stock.
NOTE 13 - STOCK OPTIONS AND STOCK WARRANTS
The Company complies with Accounting Principles Board (APB) No. 25
"Accounting for Stock Issued to Employees" in accounting for stock options
issued to employees. Stock options are granted with an exercise price that
is at a premium to the currently determined value of the stock price.
Accordingly, no compensation expense has been recognized for options
issued to employees.
Compensation costs for the Company's stock option plans and stock purchase
plan were determined to have no value at the grant date and consistent
with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net income (loss) and net income (loss) per share would have
been as follows:
For the Six
Months Ended
June 30, 2006
-------------
Net loss applicable to common stockholders $(484,929)
Stock based employee compensation expense --
Determined under fair value based method for --
All awards
Net loss - pro forma $(484,929)
Net loss per share applicable to common stockholders as reported:
Basic and Diluted $ (.06)
Net loss per share applicable to common stockholders - pro forma:
Basic and Diluted $ (.06)
-21-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 13 - STOCK OPTION PLAN (continue)
For purposes of computing pro forma net income, the Company estimates the
fair value of each option grant and employee stock purchase plan right on
the date of grant using the Black-Scholes option-pricing model. The
Black-Scholes option-pricing model was developed for use in estimating the
value of traded options that have no vesting restrictions and are fully
transferable, while the options issued by the Company are subject to both
vesting and restrictions on transfer. In addition, option-pricing models
require input of highly subjective assumptions including expected stock
price volatility. The Company uses projected data for expected volatility
and estimates the expected life of its stock options.
The weighted average assumptions used to value the option grants:
January 1, 2005 thru December 31, 2005 Stock Option Plans
- -------------------------------------- ------------------
Expected life (years) 3
Risk-free interest rate 7
Volatility 1
Dividend rate 0
Options granted under the 2004 incentive stock option plan are exercisable
at the exercise price of grant and, subject to termination of employment,
expire October 31, 2014, are not transferable other than on death, and
vest in three unequal annual installments commencing at various times from
the date of grant. A summary of the Company's stock option plan as of June
30, 2006 is presented below:
2006
--------------------
Weighted
Average
Exercise
Shares Price
--------- --------
Outstanding at the beginning of the year 2,000,000 0.55
Granted --
Forfeited
--
Exercised
--
Outstanding at the end of the period 2,000,000 0.55
Options exercisable at the end of the period 1,100,000
There are currently 2,000,000 unissued options under the 2004 Stock Option Plan.
-22-
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2006
Unaudited
NOTE 13 - STOCK OPTION PLAN (Continued)
The following table summarizes information for stock options outstanding
at June 30, 2006:
Options Outstanding Options Exercisable
----------------------------------- -----------------------
Weighted- Weighted- Weighted-
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices @ 6/30/06 in years Price @ 6/30/06 Price
- ----------- ----------- --------- --------- ----------- ---------
0.25 - 0.75 2,000,000 0.55 1,100,000 0.28
A total of 3,000,000 warrants were issued on August 1, 2005 to various
individuals/entities. These warrants were issued for services as an
inducement to provide financing or refinancing of debt and for strategic
business purposes. All warrants were fully vested on the date of issue.
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.
Of the 3,000,000 warrants issued; 500,000 warrants valued at $0.01. The
remaining 2,500,000 warrants were determined to have no value. The
determined value of the warrants were based upon the conversion rates
attached to them. Based upon that value, the Company's net income (loss)
and net income (loss) per share would have been as follows:
For the Six
Months Ended
June 30, 2006
-------------
Net loss applicable to common stockholders $ (484,929)
Stock based employee compensation expense --
Determined under fair value based method for
All awards $ (5,000)
Net loss - pro forma $ (484,929)
Net loss per share applicable to common stockholders as reported:
Basic and Diluted $ (.06)
Net loss per share applicable to common stockholders - pro forma:
Basic and Diluted $ (.06)
NOTE 14 - STOCK-BASED COMPENSATION
The Company has adopted FAS 123R which requires it to record the fair
value of stock-based compensation awards as an expense. As of June 30,
2006, the Company did not incur any expense. Should there be a
determination of expense in the future, the Company will utilize the
various fair market value determination models as required.
-23-
ALTERNATIVE CONSTRUCTION COMPANY, INC
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
ALTERNATIVE CONSTRUCTION COMPANY, INC.
CONTENTS
For the Period January 21, 2005 (Date of Acquisition)
Through December 31, 2005
Page #
--------
Accountant's Audit Report F1
Consolidated Financial Statements:
Consolidated Balance Sheet F2 - F3
Consolidated Statement of Operations F4
Consolidated Statement of Shareholders' Equity F5
Consolidated Statement of Cash Flows F6
Notes to Consolidated Financial Statements F7 - F22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Alternative Construction Company, Inc. and Subsidiaries Melbourne, FL
We have audited the accompanying consolidated balance sheet of Alternative
Construction Company, Inc. and Subsidiaries as of December 31, 2005, and the
related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audit in accordance with the standards on the Public Company
Accounting Oversight Board (United States). 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Alternative Construction Company, Inc. and Subsidiaries as of December 31, 2005,
and the consolidated results of their operations and their cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, as of December 31, 2005 the Company has a
working capital deficiency. This factor raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans with regard
to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Liebman Goldberg & Drogin, LLP
Garden City, New York
March 30, 2006
F-1
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Balance Sheet
December 31, 2005
ASSETS
Current Assets
Cash $ 133,547
Notes Receivable 395,000
Accounts Receivable, Net 1,294,288
Due From Factor, Net 92,543
Inventory 539,153
Prepaid Expenses 233,832
----------
Total Current Assets 2,688,363
----------
Property, Plant and Equipment, Net 3,137,654
----------
Total Assets $5,826,017
==========
See accompanying independent auditors report and notes to consolidated financial
statements.
F-2
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Balance Sheet
December 31, 2005
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes Payable, Current Portion $ 2,628,594
Accounts Payable and Accrued Expenses 1,440,942
Accrued Payroll and Taxes 95,305
Capital Leases, Current Portion 4,806
Deferred Revenue 65,803
-----------
Total Current Liabilities 4,235,450
-----------
Noncurrent Liabilities
Notes Payable, Noncurrent Portion 481,943
Capital Leases, Noncurrent Portion 17,577
-----------
Total Noncurrent Liabilities 499,520
-----------
Total Liabilities 4,734,970
-----------
Minority Interest (22,425)
-----------
Stockholders' Equity
Preferred Stock
Series A convertible preferred stock, voting, $1.00 par
value, 1,500,000 shares 1,500,000 shares authorized,
1,500,000 shares issued and outstanding 1,500,000
Series B convertible preferred stock, voting, $.0001 par
value, 3,500,000 shares authorized,
2,010,000 shares issued and outstanding 201
Series C convertible preferred stock, voting, $.0001 par
value, 1,000,000 shares authorized, no shares
issued or outstanding --
Common Stock
Alternative Construction Company, Inc.: $.0001 par
value, 100,000,000 shares authorized,
4,994,350 shares issued and outstanding 853
Minority Interest in Subsidiaries 400
Alternative Construction Technologies Corporation: $.001
pare value, 10,000,000 shares authorized,
500,000 shares issued and outstanding
Subscription Receivable (331)
Additional Paid In Capital --
Accumulated Deficit (387,652)
-----------
Total Stockholders' Equity 1,113,472
-----------
Total Liabilities and Stockholders' Equity $ 5,826,017
===========
See accompanying independent auditors report and notes to consolidated financial
statements.
F-3
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Statement of Operations and Deficit For the Period January 21, 2005
(Date of Acquisition) Through December 31, 2005
Sales $9,528,984
Cost of Sales 7,472,262
----------
Gross Profit 2,056,722
Operating Expenses 2,129,315
----------
(Loss) From Operations (72,593)
Interest Expense 268,009
Provision for Income Taxes --
----------
Net (Loss) Before Minority Interest (340,602)
Minority Interest in Subsidiary 22,425
----------
Net (Loss) $ (318,177)
==========
Net (Loss) Per Share:
Basic based upon 5,999,079 weighted average
shares outstanding $ (0.05)
==========
See accompanying independent auditors report and notes to consolidated financial
statements.
F-4
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Statement of Stockholders' Equity For the Year Ended December 31,
2005
Preferred Preferred Additional Retained Total
Common Stock - Stock - Paid-in Earnings Shareholders'
Stock Series A Series B Capital (Deficit) Equity
------- ---------- --------- ----------- ----------- -------------
Balance, January 1, 2005 - ACC $ -- $ -- $ -- $ -- $ (38,165) $ (38,165)
Shareholder capital
contribution 853 -- 201 -- -- 1,054
Subscription receivable - ACC (331) -- -- -- -- (331)
ACT acquisition 500 -- -- 7,394,667 (6,700,135) 695,032
Issuance of ACC stock related
to acquisition of ACT -- 1,500,000 -- -- -- 1,500,000
Issuance of USS stock 1,000 -- -- -- -- 1,000
Issuance of PSB stock 1,000 -- -- -- -- 1,000
Consolidating Eliminations (2,100) -- -- (7,394,667) 6,700,135 (696,632)
Net (Loss) -- -- -- -- (349,486) (371,911)
------- ---------- ---- ----------- ----------- ----------
Balance, December 31, 2005 $ 922 $1,500,000 $201 $ -- $ (387,652) $1,091,047
======= ========== ==== =========== =========== ==========
See accompanying independent auditors report and notes to consolidated financial
statements.
F-5
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Consolidated Statement of Cash Flows
For the Year Ended December 31, 2005
Cash Flows From Operating Activities:
Net (Loss) $ (318,177)
Adjustments to Reconcile Net Loss to Net
Cash Used By Operating Activities:
Depreciation and Amortization 144,615
Minority Interest (22,425)
Decrease (Increase) In:
Accounts Receivable, Net (1,294,288)
Due from Factor, Net (92,543)
Inventories (539,153)
Prepaid Expenses and Other Current Assets (233,832)
Increase (Decrease) In:
Accounts payable, accrued expenses and taxes payable 1,536,247
Deferred Revenue 65,803
-----------
Net Cash Used By Operating Activities (753,753)
-----------
Cash Flows From Investing Activities:
Acquisition of Property, Plant and Equipment (3,282,269)
Additional costs Related to Acquisition (31,310)
-----------
Net Cash Used By Investing Activities (3,313,579)
-----------
Cash Flows From Financing Activities:
Issuance of Common Stock 778
Receipt of Stock Subscriptions 144
Issuance of Preferred Stock - Series A 1,500,000
Issuance of Preferred Stock - Series B 201
Issuance and Repayment, Net, of Notes Payable, Line
of Credit and Capital Leases 3,094,756
Issuance of Note Receivable (395,000)
-----------
Net Cash Provided By Financing Activities 4,200,879
-----------
Net Increase in Cash 133,547
Cash at Beginning of Year --
-----------
Cash at End of Period $ 133,547
===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 95,379
===========
Taxes paid $ --
===========
See accompanying independent auditors report and notes to consolidated financial
statements.
F-6
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 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.
On January 21, 2005, a newly formed acquisition Company, known as Alternative
Construction Company, Inc. ("ACC") acquired all the outstanding stock of ACT, a
privately held company, 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 $629,894. Therefore, the cost
of the acquisition of ACT after the net adjustments as a result of further due
diligence, was $879,894 of which $750,000 was Series A Preferred Stock. The
acquisition of the assets of QMS did not change. 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.
In accordance with SFAS No. 141, "Business Combinations", the acquisition has
been accounted for under the purchase method of accounting. The purchase price
was allocated to ACT and QMS's tangible and intangible assets acquired and
liabilities assumed based on their estimated fair values as ascertained by an
independent certified appraisal as of December 2004 (facility and land) prepared
by Johnstone Group, Inc. of Jackson, TN) and January 2005 (manufacturing
equipment) prepared by Neiman-Ross of Nashville, TN), with any excess being
ascribed to goodwill. Management is responsible for determining the fair value
of these assets. The fair value of the assets acquired and liabilities assumed
represent management's estimate of fair values. Goodwill, as the result of the
net of assets and liabilities, was a negative therefore management determined
that there would be no value associated with the acquired patents and the fixed
assets acquired would be reduced on an equal basis by the negative goodwill
thereby reducing goodwill to zero. The following table summarizes the components
of the purchase price and the activity and balance sheet of the acquired company
at January 20, 2005:
F-7
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
COMPONENTS OF PURCHASE PRICE
Note Payable $ 629,894
Series A Preferred Stock 1,500,000
----------
Total Purchase Price $2,129,894
==========
BALANCE SHEET and ACTIVITY at JANUARY 20, 2005:
Assets:
Cash $ 43,634
Accounts Receivable, net 158,674
Inventory 70,738
Prepaid Expenses 16,378
Property, Plant and Equipment, net 658,588
----------
Total Assets $ 948,012
==========
Liabilities and Stockholders' Equity:
Accounts Payable and Accrued Expenses $ 167,452
Debt 85,528
Stockholders' Equity 695,032
----------
Total Liabilities and Stockholders' Equity $ 948,012
==========
STATEMENT of OPERATIONS for the Period JANUARY 1 - 20, 2005:
Sales $ 84,152
Cost of Sales 80,786
----------
Gross Profit
3,366
Operating Expenses 34,676
----------
(Loss) from Operations (31,310)
----------
Net (Loss) ($31,310)
==========
The following table is a detail of the reduction (net) of $370,106 from
the acquisition price of $2,500,000 to $2,129,894:
ACT ACT QMS QMS
Stock Cash Stock Cash Total
------- -------- ------- ------- ----------
Purchase Price
Series A Preferred Stock 750,000 -- 750,000 -- 1,500,000
Note Payable -- 500,000 -- 500,000 1,000,000
------- -------- ------- ------- ---------
Total Purchase Price 750,000 500,000 750,000 500,000 2,500,000
------- -------- ------- ------- ---------
Adjustments to Purchase Price:
Accounts Receivable (a) -- (202,611) -- -- (202,611)
Accounts Payable (b) -- (134,441) -- -- (134,441)
Unrecorded Lease (c) -- (16,271) -- -- (16,271)
Fixed Assets (d) -- (1,982) -- -- (1,982)
Physical Inventory (e) -- (7,245) -- -- (7,245)
Unpaid Payroll at Acq
Date (f) -- (7,556) -- -- (7,556)
------- -------- ------- ------- ---------
Total Adjustments -- (370,106) -- -- (370,106)
------- -------- ------- ------- ---------
Net Purchase Price 750,000 129,894 750,000 500,000 2,129,894
------- -------- ------- ------- ---------
(a) Uncollectable accounts receivable on books at acquisition date.
(b) Unrecorded liabilities not on books at acquisition date.
(c) Contractual lease for forklifts not recorded on books at acquisition date.
(d) Fixed assets on books that had previously disposed of or transferred to
unrelated party.
(e) Adjustment to reflect physical inventory at date of acquisition.
(f) Predecessor liability for payroll at date of acquisition and subsequently
paid by Purchaser.
The purchase price of ACT and the select assets of QMS was $2,500,000. The
actual value of the assets (net) purchased was $2,564,984 as shown below:
Purchase Adjustments
Before From
Adjustments Above Total
----------- ----------- ----------
Appraised value of fixed assets 2,528,540 2,528,540
Other assets & liabilities, net 36,444 (370,106) (333,662)
--------- --------- ---------
Acquired assets, net 2,564,984 (370,106) 2,194,878
Purchase price 2,500,000 (370,106) 2,129,894
--------- --------- ---------
Value in excess of purchase price 64,984 -- 64,984
========= ========= =========
Allocation to reduce the value of
acquired fixed assets
On April 28, 2005, the Company acquired an 80% interest in USS for a purchase
price of $800. As no tangible assets or liabilities were acquired, the full
value was booked to Common Stock.
On June 28, 2005, the Company acquired an 80% interest in PSB for a purchase
price of $800. As no tangible assets or liabilities were acquired the full value
was booked to Common Stock.
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.
F-8
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
The Company recognized revenue on our products in accordance with the Securities
Exchange Commission (SEC) Staff Accounting Bulletin No. 104, (which superseded
Staff Accounting Bulletin No. 101) "Revenue Recognition in Financial
Statements". Under these guidelines, revenue is recognized on sales transactions
when all of the following exist: persuasive evidence of an arrangement did
exist, delivery of product has occurred, the sales price to the buyer is fixed
or determinable and collectibility is reasonably assured. We accrued a provision
for estimated returns concurrent with revenue recognition.
The Company has 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.
Sales for ACT and USS are generated from customer's purchase orders. The sales
are recognized upon the shipment of finished goods from the Company's plant to
the customer at which time the product changes title. Allowances for cash
discounts and returns are recorded in the period in which the related sale is
recognized. Our 80% owned subsidiary, PSB, contracts to build residential,
commercial and other infrastructures to its customers, none of which are related
to ACC. As such, PSB recognizes its revenue under the percentage of completion
method as work on a contract as progresses, recognition of revenue and profits
generally is related to costs incurred in providing the services required under
the contract. Statement of Position 81-1 discusses accounting for performance of
construction contracts. The use of the percentage of completion method depends
on our ability to make reasonable dependable estimates. Additionally, contracts
executed by PSB and their customers include provisions that clearly specify the
enforceable rights of our services that are provided and received by our
customers. Our estimates assume that our customers will satisfy their
obligations under the contract and our performance requirements will be
completed.
Freight revenue is recognized as the cost of shipping the product to the
customer plus a nominal markup.
The Company recognizes product returns as a reduction to revenue. Other forms of
customer adjustments are accounted for in the same manner.
The Company will on occasion place finished goods on consignment with a
customer. Finished goods are recorded on the Balance Sheet as part of Inventory
until the product is purchased.
Inventories
Inventories are valued at the lower of cost or market, using the first-in,
first-out method.
F-9
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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. Management reviews accounts receivable 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 collectibles of the accounts receivable, based on the
information available, management believes all balances are collectible.
ACC utilizes the accounts receivable factoring service provided by The Hamilton
Group ("Hamilton") for a significant percentage of its receivables. Under the
terms of the Sale of Accounts Factoring and Security Agreement, Hamilton
provides advances of 80% of the receivable they purchase for a fee compounded
daily. The factoring fee for the period January 21, 2005 (date of acquisition)
through December 31, 2005 was $182,070. As of December 31, 2005, Hamilton had
purchased $462,715 of receivables, and they had advanced $370,172 to the
Company, for a net due from factor of $92,543.
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.
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 December 31,
2005.
F-10
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
During the period January 21, 2005 (date of acquisition) through December 31,
2005, sales to the Company's two major customers accounted for approximately
84.7% of revenues and 49.7% of accounts receivable.
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.
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.
F-11
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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. Because of
the Company's historical earnings history and the going concern problem, the net
deferred tax asset has been fully offset by a 100% valuation allowance.
Shipping and Handling Costs
The Company has included freight out as a component of selling and delivery
expenses, which amounted to $430,225 for the period January 21, 2005 (date of
acquisition) through December 31, 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.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplate
continuation of the Company as a going concern. At December 31, 2005, the
Company had negative working capital of $1,547,087. However, a substantial
portion of the current notes payable are anticipated to be converted into equity
upon successful completion of the Company's registration. Additionally, and
subsequent to December 31, 2005, the Company is operating at a profit.
Realization of the assets of the Company is dependent upon the Company's ability
to meet its financing requirements and the continued success of future
operations. The consolidated 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 14 (Subsequent Event) which discusses additional
events regarding the changes in notes payable in 2006.
F-12
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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. Because of
the Company's historical earnings history and the going concern problem, the net
deferred tax asset has been fully offset by a 100% valuation allowance.
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.
F-13
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 2005
NOTE 2 - NOTES RECEIVABLE
The Company had two notes receivable as of December 31, 2005. The first note is
with Ross Laris and ProSteel Builders Corporation in the amount of $95,000. This
amount was advanced to Mr. Laris as an incentive loan as related to his project
under the corporate name of Premiere Homebuilders, LLC which ultimately
contracted with the Company for a multi-year project totaling approximately
$946,000. The note was satisfied in the first quarter of 2006 and the applicable
stated interest of 8% was paid with the principal.
The second note is with Peter Baker in the amount of $303,000. This amount was
advanced to Mr. Baker as a loan commitment fee that was for a line of credit of
$3,000,000 that never was finalized. The note is payable in full as of March 31,
2006 with interest at prime plus 3%.
NOTE 3 - PREPAID EXPENSES
The Company has prepaid expenses of $233,832 as of December 31, 2005. The amount
represents insurance payments and other amounts for various future expenses.
NOTE 4 - INVENTORY
Inventory as of December 31, 2005 consists of the following:
Raw materials $352,763
Finished goods 153,144
Safe Room Kits 12,091
Finished Goods on Consignment 21,155
--------
$539,153
========
The Company has provided the Company's finished goods products to third parties
on a consignment basis. The items remain the property of the Company.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
Capitalized Lease Equipment:
Computer Equipment $ 22,383
-----------
Total Capitalized Lease Equipment 22,383
Land, building and improvement 1,052,126
Machinery and equipment 2,189,931
Computer Equipment 13,743
Furniture and fixtures 3,670
-----------
3,281,853
Less Accumulated Depreciation (144,199)
-----------
Property, Plant, and Equipment, Net $ 3,137,654
===========
Depreciation expense was $144,615 for the period January 21, 2005 (date of
acquisition) through December 31, 2005.
F-14
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 2005
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following:
Dell Financial Services, collateralized by computer, payable in
monthly installments of $388 including principal and interest
at the variable rate of 14.99% per annum. Due on January 2010. $ 13,166
JMB Associates, principal, accrued and unpaid interest
at 18.00% per annum. Due on June 1, 2006. 288,342
JMB Associates, principal, accrued and unpaid interest
at 18.00% per annum. Due on June 1, 2006. 414,481
Sharon Beshara, principal, accrued, and unpaid interest
at 24% per annum on revolving 30-day term. Note is
extended every 30 days. 400,000
Antoinette Pace, principal, accrued, and unpaid interest
at 24% per annum on revolving 30-day term. Notes are
extended every 30 days. The amount is guaranteed by
Avante Holding Group, Inc. 260,743
Edward Beshara, principal, accrued, and unpaid interest
at 24% per annum on revolving 30-day term. Note is
extended every 30 days. The amount is guaranteed by
Avante Holding Group, Inc. 101,500
Paul Janssens, principal and interest at 12.00% per annum.
Due on March 31, 2006. 629,894
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. 112,358
M & T Mortgage Corporation, 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. 418,620
Merchants & Planters Bank, line of credit, accrued interest
at 7.50% per annum. 9,844
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. 72,366
Cecil H. Harmon, principal and interest at 10% per annum. Due on
August 1, 2006. 11,052
F-15
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 2005
NOTE 6 - NOTES PAYABLE (continued)
Avante Holding Group, revolving credit, principal and interest at Prime plus 4%
per annum. Due on October 2006 358,171
Steves Rodriguez, convertible promissory note at
no interest, Due March 31, 2006 20,000
----------
3,110,537
Current Portion 2,628,594
----------
Notes Payable, Long Term $ 481,943
==========
NOTE 7 - CAPITAL LEASE OBILIGATIONS
Dell Financial Services, secured by computer equipment, payable at
13.9%at 10% per annum. Due March 2009. Monthly payments are $29
including principal and interest 1,066
Dell Financial Services, secured by computer equipment, payable at
18% at 10% per annum. Due March 2009. Monthly payments are $626
including principal and interest 21,317
--------
22,383
Less Current Portion (4,806)
--------
Non-Current Obligation Under Capital Lease $17,577
Future minimum capital lease obligations at December 31, 2005 are as follows:
December 31,
2006 $ 4,223
2007 5,563
2008 6,639
2009 5,958
-------
Total Capital Lease Obligations $22,383
=======
NOTE 8 - COMMITMENTS
The Company leases a forklift. The lease expires in August 2007. Monthly lease
payments are $546.00.
Future minimum obligations for the above lease are as follows:
December 31,
2006 $ 6,552
2007 4,368
-------
Total Minimum Lease Obligations $10,920
=======
F-16
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 2005
NOTE 9 - 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 30,
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.
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 $270,000 per year, payable in equal monthly
installments.
PSB has a management contract with Advanced Construction Partners, LLC, which is
owned equally between GAMI and Advanced Construction Options, LLC ("ACO").
On November 1, 2004, ACC and Avante entered into a Revolving Credit Agreement
for $500,000. The terms of the Agreement includes interest at the rate of prime
plus 4%. The Agreement terminates on October 31, 2006 with an available
extension of one year at the discretion of the Lender. As of December 31, 2005,
the balance due to Avante under this Agreement was $358,476.
The CEO of the Company has personally guaranteed several obligations to
non-supply vendors. Additionally, Avante Holding Group, Inc. of which Mr.
Hawkins is the CEO, has provided a corporate guaranty of the Company's payable
balance with Dow Chemical, Inc. and Phoenix Metals, Inc.
F-17
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 2005
NOTE 10 - EARNINGS PER SHARE
The Company presents both basic and diluted earnings per share (EPS) amounts.
Basic EPS is calculated by dividing net income by the weighted average number of
common shares outstanding during the year. Diluted EPS Is based upon the
weighted average number of common and common equivalent shares outstanding
during the year which is calculated using the treasury stock method for stock
options and assumes conversion of the Company's convertible notes. Common
equivalent shares are excluded from the computation in periods in which they
have an anti-dilutive effect. Stock options for which the exercise price exceeds
the average market price over the period have an anti-dilutive effect on EPS
and, accordingly, are excluded from the calculation.
A reconciliation of net income and the weighted average number of common and
common equivalent shares outstanding for calculating diluted earnings per share
is as follows:
For the Period
January 21, 2005
(date of
acquisition)
Through
December 31, 2005
-----------------
Numerator for basic (loss) per share, as reported (318,177)
Preferred stock dividends --
-----------
(Loss) for basic EPS calculations (318,177)
-----------
Effect of dilutive securities, as reported
Interest on convertible debt 127,276
DILUTED (LOSS) FOR EPS CALCULATIONS (190,901)
WEIGHTED AVERAGE NUMBER OF SHARES FOR BASIC EPS 5,999,079
Effect of dilutive securities, as reported
Stock options 356,977
Warrants 2,973,837
Convertible debt 1,116,981
-----------
10,446,874
-----------
DILUTED (LOSS) PER SHARE
Basic and Diluted EPS $ (0.05)
-----------
F-18
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 2005
NOTE 11 - INCOME TAXES
A reconciliation of income tax computed at the statutory federal rate to income
tax expense (benefit) is as follows:
December
31, 2005
----------
Tax provision at the statutory rate of 35% ($111,362)
State income taxes, net of federal income tax --
Change in valuation allowance 111,362
----------
Total $ 0
==========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
December
31, 2005
---------
Deferred tax assets:
Net operating loss carryforward $ 111,362
=========
Total deferred tax assets $ 111,362
Less valuation allowance (111,362)
---------
Total net deferred tax assets $ 0
=========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment.
Because of the historical earnings history of the Company, the net deferred tax
assets have been fully offset by a 100% valuation allowance. The valuation
allowance for the net deferred tax assets was approximately $111,362 as of
December 31, 2005.
At December 31, 2005, the Company had net operating loss carryforward available
for U.S. tax purposes of $318,177. The carryforward expires in 2025.
F-19
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 2005
NOTE 12 - COMMON STOCK AND ADDITIONAL PAID - IN CAPITAL
On July 30, 2005, the Board of Directors, pursuant to 607.0821 of the Florida
Business Corporation Act, authorized the consolidation of our outstanding common
shares, also known as a reverse split, of the Company that caused each one
hundred shares of outstanding shares of its common stock to be converted into
one share of its common stock. All share and per share amounts have been
adjusted for this reverse stock split.
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.
NOTE 13 - STOCK OPTIONS AND STOCK WARRANT
The Company complies with Accounting Principles Board (APB) No. 25 "Accounting
for Stock Issued to Employees" in accounting for stock options issued to
employees. Stock options are granted with an exercise price that is at a premium
to the currently determined value of the stock price. Accordingly, no
compensation expense has been recognized for options issued to employees.
Compensation costs for the Company's stock option plans and stock purchase
plan were determined to have no value at the grant date and consistent with
SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net
income (loss) and net income (loss) per share would have been as follows:
For the Period
January 21, 2005
(Date of
Acquisition)
Through
December 31,
2005
----------------
Net (loss) applicable to common stockholders $(318,177)
Stock based employee compensation expense --
Determined under fair value based method for
All awards --
Net (loss) - pro forma $(318,177)
Net (loss per share applicable to common stockholders as
reported:
Basic and Diluted $ (0.05)
Net (loss) per share applicable to common stockholders - pro
forma:
Basic and Diluted $ (0.05)
F-20
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 2005
NOTE 13 - STOCK OPTION PLAN (continue)
For purposes of computing pro forma net income, the Company estimates the fair
value of each option grant and employee stock purchase plan right on the date of
grant using the Black-Scholes option-pricing model. The Black-Scholes
option-pricing model was developed for use in estimating the value of traded
options that have no vesting restrictions and are fully transferable, while the
options issued by the Company are subject to both vesting and restrictions on
transfer. In addition, option-pricing models require input of highly subjective
assumptions including expected stock price volatility. The Company uses
projected data for expected volatility and estimates the expected life of its
stock options. Subsequent to December 31, 2005, the Company adopted FAS 123R
which requires the Company to record the fair value of stock-based compensation
awards as an expense.
The weighted average assumptions used to value the option grants:
January 1, 2005 thru December 31, 2005 Stock Option Plans
- -------------------------------------- ------------------
Expected life (years) 3
Risk-free interest rate 7
Volatility 1
Dividend rate 0
Options granted under the 2004 incentive stock option plan are exercisable at
the exercise price of grant and, subject to termination of employment, expire
October 31, 2014, are not transferable other than on death, and vest in three
unequal annual installments commencing at various times from the date of grant.
A summary of the Company's stock option plan as of December 31, 2005 is
presented below:
2005
---------------------
Weighted
Average
Exercise
Shares Price
--------- ---------
Outstanding at the beginning of the year 800,000 0.25
Granted at fair value 1,200,000 0.75
Forfeited --
Exercised --
---------
Outstanding at the end of the year 2,000,000 0.55
=========
Options exercisable at the end of the year 400,000
=========
There are currently 2,000,000 unissued options under the 2004 Stock Option Plan.
F-21
ALTERNATIVE CONSTRUCTION COMPANY, INC.
Notes to Consolidated Financial Statements December 31, 2005
NOTE 13 - STOCK OPTION PLAN (Continued)
The following table summarizes information for stock options outstanding at
December 31, 2005:
Options Outstanding Options Exercisable
----------------------------------- -----------------------
Weighted- Weighted- Weighted-
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices @ 12/31/05 in years Price @ 12/31/05 Price
- ---------------- ----------- --------- --------- ----------- ---------
0.25 - 0.75 2,000,000 0.55 400,000 0.25
A total of 3,000,000 warrants were issued on August 1, 2005 to various
individuals/entities. These warrants were issued for services as an
inducement to provide financing or refinancing of debt and for strategic
business purposes. All warrants were fully vested on the date of issue.
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.
Of the 3,000,000 warrants issued; 500,000 warrants valued at $0.01. The
remaining 2,500,000 warrants were determined to have no value. The
determined value of the warrants were based upon the conversion rates
attached to them. Based upon that value, the Company's net income (loss)
and net income (loss) per share would have been as follows:
For the
Period
January 31,
2005
(Date of
Acquisition
Through
December 31,
2005
-------------
Net loss applicable to common stockholders $ (318,177)
Stock based employee compensation expense --
Determined under fair value based method for
All awards (5,000)
Net loss - pro forma $ (323,177)
Net loss per share applicable to common stockholders as reported:
Basic and Diluted $ (.06)
Net loss per share applicable to common stockholders - pro forma:
Basic and Diluted $ (.06)
NOTE 14 - SUBSEQUENT EVENTS
On February 7, 2006, Antoinette Pace and James Beshara, combined, executed a
note payable with the Company for $200,000. The note has interest at the rate of
24% per annum on a revolving 30-day term. The note is extended every 30 days
with a due date of June 1, 2006.
On February 24, 2006, the Company made the final payment to Sharon Beshara for
the $400,000 note payable as reported in Note 6.
On March 9, 2006, Sharon Beshara executed a note payable with the Company for
$90,000. The note has interest at the rate of 24% per annum on a revolving
30-day term. The note is extended every 30 days with a due date of June 1, 2006.
On March 17, 2006, PhoenixSurf.com executed a note payable with the Company for
$75,000. The note is convertible into common stock at the time of registration
at the per share price of $2.65. The note has no expiration.
F-22
Alternative Construction Company, Inc.
Consolidated Financial Statements
December 31, 2004 and December 31, 2003
INDEX TO THE FINANCIAL STATEMENTS
Page
----
Report of Independent Registered Public Accounting Firm F-24
Combined Balance Sheets as of December 31, 2004 and 2003 F-25
Combined Statements of Operations -for the years ended
December 31, 2004 and 2003 F-26
Combined Statements of Cash Flows for the years ended
December 31, 2004 and 2003 F-27
Combined Statements of Changes in Shareholders' Equity for years
ended December 31, 2004 and 2003 F-28
Notes to Combined Financial Statements for the years ended December
31, 2004 and 2003 F-29
To the Board of Directors and Member
Alternative Construction Technologies Corp.
F-23
Quality Metal Systems LLC
Melbourne, Florida
We have audited the accompanying combined balance sheets of Alternative
Construction Technologies Corp. and Quality Metal Systems LLC as of December 31,
2004 and 2003 and the 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 standards of the Public Company
Accounting Oversight Board (United States). 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 combined financial position of Alternative
Construction Technologies Cop. And Quality Metal Systems LLC as of December 31,
2004 and 2003, and the results of its combined 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 combined financial statements have been prepared assuming that
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 discussed in the Notes to financial statements.
Liebman Goldberg & Drogin, LLP
Garden City, New York
March 29, 2005
F-24
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-25
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-26
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
Additional Retained Earnings Shareholders'
Common Paid-in (Deficit) and Equity and
Stock Capital Member Deficit Member Deficit
-------- ---------- ----------------- --------------
Balance, January 1, 2003 $500 $5,717,498 $(4,723,289) $ 994,709
Member contributed capital 10,000 10,000
Shareholder loans 759,217 759,217
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-27
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 25,726 144,184
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 33,190 266,542
--------- -----------
Net cash (used in) operating activities (855,810) (789,994)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgage (9,172) (14,846)
Shareholder advances/paid-in capital 859,547 780,009
--------- -----------
Net cash provided by financing activities 850,375 765,163
--------- -----------
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-28
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.
F-29
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method.
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.
F-30
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.
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-31
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-32
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-33
PROSPECTUS
4,153,674 SHARES OF COMMON STOCK
to be offered by Selling Shareholders
ALTERNTATIVE CONSTRUCTION COMPANY, INC.
September ___, 2006
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 $ 1,177.78
Legal fees and expenses $ 50,000*
Printing and engraving expenses $ 10,000*
Accounting fees and expenses $ 12,000*
Directors and Officers Liability Insurance $ 2,396
Miscellaneous $ 5,000*
----------
Total $80,573.78
* All of the above, except the SEC Registration Fee, are estimated and remain
subject to further contingencies.
Item 26. Recent Sales of Unregistered Securities
There were a total of four common stock replacements of since inception. Each
placement of shares was made in an exempt transaction under Section 4(2) of the
Securities Act of 1933, as amended (the "Act"). Each purchaser of shares
executed a subscription agreement acknowledging the "restricted" nature of the
shares under the Act. All shareholders were either employees of the Company or
accredited investors under Regulation D, as promulgated under the Act. No
commissions were paid in connection with any of these sales. A detailed
description of the nature and extent of business operations at the time of each
placement is as follows: Please also refer to "Selly Shareholders" for
additional information concerning these shares.
INITIAL ISSUE - October 24, 2004: The first issuance of the Company's stock was
for 47,500 (post-split) shares of common stock to four shareholders. The initial
placement was at the time of inception of Alternative Construction Company, Inc.
("ACC" or the "Company") in October 2004 and was made for nominal consideration.
The Company was formed to potentially acquire Alternative Construction
Technologies Corporation ("ACT"). At the time of inception through January 20,
2005, the Company was performing due diligence on the acquisition and then
negotiating the acquisition. Without any actual activity within the Company that
would eventually produce revenue, and the Company therefore had nominal
valuation.
SECOND ISSUE - April 1, 2005: The second issuance of stock which represents
28,500 current shares of common stock was made to twenty-three individuals for
nominal consideration. The issuance of this stock to employees, management, and
consultants followed the acquisition of Alternative Construction Company, Inc.,
as approved by the Board of Directors and was made in conjunction with the
Company's efforts to finalize it management and employee team.
THIRD ISSUE - August 1, 2005: The third issuance of stock was for 4,218,350
current shares of common stock among forty-three individuals. On August 1, 2005,
the Company had increased the monthly revenue average to approximately $447,000.
The month of July provided revenue of approximately $1,007,000 or approximately
87% of the entire 2004 revenue. The cost of goods for the seven months had
decreased to approximately 82% of revenue and to approximately 72% for the month
of July. The Company needed to provide more working capital to maintain its
volume discounts for its raw material as well as increase inventory to satisfy
the increasing demand for the Company's product. Additionally, the Company was
in the process of acquiring a significant fixed asset for the manufacturing line
that would continue to decrease the cost of the Company's product to manufacture
as well increase the speed of production. With these combined needs, the Company
raised additional working capital with the use of the issuance of Company stock.
FOURTH ISSUE - August 15, 2005: The last issuance of stock was for 700,000
shares of common stock to individuals in connection with an acquisition. On
August 15, 2005, the Company entered into a Management Consulting Agreement
whereby Advanced Construction Options, LLC ("ACO") would role its business into
ProSteel Builders Corporation, owned by Alternative Construction Company, Inc.
As part of this agreement, all contracts that were in place and the contracts
that were to be signed within a short period due to previous marketing to ACO,
totaled approximately $547,000 for 2005 were assigned to ProSteel Builders and
subsequently ACC. ACO's work product complemented the product of ACT as it
incorporated the ACT product in the development of commercial and residential
building development.
In addition to the foregoing, the Company issued its convertible notes as
follows:
Name Date
- ---- ----
JMB Associates September 30, 2005 (Amended and Restated)
JMB Associates September 30, 2005 (Amended and Restated)
Paul Janssens June 30, 2005 (Amended and Restated)
Avante (350) At the option of Avante, this portion of the
LOC is converting at the time of registration
Cecil Harmon August 1, 2005
South Residential Enterprises February 23, 2005
Steves Rodriguez July 31, 2005
PhoenixSurf.com March 17, 2006
Please refer to "Description of Securities - Convertible Notes" for more
information concerning these Notes.
On May 10, 2006 the Company sold 188,679 Shares of its Series C stock to New
Millennium Partners in a private transaction for $500,000. No commissions were
paid in connection with this sale which was exempt under Section 4(2) of the
Act. There were no underwriters or brokers used in connection with this
placement. The shares will automatically convert into common stock upon the (i)
registration of a public offering in excess of $20,000,000, (ii) when the
closing price of the stock in a public market exceeds $5.00 per share for 30
consecutive days. The Company must register the stock if it has a public
offering in excess of $20,000,000.
Each placement of convertible debt was made in an exempt transaction under
Section 4(2) of the Act. Each noteholder executed a note acknowledging that the
shares underlying the notes were "restricted" shares under the Act. All
noteholders are accredited investors.
II-1
Item 27. Exhibits
3.1 Articles of Incorporation, dtd 10/26/2004*
3.2 Bylaws*
3.3 Articles of Amendment of Articles of Incorporation, dated 1/14/05*
3.4 Articles of Amendment of Articles of Incorporation, dated 6/2/05*
3.5 Articles of Amendment of Articles of Incorporation, dated 8/9/05*
3.6 Acquisition Agreement between Alternative Construction Company and
Alternative Construction Technology, dated 12/15/04*
3.7 Form of Warrant Agreement*
5.1 Opinion Regarding Legality**
10.1 Acquisition Agreement between Alternative Construction Company and
Quality Metal Systems, dated 12/15/04*
10.2 Patent Assignment, Patent Number 5827458, Continuous Method of Making
Structural Foam Panels*
10.3 Patent Assignment, Patent Number 6438906, Safe Room*
10.4 Patent Assignment,Patent Number 5373678, Structural Panel System*
10.5 Alternative Construction Company, Inc. Year 2004 Stock Option Plan*
10.6 Option Grant for GAMI, LLC, dated 10/26/04*
10.7 Employment Agreement - Charles Young*
10.8 Employment Agreement - Joseph Deming*
10.9 Consulting Agreement between Alternative Construction Company and Avante
Holding Group*
10.10 M&A Agreement between Alternative Construction Company and Avante
Holding Group*
10.11 Sales Agreement between Alternative Construction Company and Avante
Holding Group*
10.12 Compliance Consulting Agreement between Alternative Construction Company
and Avante Holding Group*
10.13 Sales of Accounts Factoring and Security Agreement*
10.14 Debenture, Convertible Promissory Note with JMB Associates, dated
2/22/05*
10.15 Debenture, Convertible Promissory Note with JMB Associates, dated
6/30/05*
10.16 Revolving Credit Agreement between Alternative Construction Company and
Avante Holding Group*
10.17 Debenture, Amended and Restated Convertible Promissory Note with Willis
Kilpatrick, dated 1/21/05*
10.18 Debenture, Amended and Restated Convertible Promissory Note with Paul
Janssens, dated 6/30/05*
10.20 Form of Warrants*
10.21 Debenture, Convertible Promissory Note with Phoenixsurf.com*
10.22 Avante Holding Group, Inc. Revolving Credit Agreement as amended*
10.23 Summary Agreement between Registrant and Phoenix Metals Company*
10.24 Corporate Guaranty of Avante Holding Group. (Dow Chemical)*
10.25 Guaranty of Avante Holding Group, Inc (Phoenix Metals)*
23.1 Consent of Liebman Goldberg & Drogin LLP**
23.2 Consent of Law Offices of Thomas G. Amon*
23.3 Consent of Stenton Leigh Valuation Group, Inc.**
23.4 Consent of Neiman Ross Associates, Inc.**
23.5 Consent of Johnstone Group, Inc.**
23.6 Power of Attorney*
* Previously Filed. ** Filed herewith.
Item 28. Undertakings
The undersigned registrant hereby undertakes:
II-2
(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 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 22, 2006.
Alternative Construction Company, Inc
By: /s/ Michael W. Hawkins
--------------------------------------------
Michael W. Hawkins
Chief Executive Officer and Chairman
POWER OF ATTORNEY
We, the undersigned officers and directors of Alternative Construction Company,
Inc., hereby severally constitute and appoint Michael W. Hawkins and Steves
Rodriguez and each of them (with full power to each of them to act alone), our
true and lawful attorneys-in-fact and agents, 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 attorneys-in-fact and
agents, and each of them, 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 attorneys-in-fact and agents, 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 22, 2006
- -----------------------
Michael W. Hawkins
/s/Steves Rodriguez Chief Financial Officer, Treasurer September 22, 2006
- -----------------------
Steves Rodriguez
/s/Willis Kilpatrick Director September 22, 2006
- -----------------------
Willis Kilpatrick
/s/Thomas Amon Secretary, Director September 22, 2006
- -----------------------
Thomas Amon
/s/ Bruce Harmon Controller September 22, 2006
- -----------------------
Bruce Harmon
II-4