Annual Report — Form 10-K Filing Table of Contents
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Securities
registered pursuant to Section 12(g) of the Act:
Title
of Class
Common
Stock
Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.
Yes
o
No
x
Indicate
by check mark whether the registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Act.
Yes
o
No
x
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
Yes
o
No
x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
Accelerated Filer
o
Accelerated
Filer o
Non-accelerated
Filer x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes
o
No
x
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.
Common
Shares Outstanding 7,951,911
TABLE
OF
CONTENTS
Page
PART
I.
Item 1.
Business
3
Item 1.A.
Risk
Factors
16
Item 1.B.
Unresolved
Staff Comments
22
Item 2.
Properties
22
Item 3.
Legal
Proceedings
23
Item 4.
Submission
of Matters to a Vote of Securities Holders
23
PART II.
Item 5.
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases
of Equity Securities
24
Item 6.
Selected
Financial Data
25
Item 7.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
26
Item
7A.
Quantitative
and Qualitative Disclosures About Market Risk
31
Item 8.
Financial
Statements and Supplementary Data
32
Item 9.
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
61
Item 9A.
Controls
and Procedures
61
Item 9B.
Other
Information
62
PART
III.
Item 10.
Directors,
Executive Officers and Corporate Governance
62
Item 11.
Executive
Compensation
64
Item 12.
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder
Matters
64
Item 13.
Certain
Relationships and Related Transactions, and Director
Independence
66
Item 14.
Principal
Accounting Fees and Services
68
PART
IV.
Item 15.
Exhibits,
Financial Statement Schedules
68
Signatures
71
Exhibits
72
2
FORWARD
LOOKING STATEMENTS
This
report on Form 10-K contains forward-looking statements within the meaning
of
Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the
Securities Act of 1934, as amended, that involve substantial risks and
uncertainties. These forward-looking statements are not historical facts, but
rather are based on current expectations, estimates and projections about our
industry, our beliefs and our assumptions. Words such as “anticipate”,
“expects”, “intends”, “plans”, “believes”, “seeks” and “estimates” and
variations of these words and similar expressions are intended to identify
forward-looking statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties and other factors, some
of
which are beyond our control and difficult to predict and could cause actual
results to differ materially from those expressed or forecasted in the
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this Form 10-K.
Investors should carefully consider all of such risks before making an
investment decision with respect to the Company’s stock. The following
discussion and analysis should be read in conjunction with our financial
statements for Alternative Construction Technologies, Inc. Such discussion
represents only the best present assessment from our Management.
PART
I
Item
1. Business
General
Overview
Alternative
Construction Technologies, Inc., formerly known as Alternative Construction
Company, Inc. (the “Company” or “ACCY”), is a Florida corporation organized in
2004 with corporate offices located in Melbourne, Florida. The Company’s common
stock is traded on the NASDAQ OTC Bulletin Board under the symbol
“ACCY.OB.”
The
Company is a management company that currently operates the following
subsidiaries:
Alternative
Construction Manufacturing of Florida, Inc.
ACMF
100%
Manufacturing
Florida
manufacturing
The
Company’s primary product and service is the manufacturing, research,
development and marketing of proprietary products for the construction industry.
We manufacture and distribute the ACTech® Panel, a structural insulated panel
(SIP), throughout the United States, with concentration in the southeast region.
The Company has delivered its products and services internationally and believes
that a huge portion of its future growth will be derived from those markets.
The
marketing of our products is through our internal sales staff and the use of
manufacturer representatives. The Company currently licenses 21 manufacturer
sales representatives.
3
The
Company reports its business under the following SIC Codes:
SIC
Code
Description
34480201
Manufactures
prefabricated metal buildings and components, specializing in panels
for
prefabricated metal buildings.
34480203
Manufactures
prefabricated metal buildings and components, specializing in flooring
and
roof trusses.
24510000
Manufactures
portable homes.
17519901
Contractor
of carpentry work, specializing in framing.
34410000
Manufactures
fabricated structural metal and welding.
17999938
Contractor
specializing in safe room or vault installation.
87120100
Provides
architectural engineering and design services.
15210000
Contractor
of commercial and single family housing.
65520000
Operates
as a land subdivider and developer.
34480201
Manufactures
prefabricated metal buildings and components, specializing in panels
for
prefabricated metal buildings.
34410000
Manufactures
fabricated structural metal and welding.
ACCY
operates under three divisions; a (i) Alternative Construction Manufacturing
Division, (ii) Alternative Construction Development Division, and (iii)
Alternative Construction Ancillary Services Division. The Manufacturing Division
currently contains two subsidiaries, ACMT, which manufactures the ACTech® Panel
System, and ACMF, which will provide manufacturing services in Florida. The
Development Division contains three subsidiaries; Alternative Construction
by
ProSteel Builders, Inc., Alternative Construction by Ionian, Inc., and
Alternative Construction by Revels, Inc. The Alternative Construction Ancillary
Services Division contains five subsidiaries; Alternative Construction Design,
Inc., Alternative Construction Consulting Services, Inc., Alternative
Construction Safe Rooms, Inc., Modular Rental and Leasing Corporation, and
Solar
18 ACTech Panel, Inc. Future of Building Institute, Inc., as a non-profit
entity, functions separately.
The
Company’s financial oversight is segmented by division; manufacturing,
development, and ancillary services.
4
In
2006,
the Company sales reduced from $9.6 million in 2005 to $8.5 million while it
maneuvered to increase raw material suppliers, complete additional testing
and
certifications, establishing protocols for sales ordering and processes, while
working to maximize our assets and inventory through customer development.
This
restructuring created a slow down in production and inhibited the Company’s
ability to increase sales. The restructuring process led to a $2.0 million
loss
in net operations in 2006.
As
part
of this restructuring, the Company’s management chose to become more vertically
integrated and began acquiring or founding various companies that were
strategically complementary with the Company’s objectives of promoting our
products and services. During 2007, we acquired two development companies,
founded two ancillary service oriented businesses, purchased one leasing
company, and were instrumental in founding a Not-For-Profit Organization, the
Future of Building Institute, Inc.
In
2007,
the Company experienced a 50.1% growth in sales to $12,960,008, as compared
to
2006 sales of $8,634,349. Net income of $1,603,261, represents an increase
of
$3,642,555 in net income from 2006. The Company earned $0.22 per basic share
in
2007. The potential dilutive effects of convertible debt and securities warrants
and options in 2007, while providing a significant increase in available cash,
would have had a negative effect on earnings by $0.08 per share outstanding
during 2007. The Company performance is indicative of the management decisions
made in 2006.
Alternative
Construction Manufacturing Division
Our
Manufacturing Division 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
Chlorofluorocarbon ("CFC") free, as we strictly use a closed-cell hydrocarbon
and water foam interjection system. In addition, we have completed the
GREENGUARD™ 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 met all of the emission level requirements of the GREENGUARD
Product Guide™ Listing. The ACTech® Panel System has achieved inclusion in the
California Integrated Waste Management Board’s (CIWMB) Recycled-Content Product
Directory (RCPD), including compliance with the State Agency Buy Recycled
Campaign (SABRC). In addition, the product has been certified under the Florida
Power & Light BuildSmart®
Program
According
to SIPSTech, Inc., www.sipstech.com, (not incorporated by reference into this
10-K) a leading provider of SIPS technologies headquartered in Calgary, Canada,
states when you build with SIPs, you are 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, 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.
In 2007, the IRC incorporated SIPS into its product review classifications.
The
ACTech® Panel is a patented SIP that has undergone extensive testing performed
by independent laboratories and agencies. The SIP is composed of 26 gauge steel
skins and a 20 gauge “S” shaped stiffener with the calculated injection of
formulated foam serving as the insulation. The ACTech® Panels 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
2007,
revenues were derived from the sale of the ACTech® Panel SIPs to affordable
housing, high-end elegant homes, modular housing, commercial buildings
(SeaWorld® Adventure Parks of Orlando, National Semi-Trailer World
Headquarters), modular portable classrooms (over 1,300 to date in the state
of
Florida), office buildings, government and military facilities (NASA and Cape
Canaveral Air Station), among others.
5
Alternative
Construction Development Division
The
greatest hindrance to sales is the lack of knowledge and understanding how
to
use the ACTech® Panel System. The Company began with one construction arm
dedicated to building with the ACTech® Panel System. We utilize these skilled
General Contractors to train other builders as an enhanced service. This led
to
exceptional growth opportunities, specifically in Georgia, where our
construction arm was located. Utilizing this same principle, we added
construction offices in Tennessee and Florida.
ACI
currently owns a 23.7 acre (originally 40 acres) subdivision, Southern Oaks,
located in Cleveland, Tennessee. ACI will continue to develop the land and
construct medium priced houses on an as needed basis. Of the original 59 lots
scheduled for development, ACI has built 17 homes and sold 15 of them. Southern
Oaks is controlled by Southern Oaks Home Owners Association, which is controlled
by ACI until a minimum of 48 homes are sold. In addition to building the
subdivision, ACI develops properties, provides infrastructure support, and
builds custom homes.
With
the
acquisition of ACR, the Company obtained exclusive use to process patents
utilizing our product in construction that have afforded us be competitive
with
standard building processes. Prior to the acquisition of ACR, the Company had
to
compete on each sale by selling the benefits and superiority of our products.
In
order to obtain the sale, the buyer had to be willing to pay extra for these
benefits and superiority. While the Company still boasts these qualities, we
can
now compete on a direct cost basis with standard and customary construction
methods. We provide an alternative construction method that typically requires
no additional cash in order to obtain its benefits.
Alternative
Construction Ancillary Services Division
The
Company manufactures and sells patented in-house safe rooms, the Universal
Safe
Room™, used for the protection of loved ones and valuables in the event of
weather disasters or home intrusions. The Company was approved in 2007 as an
above ground safe room under the Mississippi Disaster Recovery Program in which
the Governor allocated more than $7 million in FEMA funds as part of the
rebuilding effort following Hurricane Katrina. Under the proposal, the
individuals are required to have the safe room constructed first, then apply
for
reimbursement under the program guidelines. Currently, the program has been
unsuccessful due to the requirements and the inability to offer terms with
reimbursement from the government. Management believes that the program will
have limited results.
When
the
Company is directly involved in the designing of a structure, our success of
completing the order grows substantially. To the contrary, when we simply quote
a previous designed job, our success rate is less than 10%. As such, the Company
incorporated a design element into the services we provide. The Company provides
architectural and engineering design for use of our products. When the Company
designs a project it retains a 95% success rate in being awarded the system
sale
and/or construction project.
The
Company provides consulting services with two distinct programs. Under the
first
program, our company works directly with foreign leaders, politically and
commercially, for the development of large communities. Under the second
program, the Company is working with various entities to enhance our current
products and incorporate additional product lines. Under this program, the
Company has entered into a joint venture, Solar 18 ACTech Panel, Inc., with
Atlan Holdings International, Inc. (“Atlan”), for the development of a solar
panel. As part of the joint venture, the Company and Atlan will design, develop,
and manufacture a solar panel utilizing the ACTech® Panel.
Alternative
Construction Manufacturing of Tennessee, Inc.
Prior
to
the acquisition of ACMT by the Company, the Predecessor ACMT was focused on
research and development. During this period, the highest revenue recorded
was
approximately $1.1 million in 2004. After the acquisition, for the shortened
year of 2005 (acquisition date of January 21, 2005), ACMT recorded revenue
of
approximately $9.1 million, an increase of approximately $8 million, or
727%.
We
determined after the acquisition of ACMT that it would be prudent to complement
the manufacturing of the ACTech® Panel with a subsidiary that focused on
providing solutions for construction with its emphasis on the ACTech® Panel. In
April 2005, ACP was formed to provide its customers these solutions as well
as
to diversify the revenue stream of the consolidated ACCY.
Included
with the acquisition of ACMT, the Company also acquired a patent for a safe
room
using the ACTech® Panel. In April 2005, ACCY acquired ACSR with its focus
strictly on the Universal Safe Room™. The Company has not begun a major
marketing campaign for this product as of 2007.
In
2006,
the Company focused on restructuring its operations to control and ultimately
reduce its cost of goods, reduce overhead cost, and improve sales techniques
and
strategies. During this year, the Company’s focus was primarily on operations,
not growth, and the filing of the appropriate documents to become a fully
reporting public entity. The Company elected to become a publicly traded company
in an effort to establish a mechanism to obtain financial strength as it ramped
up to its potential growth opportunities. During 2006, the Company’s revenues
decreased from $9.5 million to $8.6 million and it had net losses of $2.0
million.
6
The
restructuring efforts of 2006 provided immediate gains as the Company recorded
its first profitable quarter since its restructuring during the first quarter
of
2007 and continued every quarter for the calendar year 2007. In 2007, the
Company continued to realign its efforts and focus on growth that is vertical
and horizontal, as well as internal and external. ACCY management’s strategic
alignment with “green” building and its decision to continue international
development opportunities have established the guidelines in which the Company
looks to strategically expand its services and operations. The following
expansions and acquisitions were instrumental in our success of achieving our
goals in 2007 and setting the path for continued and future growth.
Alternative
Construction by ProSteel Builders, Inc.
Avante
Holding Group, Inc. (“Avante”, see Item13
-
Certain Relationships and Related Transactions, and Director Independence)
incorporated ProSteel Builders Corporation on April 28, 2005. On June 28, 2005,
the Company acquired 80% of the company stock for $800. Prior to the acquisition
by ACCY, ACP conducted no business. Subsequently, the company changed its name
to Alternative Construction by ProSteel Builders, Inc. ACP was incorporated
to
function utilizing the ACTech® Panel System and related products in the
commercial and residential construction marketplaces in Georgia, Louisiana
and
Mississippi.
Alternative
Construction Safe Rooms, Inc.
Avante
incorporated Safe Rooms, Inc. on April 27, 2005. After the incorporation, the
company changed its name to Universal Safe Structures, Inc. and subsequently,
changed to Alternative Construction Safe Rooms, Inc. On June 28, 2005, the
Company acquired 80% of the Company stock for $800. Prior to the time of
acquisition by ACCY, ACSR conducted no business.
Alternative
Construction by Ionian, Inc.
On
May17, 2007, the Company acquired 80% of ACI (formerly known as Ionian
Construction, Inc.) from James C. Hawkins, the brother of the CEO of the
Company, Michael W. Hawkins, for the purchase price of $800,000. The Company
issued 115,942 shares of its common stock in lieu of cash. ACI will phase from
traditional building methods to incorporate the ACTech® Panel System in its
continued residential development in Tennessee. GAMI, LLC (“GAMI”, see Item 13 -
Certain Relationships and Related Transactions, and Director Independence)
retains the minority ownership of 20% of ACI.
Alternative
Construction Design, Inc.
On
July30, 2007, the Company incorporated ACD to provide architectural and engineering
services to customers who desire to incorporate the ACTech® Panel System in
their proposed structure. ACD currently operates as a solution provider to
current customers of the Company and does not market its products and services
to third parties directly. The Company may consider marketing this service
independently in the future but currently has no projected
timeline.
Alternative
Construction Consulting Services, Inc.
On
July30, 2007, the Company incorporated ACCS to provide consultation to foreign
governments, policy makers, international businesses, developers, researchers,
and others on the utilization of alternative building opportunities and
solutions.
Alternative
Construction by Revels, Inc.
On
August28, 2007, ACCY acquired 100% of ACR (formerly known as Revels Construction,
LLC)
for the purchase price of $1,000,000. The Company issued 138,889 shares of
its
common stock to the three shareholders of ACR in lieu of cash. ACR builds with
the ACTech® Panel System in Florida. In addition, the Company, through an
agreement with Steve Rechtstiner, an officer of ACR, obtained exclusive use
to
his process patents that enhance the building solutions for low income housing
solutions that allows the Company to compete directly with standard building
processes on a dollar-for-dollar basis.
Modular
Rental and Leasing Corporation
Avante
incorporated MRL on April 15, 2005. The Company purchased 100% ownership of
MRL
on November 28, 2007 for $100. MRL was purchased to provide leasing
opportunities for modular units built with the ACTech® Panel System. MRL does
not market its products and services to third parties directly. The Company
may
consider marketing this service independently in the future but currently has
no
projected timeline.
7
Future
of Building Institute, Inc.
On
May 8,2007, the Company incorporated FBII. The Company is in the process of filing
for
its Not-For-Profit status and intends to establish an organization for the
promotion of alternative building solutions for future construction. The Company
projects itself as a frontrunner in alternative construction measures and
forecasts itself as an industry leader. Upon the effective registration as
a
Not-For-Profit, ACCY will relinquish control of FBII to the institution
management for development and advancement of an organization whose purpose
is
to provide a platform in which environmentalists and others may go to in order
to choose an environmentally friendly building solution.
Solar
18 ACTech Panel, Inc.
On
January 2, 2008, subsequent to the effective date of this filing, the Company
incorporated Solar 18. This joint venture with Atlan is to develop a solar
panel
for the ACTech® Panel.
Alternative
Construction Manufacturing of Florida, Inc.
On
February 20, 2008, subsequent to the effective date of this filing, the Company
incorporated ACMF. ACMF is projected to provide manufacturing services in
Florida.
Business
Model
The
Company’s business model focuses on three specific divisions in the overall
construction industry. It manufactures products that may be sold individually
or
as system components that specifically deal with the structural components
of
commercial and residential buildings. It provides ancillary services and
products that include architectural design, engineering, consulting services,
and safe rooms. The third focus is development / construction itself. The
Company has participated in commercial, modular, and residential construction
projects in various states in the southeastern and Midwest regions of the United
States.
Manufacturing
Ancillary
Services
Development
Alternative
Construction Manufacturing of Tennessee, Inc.
Alternative
Construction Design, Inc.
Alternative
Construction by Revels, Inc.
Alternative
Construction Manufacturing of Florida, Inc. (a)
Alternative
Construction Consulting Services, Inc.
Alternative
Construction by Ionian, Inc.
Modular
Rental and Leasing, Inc.
Alternative
Construction by ProSteel Builders, Inc.
Alternative
Construction Safe Rooms, Inc.
Solar
18 ACTech Panel, Inc. (a)
Manufacturing
Division
ACMT
manufactures its patented ACTech® Panel using its patented manufacturing line
providing the consumer with the Interlocking Building System™ that appeals to
consumers, builders and developers who strive to differentiate themselves from
other builders by utilizing a value-added product that increases: speed of
completion, strength, resistance to severe weather, mold, mildew and insects.
The 154,000 square foot manufacturing facility of ACMT is located in Bolivar,
Tennessee.
Ancillary
Services Division
ACSR
markets the patented Universal Safe Room™, manufactured with the ACTech® Panel
by ACMT. ACSR target market of their proprietary safe room is to consumers
and
builders, many of which are in the Gulf coast regions most recently battered
by
the 2004 hurricanes that terrorized Florida as well as the areas affected by
Hurricane Katrina in 2005. Various government programs are being put in place
that will assist certain qualified consumers with an acquisition and
installation of a safe room. In 2007, the State of Mississippi implemented
a
program in which home owners could be eligible to receive up to 75% in
assistance for the purchase of a safe room. ACSR was approved under this program
as an above ground safe room solution. While the Company does not believe the
Mississippi plan will be highly successful, it has created a valuation tool
that
should assist ACSR in other state certifications that may be more
effective.
8
ACD
and
ACCS provide architectural, engineering, and consulting services that support
and enhance the overall building process. While the Company does not currently
offer these services outside of projects utilizing the products provided by
the
Company, we feel it is important to track revenues by its various components
in
which it offers its services.
Development
Division
ACP
operates its marketing from its office in Newnan, Georgia. The ACP target area
is Georgia, northern Florida, Alabama and Mississippi. ACP provides onsite
training for use of the ACTech® Panel System, as well as construction of
commercial and residential facilities, site development, and renovation
projects.
ACI
was
incorporated in 2005 to develop a 29 unit subdivision in Cleveland, Tennessee.
Since the initial development began, ACI acquired an adjacent 20 acre parcel
to
complement the original acreage which has expanded it’s Southern Oaks
Subdivision into 59. ACI continues to consider additional opportunities through
additional construction solutions, remodeling efforts, and site development.
ACR
was
incorporated in 2006 to build commercial and residential properties in the
Central Florida area. Prior to the acquisition by the Company in August 2007,
ACR had three shareholders and approximately $6.3M in projected combined revenue
for 2007 and 2008. The former shareholders of ACR are experienced in the
construction of facilities utilizing the ACTech® Panel System. One former
shareholder of ACR maintains three patents which incorporate the use of the
ACTech® Panel. The exclusive use of these patents was granted to the Company as
part of the acquisition of ACR.
Employees
As
of
December 31, 2007, the Company had 30 employees, of whom 6 are primarily
administrative and executive personnel, with 14 in ACMT, 3 in the operations
of
ACP, 3 in the operations of ACI, and 4 in the operations of ACR. None of our
employees are covered by a collective bargaining agreement, and management
believes its relationship with our employees is good.
Available
Information
All
reports of the Company filed with the SEC are available free of charge through
the SEC’s Web site at www.sec.gov. In addition, the public may read and copy
materials filed by the Company at the SEC’s Public Reference Room located at 100
F Street, N.E., Washington, D.C. 20549. The public may also obtain additional
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330.
MANUFACTURING
DIVISION
STRUCTURAL
INSULATED PANELS (SIPs)
Description
ACMT
manufacturers the ACTech® Panel with the patented Interlocking Building System™
along with various system components. The majority of the ACTech® Panel system
components are produced in-house at the ACMT manufacturing facility in Bolivar,
Tennessee. The ACTech® Panel is the core component of the system and is
manufactured in a continuous process. The ACTech® Panel is covered by both
product and process patents. The
ACTech® Panel is a two foot wide, three inch thick, two-sided galvanized steel,
polyurethane foam core insulated, interlocking and cut-to-length panel and
is
used in the construction of practically any structure. The system components
include galvanized steel connecting pieces such as base channel, standard
capping, inside and outside corner angles, inside and outside eve angles, ridge
capping, columns, beams, screws and various other components that may be
specified on a per job, per engineering basis.
The
ACTech® Panel 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 2007 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 websitewww.actechpanel.com.
(Information contained in the Company's Web site is not part of this 10-K,
nor
incorporated herein, by reference.)
9
The
patented process of building the ACTech® Panels utilizing the Interlocking
Building System™ 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 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 has achieved the ability to
meet or exceed specific hurricane related building codes levied by the State
of
Florida and maintains Florida product approval. Independent projectile testing
verifies that the ACTech® Panel system's superiority to competitive
products.
During
2005, after the acquisition of ACMT by the Company, we began expanding its
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. The Company has sold panels in Mexico,
Canada, Turkey, Columbia, Guyana, Barbados, Jamaica, Belize, and
Kazakhstan.
During
2006, the Company restructured its marketing plan to establish diversification
in the marketplace as previously, the Company was significantly dependent on
the
school classroom market. In addition, ACMT increased the number of suppliers
for
steel and foam and completed the necessary testing to certify the products
with
the various materials. With the expansion of suppliers, revenue decreased as
the
Company focused on processes and procedures. In addition, it expanded its focus
on developers of commercial and residential buildings to complement the
established classroom market. The Company had a $2.0 million net loss in 2006
as
part of the restructuring process.
During
2007, the Company continued to acquire additional revenue sources as the school
classroom markets in Florida were experiencing a decline in growth. While
ACTech® Panel sales dropped in 2007, consolidated revenue from all subsidiaries
and the respective profitability continued to increase due to the acquisitions
made in 2007 and measures implemented in 2006.
The
Company business model is centered on the ACTech® Panel System. Each
acquisition, division, and marketing plan, is designed to increase awareness
of
the ACTech® Panel System. Company management believes that alternative
construction products that are green, energy efficient, and environmentally
friendly will be the driving force of construction in the future. The Company
continues operations with this basis as our foundation. To this extent, the
Company has partnered with a third party to enhance our product and develop
additional products that complement our current products.
Competitive
Strengths
The
Company competes with conventional construction, other SIP manufacturers, and
SIP manufacturers that utilize a steel skin.
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 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. 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. The Company's primary business is in
the
modular classroom industry and residential and commercial building. We recognize
the competition and do 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 60% 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. As recently
as
October 2007, SIPA has stated that the SIP market will recognize an annual
growth rate of approximately 60%. Under this rate of growth SIPS will capture
5%
of the housing market in the next five years, compared to its current level
of
2%. In addition, according to the 2008 McGraw Hill report, 89% of Corporate
America will have 16% of the structures owned by them converted to “green”
building by 2009. McGraw Hill further stated in its annual report dated
September 23, 2007 that the SIP industry in the United States is expected to
grow 60% year over year over the next five years reaching a $20 billion dollar
industry. While the SIP market is only a small portion of the overall
construction methodology used today, it is the fastest growing market. With
these considerations, the marketplace is large enough to have multiple quality
companies without having one recognized as a threat to another.
10
Structural
insulated panels (“SIPs”) have competitive strengths to conventional
construction materials and to other SIPs materials. Traditional SIPS
manufacturers utilize oriented strand board (OSB), some other wood based skin,
or fiberglass that sandwich a variety of foam cores. These SIPS provide rapid
construction opportunities; however, they are limited in “green” technology and
sustainability. The Company believes the ACTech® Panel has competitive
advantages due to the added strength of galvanized steel skin as compared to
wood based products. These include Class I fire rating, resistance to moisture,
mold, mildew, and the high rating in racking, stacking and wind shear load
comparisons and the projectile strength ratings which provide additional
protection from nature disasters that include hurricanes, tornadoes, and
earthquakes.
With
several hundred SIP manufacturers in the United States, only a few produce
a SIP
with a steel skin. Our competition in this area are required to make their
product through the use of molds, which require significant machine and
equipment cost, as well as increased labor costs, whereas our process is through
a continuously fed processing line. Other steel skin manufacturers must overcome
this issue in order to be cost competitive with the ACTech® Panel System. We
believe our product to be superior in benefits and cost.
In
the
comparison of pricing, the Company is competitive in the marketplace. In many
circumstances, the ACTech® Panel 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 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 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.
Market
The
market for SIPs addresses similar markets to conventional construction materials
such as lumber and bricks. Alternative construction methods have grown in 2007
due to promotions from private, commercial, environmental and governmental
awareness. Twenty-two states and the District of Columbia, including California,
Florida, and Texas, have implemented or introduced legislation, policies, and/or
incentives to mandate/encourage the use of green, energy efficient, and
environmentally friendly products. The average consumers are demanding a smarter
choice in building materials. To this end, almost anywhere lumber or bricks
can
be used as a structural material; the ACTech® Panel can be used in its place.
Our appeal to “green” building materials, coupled with the Company’s management
playing a pioneer role in the development of “green” building solutions, has
propelled us to the forefront of the “green” building movement.
In
applications where a structural component is not a viable option, the ACTech®
Panel may be considered for use as a cladding material or a roofing material.
Seasonality
The
construction industry is sensitive to interest rate fluctuations and economic
business cycle variations.
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 its Universal
Safe Room™.
11
The
company's continuous manufacturing process patent is also filed internationally
in Argentina, Bahamas, Brazil, Canada, China, Columbia, Poland and
Russia.
MODULAR
AND HOUSING SOLUTIONS
Description
The
Company maintains a line of in-house designed and engineered modular buildings
that lend itself to rental applications, private industry temporary worker
housing solutions, and bare base military uses. This line of 1,000 to 1,200
square feet in-house designed and engineered housing kits with several diverse
plans, available in single units or in packages, is ideal for promotion in
communities where natural disasters such as Hurricane Katrina have devastated
the local housing base. The house kits can be ordered through the Company and
built locally with unskilled labor, thus enhancing the local job base
post-catastrophe. In addition to the modular units, the Company currently
maintains a database of approximately 150 housing designs that have been
pre-engineered to meet building standards, international construction code,
and
other qualifications throughout the world.
Competitive
Strengths
The
Company is eligible to receive domestic and international contract awards
through and from the General Services Administration (“GSA”) of the United
States government. The GSA serves as a centralized procurement and property
management agency for the United States federal government. The GSA manages
more
than one-fourth of the government’s total procurement dollars and influences the
management of $500 billion in federal assets, including 8,600 government-owned
or leased buildings and 208,000 vehicles. The GSA also has the responsibility
of
maintaining more than 425 historical properties. Under Executive Order 13423:
“Strengthening
Federal Environmental, Energy and Transportation Management”
announced in January 2007, certain goals were set for federal agencies including
an energy reduction of 3% annually through 2015 or 30% over this span.
Currently, buildings account for 41% of all energy consumption. The progress
of
this Executive Order is measured and monitored by the President of the United
States and the Office of Management and Budget. Additionally, nineteen federal
agencies have signed a Memorandum of Understanding establishing a set of
standards for creating, operating and maintaining high performance and
sustainable government buildings. Pursuant to Section 1331 of the Energy Policy
Act of 2005, an Energy-Efficient Commercial Buildings Tax Deduction was created
and are now considered for possible extension and increase. Twenty-three states
have adopted similar policies and mandates.
The
Company has been included in the California Integrated Waste Management Board’s
(“CIWMB”) Recycled-Content Product Directory (“RCP”), including compliance with
the State Agency Buy Recycled Campaign (“SABRC”). This listing assists state
agencies and other public entities to comply with laws requiring them to
purchase recycled, repairable, and durable goods. The State of California
requires state agencies and other public entities to purchase recycled,
repairable, and durable goods. California state law requires state agencies
and
other public entities to purchase recycled, repairable, and durable goods.
These
agencies must buy recycled and reusable products. The law (Public Resources
Code
section 42600(d) directs CIWMB to maintain a directory of RCP vendors which
assists suppliers make potential consumers of RCP’s aware of their products and
services, and aids purchasers in locating qualified RCP suppliers. The RCP
also
contains a section for California’s SABRC, a joint effort between the CIWMB and
the Department of General Services (“DGS”) to implement state law (Public
Contract Code section 12153 et seq. requiring state agencies to purchase
products with recycled content. The law (PCC section 12205_ also requires state
agencies to obtain the recycled-content certification. If a product in the
RCP
is listed as being SABRC-compliant, then state purchasers do not need to obtain
separate recycled-content certification for that product. It complements the
efforts of the Integrated Waste Management Act (AB 939, Sher, Chapter 1095,
Statutes of 1989), which was enacted the amount of waste going to California’s
landfills.
Florida
Power & Light’s (NYSE:FPL) BuildSmart® Program certified the ACTech® Panel
structural insulated panel home under its energy conservation minded program.
The BuildSmart® homes are inspected and approved by FPL representatives who are
accredited by the State of Florida Department of Community Affairs to rate
energy efficiency.
The
Company’s product, the ACTech® Panel, qualifies under LEED (Leadership in Energy
Efficient Design), Florida Green Building Coalition, and Energy
Star.
Purchasing
a pre-engineered house has competitive strength in that it maintains the ability
to take projects from concept to occupancy, to provide designed kit solutions,
to provide buildings specifically tailored to location and climate, and to
provide low cost housing solutions for the developing world or for areas ravaged
by storms or other natural disasters quickly, with minimal permitting issues,
and consistency. This one stop full service line of comprehensive building
solutions differentiates ACCY within the marketplace.
12
Expertise—
The
Company believes that our knowledge of our products, technology and applications
expertise provides us with a competitive advantage over others in the industry.
Customer requirements are supported by engineered design - build solutions
where
required.
Customer
Service—The
Company believes that our focus on providing more than a satisfactory experience
to our customers provides a competitive advantage. We strive to provide
exemplary service by doing whatever it takes to fulfill our commitments to
our
customers. We pride ourselves in providing solutions to meet our customers’
needs by having solutions available and responding quickly and thoroughly to
their requests. Our goal is to provide service beyond our customers’
expectations, which we believe, results in customer loyalty and repeat
business.
The
United States and foreign countries’ construction related markets have many
competitors, from small to major corporations. The difference between our
Company and the vast majority of these other builders is the use of the ACTech®
Panel, a superior structural insulated panel supported by independent testing
and certifications, allowing the end user to have an option to build a better
structure.
Market
The
business of providing construction solutions is guided by the economy overall
but, certain segments continue to flourish while others are on a downturn.
As
our Company strategically propels into the international housing industry,
we
should not be hampered by the economic downturn of the housing market in the
United States. In 2007, we witnessed a growth in our commercial development
opportunities during the slowdown of educational facility
construction.
As
the
population becomes more mobile, the demand for relocate-able buildings is
increasing. The use of the ACTech® Panel System in modular construction provides
unique opportunities in the housing and commercial market segments. Schools
built with our product can be relocated to a different area as the population
shifts. The housing industry has been unable to provide a livable solution
to
mobile homes that offer security, energy efficiencies, and disaster resistance
until recently. Our product provides such a solution.
Sales
We
offer
comprehensive building solutions using the ACTech® Panel to builders, developers
and end users that are cognizant of the advantages of building with a SIP
product that is superior to the standard conventional building with “sticks and
bricks”. After the devastation in Florida in 2004 due to the multiple hurricanes
and the subsequent slow Katrina rebuilding efforts, the public wants a better
product that addresses rebuilding time costs to the end user in both lost
revenues and inconveniences. Their goal is to build a structure that will
withstand the adverse weather that can affect the coastal areas.
In
the
Katrina disaster area, the Company defined a need for modular housing solutions
for temporary worker housing and began an extensive marketing effort resulting
in sales of units both designed and engineered to the needs of the customer.
As
a result of these sales and marketing efforts, the Company entered into a
long-term, multiple unit agreement in the fourth quarter of 2006 to supply
modular worker housing kits to a local builder and developer in the Katrina
ravaged area.
In
addition to identifying a need for modular housing kits, the Company also
identified a need for affordable housing kits in the disaster areas of
Mississippi and Louisiana. This need was addressed by the Company and several
plans were designed and engineered to include housing plans in the 1,000 to
1,200 square foot size range. These plans will be implemented into a website
portal where people may shop online for the house of their choice. The product
will be shipped according to schedule along with approved architectural and
engineered stamped drawings for permitting purposes.
It
is the
belief of management that additional revenue will be earned in 2008,
specifically in regard to modular building kits, affordable housing kits, and
other types of comprehensive building solutions which will allow for further
product and customer diversification.
13
ANCILLARY
SERVICES
ARCHITECTURAL
AND ENGINEERING DESIGNS
Description
The
Company provides architectural and engineering solutions for the 48 continental
United States. Through various sales channels, the Companycontracts with the
customer for the design of their project(s). We assist the customer in all
licensing and permitting issues and work directly with federal, state, and
local
government authorities ensuring rapid licensing of the project.
Competitive
Strengths
The
Company does not market its design services independently of the ACTech® Panel
System. The Company’s success rate in bidding for projects that are designed by
others is typically 5% to 10%, while it increases to more than 95% when we
design the project. Our design team has full knowledge and understanding of
the
benefits and limitations of the ACTech® Panel System and design according to its
strengths, reducing overall costs and improving strength, durability, and energy
efficiencies.
Market
The
Company only markets its design services for projects that incorporate the
ACTech® Panel System. The Company does not market the services to outside
markets, but is a direct sale generated through the ACTech® Panel sales process.
Therefore, the Company spends no dollars on marketing its architectural and
engineering services.
Sales
The
Company entered into its first design contract in October 2007. The Company
continues to see growth opportunities in this arena, while it is treated more
as
an ancillary service than a stand alone function.
CONSULTING
SERVICES
Description
The
Company provides consulting solutions to international customers, politicians,
“green” builders, and our customers as required. In addition, the Company
provides consulting services to other industry related products that would
provide additional benefits to our product in the market place.
Competitive
Strengths
Current
management has been identified as pioneers in the industry of “green” building
technologies. Our management’s expertise has led to presentations at the United
Nations in New York, noted as key speakers to environmental conventions, and
acknowledgement by its peers as experts in the market.
Companies
that are looking to launch a product into the “green” building markets are
better capable of doing so when associated with an accepted product already
in
the marketplace. This was a key factor in the Company entering into a Joint
Venture with Atlan International Holding, Inc., for the development of the
Solar
18 ACTech® Panel.
Market
The
Company has currently entered into one research and development contract that
will enhance the ACTech® Panel System or provide additional products utilizing
our technology. In addition, the Company is working with several international
companies to incorporate our product in low-income housing project designs.
The
Company does not provide consulting services outside its current realm of
expertise, and only in conjunction with current projects it desires to contract,
or with products it intends to develop. The Company does not finance marketing
of its consulting services.
Sales
The
Company entered into an agreement in November 2007 with Atlan International
Holdings, Inc. (“Atlan”) for the research, design, and development of the Solar
18 ACTech® Panel. As part of the agreement, the Company recognized a $2
million right of participation fee for establishing a joint venture with Atlan
and the Company. The Company is owed this fee regardless of the outcome of
the joint venture program. As part of the joint venture, the Company and
Atlan will design, develop, and manufacture a solar panel utilizing the ACTech®
Panel. In exchange for 80% ownership of the joint venture, the Company
will provide the appropriate equipment and manufacturing facility, while Atlan
will provide the design and engineering. The Company will recognize 100%
of the revenue of this joint venture through the ownership by ACCY and ACCS.
Atlan will be a minority shareholder.
14
As
a
strategic alignment with the Company’s philosophy to acquire “green”
technologies, the Company has reserved the right as part of the transaction,
to
convert its receivable ($1 million classified as accounts receivable and $1
million classified as a long-term receivable) into preferred stock of Atlan,
at
its sole discretion. In the event the Company elects not to convert its
receivable into a preferred status with Atlan, the receivable is expected to
be
collected over a 12 month period beginning June 2008; however, Atlan reserves
the right to pay in full earlier at its sole discretion. Atlan has
recently entered into an agreement for the design, development, construction,
and operation of a solar plant in Sicily, Italy. The Company will evaluate
the opportunity periodically to determine the ability to justify an equity
position and the potential for a greater profit with a preferred
conversion. If Atlan could not satisfy their financial obligation to the
Company, the Company has the authority to take a more active role in making
Atlan a successful company in fulfilling its contracts thereby further assuring
the collectibility of its obligations to the Company.
DEVELOPMENT
DIVISION
Description
The
Company Development Division constructs commercial buildings, modular buildings,
and houses according to plans supplied by the customer, or act as a design
/
build firm taking the customer from concept to full turnkey occupancy, typically
utilizing the ACTech® Panel. The Company has experienced project managers who
can take single buildings or entire projects from infancy to occupancy for
those
customers who desire to have a comprehensive building solution without their
actual day-to-day involvement.
Competitive
Strengths
The
Company has competitive strength in that it maintains the ability to take
projects from concept to occupancy, to provide architectural and engineering
designs for the construction of commercial and residential buildings. This
one
stop full service line of comprehensive building solutions differentiates the
Company within the marketplace.
Market
The
Company maintains construction arms in Newnan, Georgia; Cleveland, Tennessee;
and Bradenton, Florida. Each of these markets continues to see growth, even
during this current time of economic downturn. The Company has licensed General
Contractors on staff whom build residential and commercial structures in
Georgia, Florida, Tennessee, Alabama, Mississippi, North Carolina, South
Carolina, and Louisiana. The Company utilizes architects and engineers who
are
qualified in all 48 continental states.
Sales
ACI
has
purchased 23.7 acres in Cleveland, Tennessee where it has developed the land
for
the building of 59 residential lots. The Company has currently built 19 homes
in
the Southern Oaks Subdivision.
The
Company has flourished in the “green” conscious counties of DeSoto and Manatee,
Florida. ACR continues to provide housing structures, remodels, and commercial
buildings. ACR is qualified as a Florida State Housing Initiative Program
(“SHIP”) certified builder and continues to receive government contracts as part
of the rebuilding effort caused by the Category 5 Hurricane Charlie in August
2004.
Competition
The
Company continues to compete for construction work with many different builders.
While a downturn in the economy has caused several companies to cease
operations, our Company continues to receive contracts for development projects.
The construction industry in the United States alone is more than $1 trillion
annually of which approximately 50% is residential. Approximately 2% of the
residential market utilizes structural insulated panels in its construction.
This industry is projected to grow 60% per year over the next five years. In
addition, there has been a shift with corporate America to build “green”.
According to McGraw Hill, 89% of corporate America will convert 19% of their
portfolios into “green” structures. Therefore, the potential for growth, even
with strong competition, with effective marketing indirectly assists the Company
in educating the public, and increasing sales opportunities.
15
PRODUCT
HIGHLIGHTS
The
following table shows the revenue components, percentage of total revenues
for
the segments in which management reports and monitors financial performance;
to
include manufacturing, ancillary services, development, and corporate for the
past two years.
Total
Structural Insulated Panels Related Revenues
$
3,916
$
6,036
Percentage
of Total Revenues (2)
28.0
%
64.8
%
Gross
Margin on Manufacturing of Structural Insulated Panels Revenues
(1)
(3) (4)
27.7
%
17.3
%
Commercial
/ Residential Development
Development
Revenue
$
7,294
$
3,024
Percentage
of Total Revenues
56.3
%
35.0
%
Gross
Margin on Development Revenues
9.8
%
8.4
%
Ancillary
Services
Ancillary
Services Revenues
$
2,035
$
13
Percentage
of Total Revenues
15.7
%
0.2
%
Gross
Margin on Ancillary Services Revenues
74.7
%
0.0
%
Total
Revenues (1)
$
12,960
$
8,634
(1)
Includes
intercompany revenue (ACMT) and applicable cost of goods sold (ACP)
eliminated
in consolidations, of $284,909 in 2007 and $438,685 in 2006.
(2)
Reflects
the deduction for intercompany revenue to ACP (see (1)).
(3)
Reflects
obsolete inventory write-offs in the 4th quarter of
2006.
(4)
Certain
manufacturing equipment for the ACTech® Panel and the applicable
depreciation is
recorded on the parent company's books (in 2006 only) due to the
method of
the acquisition of
ACMT. $139K of depreciation expense for 2006 is recorded on ACCY's
books
and the impact
on the gross margin is reflected in this
analysis.
Item
1A. Risk Factors
The
following important factors among others, could cause our actual operating
results to differ materially from those indicated or suggested by
forward-looking statements made in this Form 10-K or presented elsewhere by
management from time to time.
RISKS
RELATED TO OUR BUSINESS
If
the Company is unable to raise equity capital or negotiate favorable terms
with
its current convertible debt holders it may be unable to achieve its 2008
objectives.
We
incurred substantial growth for the year ended December 31, 2007 and have
projected considerable growth in 2008. The Company has pledged all of its assets
to the current convertible debt holders and because of this have subsequently
restricted the Company’s ability to secure additional financing. Typical
manufacturing companies rely heavily on debt to finance growth through inventory
financing, purchase order financing, equipment financing, and factoring of
receivables, which is currently unavailable to the Company. With the expected
growth rate, the Company will require additional capital to meet its
projections. In the event the Company is unable to successfully raise the
necessary capital it may fail to reach targeted sales or overextend the
Company’s obligations or ability to pay. There is no guarantee that we will
succeed in obtaining additional financing, or if available, that it will be
on
terms favorable to us. The debentures issued in the debt financing in June
2007,
are secured by all of our assets. Certain debentures are convertible into common
stock, at a fixed price of $4.00 per share; however, until the debentures are
paid in full or converted into common stock, all of the Company’s assets have
been proffered as collateral. The maturity date of the debentures is June 30,2009. The debentures bear an interest rate of 10% per year. If we become in
default of the payment terms or other provisions of the debentures, there is
no
assurance that we will 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 the collateral.
16
If
the price of raw materials increases or its availability decreases, it may
create a reduction in our capability to produce our product, or increase in
the
retail panel price making us uncompetitive with conventional building.
The
key
components to our product are steel and foam. Steel is a commodity product;
therefore the Company continues to seek various suppliers to provide sufficient
source and pricing to meet our production schedule and pricing points. In the
current market, steel and foam, the key ingredients in 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 majeure, the Company may not maintain adequate cash to procure raw
materials to meet current demand and expanded growth. As 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. In the event the Company elects to pass on these increases
to
its customers we may not be able to compete with conventional building. The
Company experienced a 25% cost increase to spot-bid steel pricing in 2007 while
maintaining a successful profit ratio.
If
we are unable to protect our intellectual property, while maintaining a “first
to market” status, will increase competition and competitive pricing that may
have an impact on our future growth.
We
rely
significantly on the protections afforded by patent and trademark registrations
that we routinely seek from the United States 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.
With
only one manufacturing facility and one production line, the Company could
lose
substantial revenue due to down time if the equipment is damaged and/or the
plant suffers from a natural disaster.
The
Company relies on one production line to manufacture its products. While a
supply of most replacement parts is maintained and regularly scheduled
maintenance conducted, the Company has the risk of shutting down if a key
processing line component fails. In the third quarter of 2007, the facility
was
struck by lightning which caused a three week delay in production while waiting
on a specific component to be manufactured in California. This delay adversely
affected revenues for the third quarter of 2007. The component was a minor
component, but the time to manufacture a new one was considerable. To replace
the entire proprietary equipment line could take six to nine months, or longer,
to design, assemble and have operational. The Company protects its patented
process of continuous line manufacturing and as such will not allow a
subcontractor to manufacture the ACTech® Panel unless it was in a plant designed
and built by the Company.
Our
facilities, manufacturing equipment and distribution systems may be subject
to
catastrophic loss due to fire, flood, hurricane, tornado, earthquake, terrorism
or other natural or man-made disasters. Our corporate office in Florida is
located in an area subject to hurricanes and other tropical storms. We believe
our insurance policies are adequate with the appropriate limits and deductibles
to mitigate the potential loss exposure of our business. We do not have
financial reserves for policy deductibles and we do have exclusions under our
insurance policies that are customary for our industry, including earthquakes,
flood and terrorism. If any of our facilities or a significant amount of our
manufacturing equipment were to experience a catastrophic loss, it could disrupt
our operations, delay orders, shipments and revenue recognition and result
in
expenses to repair or replace the damaged manufacturing equipment and facilities
not covered by insurance.
17
The
Company has entered into indemnification agreements with the officers and
directors and we may be required to indemnify our Directors and Officers, and
if
the claim is greater than $1,000,000, it may create significant losses for
the
Company.
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, the Company may be forced to pay such difference. We have
entered 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. We
are
subject to claims arising from disputes with employees, vendors and other third
parties in the normal course of business. These risks may be difficult to assess
or quantify and their existence and magnitude may remain unknown for substantial
periods of time. If the plaintiffs in any suits against us were to successfully
prosecute their claims, or if we were to settle such suits by making significant
payments to the plaintiffs, our operating results and financial condition would
be harmed. In addition, our organizational documents require us to indemnify
our
senior executives to the maximum extent permitted by Florida law. If our senior
executives were named in any lawsuit, our indemnification obligations could
magnify the costs of these suits.
We
may acquire other businesses that have a strategic alliance with our goals
and
positioning which will create dilution to our shareholders and additional cash
requirements we cannot meet.
The
Company has acquired three businesses in 2007 and will continue to seek
complementary businesses to acquire in 2008. Two of the businesses (ACI and
ACR)
acquired in 2007 created dilution of the company shareholders, but have brought
considerable opportunities to the company business. With this additional
business, the Company has struggled with meeting its cash flow requirements.
The
typical companies acquired are young companies with considerable contracts
they
are unable to fulfill or cash flow themselves. Coupled with our need for
increased raw materials, to add on these contracts, and the cash flow needs
of
the acquired business, the Company will need to look to equity and debt
resources to fulfill its obligations.
Future
changes in financial accounting standards and other applicable regulations
by
various governmental regulatory agencies may cause lower than expected operating
results and affect our reported results of operations.
Changes
in accounting standards and their application may have a significant effect
on
our reported results on a going forward basis and may also affect the recording
and disclosure of previously reported transactions. New standards have occurred
and will continue to occur in the future. For example, in December 2004, the
Financial Accounting Standards Board issued SFAS No. 123 (revised 2004), as
amended, “Share Based Payment” (“SFAS No. 123R”), which requires us to
expense stock options at fair value effective January 1, 2006. Under SFAS
No. 123R, the recognition of compensation expense for the fair value of
stock options reduces our reported net income and net income per share
subsequent to implementation; however, this accounting change will not have
any
impact on the cash flows of our business. Under the prior rules, expensing
of
the fair value of the stock options was not required and therefore, no
compensation expense for stock options was included in reported net income
and
net income per share in fiscal 2006. The Company issued 100,000 shares of stock
options in fiscal 2007, recognizing $24,150 of compensation expense. Any future
issuances of stock options, in addition to the fiscal 2006 issuances, will
cause
additional compensation expense to be recognized.
The
Sarbanes-Oxley Act of 2002 and various new rules subsequently implemented by
the
Securities and Exchange Commission (“SEC”) and the NASDAQ National Market have
imposed additional reporting and corporate governance practices on public
companies. Since adoption of these regulations, our legal, accounting and
financial compliance costs have increased and a significant portion of
management’s time has been diverted to comply with these rules. We expect these
additional costs and the diversion of management’s time to continue and to the
extent additional rules and regulations are adopted, the diversion or addition
of resources
may
potentially increase over time, with respect to these legal
initiatives.
In
addition, if we do not adequately continue to comply with the requirements
of
Section 404 of the Sarbanes-Oxley Act in the future, we may not be able to
accurately report our financial results or prevent error or fraud, which may
result in sanctions or investigation by regulatory authorities, such as the
SEC.
Any such action could harm our business, financial results or investors’
confidence in our company, and could cause our stock price to fall.
The
nature of our businesses exposes us to the risk of litigation and liability
under environmental, health and safety and product liability
laws.
Certain
aspects of our businesses involve risks of liability. In general, litigation
in
our industry, including class actions that seek substantial damages, arises
with
increasing frequency. Claims may be asserted under environmental, labor, health
and safety or product liability laws. Litigation is invariably expensive,
regardless of the merit of the plaintiffs’ claims. We may be named as a
defendant in the future, and there can be no assurance that regardless of the
merit of such claims, we will not be required to make substantial settlement
payments in the future.
18
If
we do not effectively manage our credit risk or collect on our accounts
receivable, it could have a material adverse effect on our operating
results.
We
generally sell to qualified customers on a 30-day payment term; however, our
average collection time is 49 days. We perform credit evaluation procedures
on
our customers on each transaction and require security deposits or other forms
of security from our customers when a significant credit risk is identified.
The
Company expects to begin offering terms on purchases in an effort to increase
sales. As the Company exposes itself to greater risks we will have to further
evaluate accounts receivable and increase our reserves for bad debt, as
applicable.
In
2006,
the Company wrote off a substantial amount of aged accounts receivable. The
Company has implemented a policy of filing Notice to Owners (“NTO”) on each
property in which it produces product for to alleviate the inability to collect.
However, if a customer fails to pay, there could be considerable time between
the need to pay our vendors and the receipt of our final payment. ACP maintains
more than $150,000 in immediate payables on a contract in which it is owed
$254,000 and may be required to use legal remedies to collect. Failure to manage
our credit risk and receive timely payments on our customer accounts receivable
may result in the write-off of customer receivables. If we are not able to
manage credit risk issues, or if a large number of customers should have
financial difficulties at the same time, our credit losses would increase above
historical levels. If this should occur, our results of operations may be
materially and adversely affected.
Failure
by third parties to supply our raw materials or deliver our product to our
specifications or on a timely basis may harm our reputation and financial
condition.
We
are
dependent on third parties to provide steel, foam, and other building materials
even though we are able to purchase products from a variety of third-party
suppliers. In the future, we may be limited as to the number of third-party
suppliers for some of our products. Currently, we do not have any long-term
purchase contracts with any third-party supplier. In the future, we may not
be
able to negotiate arrangements with these third parties on acceptable terms,
if
at all. If we cannot negotiate arrangements with these third parties to provide
our raw materials to our specifications or in a timely manner, our reputation
and financial condition could be harmed. In addition, specific requirements
exist for delivery of raw materials that can cause significant damage and delays
if not properly serviced during the transportation. While financial cost is
insured by the carrier, lost time and reputation may suffer decreasing customer
satisfaction and thwarting future sales.
If
we are not able to anticipate and mitigate the risks associated with operating
internationally, as planned, there could be a material adverse effect on our
operating results.
Currently,
we have no significant revenue derived from foreign interests. The Company
is
projecting significant international growth in 2008 in various construction
segments including commercial, affordable housing, military, and education.
The
Company is currently negotiating in more than ten different countries and has
made an impact in the international communities through its various United
Nations invitations to present our products and solutions. Over time, we
anticipate the amount of international business may increase significantly
if
our focus on international market opportunities continues. Doing business in
foreign countries does subject the Company to additional risks, any of which
may
adversely impact our future operating results, including:
·
international
political, economic and legal conditions including tariffs and
trade
barriers;
·
our
ability to comply with customs, import/export and other trade compliance
regulations of the countries in which we do business, together
with any
unexpected changes in such
regulations;
·
difficulties
in attracting and retaining staff and business partners to operate
internationally;
·
language
and cultural barriers;
·
seasonal
reductions in business activities in the countries where our international
customers are; located;
·
integration
of foreign operations; and
·
potential
adverse tax consequences.
·
potential
foreign currency
fluctuations.
19
SPECIFIC
RISKS RELATED TO OUR MANUFACTURING OF STRUCTURAL INSULATED PANELS
Continued
decline in school operations maintenance funding; and new facility funding
in
the state of Florida could cause the demand for our ACTech® Panel to decline,
which could result in a reduction in our revenues and
profitability.
For
two
consecutive years, sales of our SIPs to contractors building modular portable
classrooms for the Florida public school districts for use as portable
classrooms, restroom buildings, and administrative offices for kindergarten
through grade twelve has declined. Funding for public school facilities is
derived from a variety of sources including the passage of both statewide and
local facility bond measures, developer fees and various taxes levied to support
school operating budgets. Many of these funding sources are subject to financial
and political considerations, which vary from district to district and are
not
tied to demand. Historically, we have benefited from the passage of facility
bond measures and believe these are essential to our business. While all
forecast reports believe 2008 to be a substantial year in the school facility
market, there is no guarantee that this business sector will return to its
historical 2005 levels.
To
the
extent public school districts’ funding is reduced for the rental and purchase
of modular facilities, our business could be harmed and our results of
operations negatively impacted. We believe that interruptions or delays in
the
passage of facility bond measures, changes in legislative or educational
policies at either the state or local level including the contraction or
elimination of class size reduction programs, a lack or insufficient amount
of
fiscal funding, a significant reduction of funding to public schools, or changes
negatively impacting enrollment may reduce the rental and sale demand for our
educational products and result in lower revenues and
profitability.
A
significant reduction of construction due to economic downturns, population
growth variations and/or other definable effects on the construction industry
could cause the demand for our construction solutions to decline, which could
result in a reduction in our revenues and profitability.
The
US
Market has magnified the housing market crisis to disproportionate levels.
As
such, the housing market has created a negative spin on all construction and
related product suppliers, even though the commercial market and “green”
building market has witnessed considerable and consistent growth. While less
than 25% of our Company’s SIP business is in the housing market, this negative
spin has created indecisiveness within our customers which has hampered our
growth.
The
US
Market is projecting a 60% growth in “green” building materials and the
Structural Insulated Panel Association (SIPA) is projecting an increase from
1.5% to 5% of all housing to be built with SIPs within the next five years.
To
the contrary, the US Market is projecting a slowdown in commercial construction
in 2008, but is expecting a massive influx of school related contracts, while
the housing market continues to struggle. Each of these trends, forecasts,
and
potential markets will have a direct impact on our success and failures. The
Company’s inability to recognize which information is correct, and utilize this
information to develop a roadmap for future success could impede our ability
to
increase profits.
Public
policies that create demand for our products and services may change, stall
in
Congress or State Legislation reducing leverage to enforce change thereby
decreasing sales.
Florida
has passed legislation to limit the number of students that may be grouped
in a
single classroom for certain grade levels. School districts with class sizes
in
excess of these limits have been and continue to be a significant source of
demand for modular classrooms using the ACTech® Panel. The educational
priorities and policies were stalled in 2007, therefore demand for our products
and services declined. While legislation still dictates the need for additional
modular classrooms, and with the ACTech® Panel System featured in more than
1,300 modular facilities within the state of Florida, we may not experience
the
historical growth levels of 2005; therefore, we may not grow as quickly as
or
reach the levels that we anticipate.
Similar
to conventionally constructed buildings, the modular building industry,
including the manufacturers and lessors of portable classrooms, are subject
to
evolving regulations by multiple governmental agencies at the federal, state
and
local level. This oversight includes but is not limited to governing code
bodies, environmental, health, safety and transportation. Failure by our
customers to comply with these laws or regulations could impact our business.
Compliance with building codes and regulations have always entailed a certain
amount of risk as municipalities do not necessarily interpret these building
codes and regulations in a consistent manner, particularly where applicable
regulations may be unclear and subject to interpretation. Many aspects of the
construction and modular building industry have developed “best practices” which
are constantly evolving.
The
inability to get our product and services listed as a mandated “Green Product”,
such as the State of Florida Climate Action Team Approved Green Building Product
Listing, may limit opportunities for growth or restrict access to certain
states.
With
22
states and Washington, D.C. currently enforcing “Green Laws”, laws that define
the use of “green” building materials, and many other states considering the
passage of “Green Laws”, our inability to get our product listed as an approved
“Green Product” in each state may restrict growth for some government contracts.
Three states (Connecticut, Wisconsin and Illinois) have set up commissions
to
draft “green” building legislation and regulations. Four states (Nevada, New
Mexico, Virginia, and Maryland) and Washington, D.C. require state and/or
state-funded buildings to be built to a “green” building standard and offer
incentives for compliance. Eleven states (Washington, California, Arizona,
Colorado, Maine, Massachusetts, Rhode Island, New Jersey, South Carolina,
Michigan, and Florida) require state-funded public and educational building
to
be built to the “green” standard.
20
We
face strong competition in our structural insulated panel markets on a
region-by-region basis which may provide resistance to the Company’s ability to
become a national leader in structural insulated panels
manufacturing.
The
structural insulated panel industry is fragmented and highly competitive in
our
states of operation and we project it to remain the same. We compete with three
types of competitors; (i) conventional builders, (ii) wood-based SIP
manufacturers, and (iii) other steel-skin SIP manufacturers. As the housing
market has dwindled, many conventional builders are attempting to enter into
the
commercial marketplace; thus creating increased competition for use of our
product. As more and more people decide to use alternative methods of
construction, the SIP industry is poised to gain significant growth in this
market. The boom has been projected for years by industry experts. As such,
many
wood-based SIP manufacturers have been gearing up for the growth opportunities
creating an influx of potential candidates to compete with for new building
styles. The competitive market in which we operate may prevent us from raising
sales prices to pass any increased costs on to our customers. We compete on
the
basis of a number of factors, quality, price, service, reliability, appearance,
functionality, and delivery times. We believe we may experience pricing
pressures in our areas of operation in the future as some of our competitors
seek to obtain market share by reducing prices.
In
the event a defect were to arise from our manufacturing of the ACTech® Panel,
our warranty costs would increase and could cause the Company to go into
bankruptcy.
Sales
of
structural insulated panels are typically covered by warranties. We provide
a
one year warranty on the ACTech® Panel. Historically, our warranty costs have
not been significant, and we monitor the quality of our products closely. If
a
defect were to arise in the manufacturing of our structural insulated panel
at
our facility, we may experience increased warranty claims. Such claims could
disrupt our sales operations, damage our reputation and require costly repairs
or other remedies, negatively impacting revenues, costs, and operating income,
even to the point, if the defects were universal, a complete shutdown of the
operation and a need to file for protection under bankruptcy laws.
SPECIFIC
RISKS RELATED TO OUR DEVELOPMENT BUSINESS
Economics
and cyclical downturns in the construction industry may result in periods of
low
demand for our services resulting in the reduction of our operating results
and
cash flows.
The
Company currently owns three development division subsidiaries located in
Newnan, Georgia, Cleveland, Tennessee, and Bradenton, Florida. The revenues
are
derived from providing construction solutions to a broad range of companies,
developers and individuals. Historically, the construction industry has been
cyclical and has experienced periodic downturns, which have a material adverse
impact on the industry’s demand for construction. The Company is currently
developing a 59 home subdivision in Cleveland, Tennessee. If the Company does
not sell these homes as they are built, it will directly impact our cash flow
and profitability.
In
addition, the severity and length of any downturn on an industry may also affect
overall access to capital, which could adversely affect our customers. During
periods of reduced and declining demand for construction material and/or
solutions, we are exposed to additional risk from reduced revenue and may need
to rapidly align our cost structure with prevailing market conditions while
at
the same time motivating and retaining key employees. While the market demand
for construction related products and/or solutions in a significant portion
of
the areas in our focus, especially with the devastation due to hurricanes in
Florida and Louisiana in 2004 and 2005, respectively, no assurance can be given
regarding the length or extent of the recovery, and no assurance can be given
that our rates, operating results and cash flows will not be adversely impacted
by the reversal of any current trends or any future downturns or slowdowns
in
the rate of capital investment in this industry.
Significant
increases in construction supplies, subcontractors and labor costs could
increase our cost of construction, which would increase our cost of goods sold
and reduce our profitability.
We
incur
labor costs, purchase construction supplies, and employ subcontractors.
Generally, increases in labor, construction supplies, and subcontractors will
also increase the cost of our structure. During periods of rising prices for
labor, construction supplies or subcontractor services, and in particular,
when
the prices increase rapidly or to levels significantly higher than normal,
we
may incur significant increases and incur higher cost of goods sold that we
may
not be able to recoup from our customers, which would reduce our
profitability.
21
SPECIFIC
RISKS RELATED TO OUR ANCILLARY SERVICES
Company
management may choose to acquire strategic alliances and/or partners which
may
create long-term beneficial growth but would adversely affect short-term
gains.
The
Company projects strategic alliances, joint ventures, and acquisition candidates
in the “green” and “clean tech” industries. Through these alliances, the Company
has the opportunity to provide various consulting services which promotes
revenue and furthers the Company’s message of operating in the “green” world.
Company management will determine at the appropriate times whether these
alliances are beneficial to remain a third party or to be acquired, either
wholly or partially.
The
Company relies partially on outside consultants for architectural and
engineering services that may put the Company at further risk and
liability.
The
Company requires its professional consultants to provide certification and
license documentation to include named insurance from claims. As the Company
is
the contracted entity it faces additional liability that it may have to defend
in the event of a faulty design.
Item
1B. Unresolved Staff Comments
On
September 25, 2007, we received a comment letter from the Staff of the SEC’s
Division of Corporation Finance. The comments from the Staff were issued with
respect to its review of (i) our Registration Statement on Forms S-1 (File
No.
333-145718) filed with the SEC on August 27, 2007 in conjunction with our June
2007 debenture private placement, (ii) our Form 10-K for the year ended December31, 2006 filed on April 10, 2007 (File No. 33-128191) and (iii) our Forms 10-Q
for the quarters ended June 30, 2007 and March 31, 2007, filed on August 2,2007
and May 10, 2007 respectively (File No. 333-128191). The Staff comments related
to the adequacy of disclosures relating to cover page, Item 5, Market for
Registrant’s Common Equity and Related Shareholder Matters, Item 10, Executive
Compensation, and Item 12, Certain Relationships and Related Transactions in
the
Form 10-K and Item 3, Controls and Procedures in the Forms 10-Q. On November16,2007 and November 19, 2007, we filed amendments to our previously filed Form
10-K and Forms 10Qs providing additional disclosures in response to the Staff
comments.
Item
2. Properties
The
Company’s principal executive offices are located at 2910 Bush Drive, Melbourne,
Florida. This leased office space is used by the Company’s executive management
team as well as the administrative staff. It has a five year lease at $4,000
per
month with two renewable five year options.
The
Company’s manufacturing facility for ACMT is located 1033 Lake Street, Bolivar,
Tennessee. The property consists of approximately 10 acres of real estate
including a 154,000 square foot structure of usable space. The structure is
utilized for the manufacturing of the ACTech® Panel. The Company owns this
property.
ACP
is
located at 1485 Highway 34 East, Suite A-1, Newnan, Georgia. It has entered
into
a three-year lease expiring June 2009 for the property at a rate of $900 per
month for a 1,413 square foot office. Subsequently, in an effort to reduce
overhead, the Company has vacated the facility and currently operates its ACP
function from the corporate headquarters in Melbourne, Florida.
ACI
is
located at 3106 North Ocoee Street, Cleveland, TN. It has a lease for a 900
square foot office for $575 per month expiring May 2008.
ACR
utilizes mobile offices and uses the executive office for its administration.
ACI
owns
23.7 acres of land located at 5318 Dalton Pike, Cleveland, Tennessee. The land
has been approved for development of commercial and residential
housing.
22
The
following table sets forth for each property the total acres, square footage
of
office space, square footage of operations space and total square footage and
acreage (for owned property) at December 31, 2007.
The
Company believes that the current facilities are suitable for its current needs.
Item
3. Legal Proceedings
On
October 2, 2006, the Company was named in a lawsuit captioned New
Millennium Enterprises, LLC and Phoenixsurf.com, LLC
v.
Michael
W. Hawkins, et. al.
U.S.
District Court, Middle District of Georgia, 3: 06-CV-84 (CDC). The lawsuit
alleges violations of the Georgia Securities Act, Georgia Fair Business
Practices Act, Federal Securities laws and certain other unspecified laws in
connection with the investment by Plaintiffs of $500,000 in Series C Preferred
Stock and $75,000 in a Convertible Promissory Note in the Company and seeks
rescission of these investments. Plaintiffs amended their complaint on April11,2007. The Company filed an answer to the amended complaint denying all essential
allegations of the complaint and asserting affirmative defenses showing why
the
plaintiffs are not entitled to the relief sought. In addition, the Company
filed
Counterclaims against the Plaintiffs and Third Party claims against individual
officers and directors of Plaintiff, alleging a malicious interference with
the
Company’s business and business relations, conspiracy to interfere with our
business, libel and slander, and violation of rights under Title IX of the
Organized Crime Control Act of 1970 as amended. The Parties are to establish
a
consolidated plan of discovery in 2008. The Company believes it has meritorious
defenses to the claims and intends to vigorously defend this lawsuit and to
pursue its counterclaims.
On
January 30, 2008, subsequent to the date of this report, the Company was named
in a lawsuit captioned Kelco
Metals, Inc.
v.
Alternative
Construction Technologies, Inc.,
Circuit
Court of Cook County Illinois, 2008L001092. The lawsuit alleges breach of
contract in the amount of $109,197. The Company entered into an agreement to
acquire metal which was to have been sent to a third party, Precoat Metal
Division, for the metal to be galvanized. The Company is on thirty day payment
terms. Kelco Metals, Inc. (“Kelco”) demanded payment prior to shipping to the
Company and held up the metal at Precoat Metal, Inc. The Company elected not
to
pay for the metal as the demand for prepayment is contradiction to the payment
terms. The Company has meritorious defenses to the lawsuit and has informed
Kelco that upon delivery of the product in compliance with the terms of the
contract, they will be paid in accordance with the contract terms.
Item
4. Submission of Matters to a Vote of Securities Holders
Alternative
Construction Technologies, Inc., formerly known as Alternative Construction
Company, Inc.
Alternative
Construction Manufacturing of Tennessee, Inc., formerly known as Alternative
Construction Technologies Corporation
Alternative
Construction by ProSteel Builders, Inc., formerly known as ProSteel Builders
Corporation
Alternative
Construction by Ionian, Inc., formerly known as Ionian Construction,
Inc.
23
PART
II
Item
5.Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
Market
for Common Equity
Market
Information
The
Company’s common stock is traded on the NASDAQ OTC Bulletin Board under the
symbol “ACCY.OB.”The Company has made application to the American Stock
Exchange (“AMEX”) and has reserved the symbol “SIP”. In addition, the Company
has reserved the symbol “SIPS” with the NASDAQ for a period of one year
effective December 1, 2007. As of March 3, 2008, the Company’s common stock
was held by approximately 550 shareholders of record, which does not include
shareholders whose shares are held in street or nominee name.
The
Company’s shares commenced trading on April 3, 2007. The following table
sets forth the high and low sales price per share for the common stock for
each
quarter since April 3, 2007, as reported on the NASDAQ OTC Bulletin
Board.
We
have
not historically and do not intend to distribute dividends to stockholders
in
the foreseeable future.
Securities
authorized for issuance under equity compensation plans
The
Company currently has a 2004 Stock Option Plan of which 4,000,000 shares are
authorized for issuance. Under this plan, the Company has granted 2,100,000
options of which 500,000 have been forfeited and 1,150,000 exercised. There
are
currently 2,400,000 shares of common stock under the Plan that has not yet
been
issued.
Penny
Stock
Our
common stock is considered "penny stock" 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:
·
contains
a description of the nature and level of risks in the market for
penny
stocks in both public offerings and secondary
trading;
·
contains
a description of the broker's or dealer's duties to the customer
and of
the rights and remedies available to the customer with
respect to a violation to such duties or other requirements of Securities'
laws; contains a brief, clear, narrative description of
a dealer
market, including bid and ask prices for penny stocks and the significance
of the spread between the bid and ask
price;
·
contains
a toll-free telephone number for inquiries on disciplinary
actions;
·
defines
significant terms in the disclosure document or in the conduct of
trading
in penny stocks; and
·
contains
such other information and is in such form, including language, type,
size
and format, as the Commission shall require by rule
or regulation.
The
broker-dealer also must provide, prior to effecting any transaction in a penny
stock, the customer with:
·
bid
and offer quotations for the penny
stock;
·
the
compensation of the broker-dealer and its salesperson in the
transaction;
·
the
number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity
of the
marker for such stock; and
·
monthly
account statements showing the market value of each penny stock held
in
the customer's account.
24
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.
Related
Stockholder Matters
None
Purchase
of Equity Securities
On
May16, 2007, the Company acquired the outstanding 2,010,000 shares of Series B
preferred stock (conversion value of 4,020,000 shares of Common Stock) from
Avante (1,060,000 shares) and GAMI (950,000 shares), at a reduced value of
$2,000,000, approximately $.95 per share (if converted to common stock
approximately $.4975 per share). At the date of the agreement, the calculated
fair market value of the outstanding shares (average trading price) was
$29,185,200. See Item 13. Certain Relationships and Related Transactions, and
Director Independence for further discussion.
On
May16, 2007the Company acquired 80% of the outstanding common stock of Ionian
Construction, Inc., a Florida Corporation, in exchange for $800,000. The Company
issued stock in lieu of cash for the acquisition.
On
September 9, 2007the Company acquired 100% of the outstanding membership units
of Revels Construction, LLC, a Florida limited liability company, for the
purchase price of $1,000,000. The Company issued stock in lieu of cash for
the
acquisition. Revels Construction, LLC was converted to a “C” corporation
immediately following the acquisition.
On
November 28, 2007the Company acquired 100% of the outstanding stock of Modular
Rental and Leasing Corporation, a Florida Corporation, for the purchase price
of
$100.
GAMI
and
Bruce Harmon, a Director of the Company, exercised 800,000 (on August 27, 2007)
and 350,000 (250,000 on August 27, 2007 and 100,000 on December 20, 2007)
options, respectively. In accordance with the 2004 Stock Option Plan, the Board
of Directors approved both parties having a note receivable for the exercise
values of $200,000 and $262,500, respectively, with a term of two
years.
The
Company has received $600,000 from warrant exercises subsequent to December31,2007 under two separate warrant conversions at a weighted average price of
$3.55
per share. In addition, the Company converted $200,000 of senior secured
debentures at $4.00 per share into equity (additional paid-in
capital).
Item
6. Selected Financial Data.
The
following table sets forth our selected financial data. The historical financial
data for each of our fiscal years in the three periods ended December 31, 2007
are derived from our audited consolidated financial statements. All periods
presented have been audited. This information should be read in conjunction
with
the consolidated financial statements included elsewhere in this report and
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operation.
This
report on Form 10-K contains forward-looking statements within the meaning
of
Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the
Securities Act of 1934, as amended, that involve substantial risks and
uncertainties. These forward-looking statements are not historical facts, but
rather are based on current expectations, estimates and projections about our
industry, our beliefs and our assumptions. Words such as “anticipate”,
“expects”, “intends”, “plans”, “believes”, “seeks” and “estimates” and
variations of these words and similar expressions are intended to identify
forward-looking statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties and other factors, some
of
which are beyond our control and difficult to predict and could cause actual
results to differ materially from those expressed or forecasted in the
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this Form 10-K.
Investors should carefully consider all of such risks before making an
investment decision with respect to the Company’s stock. The following
discussion and analysis should be read in conjunction with our financial
statements and summary of selected financial data for Alternative Construction
Technologies, Inc. Such discussion represents only the best present assessment
from our Management.
DESCRIPTION
OF COMPANY:
The
Company is a management company that currently operates five wholly-owned
subsidiaries, Alternative Construction Manufacturing of Tennessee, Inc., f/k/a
Alternative Construction Technologies Corporation (“ACMT”), an entity, which
manufactures the ACTech® Panel, Alternative Construction Design, Inc. (“ACD”),
Alternative Construction Consulting Services, Inc. (“ACCS”), Modular Rental and
Leasing Corporation (“MRL”), and Alternative Construction by Revels, Inc.
(“ACR”), and three majority-owned subsidiaries, Alternative Construction Safe
Rooms, Inc., f/k/a Universal Safe Structures, Inc. (“ACSR”), Alternative
Construction by ProSteel Builders, Inc., f/k/a ProSteel Builders Corporation
(“ACP”), and Alternative Construction by Ionian, Inc., f/k/a Ionian
Construction, Inc. (“ACI”). ACSR is a seller of the patented Universal Safe
Room™, ACP is a general contractor offering building solutions utilizing the
ACTech® Panel System in Louisiana, Mississippi and Georgia, ACI is a residential
developer using the ACTech® Panel System in Tennessee, and ACR is a residential
and commercial developer using the ACTech® Panel System in Florida. The Company
maintains a wholly-owned, non-profit entity, Future of Building Institute,
Inc.
(“FBII”). Subsequent to the period of this report, the Company formed a
majority-owned subsidiary, Solar 18 ACTech Panel, Inc. (“Solar 18”) and a
wholly-owned subsidiary, Alternative Construction Manufacturing of Florida,
Inc.
(“ACMF”).
OVERVIEW:
The
Company is a manufacturing, development, and ancillary services company engaged
in the research, development and marketing of proprietary products for the
construction industry. We manufacture and distribute the ACTech® Panel, a
structural insulated panel (SIP), throughout the United States. Our products,
development expertise and ancillary services are marketed through our internal
sales staff and by manufacturer representatives.
Total
revenues increased to $12,960,008 for the year ended December 31, 2007 from
$8,634,349 for the year ended December 31, 2006. The increase of $4,325,659
or
50.1% is a direct result of the Company’s acquisition of ACI and ACR on May 16,2007 and August 27, 2007, respectively and the revenues generated from its
ancillary services offered under ACCS and ACD. The revenue growth is directly
related to the Company’s diversification as a product supplier to a systems
provider that incorporates all elements of construction to include complete
shells, modular facilities, development, consulting, design, architecture and
engineering.
26
Overall
cost of sales was $8,585,310 and $7,330,809 for the years ended December 31,2007 and 2006, respectively. As a percent of revenue, the cost of sales
decreased from 84.9% to 66.2%, for the year ended December 31, 2006 as compared
to the year ended December 31, 2007. The decrease is primarily due to the
expansion of services offered by the Company to include design, consulting,
and
component sales. The revenue generated through ancillary services, which has
a
low cost of sales represented 15.4% of total revenue, therefore the impact
was
significant in the overall reduction of cost of sales. Extracting the
impact of these new services, the cost of sales was 73.8% as a percent of total
revenue, which represents a substantial 11.1% decrease from the year ended
December 31, 2006, even though overall construction costs were on the
rise.
The
cost
of sales and the percent of consolidated cost of sales for the year ended
December 31, 2007, by segment, are as follows: Manufacturing Division,
$2,830,339 (33.0%) which is attributed solely to ACMT, Ancillary Services
Division $510,369 (6.0%) and Development Division $5,529,511 (64.4%) of which
19.8%, 40.9%, and 3.7% is attributed to cost of sales associated with ACP,
ACI,
and ACR, respectively. The difference between the reported cost of sales and
the
respective segments is the result of intercompany eliminations.
Gross
profit was $4,374,699 and $1,303,540 for the years ended December 31, 2007
and
2006, respectively. As a percent of revenue, gross profit was 33.8% and 15.1%
for the years ended December 31, 2007 and 2006, respectively.
Total
operating expenses decreased to $2,175,123 for the year ended December 31,2007
from $3,029,158 for the year ended December 31, 2006. This $854,035 or 28.2%
decrease was primarily attributable to the reduction in accounts receivable
factoring fees (from $307,156 to $100,714 for the year ended December 31, 2006
and 2007, respectively), insurance (from $243,123 to $139,447 for the year
ended
December 31, 2006 and 2007, respectively), professional fees (from $696,575
to
$534,014 for the year ended December 31, 2006 and 2007, respectively), bad
debt
expense (from $424,157 to $35,000 for the year ended December 31, 2006 and
2007,
respectively) offset with increases primarily in payroll and related expenses
(from $534,624 to $776,590 for the year ended December 31, 2006 and 2007,
respectively) and SEC related expenses (from $72,731 to $106,321 for the year
ended December 31, 2006 and 2007, respectively).
The
operating expenses and the percent of consolidated operating expenses for the
year ended December 31, 2007, were contributed as follows: Manufacturing
Division, $734,434 (33.8%) attributed solely to ACMT, Ancillary Services
Division, $10,786 (0.5%), Construction Division, $661,172 (30.4%) with $535,302
(24.6%) attributed to ACP, and Corporate, $768,731 (35.3%).
Manufacturing
Division
Manufacturing
Division revenue decreased from $6,035,927 to $3,916,059 (decrease of
$2,119,868) for the years ended December 31, 2006 and 2007, respectively. The
decrease of 35.1% is related to the Company’s decision to incorporate a system
provider solution that includes design, product supply, and build services,
which provides a greater source of revenue, but a longer term of delivery.
Additionally, the decrease in funding for school classrooms in Florida
attributed to the significant decrease. With the expected downturn in public
opinion concerning construction, the Company strategically elected to
incorporate a systems approach to its revenue generation. As such, the Company
currently utilized less than 5% of its potential manufacturing capability.
As
the Company begins to add on specific projects it has been working on, the
growth of the Manufacturing Division’s revenue will be proportional. The Company
projects the Manufacturing Division to represent approximately 25% of the
overall revenue generation in the future.
In
addition, the decrease in federal and state school funding and approved
construction projects, which directly represented 52.2% of the Company’s total
revenue in 2006, attributed to the manufacturing decline. Revenue generated
from
education projects represented 18.3% of total revenue for 2007. The Company
has
seen an increase in contract awards for school projects in the first quarter
of
2008 and projects to see an overall increase in the sector beginning in the
second quarter of 2008.
The
manufacturing cost (including structural insulated panels and component parts)
recognized a lower cost of sales percentof
72.3%
in 2007 compared to 80.4% in 2006. The manufacturing operation has diversified
its supplier base while achieving lower raw material pricing even as steel
prices escalated in the marketplace. While this resulted in a reduced percent
of
cost of revenues, the decrease was offset by the effect of the downtime as
discussed due to the restructuring and modifications required by the testing
of
new raw materials. During the downtime in September 2007, the fixed costs
associated with the manufacturing process; payroll, depreciation and other
applicable expenses, continued while not being offset by
revenue.
Ancillary
Services Division
The
revenue attributed through the design, architectural, engineering, safe rooms
and consulting services represented $2,035,390 (15.7% of the total revenue)
in
2007. While the Company does not actively solicit business opportunities through
its ancillary services, it is a key component to the overall success of the
Company as a whole. Coupled with the favorable profit margins, our Ancillary
Services Division provides the Company with an entry point into panel sales,
system sales, and construction sales.
27
The
Ancillary Services Division cost of sales percentwas
25.1%
for 2007.
Development
Division
The
revenue attributed to the Development Division was $7,293,468 (56.3% of the
total revenue) in 2007 as compared to $3,023,897 in 2006 (141.2% increase in
revenue). The Company made two strategic acquisitions in 2007 that increased
revenue by $4,449,753 (by ACI representing 36.8% of the total revenue and 128.5%
of the increase), $431,929 (by ACR representing 3.6% of the total revenue and
12.5% of the increase).
ACP’s
revenue decreased from $3,023,897 to $2,411,786 (representing 19.9% of the
overall revenue, 33.1% of the Development Division revenue, but an overall
decrease of $612,111) for the years ended December 31, 2006 and 2007,
respectively. The Company continues to evaluate the operations of ACP. The
Company has reduced the management staff and general contractors. It has one
pending contract yet to commence. Without additional contracts, the Company
will
evaluate the potential to cease its operation in 2008. This is reflective of
the
current economy and the respective building market conditions in the Atlanta,
Georgia area.
The
Development Division, which includes commercial, residential, remodels, and
modular units cost, has a higher cost of sales percent (75.8%) as compared
to
the consolidated percent, as expected. As the Company acquired two of the
construction companies in 2007, it has no basis in which to evaluate its overall
cost of sales. ACP’s cost of sales decreased from 91.6% to 70.3% of revenue for
the years ended December 31, 2006 and 2007, respectively, which the company
believes was a direct impact on the reduced cost of the panel system and
increased efficiencies in construction techniques.
The
operating expenses and the percent of consolidated operating expenses for the
year ended December 31, 2007 for ACP was $535,302 (24.6%) of the overall
operating expenses and 81.0% of the operating expenses of the Development
Division segment. The overall operating expenses incurred by management at
ACP
were disproportionate to the overall operations of the Development Division
segment. The Company took an aggressive approach beginning in July 2007 when
it
started reducing the overall cost associated with the operation in ACP. The
Company has subsequently reduced the staff to one person. Upon implementation
of
construction with the current contract, management will utilize subcontractors
to complete the project. The Company will make no additional hires until it
has
determined that a positive market outlook for the Atlanta, Georgia region
exists.
Liquidity
and Capital Resources
As
of
December 31, 2007, the Company had a working capital surplus of $2,149,575.
Net
income was $1,603,261 for the year ended December 31, 2007. The Company
generated a negative cash flow from operations of $729,949 for the year ended
December 31, 2007. The negative cash flow from operating activities for the
period is primarily attributable to the Company's increase in accounts
receivables, $1,322,681, long-term receivable, $1,000,000, prepaid expenses
and
other current assets, $884,226, and costs in excess of billings on uncompleted
contracts, $262,464, offset by the increase in due to shareholder, $212,827,
and
decreases in inventories, $282,160, deferred revenue, $103,626, billings in
excess of costs on uncompleted contracts, $70,334 and due from factor, net,
$61,196.
Cash
flows used in investing activities for the year ended December 31, 2007
consisted of the acquisition of $40,785 of manufacturing equipment offset by
cash received from acquired business of $11,282.
Cash
flows provided by financing activities for the year ended December 31, 2007
was
$943,165 primarily due to the financing completed on June 30, 2007 offset by
the
repayment of notes payable, lines of credit and capital leases, $2,219,527,
and
the purchase of treasury stock, $1,999,799.
The
Company had a net increase in cash of $183,713 for the year ended December31,2007 compared to a decrease of $116,847 for the year ended December 31,2006.
On
June30, 2007, the Company completed the placement of Senior Secured Convertible
Debentures with a group of private investors. The net proceeds of $4,000,000
were used to pay-off debt, pay down payables and to provide working capital
to
fund the Company’s marketing plan. See Note 4 - Balance Sheet Details in the
Consolidated Financial Statements included in Item 8 of this annual
report.
By
adjusting its operations and development to work within the Company’s financing
and budget, management believes it has sufficient capital resources to meet
projected cash flow needs through the next twelve months. The Company has
completed a restructuring of its vendors to diversify while decrease its cost
of
sales as a percent of revenue along with a marketing effort and strategic
acquisitions that should provide a diversification in revenue. However, if
thereafter, the pricing of commodities and other raw materials increase
dramatically, sales grow rapidly, and we are not successful in generating
sufficient liquidity from operations or in raising sufficient capital resources,
on terms acceptable to us, this could have a material adverse effect on our
business, results of operations, liquidity and financial condition.
28
The
effect of inflation on the Company's revenue and operating results was not
significant. The Company's operations are located primarily in the southeast
United States and the Gulf coast and there are no seasonal aspects that would
have a material effect on the Company's financial condition or results of
operations.
Critical
Accounting Policies
The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States (“GAAP”) requires us to make estimates
and judgments that affect our reported assets, liabilities, revenues, and
expenses, and the disclosure of contingent assets and liabilities. We base
our
estimates and judgments on historical experience and on various other
assumptions we believe to be reasonable under the circumstances. Future events,
however, may differ markedly from our current expectations and assumptions.
While there are a number of significant accounting policies affecting our
consolidated financial statements; we believe the following critical accounting
policies involve the most complex, difficult and subjective estimates and
judgments:
·
Revenue
Recognition
·
Product
Warranty Reserve
·
Inventories
·
Allowance
for uncollectible accounts
·
Goodwill
impairment
·
Fair
value of Stock-based compensation
Revenue
Recognition
The
Company recognizes revenue when persuasive evidence of an arrangement exists,
the price to the customer is fixed, collectibility is reasonably assured and
title and risk of ownership is passed to the customer, which is usually upon
delivery. However, in limited circumstances, certain customers
traditionally have requested to take title and risk of ownership prior to
shipment. Revenue for these transactions is recognized only
when:
·
Title
and risk of ownership have passed to the
customer;
·
The
Company has obtained a written fixed purchase
commitment;
·
The
customer has requested in writing the transaction be on a bill and
hold
basis;
·
The
customer has provided a delivery
schedule;
·
All
performance obligations related to the sale have been
completed;
·
The
modular unit has been processed to the customer’s specifications, accepted
by the customer and made ready for shipment;
and
·
The
modular unit is segregated and is not available to fill other
orders.
The
remittance terms for these “bill and hold” transactions are consistent with all
other sales by the Company.
In
the
event that the Company’s arrangements with its customers include more than one
product or service, the Company determines whether the individual revenue
elements can be recognized separately in accordance with Financial Accounting
Standards Board (FASB) Emerging Issues Task Force No. 00-21 (EITF 00-21),
Revenue
Arrangements with MultipleDeliverables,
EITF
00-21 addresses the determination of whether an arrangement involving more
than
one deliverable contains more than one unit of accounting and how the
arrangement consideration should be measured and allocated to the separate
units
of accounting.
The
Company’s Development Division contracts to build commercial, residential, and
other infrastructures to its customers, none of which are related to the
Company. As such, they recognize their 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 reasonably dependable estimates.
Additionally, contracts executed by the Company and its customers include
provisions that clearly specify the enforceable rights of our services that
are
provided to 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.
29
Product
Warranty Reserve
Currently,
the Company has a standard one year warranty on manufacturing defects on the
ACTech® Panel. The development projects carry a standard one year warranty
period on construction defects. The cost of replacing defective products and
product returns have been immaterial and within management’s expectations. In
the future, when the company deems warranty reserves are appropriate that such
costs will be accrued to reflect anticipated warranty costs.
The
Company’s Development Division contracts to build commercial, residential, and
other infrastructures to its customers, none of which are related to the
Company. As such, they recognize their 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 reasonably dependable estimates.
Additionally, contracts executed by the Company and its customers include
provisions that clearly specify the enforceable rights of our services that
are
provided to 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.
Inventories
We
value
our inventories, which consists of raw materials, work in progress, and finished
goods, at the lower of cost or market. Cost is determined on the first-in,
first-out method (FIFO) and includes the cost of merchandise and freight for
manufacturing inventories, and at the actual costs for development projects.
A
periodic review of inventory quantities on hand is performed in order to
determine if inventory is properly positioned at the lower of cost or market.
Factors related to current inventories such as future consumer demand and trends
in the Company's core business, current aging, current and anticipated wholesale
discounts, and class or type of inventory is analyzed to determine estimated
net
realizable values. A provision would be recorded to reduce the cost of
inventories to the estimated net realizable values, if required. Any significant
unanticipated changes in the factors noted above could have a significant impact
on the value of our inventories and our reported operating results.
Allowance
for Uncollectible Accounts
We
are
required to estimate the collectibility of our trade receivables. A considerable
amount of judgment is required in assessing the realization of these receivables
including the current creditworthiness of each customer and related aging of
the
past due balances. In order to assess the collectibility of these receivables,
we perform ongoing credit evaluations of our customers' financial condition.
Through these evaluations we may become aware of a situation where a customer
may not be able to meet its financial obligations due to deterioration of its
financial viability, credit ratings or bankruptcy. The reserve requirements
are
based on the best facts available to us and are reevaluated and adjusted as
additional information is received. Our reserves are also based on amounts
determined by using percentages applied to certain aged receivable categories.
These percentages are determined by a variety of factors including, but are
not
limited to, current economic trends, historical payment and bad debt write-off
experience. We are not able to predict changes in the financial condition of
our
customers and if circumstances related to our customers deteriorate, our
estimates of the recoverability of our receivables could be materially affected
and we may be required to record additional allowances. Alternatively, if we
provided more allowances than are ultimately required, we may reverse a portion
of such provisions in future periods based on our actual collection experience.
As of December 31, 2007, we recorded an additional $10,850 reserve.
Goodwill
Impairment
In
accordance with Statement of Financial Accounting Standards No. 142,
Goodwill
and Other Intangible Assets, goodwill
is evaluated for potential impairment annually, generally during the fourth
quarter, by comparing the fair value of a reporting unit to its carrying value,
including recorded goodwill. If the carrying value exceeds the fair value,
impairment is measured by comparing the derived fair value of goodwill to its
carrying value, and any impairment determined would be recorded in the current
period. To date there has been no impairment of the Company’s recorded
goodwill.
Fair
Value of Stock-based Compensation
Under
its
Year 2004 Stock Option Plan (the “Plan”), the Company grants stock options for a
fixed number of shares to employees and directors with an exercise price equal
to the fair market value of the shares at the date of grant. The Company adopted
SFAS 123(r), Share-Based
Payments,
in the
first quarter of fiscal 2006. Prior to fiscal 2006, the Company had adopted
the
disclosure-only provision of SFAS 123, Accounting
for Stock-Based Compensation,
as
amended by SFAS 148, Accounting
for Stock-Based Compensation, Transition and Disclosure,
which
permitted the Company to account for stock option grants in accordance with
APB
Opinion No. 25, Accounting
for Stock Issued to Employees.
Under
APB 25, compensation expense is recorded when the exercise price of the
Company’s employee stock option is less than the market price of the underlying
stock at the date of grant.
30
The
provisions of SFAS 123(r) require the Company to estimate the fair value of
each
option grant and employee stock purchase plan. The Company uses the
Black-Scholes option pricing model to estimate these fair values. 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 life
of
its stock options by applying the simplified method set out in SEC Staff
Accounting Bulletin No. 107 (SAB 107). The simplified method defines the
expected term of an option as the average of the contractual term of the options
and the weighted average vesting period for all option tranches.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
Not
applicable.
31
Item
8. Financial Statements and Supplementary Data.
Index
Page
Report
of Independent Registered Public Accounting Firm
Alternative
Construction Technologies, Inc. and Subsidiaries
We
have
audited the accompanying consolidated balance sheets of Alternative Construction
Technologies, Inc. (formerly known as Alternative Construction Company, Inc.)
and Subsidiaries as of December 31, 2007 and 2006, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
years ended December 31, 2007 and 2006. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these financial statements based on our audit.
We
conducted our audits in accordance with the 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. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audits included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, 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 financial position of Alternative Construction
Technologies, Inc. and Subsidiaries as of December 31, 2007 and 2006, and the
results of their operations and their cash flows for each of the years ended
December 31, 2007 and 2006, in conformity with accounting principles generally
accepted in the United States of America.
Supplemental
Schedule of Noncash Investing and Financing
Activities:
The
Company acquired 80% of Ionian Construction, Inc. on May 17, 2007
for
$800,000 of the Company's common stock. On August 28, 2007, the
Company
acquired 100% of Revels Construction, LLC for $1,000,000 of the
Company's
common stock. In conjunction with
Fair
value of net assets acquired
$
1,525,773
Goodwill
2,355,802
Minority
Interest in Subsidiary
133,912
Liabilities
assumed
(2,215,487
)
Common
Stock issued
$
1,800,000
During
2007, two officers of the Company exercised stock options of 800,000
and
350,000, respectively.
In accordance with the 2004 Stock Option Plan, the Board of Directors
approved
both parties having a note receivable for the exercise values of
$200,000
and $262,500,
respectively, with a term of two
years.
On
September 29, 2006, warrants were exercised for 750,000 shares
of the
Company's common
stock by five shareholders for a total of $1,437,500 and were recorded
as stock
subscriptions receivable. In 2007, $1,305,260 (597,100 shares)
of the
stock subscriptions
were cancelled as they remained
unpaid.
See
accompanying notes to consolidated financial
statements.
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
and Operation
Alternative
Construction Technologies, Inc. (“ACCY” or the “Company”), was formerly known as
Alternative Construction Company, Inc., a Florida corporation formed in 2004.
In
July 2007, the Board of Directors with majority consent of its shareholders
approved the name change. Reference to ACCY will include the period prior to
the
name change.
The
Company operates a manufacturing facility producing the patented ACTech® Panel
System, a structural insulated panel (SIP), a commercial and residential
developer in Georgia, Louisiana and Mississippi, residential developers in
Tennessee and Florida, and a promoter of the patented Universal Safe Room™.
Other services provided include design, consulting and other construction
related services.
Basis
of Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries and have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”). All significant intercompany
accounts and transactions have been eliminated.
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Alternative Construction Manufacturing of Tennessee,
Inc., f/k/a Alternative Construction Technologies Corporation (“ACMT”),
Alternative Construction by Revels, Inc. (“ACR”), Future Builders Institute,
Inc. (“FBII”), Alternative Construction Consulting Services, Inc. (“ACCS”) and
Alternative Construction Design, Inc. (“ACD”), and its majority-owned
subsidiaries, Alternative Construction Safe Rooms, Inc., f/k/a Universal Safe
Structures, Inc. (“USS”), Alternative Construction by ProSteel Builders, Inc.,
f/k/a ProSteel Builders Corporation (“ACP”), and Alternative Construction by
Ionian, Inc., f/k/a Ionian Construction, Inc. (“ACI”).
Accounting
Changes
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, Fair
Value Measurements (SFAS
157). SFAS 157 provides a common definition of fair value and establishes a
framework to make the measurement of fair value in generally accepted accounting
principles more consistent and comparable. SFAS 157 also requires expanded
disclosures to provide information about the extent to which fair value is
used
to measure assets and liabilities, the methods and assumptions used to measure
fair value, and the effect of fair value measures on earnings. SFAS 157 is
effective for the Company’s 2009 fiscal year, although early adoption is
permitted. The Company is currently assessing the potential effect of SFAS
157
on its financial statements.
In
July
2006, the FASB issued FASB interpretation No. 48, Accounting
for Uncertainty in Income Taxes
(FIN
48). FIN 48 clarifies the accounting for income taxes by prescribing a minimum
probability threshold that a tax position must meet before a financial statement
benefit is recognized. The minimum threshold is defined in FIN 48 as a tax
position that is more likely than not to be sustained upon examination by the
applicable taxing authority, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. The tax
benefit to be recognized is measured as the largest amount of benefit that
is
greater than fifty percent likely of being realized upon ultimate settlement.
FIN 48 must be applied to all existing tax position upon initial adoption.
The
cumulative effect of applying FIN 48 at adoption is to be reported as an
adjustment to beginning retained earnings for the year of adoption. FIN 48
is
effective for the Company’s 2008 fiscal year. While the Company is currently
assessing the potential effect of FIN 48, it does not anticipate any impact
to
beginning retained earnings in fiscal year 2008.
In
accordance with Statement of Financial Standards (SFAS) No. 144, Accounting
for the Impairment of Disposable Long-Lived Assets, the
Company will record impairment losses on long-lived assets used in operations
when events and circumstances indicate that assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less
than
the carrying amount of those assets. To date there has been no impairment of
the
Company’s long-lived assets.
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
continued
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
Concentration
of Credit Risk and Significant Customers
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 Company sells. The Company establishes an
allowance for doubtful accounts when events and circumstances regarding the
collectability of its receivables warrant based upon factors such as the credit
risk of specific customers, historical trends, other information and past bad
debt history. The outstanding balances are stated net of an allowance for
doubtful accounts.
For
the
year ended December 31, 2007, sales to the Company’s primary three customers
accounted for approximately 54.5% of revenues and 57.8% of accounts receivable
as of December 31, 2007. For the year ended December 31, 2006, sales to the
Company’s primary two customers accounted for approximately 77.3% of revenues
and 65.0% of accounts receivable.
Impairment
of Goodwill
In
accordance with Statement of Financial Accounting Standards No. 142,
Goodwill
and Other Intangible Assets, goodwill
is evaluated for potential impairment annually, generally during the fourth
quarter, by comparing the fair value of a reporting unit to its carrying value,
including recorded goodwill. If the carrying value exceeds the fair value,
impairment is measured by comparing the derived fair value of goodwill to its
carrying value, and any impairment determined would be recorded in the current
period. To date there has been no impairment of the Company’s recorded
goodwill.
Net
Earnings (Loss) Per Share
In
accordance with
SFAS
No. 128, Earnings
Per Share,
basic
net earnings (loss) per common share is computed by dividing the net earnings
(loss) for the period by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per share is computed
using the weighted average number of common and dilutive common stock equivalent
shares outstanding during the period. Dilutive common stock equivalent shares
consist of Series A, Series B and Series C convertible preferred stock,
convertible debentures, stock options and warrant common stock equivalent shares
which are not utilized when the effect is anti-dilutive.
Revenue
Recognition
The
Company recognizes 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 accrue a provision
for estimated returns concurrent with revenue recognition.
Warranty
Reserve
The
Company provides warranties for the ACTech® Panel and development projects.
Historically, the warranty costs have not been significant. The Company
maintains a reserve for warranty related issues and evaluates it on a periodical
basis or as necessary.
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Sales
for
ACMT and ACSR 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.
ACP, ACI and ACR contract to build commercial, residential, and other
infrastructures to its customers, none of which are related to the Company.
As
such, they recognize their 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 reasonably dependable estimates. Additionally, contracts
executed by ACP, ACI and ACR and their respective customers include provisions
that clearly specify the enforceable rights of our services that are provided
to
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. ACD and ACCS contract to provide services with their
customers. The sales are recognized at the time of completion of their
respective services.
Freight
revenue for ACMT and ACSR 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.
Segment
Information
In
accordance with the provisions of SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, the
Company is required to report financial and descriptive information about its
reportable operating segments. The Company identifies its operating segments
as
divisions based on how management internally evaluates separate financial
information, business activities and management responsibility. The Company
segments and the subsidiaries associated with each segment are as
follows:
Manufacturing
Ancillary
Services
Development
Alternative Construction Manufacturing
of
Tennessee, Inc.
Alternative Construction
Design, Inc.
Alternative
Construction by Revels, Inc.
Alternative
Construction Manufacturing of Florida, Inc. (a)
Alternative
Construction Consulting Services, Inc.
Alternative
Construction by Ionian, Inc.
Modular
Rental and Leasing, Inc.
Alternative
Construction by ProSteel Builders, Inc.
NOTE
2 - RESTATEMENT OF PRIOR PERIOD CONSOLIDATED FINANCIAL
STATEMENTS
Balance
Sheet
In
connection with subsequent reviews of the Company’s financial statements for the
year ended December 31, 2006, certain errors associated with the Company’s
recognition of receivables associated with warrants for the third quarter of
2006, the year ended December 31, 2006, and the first and second quarter of
2007
were required to be restated. The error related to the recording of the
receivable as a current asset, not as a reduction of equity as a subscription
receivable. The errors, in all cases, represented overstatements of current
assets and stockholders’ equity.
On
July30, 2007, the Company formed ACD as a wholly-owned subsidiary. ACD primarily
contracts with customers in association with the various design aspects of
building including engineering and architecture.
Alternative
Construction Consulting Services, Inc.
On
July30, 2007, the Company formed ACCS as a wholly-owned subsidiary. ACCS primarily
contracts with customers for development of joint ventures, research, education
and training, and commercial and residential developments both domestically
and
internationally. Subsequent to the reported period, on January 2, 2008, ACCS
entered into a joint venture with Atlan International Holdings, Inc. (“Atlan”).
See Solar 18 ACTech Panel, Inc. (“Solar 18”) discussion in Note 3 - Acquisitions
and New Subsidiaries Formed.
Alternative
Construction by Ionian, Inc.
On
May16, 2007, ACP acquired 80% of the outstanding stock of ACI, a privately-held
company (see Note 5 - Related Parties). The purchase agreement was $800,000
payable in restricted common stock of the Company valued at the price of $6.90
per share. On July 1, 2007, the ownership of ACI was transferred from ACP to
ACCY.
In
accordance with SFAS No. 141, Business
Combinations,
the
acquisition of Ionian Construction, Inc. has been accounted for under the
purchase method of accounting. The purchase price was allocated to Ionian’s
tangible assets acquired and liabilities assumed based on their estimated fair
values 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.
The following table summarizes the activity of the acquired company at May16,2007:
STATEMENT
of OPERATIONS for the Period JANUARY 1 - MAY 16, 2007:
Sales
$
369,355
Cost
of Sales
573,908
Gross
Profit
(204,553
)
Operating
Expenses
220,916
(Loss)
from Operations
(425,469
)
Other
Income / (Expense)
(15,349
)
Net
(Loss)
($410,120
)
The
purchase price of ACI was $800,000. The following table summarizes the estimated
fair values of the assets acquired and liabilities assumed at the date of
acquisition:
NOTE
3 - ACQUISITIONS AND NEW SUBSIDIARIES FORMED - continued
On
July27, 2007, as part of the Company’s marketing plan and to enhance efforts to more
clearly define its various operating divisions, the name change from Ionian
Construction, Inc. to Alternative Construction by Ionian, Inc., was made.
Alternative
Construction by Revels, Inc.
On
August27, 2007, the Company acquired the outstanding stock of Revels Construction,
LLC
(“Revels”), a privately-held company. The purchase agreement was $1,000,000
payable in restricted common stock of the Company valued at the price of $7.20
per share.
In
accordance with SFAS No. 141, Business
Combinations,
the
acquisition of Revels has been accounted for under the purchase method of
accounting. The purchase price was allocated to Revels’ tangible assets acquired
and liabilities assumed based on their estimated fair values 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. The following table
summarizes the activity of the acquired company at August 27, 2007:
STATEMENT
of OPERATIONS for the Period JANUARY 1 - AUGUST 27, 2007:
Sales
$
565,005
Cost
of Sales
493,951
Gross
Profit
71,054
Operating
Expenses
33,276
Income
from Operations
37,778
Other
Income / (Expense)
-
Net
Income
$
37,778
The
purchase price of ACR was $1,000,000. The following table summarizes the
estimated fair values of the assets acquired and liabilities assumed at the
date
of acquisition:
NOTE
3 - ACQUISITIONS AND NEW SUBSIDIARIES FORMED - continued
Future
Builders Institute, Inc.
On
May 9,2007, the Company formed a not-for-profit Florida corporation, Future Builders
Institute, Inc. (“FBII”), for the purposes of attracting and combining
"greentech" environmental construction technologies. The FBII's intent is to
seek, utilize and promote novel materials and technologies aimed at improving
the quality of occupancy by offering total building solutions. The FBII will
focus upon the economic and social benefits of certain combinations of these
alternative technologies. The FBII will seek to include sustainable, socially
responsible, energy efficient and environmentally friendly technologies and
principals aimed at reducing the total monthly costs of living. The FBII will
be
funded by ACCY together with other Industry participants for the research,
innovation and implementation of these combined solutions to the construction
industry.
Modular
Rental and Leasing, Inc.
On
November 28, 2007, the Company acquired Modular Rental and Leasing, Inc.
(“MRL”), for the purpose of providing leasing opportunities to the customers of
the Company. The company was acquired from Avante for $800.
Alternative
Construction Manufacturing of Florida, Inc.
Subsequent
to the reported period, on February 20, 2008, the Company formed Alternative
Construction Manufacturing of Florida, Inc. (“ACMF”), for the purpose of future
manufacturing activities in Florida.
Solar
18 ACTech Panel, Inc.
Subsequent
to the reported period, on January 2, 2008, the Company and ACCS formed Solar
18
ACTech Panel, Inc., for the purpose of a joint venture with Atlan International
Holdings, Inc. The Company owns 80% of Solar 18.
The
notes
receivable are for GAMI and Bruce Harmon (see Note 9 - Stock Option Plan).
The
long-term receivable reflects a
right
of participation fee in relationship with Atlan and the Solar 18 joint venture
(see Note 3 - Acquisitions and New Subsidiaries Formed).
On
June30, 2007, the Company agreed to sell $4,347,826 million aggregate principal
amount of Senior Secured Convertible Debentures due 2009 ("Debentures"),
pursuant to the terms of a Securities Purchase Agreement dated as of June 30,2007, among the Company and the purchasers, BridgePointe Master Fund, Ltd.,
CAMOFI Master LDC and CAMHZN Master LDC (collectively "Debenture Purchasers"),
with net funding of $4,000,000 (after an 8% original issue discount) received
at
closing.
The
Debentures will be convertible, at the option of the holder at any time on
or
prior to maturity, into shares of the Company’s common stock, at a conversion
price of $4.00 per share, provided the Company meets its milestones as defined
in the Debenture Purchase Agreement. Interest is payable monthly at the rate
of
ten percent (10%) per annum beginning July 30, 2007. The maturity date of the
Debentures is June 30, 2009. Subsequent to the periods covered by this report,
CAMOFI Master LDC converted $150,000 of its debt into equity and CAMHZN Master
LDC converted $50,000 of its debt into equity.
In
connection with the agreed issuance of Debentures, the Company also issued
Common Stock Purchase Warrants ("Warrants") also dated June 30, 2007 to the
Debenture Purchasers. The Warrants allow the purchasers to acquire up to one
hundred and fifty percent (150%) of the shares issuable upon conversion of
the
Debentures, at an exercise price of $4.00 per share. Dinosaur Securities, LLC,
Christopher Moore, and Arthur Whitcomb, the agents for the transaction, received
61,142, 91,712, and 91,711 warrants, respectively, in association with the
transaction. The Company has agreed to file a registration statement with the
Securities and Exchange Commission ("SEC") covering resale of the Company’s
common stock issuable upon conversion of the Debentures or exercise of the
Warrants. Also in connection with the Purchase Agreements, the Company entered
into Lock-Up Agreements with certain of its stockholders, dated as of June30,2007, pursuant to which such stockholders have agreed not to sell or dispose
of
Company securities owned by them. The Company filed a registration statement
on
August 27, 2007 receiving a response from the SEC on September 25, 2007. The
Company filed a Form S-1/A response on February 8, 2008 and is awaiting a
response.
The
Debentures are secured by all of the assets of the Company and its subsidiaries
and will have priority in right of payment with all of its existing unsecured
and unsubordinated indebtedness.
On
June30, 2007, as a condition of the financing the Company completed with Debenture
Purchaser, the Company’s Revolving Credit Agreement with Avante was to be closed
out. As of June 30, 2007, due to the retirement of the Series B preferred stock
and the open balance on the line of credit, the Company owed Avante $783,483.
Avante issued the Company a Waiver of Default letter stating that the Company
would not be required to pay the net balance as it would be detrimental of
the
Company’s working capital. The balance owed Avante is recorded as “Due to
Shareholder” and has a balance of $212,827 at December 31, 2007. To ensure
compliance, Avante issued the Company a Waiver of Default letter with an
expiration of March 31, 2008. The letter stipulates that in the event Avante
determines that the Company is in default, the Company would be required to
remedy the balance with full payment within ten days or issue 4,020,000 shares
of its common stock. The 4,020,000 shares would reflect the two for one
conversion rate of the original Series B preferred stock.
Capitalized
lease obligations consist of the following:
The
Company leases a truss building system from Avante Leasing Corporation (see
Note
7 - Related Parties). The terms of the agreement include a five year term,
15.53% interest, with a $1 purchase price at the end of the term. The lease
expires on September 30, 2011. Monthly lease payments are $2,321.
The
Company leases office space in Melbourne, Florida from GAMI, LLC (“GAMI” - See
Note 7 - Related Parties). The terms of the agreement are monthly payments
of
$4,000 expiring May 31, 2012. There are two renewable five year
extensions.
The
Company operates primarily in three segments: manufacturing division (ACMT
and
ACMF), development division (Georgia -ACP, Tennessee - ACI, and Florida - ACR),
and ancillary services division (ACD, ACCS, ACSR, MRL, and Solar 18).
Information
concerning the revenues and operating income (loss) for the year ended December31, 2007 and 2006, and the identifiable assets for the four segments in which
the Company operates are shown in the following table:
On
July1, 2006, GAMI, a company owned and controlled by Michael W. Hawkins, the CEO
and
Chairman of the Company, and his wife, contracted with ACP for the construction
of an office building in Melbourne, Florida, which has various tenants
including, but not limited to, Avante Holding Group, Inc. (“Avante”) and the
Company. The contract was for $965,800. Contract amendments increased the price
to $1,267,230. Work on the contract began in October 2006. Construction was
completed as of June 30, 2007 and the contract was paid. The contract was
negotiated under a fair and reasonable terms, comparable to competitive
builders, and has been accounted for as an arms’ length
transaction.
On
October 1, 2006, Avante Leasing Corporation, a wholly-owned subsidiary of
Avante, leased a truss building system to ACMT. The terms of the agreement
include a five year term, 15.53% interest, with a $1 purchase price at the
end
of the period. This transaction was completed as the acquisition and financing
of the truss system needed the financial guarantee of Avante and Michael W.
Hawkins. As of December 31, 2007, the balance due to Avante Leasing Corporation
under this Agreement was $74,851.
On
May16, 2007, ACP acquired 80% of ACI, a contractor of residential homes in
Cleveland, Tennessee. The acquired shares of Ionian were owned by James Hawkins,
the brother of Michael W. Hawkins, the CEO and a Director of the Company. The
minority interest in Ionian is owned by GAMI. The acquisition of Ionian at
a
purchase price of $800,000 was made with the issuance of 115,942 shares of
the
Company’s common stock, based on the closing price on May 16, 2007 of
$6.90.
On
May16, 2007, the Company agreed with Avante and GAMI to acquire the outstanding
2,010,000 shares of Series B preferred stock (conversion value of 4,020,000
shares of Common Stock), split between Avante and GAMI, 950,000 and 1,060,000,
respectively, at a reduced value of $2,000,000 (approximately $.95 per share,
if
converted to common stock, approximately $.4975 per share). At the date of
the
agreement, the calculated fair market value of the outstanding shares (average
trading price) was $29,185,200.
On
May29, 2007, GAMI acquired five houses from ACI. ACI was acquired by the Company
on
May 16, 2007 as discussed in Note 3 - Acquisitions and Subsidiaries Formed.
The
sale of these houses was $1,054,500 and represented the listed sales price
to
the public. The balance due to Ionian in regards to this transaction was
transferred to ACCY as an offset to the balance due to GAMI from the retirement
of the Series B preferred stock.
On
June1, 2007, the Company leased office space for its corporate office from GAMI
for
$4,000 per month for five years. The lease has two renewable five year
periods.
On
June29, 2007, as a condition of the financing the Company completed with Debenture
Purchaser, as discussed in Note 4 - Balance Sheet Details; the Company’s
Revolving Credit Agreement with Avante was to be closed out. As of June 30,2007, due to the retirement of the Series B preferred stock and the open balance
on the line of credit, the Company owed Avante $783,483. Avante issued the
Company a Waiver of Default letter stating that the Company would not be
required to pay the net balance as it would be detrimental of the Company’s
working capital. The remaining balance payable to Avante is recorded as Due
to
Shareholder.
The
Exclusive Investment Banking Services Agreement and the Finder Agreement, both
dated October 24, 2004, and the Sales Commission Agreement, dated January 20,2005, all between the Company and Avante, were terminated as of June 30, 2007
as
a condition to the financing with Debenture Purchasers.
NOTE
8 - STOCKHOLDERS’ EQUITY
Common
Stock
On
July30, 2005, the Board of Directors, pursuant to Section 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
Company has 100,000,000 shares authorized, 7,968,561 shares issued and 7,951,911
shares outstanding at no par value at December 31, 2007. On December 27, 2007,
16,650 shares of common stock issued to two former consultants were surrendered
to the Company as part of the settlement for failure to pay their outstanding
note.
The
Company authorized, issued and has outstanding 1,500,000 Series A preferred
stock at $1.00 par value at December 31, 2007 and 2006. The Series A preferred
stock was issued to Paul Janssens in conjunction with the purchase by the
Company of ACMT and select assets of Quality Metals Systems, LLC. This stock
has
the conversion rights of one for one share of common stock.
The
Company has 3,500,000 authorized shares of Series B preferred stock at $0.0001
par value with no shares outstanding at December 31, 2007. The Series B
preferred stock was initially issued to GAMI and Avante in conjunction with
the
use of personal guarantees by Michael W. Hawkins, CEO and Chairman of the
Company and corporate guarantees by Avante. Michael W. Hawkins is a principal
shareholder in GAMI and Avante. The conversion rights were one for two shares
of
common stock. On May 16, 2007, the Company purchased the outstanding shares
of
Series B preferred stock.
The
Company has authorized 1,000,000 shares of Series C preferred stock at $0.0001
par value and has 377,358 shares issued and outstanding at December 31, 2007
and
2006. The Series C preferred stock was issued to New Millennium Entrepreneurs
and Avante in conjunction with an investment of $500,000 each. The $500,000
from
Avante relates to a conversion of debt associated with the line of credit
between Avante and the Company. The conversion rights are one for one shares
of
common stock. See Note 12 - Legal Proceedings.
Treasury
Stock
On
May16, 2007, the Company purchased 2,010,000 shares of Series B preferred stock
from Avante and GAMI for $2,000,000.
On
December 27, 2007, the Company received 16,650 shares of common stock as part
of
a settlement agreement with two former consultants.
NOTE
9 - STOCK OPTION PLAN
Under
its
Year 2004 Stock Option Plan (the “Plan”), the Company grants stock options for a
fixed number of shares to employees and directors with an exercise price equal
to the fair market value of the shares at the date of grant. The Company adopted
SFAS 123(r), Share-Based
Payments,
in the
first quarter of fiscal 2006. In accordance with the provisions of SFAS 123(r),
the Company has recognized compensation expense related to outstanding options
granted in fiscal 2007. No options were granted in fiscal 2006. Prior to fiscal
2006, the Company had adopted the disclosure-only provision of SFAS 123,
Accounting
for Stock-Based Compensation,
as
amended by SFAS 148, Accounting
for Stock-Based Compensation, Transition and Disclosure,
which
permitted the Company to account for stock option grants in accordance with
APB
Opinion No. 25, Accounting
for Stock Issued to Employees.
Under
APB 25, compensation expense is recorded when the exercise price of the
Company’s employee stock option is less than the market price of the underlying
stock at the date of grant.
Options
granted in fiscal 2005 had no weighted average fair value. For purposes of
computing pro forma net income, the Company estimates the fair value of each
option grant and employee stock purchase plan 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 by applying the simplified
method set out in SEC Staff Accounting Bulletin No. 107 (SAB 107). The
simplified method defines the expected term of an option as the average of
the
contractual term of the options and the weighted average vesting period for
all
option tranches.
The
weighted average assumptions used to value the 2005 option grants were as
follows:
Fiscal
2005
Expected
life (years)
3.0
Risk-free
interest rate
7.0
%
Volatility
1.0
%
Dividend
rate
0.0
%
Options
granted under the 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 or five varying annual
installments commencing at various times from the date of grant. In fiscal
2007,
the Company recorded compensation cost of $21,450 within operating expenses
related to stock options granted in 2007. As at December 31, 2007 total
compensation cost related to non-vested awards not yet recognized was $264,550
and is expected to be recognized over five years.
The
weighted average fair value at date of grant for options granted during fiscal
2007 was $2.86 per option. The fair value of each option at date of grant was
estimated using the Black-Scholes option pricing model with the following
weighted average assumptions for grants.
Fiscal
2007
Expected
life (years)
5.0
Risk-free
interest rate
4.4
%
Volatility
37.0
%
Dividend
rate
0.0
%
On
August27, 2007, GAMI and Bruce Harmon, a Director of the Company, exercised 800,000
and 250,000 options of the Company. On December 20, 2007, Bruce Harmon exercised
an additional 100,000 options. The Board of Directors approved as provided
by
the 2004 Stock Option Plan, the exercise value of $200,000 and $262,500,
respectively, to be recorded as a note receivable for up to two years or until
the shares associated with the options are sold.
There
are
currently 2,400,000 unissued options under the 2004 Stock Option
Plan.
The
following table summarizes information for stock options outstanding at December31, 2007:
Options
Outstanding
Options
Exercisable
Weighted-
Weighted-
Weighted-
Range
of
Number
Average
Average
Number
Average
Exercise
Outstanding
Remaining
Exercise
Exercisable
Exercise
Prices
@
12/31/07
in
years
Price
@
12/31/07
Price
$0.75
- $7.20
450,000
4.91
$
2.18
250,000
$
0.75
A
total
of 3,000,000 warrants were issued on August 1, 2005 to various
individuals/entities. These warrants were issued 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 issued consisted
of
500,000 at a $0.50 conversion rate, 500,000 at a $1.00 conversion rate, 500,000
at a $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.
Net
income (loss) applicable to common stockholders
$
1,603,261
$
(2,039,294
)
Stock
based employee compensation
Determined
under fair value based method for all awards
-
(5,000
)
Net
income - pro forma
$
1,603,261
$
(2,044,294
)
Net
income (loss) per share applicable to common stockholders as
reported:
Basic
$
0.22
$
(0.43
)
Diluted
$
0.14
$
(0.23
)
Net
income (loss) per share to common stockholders - pro
forma:
Basic
$
0.22
$
(0.43
)
Diluted
$
0.14
$
(0.23
)
On
September 29, 2006, 750,000 warrants were exercised, The exercised warrants
consisted of 50,000 at a $0.50 conversion rate, 100,000 at a $1.00 conversion
rate, 75,000 at a $1.50 conversion rate, 225,000 at a $2.00 conversion rate,
and
300,000 at a $2.50 conversion rate. The Company recorded a receivable, and
the
shares were issued for the 75,000 shares, 225,000 shares and 297,100 shares.
The
Company did not receive payment in a timely manner, and subsequently in 2007,
the stock was cancelled and the shares forfeited. The warrants remain unissued.
On
June30, 2007, the Company issued 1,874,999 warrants at a conversion rate of $4.00
in
conjunction with the issuance of convertible debentures. See Note 4 - Balance
Sheet Details. Also, on December 3, 2007, the Company issued 865,000 warrants
at
an average conversion price of $4.97 as an inducement to provide
financing.
A
summary
of warrant activity for years ended December 31, 2007 and 2006 is as
follows:
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:
Tax
expense (benefit) at the statutory rate of 35%
$
561,892
$
(713,753
)
State
income taxes, net of federal income tax
-
-
Change
in valuation allowance
(561,892
)
713,753
Total
$
-
$
-
The
tax
effects of temporary differences that give rise to significant portions of
the
deferred tax assets and deferred tax liabilities are presented
below:
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 and 2006 were fully offset by a 100% valuation allowance. The valuation
allowance for the remaining net deferred tax assets was $263,223 as of December31, 2007.
At
December 31, 2005 and 2006, the Company had net operating losses carryforward
available for United States tax purposes of $318,177 and $2,039,294,
respectively, for a total of $2,357,471. The carryforward for 2005 expires
in
2025 and for 2006, in 2026. The Company utilized $1,603,261 of the net operating
losses in 2007. The remaining net operating loss carryforward of $754,210 expire
in 2026.
On
October 2, 2006, the Company was named in a lawsuit captioned New
Millennium Enterprises, LLC and Phoenixsurf.com, LLC
v.
Michael
W. Hawkins, et. al.
U.S.
District Court, Middle District of Georgia, 3: 06-CV-84 (CDC). The lawsuit
alleges violations of the Georgia Securities Act, Georgia Fair Business
Practices Act, Federal Securities laws and certain other unspecified laws in
connection with the investment by Plaintiffs of $500,000 in ACC and seeks
rescission of this investment. Plaintiffs amended their complaint on April11,2007. The Company filed an answer to the amended complaint denying all essential
allegations of the complaint and asserting affirmative defenses showing why
the
plaintiffs are not entitled to the relief sought. In addition, the Company
filed
Counterclaims against the Plaintiffs and Third Party claims against individual
officers and directors of Plaintiff, alleging a malicious interference with
the
Company’s business and business relations, conspiracy to interfere with our
business, libel and slander, and violation of rights under Title IX of the
Organized Crime Control Act of 1970 as amended. The Parties are to establish
a
consolidated plan of discovery in 2008. The Company believes it has meritorious
defenses to the claims and intends to vigorously defend this lawsuit and to
pursue its counterclaims.
On
January 30, 2008, subsequent to the date of this report, the Company was named
in a lawsuit captioned Kelco
Metals, Inc.
v.
Alternative
Construction Technologies, Inc.,
Circuit
Court of Cook County Illinois, 2008L001092. The lawsuit alleges breach of
contract in the amount of $109,197. The Company entered into an agreement
to acquire metal which was to have been sent to a third party, Precoat Metal,
Inc., for the metal to be galvanized. The Company is on thirty day payment
terms. Kelco Metals, Inc. (“Kelco”) invoiced the Company for steel prior
to it going to PreCoat Metal, Inc., then demanded payment prior to shipping
to
the Company and held up the metal at Precoat Metal, Inc.. The Company
elected not to pay for the metal as the demand for prepayment is contradiction
to the payment terms. The Company has meritorious defenses to the lawsuit
and has informed Kelco that upon delivery of the product in compliance with
the
terms of the contract, they will be paid in accordance with the contract
terms.
NOTE
13 - SUBSEQUENT EVENTS
On
January 2, 2008, the Company formed Solar 18 ACTech Panel, Inc. for the purpose
of a joint venture with Atlan Holdings Group, Inc.
On
January 30, 2008, subsequent to the date of this report, the Company was named
in a lawsuit captioned Kelco
Metals, Inc.
v.
Alternative
Construction Technologies, Inc.,
Circuit
Court of Cook County Illinois, 2008L001092. See Note 12 - Legal Proceedings.
On
February 20, 2008, the Company formed Alternative Construction Manufacturing
of
Florida, Inc. for the purpose of conducting related business in
Florida.
On
February 26, 2008, CAMOFI Master LDC and CAMHZN Master LDC converted $150,000
and $50,000, respectively, of its senior secured debenture into equity of the
Company at the rate of $4.00 per share.
60
Item
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
None
Item
9A. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Under
the
supervision and with the participation of the Company’s Chief Executive Officer
(“CEO”) and Interim Chief Financial Officer (“CFO”), we conducted an evaluation
of the effectiveness of our disclosure controls and procedures as defined in
rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act
of
1934 as of December 31, 2007. Based upon that evaluation, our CEO and CFO have
concluded that our disclosure controls and procedures were effective to ensure
that the information required to be disclosed by the Company in this Annual
Report on Form 10-K was (i) recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s
rules and (ii) accumulated and communicated to the Company’s management,
including the Company’s principal executive and principal financial officers, to
allow timely decisions regarding required disclosure.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting to provide reasonable assurance regarding
the
reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting includes those
policies and procedures that (i) pertain to
the
maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the financial
statements.
Management
assessed our internal control over financial reporting as of December 31, 2007.
Management based its assessment on criteria established in Internal
Control-Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO
Framework). Management’s assessment included evaluation of such elements as the
design and operating effectiveness of key financial reporting controls, process
documentation, accounting policies, and our overall control
environment.
Based
on
our assessment described above, management has concluded that our internal
control over financial reporting was not effective during the year ended
December 31, 2007. Management has determined that (i) insufficient staffing
and
supervision resources and (ii) inability to detect the inappropriate application
of United States GAAP principles are material weaknesses in our internal control
over financial reporting.
The
Company historically has had limited staff and financing. In December 2007,
we
appointed a new Interim CFO, who is a CPA and has significant experience in
accounting operations, auditing, and internal control systems. In the future,
we
intend to hire additional qualified personnel to allow for adequate separation
of duties.
This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation requirements by out
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the company to provide only management’s
report in this annual report.
Changes
in Internal Control over Financial Reporting
Except
as
set forth above, there were no changes in our internal control over financial
reporting that occurred during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Limitations
on the Effectiveness of Controls
The
Company’s management, including the CEO and CFO, does not expect that our
disclosure controls and procedures or our internal control over financial
reporting will prevent or detect all error and all fraud. A control system,
no
matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives will be met. Further,
the design of the control system must reflect that there are resource
constraints and that the benefits must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances
of
fraud, if any, within the company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. Controls can also
be
circumvented by the individual acts of some persons, by collusion of two or
more
people, or by management override of controls. The design of any system of
controls is based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Projections of any
evaluation of controls effectiveness to future periods are subject to risks.
Over time, controls may become inadequate because of changes in conditions
or
deterioration in the degree of compliance with policies or
procedures.
61
Item
9B. Other Information.
None
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance.
The
following table sets forth information with respect to persons who are 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.
MICHAEL
W. HAWKINS, CHAIRMAN AND CHIEF EXECUTIVE OFFICER. 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
(formerly known as 2Play Corporation and MWH Information) which helps
innovators, entrepreneurs and startups with all facets of their development
and
growth. Mr. Hawkins 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 served as an Officer or Director of any other publicly
trade companies. Mr. Hawkins holds a BS in Computer Studies from the University
of Maryland.
WILLIS
H.
KILPATRICK, JR. R.P.H., DIRECTOR. Mr. Kilpatrick is a Founder and Director
of the Company. He 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 serves as a Board Member
and
Chief Executive Officer for the privately held company of Adyton Technologies,
Inc., a Delaware Corporation established in 2001 that manufactures wellness
products. He is a graduate of the University of Mississippi.
JEFFREY
B. SATURDAY, DIRECTOR. Mr.
Saturday, is the two-time Pro Bowl starting center of the 2007 Super Bowl
Champion Indianapolis Colts. Mr. Saturday is also an accomplished businessman
and is involved in several companies in the areas of construction, land
acquisition and developing. He is actively involved in the management of those
companies, and currently has over ten properties under development. He serves
on
the Board of Directors of Advanced Construction Group, LLC, a registered General
Contracting firm in LaGrange, Georgia. Mr. Saturday resigned his position on
February 29, 2008.
62
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.
BRUCE
HARMON, DIRECTOR. Mr.
Harmon is a Founder of the Company and previously served as the Interim CFO.
Mr.
Harmon was instrumental in the public registration of SinoFresh HealthCare,
Inc.
(SFSH.OB) in 2003 and has worked with Avante regarding Alternative Construction
Technologies, Inc., Accelerated Building Concepts Corporation (ABCC.OB) and
Organa Technologies Group, Inc. (OGTG.PK). He currently is also a director
with
ABCC.OB and OGTG.PK and serves as Interim CFO of ABCC.OB. Additionally, Mr.
Harmon previously served as CFO of SFSH.OB and OGTG.PK. Mr. Harmon holds a
B.S.
degree in Accounting from Missouri State University.
ANTHONY
J. FRANCEL, CHIEF OPERATING OFFICER (COO). Mr. Francel is a Founder,
Chief Operating Officer and the Corporate Communications Officer for Alternative
Construction Technologies, Inc. for the past three years. Mr. Francel
has a financial, administrative, sales and communications background. He also
has sales, operations and manufacturing experience in the field of alternative
materials and environmentally friendly and socially responsible
products. For the two years prior, Mr. Francel served as a
Senior Advisor at the Advisory and Intermediary Services, Inc., a division
of
International Profits Associated, Inc., as an independent consultant where
he
analyzed businesses to determine value and/or remedy efficiency and costing
issues or provided corporate communication services. Through Pragmatic
Business Solutions, Mr. Francel provided Investor Relations, Public Relations,
Media Relations, Funding and Sales & Marketing expertise. He
has considerable experience with the "environmentally friendly",
organic, sustainable and United Nations communities where his experience with
and relationships in the United Nations, federal and state governments and
business are invaluable resources and are helping to position the company
globally and politically.
JOHN
S.
WITTLER, CPA, INTERIM CHIEF FINANCIAL OFFICER. Mr.
Wittler brings over twenty-six years of financial management, audit and
consulting experience to the company. For the past three and a half years,
Mr.
Wittler was a senior manager with the international consulting firm of Control
Solutions International, where he managed and performed engagements for
Sarbanes-Oxley 404 compliance, internal audits and Quality Assessment Reviews
for medium and large publicly held companies. From 1999 through 2002, Mr.
Wittler was a project management consultant for UPS Supply Chain Solutions,
where he was responsible for the design and implementation of global, integrated
financial systems. Prior to 1999, Mr. Wittler has served as CFO or controller
for several logistics, telecommunications, and manufacturing companies and
was
an Audit Manager with Ernst & Young. He holds a B.S. degree in
Accounting from Ball State University.
On
October 23, 2007, under the Articles of the Bylaws, by unanimous consent of
the
Board of Directors, the Bylaws were amended. The amended Bylaws formed the
appropriate committees and approved charters for the Audit Committee, Nomination
Committee, and the Compensation Committee. In addition, it removed the authority
originally granted to Avante to appoint the majority of the directors. The
Board
of Directors elected to accept the appointments by Avante as board members.
Subsequently, on February 29, 2008, one board member resigned reducing the
number of board members below the minimum level authorized by the Bylaws. In
a
special meeting of the Board of Directors, it elected to increase the number
of
authorized board members to six. The deficiency on the board will be rectified
in the first quarter of 2008.
Our
directors are elected at the annual meeting of the shareholders, with vacancies
filled by the Board of Directors, 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.
Indemnification
of Directors and Officers
Florida
Corporation Law allows for the indemnification of officers, directors, and
any
corporate agents in terms sufficiently broad to indemnify such persons under
certain circumstances for liabilities, including reimbursement for expenses,
incurred arising under the 1933 Act. The Bylaws of the Company provide that
the
Company will indemnify its directors and officers to the fullest extent
authorized or permitted by law and such right to indemnification will continue
as to a person who has ceased to be a director or officer of the Company and
will inure to the benefit of his or her heirs, executors and Consultants;
provided, however, that, except for proceedings to enforce rights to
indemnification, the Company will not be obligated to indemnify any director
or
officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized by the Board
of
Directors. The right to indemnification conferred will include the right to
be
paid by the Company the expenses (including attorney’s fees) incurred in
defending any such proceeding in advance of its final disposition.
The
Company may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Company similar to those conferred to directors
and officers of the Company. The rights to indemnification and to the
advancement of expenses are subject to the requirements of the 1940 Act to
the
extent applicable.
63
Furthermore,
the Company may maintain insurance, at its expense, to protect itself and any
director, officer, employee or agent of the Company or another company against
any expense, liability or loss, whether or not the Company would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Bruce
Harmon serves as the interim chairman of the audit committee. A new audit
chairman will be named by the Company in the first quarter of 2008.
Additionally, Willis Kilpatrick serves as an independent audit committee member.
The audit committee is responsible for overseeing all of our financial and
legal
and regulatory compliance functions, including matters relating to the
appointment and activities of our auditors, audit plans and procedures, various
accounting and financial reporting issues and changes in accounting policies,
and reviewing the results and scope of the audit and other services provided
by
our independent public accountants. The audit committee is also responsible
for
aiding our Board of Directors in fair value pricing debt and equity securities
that are not publicly traded or for which current market values are not readily
available. When appropriate, the Board of Directors and audit committee will
utilize the services of an independent valuation firm to help them determine
the
fair value of these securities.
Nominating
and Corporate Governance Committee
The
Nominating and Corporate Governance Committee members are Jeffrey B. Saturday
(through February 29, 2008) and Willis Kilpatrick. A replacement for Mr.
Saturday will be named by the Company in the first quarter of 2008. The
nominating and corporate governance committee is responsible for identifying,
researching and nominating directors for election by our stockholders, selecting
nominees to fill vacancies on our board of directors or a committee of the
board, developing and recommending to the board of directors a set of corporate
governance principles and overseeing the evaluation of the board of directors
and our management. Willis Kilpatrick serves as the chairman of the nominating
and corporate governance committee.
The
compensation committee currently consists of Willis Kilpatrick. The Company
will
name a new member in the first quarter of 2008. Mr. Kilpatrick serves as
chairman of the compensation committee. The compensation committee reviews
and
recommends to the full board for approval the compensation paid
by us to our officers.
Item
11. Executive 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 the
day
board meetings are held, with an annual limit of $4,000. No
such
fees have been paid to any director since incorporation. Reasonable travel
expenses are reimbursed.
64
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 during the calendar years ended December 31, 2007, 2006 and
2005.
Nonqualified
Name
and
Non-Equity
Deferred
Principal
Stock
Option
Incentive
Plan
Compensation
All
Other
Position
Year
Salary
(1)
Bonus
Awards
Awards
Compensation
Earnings
Compensation
Total
Michael
W. Hawkins, CEO (2)
2007
$
366,000
$
98,906
$
-
$
-
$
-
$
-
$
-
$
464,906
2006
$
366,000
$
-
$
-
$
-
$
-
$
-
$
-
$
366,000
Anthony
Francel, COO (3)
2007
$
90,000
$
-
$
-
$
-
$
-
$
-
$
-
$
90,000
2006
$
90,000
$
-
$
-
$
-
$
-
$
-
$
-
$
90,000
Bruce
Harmon, Interim CFO (4)
2007
$
60,000
$
-
$
-
$
-
$
-
$
-
$
-
$
60,000
2006
$
60,000
$
-
$
-
$
-
$
-
$
-
$
-
$
60,000
Steves
Rodriguez, Interim CFO (5)
2006
$
45,000
$
-
$
-
$
-
$
-
$
-
$
-
$
45,000
John
S. Wittler, Interim CFO (6)
2007
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
(1)
The amounts reflected in the above table do not include any amounts
for
perquisities and other personal benefits extended to the named
executive
officer.
(2)
Represents consulting and compliance service fees paid to Avante
Holding
Group, Inc., of which Mr. Hawkins is a principal shareholder and
CEO.
Avante Holding Group, Inc.
provides services and labor in exchange for the consulting fees
($96,000)
and the compliance services ($270,000), for 2007. See "Certain
Relationships and Related
Transactions, and Director Independence."
(3)
Mr. Francel served as CEO of the manufacturing plant (ACMT) prior
to
becoming the COO on June 1, 2007.
(4)
Mr. Harmon was the Corporate Controller from October 2004 through
September 2006. On September 26, 2006, he was appointed as Interim
CFO.
Subsequently, on December20, 2007, he resigned as Interim CFO and was appointed as a director
for
the Company.
(6)
Mr. Wittler was appointed as Interim CFO on December 20, 2007 and
was not
compensated in 2007.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The
following table sets forth certain information regarding the beneficial
ownership of our shares of voting stock as of December 31, 2007 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 and C preferred stock, which is convertible into common
stock on a 1-for-1 basis, the options and warrants, are included on an as
converted basis such that the total issued, issuable and outstanding voting
stock becomes 16,415,816. 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.
65
Amount
and Nature of
Name
and Address of Beneficial Owner (1) (2)
Beneficial
Ownership
Percent
Michael
W. Hawkins, Chairman and Chief Executive Officer
1,952,883
(3)
14.3
%
Willis
Kilpatrick, Director
461,290
(4)
(8)
3.4
%
Jeffrey
B. Saturday, Director
101,000
(7)
0.7
%
Thomas
Amon, Secretary and Director
790,000
(5)
5.8
%
Bruce
Harmon, Director
606,250
(9)
4.4
%
Anthony
Francel, Chief Operating Officer
526,750
(10)
3.9
%
John
S. Wittler, Interim Chief Financial Officer
1,000
0.0
%
Paul
Janssens
1,737,696
(6)
12.7
%
All
Officers, Directors and 10% Shareholders as a Group
6,176,869
45.2
%
(1)
Unless otherwise noted, the address of each person or entity listed
is c/o
Alternative Construction Technologies, Inc.,
2910 Bush Drive, Melbourne, FL32935.
(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 December31, 2007, 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 propery
laws where applicable, the persons named in the table have sole voting
and
investment power with respect to all
shares
of common stock shown as beneficially owned by
them.
(3)
Includes 320,000 shares of common stock owned by Avante Holding Group,
Inc., which is majority owned by GAMI, LLC, which
is a limited liability company that Mr. Hawkins and his wife are
100%
owners and managing members, 155,000 shares of
common stock upon exercising of warrants owned by Avante Holding
Group,
Inc., 202,854 shares of common stock owned by
Ventures Unlimited, LLC, which is a limited liability company Mr.
Hawkins
is a majority owner, and 1,086,350 shares of common
stock owned by GAMI, LLC.
(5)
Mr. Amon's address is 250 West 57th Street, Suite 1316, New York,
NY10107.
(6)
Represents 1,500,000 shares of common stock issuable upon conversion
of
1,500,000 shares of Series A preferred stock.
(7)
100,000 shares held under Saturday Enterprises.
(8)
Shares held under Southern Residential Enterprises.
(9)
Represents 581,250 shares of common stock, and 25,000 shares of common
stock upon exercising of warrants.
(10)
Represents 251,750 shares of common stock, 250,000 shares of common
stock
upon exercising of options and 25,000 shares
of common stock upon exercising of warrants.
Item
13. Certain Relationships and Related Transactions, and Director
Independence.
Paul
Janssens, the former CEO and Chairman of the Company’s Predecessor (“ACT-DE”),
contracted with the Company for the assignment of the United States rights
to
the ACT-DE product patents in exchange for 1,500,000 shares of Series A
preferred stock. By virtue of the acquisition of ACT-DE by the Company, the
United States and international rights to the ACT-DE product patents formerly
held by Paul Janssens have become the property of the Company. In addition,
the
company owed 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. On September 26, 2006, Mr. Janssens
converted this convertible Promissory Note to 237,696 shares of common stock
of
the Company. 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. 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 provided "... 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 patented and proprietary product(s),
its website and any related systems.". The Agreement compensated 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 provided
a
fixed 2% expense account for out-of-pocket expenses to be paid in conjunction
with the stated Transaction Fees. This contract was terminated on June 30,2007,
under the terms and conditions of the Company’s new financing.
66
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 which was renewed
in October 2007. If the Company meets certain revenue and/or profitability
levels, the Agreement provides a bonus structure as follows: Consultant will
receive annual incentive bonus compensation equal to half of one percent (.5%)
of annual Gross Revenues (GR) plus one-quarter of one percent (.25%) of the
annual growth in Gross Revenues (Bonus Year Gross Revenues less Prior Year
Gross
Revenues) plus one and one-half percent (1.5%) of Net Income (NI). The formula
for calculation of the annual incentive bonus is: .005GR + .0025 (Bonus Year
GR
less Prior Year GR) + .015NI where GR and NI are greater than or equal to zero.
The annual incentive bonus will be calculated based on the Corporation’s
financial results as of December 31st
of each
year with the bonus payable by April 15th
of the
following year. As of December 31, 2007, the Company has accrued $98,906 for
the
annual bonus.
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 that are the sole discretion of
the
Company’s Compensation Committee. Additionally, it contains a clause for the
conversion of fees to the stock of the Company at a rate of 10% below the
current market price. This Agreement was effective August 1, 2005.
On
June1, 2007the Company leased its corporate office space in Melbourne from GAMI
at
a rent of $4,000 per month. The terms of the triple net lease are five years,
payable monthly. There are two renewable five year options. In addition, Avante
provides telephone and other office services on a reimbursement
basis.
In
2007,
GAMI purchased five houses from ACI at an arms-length transaction.
The
Company contracted in 2005 with 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 billed 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 was converted
to
7,548 shares of stock on September 26, 2006. Mr. Rodriguez resigned effective
September 26, 2006.
On
May16, 2007, the Company acquired the outstanding 2,010,000 shares of Series B
preferred stock (conversion value of 4,020,000 shares of Common Stock) from
Avante (1,060,000 shares) and GAMI (950,000 shares), at a reduced value of
$2,000,000, approximately $.95 per share (if converted to common stock
approximately $.4975 per share). At the date of the agreement, the calculated
fair market value of the outstanding shares (average trading price) was
$29,185,200. The $2,000,000 was to be paid by December 31, 2007. In order not
to
restrict the Company’s cash flow, Avante, controlling the entire $2,000,000 of
both GAMI and Avante’s receivable with the assignment by GAMI, and to
ensure
compliance with the Debentures, Avante issued the Company a Waiver of Default
letter with an expiration of March 31, 2008. The letter stipulates that in
the
event Avante determines that the Company is in default, the Company would be
required to remedy the balance with full payment within ten days or issue
4,020,000 shares of its common stock. The 4,020,000 shares would reflect the
two
for one conversion rate of the original Series B preferred stock.
On
May16, 2007, the Company acquired 80% of Ionian Construction, Inc., a company
which
was majority-owned by James Hawkins, the brother of the Company’s CEO, Michael
W. Hawkins. The transaction was at an arms-length. The 20% minority interest
is
held by GAMI.
On
November 28, 2007, the Company acquired 100% of Modular Rental and Leasing
Corporation from Avante for $800. Prior to acquisition, the company had no
activity.
The
Law
Offices of Thomas G. Amon, New York, New York, represents the Company on certain
legal matters. Thomas G. Amon, a principal in that firm is a director of the
Company and owns 790,000 common shares of Company stock.
67
Item
14. Principal Accounting Fees and Services.
Audit
Fees
The
Company has paid $22,500 and $22,500 for its quarterly financial reviews, Form
10-Q reviews, and Form 10-K reviews for 2007 and 2006, respectively. The Company
has paid $50,000 and $45,000 for its annual financial audits for 2007 and 2006,
respectively.
Tax
Fees
The
Company’s taxes are prepared internally therefore no fees have been paid
associated with tax preparation.
All
Other Fees
The
Company has no other related fees.
The
Company’s Audit Committee has an Audit Committee Charter with the appropriate
policies and procedures regarding approvals. The Audit Committee has approved
of
all items disclosed in this section.
The
Company’s auditors are Liebman, Goldberg & Drogin, LLP, located in Garden
City, New York.
PART
IV
Item
15. Exhibits, Financial Statement Schedules.
Financial
Statements
See
Item
8. Financial Statements and Supplementary Data.
10.27
Placement Agreement with Dinosaur Securities, LLC***
10.28
Series C Preferred Authorization*
10.29
Series C Board Resolution*
10.30
Acquisition Agreement between Alternative Construction Company, Inc., and
Ionian
Construction, Inc., dated May 16, 2007*****
10.31
Acquisition Agreement between Alternative Construction Technologies, Inc.,
and
Revels Construction, LLC, dated August 27, 2007*****
10.32
Acquisition Agreement between Alternative Construction Technologies, Inc.,
and
Avante Holding Group, Inc. for Modular Rental and Leasing Corporation, dated
November 28, 2007****
10.33
Joint Venture Agreement between Atlan Holdings International, Inc., Alternative
Construction Technologies, Inc., and Alternative Construction Consulting
Services, Inc., dated November 10, 2007*****
23.1
Consent of Liebman Goldberg & Drogin LLP*****
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Supplemental
Information to be Furnished With Reports Filed Pursuant to Section 15(d) of
the
Act by Registrants Which Have Not Registered Securities Pursuant to Section
12
of the Act
(a)
Except to the extent that the materials enumerated in (1) and/or (2) below
are
specifically incorporated into this Form by reference (in which case
see
Rule
12b-23(d)), every registrant which files an annual report on this Form pursuant
to Section 15(d) of the Act shall furnish to the Commission for its information,
at the time of filing its report on this Form, four copies of the
following:
(1)
Any
annual report to security holders covering the registrant’s last fiscal
year; and
(2)
Every
proxy statement, form of proxy or other proxy soliciting material
sent to
more than ten of the registrant’s security holders with respect to any
annual or other meeting of security
holders.
(b)
The
foregoing material shall not be deemed to be “filed” with the Commission or
otherwise subject to the liabilities of Section 18 of the Act, except to the
extent that the registrant specifically incorporates it in its annual report
on
this Form by reference.
(c)
If no
such annual report or proxy material has been sent to security holders, a
statement to that effect shall be included under this caption. If such report
or
proxy material is to be furnished to security holders subsequent to the filing
of the annual report of this Form, the registrant shall so state under this
caption and shall furnish copies of such material to the Commission when it
is
sent to security holders.
71
Dates Referenced Herein and Documents Incorporated by Reference
