form10-q.htm
Washington,
D.C. 20549
FORM
10-Q
x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934
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FOR
THE QUARTERLY PERIOD ENDED JUNE 30, 2008
o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AN EXCHANGE ACT
OF 1934
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For the transition period from:
__________ to __________
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Commission
file number 1-11873
ACCELERATED BUILDING
CONCEPTS CORPORATION
(Exact
Name of Registrant as specified in its charter)
DELAWARE
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13-3886065
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(State
of Incorporation)
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(IRS
Employer Identification Number)
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2910
Bush Drive, Melbourne, FL
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32935
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(Address
of Principal Executive Offices)
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(Zip
Code)
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321-421-6662
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 month (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes x
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
Accelerated filer o
Non-accelerated filer o Smaller reporting
company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
At
August 18, 2008, there were 7,968,561 shares of the registrant’s common stock
(no par value) outstanding.
TABLE
OF CONTENTS
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JUNE
30, 2008 AND DECEMBER 31, 2007
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FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
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FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
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JUNE
30, 2008
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CONDITION
AND RESULTS OF OPERATIONS
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ITEM
3
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ITEM
1A
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SIGNATURES
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Statements contained in this Quarterly Report on Form 10-Q
which are not historical facts are forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended. All
statements, other than statements of historical facts regarding Accelerated
Building Concepts Corporation’s (the “Company’s”) business strategy, future
operations, financial position, estimated revenues or losses, projected costs,
prospects, plans and objectives are forward looking statements. These
forward-looking statements appear in a number of places and can be identified by
the use of forward-looking terminology such as “may,” “will,” “should,”
“expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,”
“intend,” “hopes” or “certain” or the negative of these terms or other
variations or comparable terminology.
Management
cautions that forward-looking statements are subject to risks and uncertainties
that could cause our actual results to differ materially from those projected in
such forward-looking statements including, without limitation, the following:
the future prospects for the and growth of the Company and the industries
in which it operates, the level of the Company’s future sales, customer demand
and cost of raw materials, the Company’s ability to maintain its business model;
the current clients abilities to fund contracts; the Company’s ability to retain
and recruit key personnel; the Company’s ability to maintain its competitive
strengths and to effectively compete against its competitors; the Company’s
short-term decisions and long-term strategies for the future and its ability to
implement and maintain such decisions and strategies, including its strategies:
(i) to focus on manufacturing revenue growth from an increasing base of
customers, (ii) to focus on leasing revenue growth from an increasing base
of leasable assets, and (iii) to create infrastructure and
funding capabilities that can provide prompt and efficient project bidding,
expedited manufacturing, and rapid delivery; the demand by the educational
market (and the K-12 market in particular) for the Company’s modular products;
the effect of delays or interruptions in the passage of statewide and local
facility bond measures on the Company’s operations; the effect of changes in
applicable law, and policies relating to the use of temporary buildings on the
Company’s modular sales and leasing revenues, including with respect to class
size and building standards; the effects of changes in the level of state
funding to public schools and the use of classrooms that meet the Department of
Housing requirements; the Company’s ability to maintain and upgrade modular
equipment to comply with changes in applicable law and customer preference; the
Company’s strategy to effectively implement its expansion into Georgia and other
new markets in the U.S.; and the Company’s reliance on its information
technology systems; the Company’s engaging in and ability to consummate future
acquisitions; manufacturers’ ability to produce products to the Company’s
specification on a timely basis; the Company’s ability to maintain good
relationships with school districts, other customers, manufacturers, and other
suppliers; the impact of debt covenants on the Company’s flexibility in running
its business and the effect of an event of default on the Company’s results of
operations; the effect of interest rate fluctuations; the Company’s ability to
manage its credit risk and accounts receivable; the timing and amounts of future
capital expenditures and the Company’s ability to meet its needs for working
capital including its ability to negotiate lines of credit; the Company’s
ability to track technology trends to make good buy-sell decisions with respect
to electronic test equipment; the effect of changes to the Company’s accounting
policies and impact of evolving interpretation and implementation of such
policies; the risk of litigation and claims against the Company; the impact of a
change in the Company’s overall effective tax rate as a result of the Company’s
mix of business levels in various tax jurisdictions in which it does business;
the adequacy of the Company’s insurance coverage; the impact of a failure by
third parties to manufacture our products timely or properly; the level of
future warranty costs of modular structures that we sell; the effect of
seasonality on the Company’s business; and the Company’s ability to pass on
increases in its costs of modular structures, including manufacturing costs,
operating expenses and interest expense through increases in rental rates and
selling prices. Further, our future business, financial condition and results of
operations could differ materially from those anticipated by such
forward-looking statements and are subject to risks and uncertainties including
the risks set forth above and the “Risk Factors” set forth in this Form 10-Q.
Moreover, neither we assume nor any other person assumes responsibility for the
accuracy and completeness of the forward-looking statements.
Forward-looking
statements are made only as of the date of this Form 10-Q and are based on
management’s reasonable assumptions, however these assumptions can be wrong or
affected by known or unknown risks and uncertainties. No forward-looking
statement can be guaranteed and subsequent facts or circumstances may
contradict, obviate, undermine or otherwise fail to support or substantiate such
statements. Readers should not place undue reliance on these forward-looking
statements and are cautioned that any such forward-looking statements are not
guarantees of future performance. We are under no duty to update any of the
forward-looking statements after the date of this Form 10-Q to conform such
statements to actual results or to changes in our expectations.
ACCELERATED
BUILDING CONCEPTS CORPORATION
f/k/a
K2 DIGITAL, INC.
and
SUBSIDIARIES
ASSETS
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(unaudited)
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June
30, 2008
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December
31, 2007
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Current
Assets
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Cash
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$ |
1,456 |
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$ |
394 |
Accounts
Receivable, Net
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373,470 |
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39,606 |
Inventory
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- |
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- |
Prepaid
Expenses
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16,641 |
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44,773 |
Costs
in Excess of Billings
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- |
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- |
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Total
Current Assets
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391,567 |
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84,773 |
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Property,
Plant and Equipment, Net
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1,557,032 |
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500,350 |
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Other
Assets
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- |
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- |
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Total
Assets
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$ |
1,948,599 |
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$ |
585,123 |
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See
accompanying notes to consolidated financial
statements.
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f/k/a
K2 DIGITAL, INC.
and
SUBSIDIARIES
Consolidated
Balance Sheet
LIABILITIES
AND STOCKHOLDERS' EQUITY
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(unaudited) |
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June
30,
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December
31,
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2008
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2007
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Current
Liabilities
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Notes
Payable, Current Portion
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$ |
363,925 |
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$ |
647,941 |
Accounts
Payable and Accrued Expenses
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2,470,699 |
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843,328 |
Accrued
Payroll and Taxes
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117,115 |
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192,939 |
Capital
Leases, Current Portion
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- |
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- |
Due
to Related Party
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793,210 |
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- |
Billings
in Excess of Costs on Uncompleted Contracts
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- |
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38,010 |
Deferred
Revenue
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618,206 |
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98,206 |
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Total
Current Liabilities
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4,363,155 |
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1,820,424 |
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Noncurrent
Liabilities
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Notes
Payable, Noncurrent Portion
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503,709 |
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622,918 |
Capital
Leases, Noncurrent Portion
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- |
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- |
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Total
Noncurrent Liabilities
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503,709 |
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622,918 |
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Total
Liabilities
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4,866,864 |
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2,443,342 |
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Stockholders'
Equity
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Preferred
Stock
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Common
Stock, no par value, voting; 24,000,000 shares
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771,844 |
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771,844 |
authorized;
7,968,561 and 6,732,405 shares issued,
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respectively;
7,951,911 and 6,732,405 shares
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outstanding,
respectively
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- |
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- |
Treasury
Stock
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(819,296 |
) |
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(819,296) |
Subscriptions
Receivable
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- |
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- |
Additional
Paid In Capital
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11,949,150 |
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11,849,150 |
Accumulated
Deficit
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(14,819,963 |
) |
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(13,659,917) |
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Total
Stockholders' Equity
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(2,918,265 |
) |
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(1,858,219) |
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Total
Liabilities and Stockholders' Equity
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$ |
1,948,599 |
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$ |
585,123 |
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See
accompanying notes to consolidated financial
statements.
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f/k/a
K2 DIGITAL, INC.
and
SUBSIDIARIES
(unaudited)
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Three
Months Ended June 30,
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Six
Months Ended June 30,
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2008
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2007
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2008
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2007
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Sales
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$ |
393,547 |
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$ |
349,162 |
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$ |
1,228,969 |
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$ |
1,650,009 |
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Cost
of Sales
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|
691,789 |
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|
58,851 |
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|
1,877,821 |
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|
1,048,770 |
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Gross
Profit
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(298,241 |
) |
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|
290,312 |
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(648,851 |
) |
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|
601,240 |
|
Operating
Expenses
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|
233,789 |
|
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|
180,163 |
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|
481,810 |
|
|
|
459,621 |
|
Income
From Operations
|
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|
(532,030 |
) |
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|
110,148 |
|
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|
(1,130,661 |
) |
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|
141,618 |
|
Other
Income (Expense)
|
|
|
62,426 |
|
|
|
(44,886 |
) |
|
|
(29,385 |
) |
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|
(71,961 |
) |
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Net
Income
|
|
|
(469,604 |
) |
|
|
65,262 |
|
|
|
(1,160,046 |
) |
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|
69,657 |
|
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Net
Income (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Basic
based upon 7,968,561 weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
$ |
(0.07 |
) |
|
|
|
|
|
|
|
|
|
|
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|
Basic
based upon 1,600,000 weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
|
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
Fully
diluted based upon 7,676,723 weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average
shares outstanding
|
|
|
|
|
|
|
|
|
|
$ |
(0.16 |
) |
|
|
|
|
Fully
diluted based upon 1,600,000 weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average
shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
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|
f/k/a
K2 DIGITAL, INC.
and
SUBSIDIARIES
|
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2008
|
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2007
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$ |
(1,160,046 |
) |
|
$ |
69,657 |
|
Adjustments
to Reconcile Net Income to Net
|
|
|
|
|
|
|
|
|
Cash
Provided By (Used In) Operating Activities:
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
|
11,803 |
|
|
|
62,162 |
|
Decrease
(Increase) in:
|
|
|
|
|
|
|
|
|
Accounts
Receivable, Net
|
|
|
(333,864 |
) |
|
|
(5,241 |
) |
Prepaid
Expenses and Other Current Assets
|
|
|
28,132 |
|
|
|
(48,716 |
) |
Increase
(Decrease) in:
|
|
|
|
|
|
|
|
|
Accounts
Payable, Accrued Expenses and Taxes Payable
|
|
|
1,509,354 |
|
|
|
725,401 |
|
Billings
in Excess of Costs on Uncompleted Contracts
|
|
|
(38,010 |
) |
|
|
(620,771 |
) |
Deferred
Revenue
|
|
|
520,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net
Cash Used In Operating Activities
|
|
|
537,368 |
|
|
|
182,492 |
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Acquisition
of Property, Plant and Equipment
|
|
|
(1,068,485 |
) |
|
|
(100,000 |
) |
|
|
|
|
|
|
|
|
|
Net
Cash Used In Investing Activities
|
|
|
(1,068,485 |
) |
|
|
(100,000 |
) |
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Issuance
of Notes Payable, Line of Credit and Capital Leases
|
|
|
- |
|
|
|
344,263 |
|
Repayment
and Conversion, Net, of Notes Payable, Line of Credit
|
|
|
|
|
|
|
|
|
and
Capital Leases
|
|
|
(403,225 |
) |
|
|
(1,014,127 |
) |
Due
to Related Party
|
|
|
793,210 |
|
|
|
140,664 |
|
Receipt
of Payments on Note Receivable
|
|
|
100,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided By Financing Activities
|
|
|
489,985 |
|
|
|
(529,200 |
) |
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash
|
|
|
(41,132 |
) |
|
|
(446,708 |
) |
|
|
|
|
|
|
|
|
|
Cash
at Beginning of Year
|
|
|
394 |
|
|
|
458,652 |
|
|
|
|
|
|
|
|
|
|
Cash
at End of Period
|
|
$ |
(40,738 |
) |
|
$ |
11,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$ |
20,447 |
|
|
$ |
71,961 |
|
|
|
|
|
|
|
|
|
|
Taxes
Paid
|
|
$ |
- |
|
|
$ |
- |
|
ACCELERATED
BUILDING CONCEPTS CORPORATION
f/k/a
K2 DIGITAL, INC.
and
SUBSIDIARIES
June
30, 2008
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
and Operation
The
financial information included herein is unaudited; however, such information
reflects all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair statement of
results for the interim period. The results of operations for the three months
ended June 30, 2008 are not necessarily indicative of the results to be expected
for the full year. The accompanying unaudited consolidated financial statements
and footnotes have been condensed and, therefore, do not contain all required
disclosures. Reference should be made to the Company’s annual audited financial
statement for the year ended December 31, 2007.
Accelerated
Building Concepts Corporation (“ABCC” or the “Company”), was formerly known as
K2 Digital, Inc., a Delaware corporation formed in 1993. In August 2007, the
Board approved a name change. Reference to ABCC will include the period prior to
the name change.
Through
August 2001, ABCC (together with its wholly-owned subsidiary, collectively, the
"Company") was a strategic digital services company that provided consulting and
development services including analysis, planning, systems design and
implementation. In August 2001, the Company completed the sale of fixed and
intangible assets essential to its business operations to an unrelated party,
Integrated Information Systems, Inc. ("IIS") and effectively became a "shell"
company with no revenues and continuing general and administrative
expenses.
On August
10, 2007, ABCC’s wholly-owned subsidiary, K2 Acquisition Corporation (“K2AC”),
merged with New Century Structures, Inc. (“NCSI”), a Florida corporation, with
NCSI the surviving entity.
NCSI,
incorporated in July 2001, provides custom design, manufacturing and
construction services for modular facilities utilizing concrete, steel, and
structural insulated panels (SIPs) for use in commercial, educational,
municipalities and residential developments. The Company utilizes processes that
meet the requirements for classrooms as well as several government agencies,
including NASA and The Smithsonian.
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, NCSI and Sustainable Structures Leasing, Inc.
(“SSL”). All significant intercompany transactions have been eliminated in
consolidation. Intercompany transactions include the loans from the parent to
its subsidiaries.
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 stock options which are not utilized when the effect is
anti-dilutive.
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 based on how management internally
evaluates separate financial information, business activities and management
responsibility. As of June 30, 2008, the Company had two operating
segments.
NOTE
2 – RESTATEMENT OF PRIOR PERIOD CONSOLIDATED FINANCIAL STATEMENTS
Balance
Sheet, Statement of Operations and Statement of Cash Flows
In
connection with the audit of the Company’s financial statements for the year
ended December 31, 2007, certain errors associated with the Company’s
recognition of the merger of NCSI with K2AC for the nine months ended September
30, 2007 were required to be restated. The error related to the recording of the
entire nine months ended September 30, 2007 for NCSI, not the period August 10,
2007 through September 30, 2007.
The
following table presents the impact of the balance sheet misclassification on
the Company’s previously reported consolidated balance sheets for the period
ended September 30, 2007.
|
|
September
30, 2007
|
|
|
|
As
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
Notes
Payable, Current Portion
|
|
$ |
510,181 |
|
|
|
- |
|
|
$ |
510,181 |
|
Accounts
Payable and Accrued Expenses
|
|
|
727,688 |
|
|
|
- |
|
|
|
727,688 |
|
Accrued
Payroll and Taxes
|
|
|
224,113 |
|
|
|
- |
|
|
|
224,113 |
|
Deferred
Revenue
|
|
|
98,206 |
|
|
|
- |
|
|
|
98,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
Liabilities
|
|
|
1,560,188 |
|
|
|
- |
|
|
|
1,560,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
Payable, Noncurrent Portion
|
|
|
752,384 |
|
|
|
- |
|
|
|
752,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Noncurrent
Liabilities
|
|
|
752,384 |
|
|
|
- |
|
|
|
752,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
2,312,572 |
|
|
|
- |
|
|
|
2,312,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
71,351 |
|
|
|
- |
|
|
|
71,351 |
|
Distributions
|
|
|
(158,283 |
) |
|
|
158,283 |
|
|
|
- |
|
Additional
Paid In Capital
|
|
|
9,840,614 |
|
|
|
(208,229 |
) |
|
|
9,632,385 |
|
Treasury
Stock
|
|
|
(819,296 |
) |
|
|
- |
|
|
|
(819,296 |
|
Accumulated
Other Comprehensive Income
|
|
|
25,722 |
|
|
|
(25,722 |
) |
|
|
- |
|
Accumulated
Deficit
|
|
|
(10,474,629 |
) |
|
|
75,668 |
|
|
|
(10,398,961 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders'
Equity
|
|
|
(1,514,521 |
) |
|
|
- |
|
|
|
(1,514,521 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders' Equity
|
|
$ |
798,051 |
|
|
|
- |
|
|
$ |
798,051 |
|
|
|
Three Months Ended September 30, 2007
|
|
|
Nine Months Ended September 30, 2007
|
|
|
|
As
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
110,972 |
|
|
|
- |
|
|
$ |
110,972 |
|
|
$ |
10,281 |
|
|
$ |
1,986,736 |
|
|
$ |
1,997,017 |
|
Cost
of Sales
|
|
|
265,699 |
|
|
|
- |
|
|
|
265,699 |
|
|
|
- |
|
|
|
1,877,392 |
|
|
|
1,877,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
(154,727 |
) |
|
|
- |
|
|
|
(154,727 |
) |
|
|
10,281 |
|
|
|
109,344 |
|
|
|
119,625 |
|
Operating
Expenses
|
|
|
142,504 |
|
|
|
- |
|
|
|
142,504 |
|
|
|
15,101 |
|
|
|
208,937 |
|
|
|
224,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Operations
|
|
|
(297,231 |
) |
|
|
- |
|
|
|
(297,231 |
) |
|
|
(4,820 |
) |
|
|
(99,593 |
) |
|
|
(104,413 |
) |
Interest
Income / (Expense), Net
|
|
|
(55,164 |
) |
|
|
- |
|
|
|
(55,164 |
) |
|
|
- |
|
|
|
(33,436 |
) |
|
|
(33,436 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(352,395 |
) |
|
|
- |
|
|
$ |
(352,395 |
) |
|
$ |
(4,820 |
) |
|
$ |
(133,029 |
) |
|
$ |
(137,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(352,395 |
) |
|
|
- |
|
|
$ |
(352,395 |
) |
|
$ |
(4,820 |
) |
|
$ |
(133,029 |
) |
|
$ |
(137,849 |
) |
Other
Comprehensive Loss, unrealized gain (loss)on available-for-sale
security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(480 |
) |
|
|
480 |
|
|
|
- |
|
Realized
holding gain (loss) arising during the period
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Loss
|
|
$ |
(352,395 |
) |
|
|
- |
|
|
$ |
(352,395 |
) |
|
$ |
(5,300 |
) |
|
$ |
(132,549 |
) |
|
$ |
(137,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted based upon 5,502,639 weighted average shares
outstanding
|
|
$ |
(0.05 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted based upon 5,024,465 weighted average shares
outstanding
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.00 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.03 |
) |
|
|
Nine Months Ended September 30, 2007
|
|
|
Nine Months Ended September 30, 2007
|
|
|
|
As
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
1,789,643 |
|
|
$ |
(28,662 |
) |
|
$ |
1,760,981 |
|
|
$ |
42,198 |
|
|
$ |
5,485,113 |
|
|
$ |
5,527,311 |
|
Cost
of Sales
|
|
|
1,314,469 |
|
|
|
- |
|
|
|
1,314,469 |
|
|
|
- |
|
|
|
4,327,693 |
|
|
|
4,327,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
475,174 |
|
|
|
(28,662 |
) |
|
|
446,512 |
|
|
|
42,198 |
|
|
|
1,157,420 |
|
|
|
1,199,618 |
|
Operating
Expenses
|
|
|
693,801 |
|
|
|
(104,330 |
) |
|
|
589,471 |
|
|
|
64,106 |
|
|
|
749,185 |
|
|
|
813,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Operations
|
|
|
(218,627 |
) |
|
|
75,668 |
|
|
|
(142,959 |
) |
|
|
(21,908 |
) |
|
|
408,235 |
|
|
|
386,327 |
|
Interest
Income / (Expense), Net
|
|
|
(127,125 |
) |
|
|
- |
|
|
|
(127,125 |
) |
|
|
- |
|
|
|
(186,806 |
) |
|
|
(186,806 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(345,752 |
) |
|
$ |
75,668 |
|
|
$ |
(270,084 |
) |
|
$ |
(21,908 |
) |
|
$ |
221,429 |
|
|
$ |
199,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(345,752 |
) |
|
$ |
75,668 |
|
|
$ |
(270,084 |
) |
|
$ |
(21,908 |
) |
|
$ |
221,429 |
|
|
$ |
199,521 |
|
Other
Comprehensive Loss, unrealized gain (loss)on available-for-sale
security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
(2,400 |
) |
|
|
- |
|
Realized
holding gain (loss) arising during the period
|
|
|
(10,078 |
) |
|
|
10,078 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Loss
|
|
$ |
(355,830 |
) |
|
$ |
85,746 |
|
|
$ |
(270,084 |
) |
|
$ |
(19,508 |
) |
|
$ |
219,029 |
|
|
$ |
199,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted based upon 5,502,639 weighted average shares
outstanding
|
|
$ |
(0.05 |
) |
|
$ |
- |
|
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted based upon 5,024,465 weighted average shares
outstanding
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.00 |
) |
|
$ |
0.03 |
|
|
$ |
(0.03 |
) |
The
following table presents the impact of the statement of cash flows
misclassification on the Company’s previously reported consolidated balance
sheets for the nine months ended September 30, 2007.
|
|
Nine
Months Ended September 30, 2007
|
|
|
|
As
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(345,752 |
) |
|
$ |
75,668 |
|
|
$ |
(270,084 |
) |
Adjustments
to Reconcile Net Income to Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Used By Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
|
93,143 |
|
|
|
- |
|
|
|
93,143 |
|
Stock
Based Compensation
|
|
|
5,540 |
|
|
|
(5,540 |
) |
|
|
- |
|
Realized
Gain on Sale of Available-for-Sale Security
|
|
|
(22,131 |
) |
|
|
22,131 |
|
|
|
- |
|
Conversion
of Convertible Preferred Securities
|
|
|
(165,000 |
) |
|
|
165,000 |
|
|
|
- |
|
Assumed
Notes Payable in Acquisition, Net
|
|
|
790,686 |
|
|
|
(790,686 |
) |
|
|
- |
|
Distributions
Acquired in Acquisition
|
|
|
(158,283 |
) |
|
|
158,283 |
|
|
|
- |
|
Accumulated
Deficit Acquired in Acquisition
|
|
|
(2,366,108 |
) |
|
|
2,366,108 |
|
|
|
- |
|
Decrease
(Increase) In:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable, Net
|
|
|
(119,571 |
) |
|
|
385,098 |
|
|
|
265,527 |
|
Note
Receivable, Net
|
|
|
4,500 |
|
|
|
(4,500 |
) |
|
|
- |
|
Investment
in Available-for-Sale Security
|
|
|
18,100 |
|
|
|
(18,100 |
) |
|
|
- |
|
Prepaid
Expenses and Other Current Assets
|
|
|
(49,904 |
) |
|
|
20,473 |
|
|
|
(29,431 |
) |
Increase
(Decrease) In:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable, Accrued Expenses and Taxes Payable
|
|
|
879,292 |
|
|
|
(825,267 |
) |
|
|
54,025 |
|
Billings
in Excess of Costs on Uncompleted Contracts
|
|
|
- |
|
|
|
(650,771 |
) |
|
|
(650,771 |
) |
Deferred
Revenue
|
|
|
98,206 |
|
|
|
- |
|
|
|
98,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used In
Operating Activities
|
|
|
(1,337,282 |
) |
|
|
897,897 |
|
|
|
(439,385 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of Property, Plant and Equipment
|
|
|
(717,945 |
) |
|
|
620,046 |
|
|
|
(97,899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used In
Investing Activities
|
|
|
(717,945 |
) |
|
|
620,046 |
|
|
|
(97,899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Proceeds from Sale of Available-for-Sale Security
|
|
|
20,000 |
|
|
|
(20,000 |
) |
|
|
- |
|
Recapitalization
due to Merger
|
|
|
- |
|
|
|
(81,437 |
) |
|
|
(81,437 |
) |
Issuance
of Notes Payable
|
|
|
499,337 |
|
|
|
(308,036 |
) |
|
|
191,301 |
|
Repayment
of Notes Payable
|
|
|
(27,458 |
) |
|
|
- |
|
|
|
(27,458 |
) |
Additional
Paid-in Capital
|
|
|
1,493,874 |
|
|
|
(1,493,874 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By
Financing Activities
|
|
|
1,985,753 |
|
|
|
(1,903,347 |
) |
|
|
82,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash
|
|
|
(69,474 |
) |
|
|
(385,404 |
) |
|
|
(454,878 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at Beginning of Year
|
|
|
73,248 |
|
|
|
385,404 |
|
|
|
458,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at End of Period
|
|
$ |
3,774 |
|
|
|
- |
|
|
$ |
3,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$ |
129,098 |
|
|
|
- |
|
|
$ |
129,098 |
|
Taxes
Paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
NOTE
3 – ACQUISITIONS, MERGERS AND NEW SUBSIDIARIES FORMED
K2
Acquisition Corp.
On
January 24, 2006, the Company completed the sale of 1,000,000 shares of its
convertible preferred shares to NPOWR at a purchase of $165,000. K2, its
wholly-owned subsidiary, K2 Acquisition Corp. ("Merger Sub") and NPOWR intended
to enter into a merger agreement whereby Merger Sub would merge with and into
NPOWR. In connection with the merger, the shareholders of NPOWR would have
acquired a controlling interest in K2. Further, prior to closing of the
transaction, K2 was entitled to issue up to 500,000 stock options with an
exercise price of $0.11 per share to its officers and directors.
On July
27, 2006, the Company and NPOWR determined to abandon the contemplated merger
between the parties. Pursuant to the LOI, NPOWR was obligated to pay all
expenses of the Company as specified in the LOI to the date of termination. On
September 29, 2006, NPOWR executed a promissory note in the amount of $18,253
representing amounts due to the Company under the LOI. The note has been paid in
full.
On
January 29, 2007, the Company signed a letter of intent with NCSI a Florida
corporation, whereby NCSI will merge with Merger Sub and NCSI intend to enter
into a merger agreement whereby Merger Sub will merge with and into NCSI. In
connection with the merger, the shareholders of NCSI will acquire a controlling
interest in K2. NCSI's designees will be appointed as directors of K2 and the
Board and shareholders will approve a 1 x 10 reverse split of K2 shares such
that the current shareholders of K2 own approximately 500,000 post merger shares
representing 10% of the post merger shares issued and outstanding. In connection
with this transaction, Avante Holding Group, Inc. (“Avante”, see Note 6 -
Related Parties) entered into an agreement with NPOWR Digital Media, Inc. to
acquire 1,000,000 shares of K2 preferred stock which is convertible into
1,500,000 common shares.
On April
27, 2007, the Company signed a Merger Agreement with NCSI, whereby NCSI would
merge with Merger Sub. In connection with the merger, the shareholders of NCSI
would acquire a controlling interest in K2. NCSI's designees would be appointed
as directors of K2 and the Board and shareholders would approve a 1 x 10 reverse
split of K2 shares such that the current shareholders of K2 own approximately
500,000 post merger shares representing 10% of the post merger shares issued and
outstanding.
Under the
terms of the termination of the agreement with NPOWR, certain amounts owed to K2
under the LOI were payable in the form of a note. With the acquisition of the
NPOWR preferred stock by Avante, $13,500 due under the note was assumed by
Avante. The note was paid in full during the quarter ended June 30,
2007.
On August
10, 2007, the merger between Merger Sub and NCSI was completed with NCSI being
the surviving company.
New
Century Structures, Inc.
NCSI of
Florida was incorporated in May 2001 under the name of M3'T, Inc. In July 2003,
the Company changed its name to New Century Structures, Inc. The Company
was originally incorporated as an "S" Corporation. In 2006, the Company filed
with the Internal Revenue Service to change its filing status to a "C"
Corporation.
Sustainable
Structures Leasing, Inc.
SSL of
Florida, formerly known as Sustainable Structures Leasing, LLC, was incorporated
on April 20, 2005. SSL was acquired by the Company on October 15, 2007, for
$100. At the time of acquisition, SSL was converted to a C
corporation.
NOTE
4 – BALANCE SHEET DETAILS
Property
and equipment consist of the following:
|
|
Useful
|
|
|
March
31,
|
|
|
December 31,
|
|
|
|
Life
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Facility
|
|
|
20
|
|
|
$ |
182,078 |
|
|
$ |
182,078 |
|
Capital
Improvements
|
|
|
5
|
|
|
|
55,610 |
|
|
|
55,610 |
|
Construction-in-Progress
(a)
|
|
(a)
|
|
|
|
776,250 |
|
|
|
- |
|
Machinery
& equipment
|
|
|
5
|
|
|
|
347,971 |
|
|
|
347,971 |
|
Heavy
equipment
|
|
|
7
|
|
|
|
107,156 |
|
|
|
107,156 |
|
Vehicles
and trailers
|
|
|
4
|
|
|
|
7,000 |
|
|
|
7,000 |
|
Computer
equipment
|
|
|
3
|
|
|
|
450 |
|
|
|
449 |
|
Furniture
and fixtures
|
|
|
5
|
|
|
|
25,773 |
|
|
|
25,773 |
|
|
|
|
|
|
|
|
1,502,289 |
|
|
|
726,038 |
|
Less:
accumulated depreciation
|
|
|
|
|
|
|
(253,647 |
) |
|
|
(225,688 |
) |
Net
property and equipment
|
|
|
|
|
|
$ |
1,248,642 |
|
|
$ |
500,350 |
|
(a)
|
Modular
buildings for lease. The buildings are projected to be in service in the
second and/or third quarter of 2008. The useful life will be 20
years.
|
Depreciation
expense was $27,958 and $124,821for the six months ended June 30, 2008 and the
year ended December 31, 2007, respectively.
Notes
payable consists of the following:
|
Due
|
|
June
30,
|
|
|
December
31,
|
|
|
Date
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Avante
Holding Group, Inc.
|
July 2008
|
|
|
- |
|
|
$ |
296,469 |
|
Regions
Bank
|
June 2012
|
|
|
427,845 |
|
|
|
458,851 |
|
Caterpillar
Financial Services Corporation
|
July 2008
|
|
|
1,018 |
|
|
|
5,638 |
|
Caterpillar
Financial Services Corporation
|
July 2009
|
|
|
23,642 |
|
|
|
31,502 |
|
Bank
of America
|
February 2013
|
|
|
100,000 |
|
|
|
100,000 |
|
Bridge
Note (1)
|
August 2008
|
|
|
128,000 |
|
|
|
128,000 |
|
Spectra
|
December 2008
|
|
|
20,799 |
|
|
|
- |
|
Wells
Fargo
|
September 2011
|
|
|
- |
|
|
|
24,493 |
|
Weaver
Precast of Florida, LLC
|
December 2009
|
|
|
166,330 |
|
|
|
225,906 |
|
|
|
|
|
867,634 |
|
|
|
1,270,859 |
|
Less:
Current portion
|
|
|
|
363,925 |
|
|
|
647,941 |
|
Total
long-term debt
|
|
|
$ |
503,709 |
|
|
$ |
622,918 |
|
|
|
|
|
|
|
|
|
|
|
(1)
Multiple individuals.
|
|
|
|
|
|
|
|
|
|
NOTE
5 – COMMITMENTS
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 leases the property where its manufacturing operation is located. The
lease expired on December 31, 2007 and is now a month-to-month lease. Monthly
lease payments are $4,000.
Future
minimum obligations for the above leases are as follows:
2008
|
|
$ |
24,000 |
2009
|
|
|
48,000 |
2010
|
|
|
48,000 |
2011
|
|
|
48,000 |
2012
|
|
|
20,000 |
|
|
|
|
Total
Lease Obligations
|
|
$ |
188,000 |
NOTE
6 - BUSINESS SEGMENTS
The
Company operates primarily in two segments: manufacturing division (NCSI) and
leasing division (SSL).
Information
concerning the revenues and operating income (loss) for the six months ended
June 30, 2008 and 2007, and the identifiable assets for the two segments in
which the Company operates are shown in the following table:
|
|
Six
Months
|
|
|
Six
Months
|
|
|
Ended
|
|
|
Ended
|
|
|
2008
|
|
|
2007
|
OPERATING
REVENUE
|
|
|
|
|
|
Manufacturing
|
|
$ |
1,103,657 |
|
|
$ |
1,650,009 |
Leasing
|
|
|
125,312 |
|
|
|
- |
Corporate
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
Consolidated
Totals
|
|
$ |
1,228,969 |
|
|
$ |
1,650,009 |
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
|
|
|
|
|
|
Manufacturing
|
|
$ |
(1,162,370 |
) |
|
$ |
141,618 |
Leasing
|
|
|
121,782 |
|
|
|
- |
Corporate
|
|
|
(90,073 |
) |
|
|
- |
|
|
|
|
|
|
|
|
Consolidated
Totals
|
|
$ |
(1,130,661 |
) |
|
$ |
141,618 |
|
|
|
|
|
|
|
|
IDENTIFIABLE
ASSETS
|
|
|
|
|
|
|
|
Manufacturing
|
|
$ |
417,835 |
|
|
$ |
1,129,356 |
Leasing
|
|
|
1,788,534 |
|
|
|
- |
Corporate
|
|
|
26,417 |
|
|
|
- |
|
|
|
|
|
|
|
|
Consolidated
Totals
|
|
$ |
2,232,786 |
|
|
$ |
1,129,356 |
|
|
|
|
|
|
|
|
DEPRECIATION
AND AMORTIZATION
|
|
|
|
|
|
|
|
Manufacturing
|
|
$ |
11,803 |
|
|
$ |
62,162 |
Leasing
|
|
|
- |
|
|
|
- |
Corporate
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
Consolidated
Totals
|
|
$ |
11,803 |
|
|
$ |
62,162 |
NOTE
7 – RELATED PARTIES
Michael
W. Hawkins, formerly was a Director and the Vice President of Finance for NCSI,
is also CEO and principal shareholder for Avante Holding Group, Inc (“Avante”)
and the Managing Member for GAMI, LLC (“GAMI”). Avante and GAMI each own shares
of the Company’s common stock. Mr. Hawkins, through his direct and indirect
ownership of shares,, owned approximately 42.2% of the common stock, 25% of the
Series A preferred stock, 100% of the Series B preferred stock, and 28.4% of the
Series D preferred stock of NCSI prior to the merger with K2. These preferred
shares were converted into common stock at closing.
NCSI has
contracted with Avante for certain investment banking, administrative, and
consulting services to be provided pursuant to two agreements between NCSI and
Avante.
NCSI and
Avante entered into a Consulting Agreement on January 1, 2006 to provide
corporate guidance and financial and accounting services. As compensation,
Avante receives $10,000 per month and bonus compensation. Under this agreement
Avante has the unilateral authority to hire additional personnel required to
perform investor relations, financial administration, and executive oversight
and request reimbursement from NCSI on a reimbursable expense basis. The term of
this agreement is for three years with one additional automatic three-year
extension.
On May
31, 2005, NCSI and Avante entered into a Revolving Credit Agreement for
$500,000. The terms of the Agreement includes interest at the rate of prime plus
4%. The Agreement terminated on May 31, 2006 with an available extension of one
year at the discretion of the Lender. On May 31, 2006, Avante renewed the
agreement for one year. An Amendment to the Agreement was executed in December
2006 providing an additional $500,000 credit for a total of $1,000,000. As of
June 30, 2008, the balance due to Avante under this Agreement was $793,210. In
August 2007, a portion of the outstanding balance under the note was converted
into 2,000,000 shares of common stock.
NCSI and
Avante entered into an Exclusive Mergers and Acquisitions Services Agreement on
January 1, 2006 to provide merger and acquisition consulting services. The term
of the agreement is for three years. Compensation is based upon a double Lehman
Formula.
Michael
W. Hawkins has personally guaranteed several obligations with the primary
guarantee to Regions Bank. In addition to the various notes identified above, he
has also personally guaranteed the Company note payable balance with Wells Fargo
associated with the financing of a cement truck. The cement truck was sold on
November 9, 2007.
On July
1, 2006, GAMI contracted with Alternative Construction by ProSteel Builders,
Inc. (f/k/a ProSteel Builders Corporation) (“ACP”) for the construction of a new
office building for GAMI located in Melbourne, Florida. ACP subcontracted a
portion of the construction to NCSI. The full contract value with ACP was
$742,500. The contract, with change orders, between ACP and NCSI was $993,930.
All balances due to the Company as of June 30, 2007 were paid in full. The
contract and all related activities were done as an arms length
transaction.
On May
31, 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
February 10, 2008, the Company’s subsidiary Sustainable Structures, Inc. entered
into a contract to build two buildings for Gulfstream Aerospace, Inc.
(“Gulfstream”). The contract with Gulfstream was viewed by the Company as the
first of many such contracts with Gulfstream which are expected to yield
significant long term revenue to ABCC. ABCC was unable to finance these
contracts through conventional methods. Alternative Construction Technologies,
Inc. (“ACT”) a company related to ABCC by common ownership of stock and common
management, agreed, on a one-time emergency basis, to finance the construction
of the buildings utilizing its line of credit. The costs of financing of
$1,040,000, plus interest and other consideration of approximately $110,000 will
be borne by ABCC, and ABCC will recognize a loss of approximately $315,300 on
this contract. These costs are related, in part, to additional expenses incurred
by ACT, including the issuance of warrants to the funding source, which will be
borne by ABCC. The Company incurred additional cost of construction due to the
lack of cash and the delays in delivery. The total expected cost of
the buildings is $1,352,300. As such, the Company must recognize an
entire loss of approximately $603,500 on this contract. It is
expected that future contracts with this customer will be financed through
conventional sources and will be profitable. While the transaction between ACT
and ABCC was not entered into at arms length, given the credit worthiness of
ABCC’s customer, and the enhancement of a business relationship for ABCC,
management of the Company determined that the financing was in the Company’s
best, long-term, interest.
Joseph
Sorci, the CEO for the Company, is also CEO and a principal shareholder for
Florida Architects, Inc. (“FLA”). FLA performs and or assists in various
architectural roles for the Company Mr. Sorci also assits the Company with
evaluating, bidding, planning and actual building of the Company’s projects. All
transactions are conducted as an arms length transaction.
Joseph
Sorci has personally guaranteed several obligations with vendors, banks and
other business related entities. The primary guarantees are with Regions Bank,
Bank of America, Weaver Precast of Florida, LLC and other notes
payable.
NOTE
8 – STOCKHOLDERS’ EQUITY
Common
Stock
On August
18, 2008 the Company has authorized 24,000,000, issued 7,951,911 and has
outstanding 7,968,561 common shares at $0.10 par value.
As part
of the acquisition / merger and reverse stock split on August 10, 2007, the
Company issued 4,334,429 shares of common stock to shareholders of
NCSI.
On
September 13, 2007, the Company issued 2,444,000 shares to various debt holders
in exchange for the conversion of $611,000 in debt. As part of this conversion
of outstanding payables, the Company issued 444,000 shares to officers and
directors. An additional 666,668 shares were issued to individuals related to
Michael W. Hawkins (see Note 6 - Related Parties) as part of a reduction in the
Revolving Credit Agreement with Avante.
On
October 29, 2007, the Company issued 250,000 common shares for $225,000 net of
fees in a private placement. On December 31, 2007, the $225,000 was a
subscription receivable. Subsequent to December 31, 2007, the Company has
received only $115,000 of the funds purchased. The Company has filed a lawsuit
against the individual to collect the balance of these outstanding
funds.
On
February 11, 2008, the Company issued 300,000 shares of common stock to various
debt holders in exchange for the conversion of $135,000 in debt.
Preferred
Stock
The
Company has filed an amendment to designate 1,000,000 shares of convertible
Series A preferred stock that has 3,000,000 underlying common shares as part of
a private placement to raise up to $24 million for the Company.
On August
10, 2007, a simultaneous transaction with the merger between K2AC and NCSI, the
Company’s outstanding 1,000,000 shares of preferred stock valued at $165,000
converted to common stock at a 1 for 1.5 rate resulting in 150,000 shares of
common stock being issued.
Treasury
Stock
Prior to
January 1, 2005, the Company acquired 417,417 outstanding shares of common stock
for $819,296.
NOTE
9 – LEGAL PROCEEDINGS
On
October 2, 2006, NCSI 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 $180,000 in NCSI and
seeks rescission of this investment. Plaintiffs amended their complaint on April
11, 2007. NCSI 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, NCSI filed
Counterclaims against the Plaintiffs and Third Party claims against individual
officers and directors of Plaintiff, alleging a malicious interference with the
NCSI’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.
NCSI has
been sued by several vendors, each for less than $20,000. The Company
believes that each will be settled.
The
Company maintains a reserve for legal expenses for all cases.
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements under federal
securities laws. Forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties. Our actual results
could differ materially from those indicated by forward-looking statements as a
result of various factors, including but not limited to those set forth under
this Item, as well as those discussed in Part II - Item 1A, “Risk Factors,” and
elsewhere in this document and those that may be identified from time to time in
our reports and registration statements filed with the Securities and Exchange
Commission.
This
discussion should be read in conjunction with the Consolidated Financial
Statements and related Notes included in Part I – Item 1 of this Quarterly
Report on Form 10-Q and the Consolidated Financial Statements and related Notes
and the Management’s Discussion and Analysis of Financial Condition and Results
of Operations contained in our Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on May 14, 2008.
DESCRIPTION
OF COMPANY:
The
Company is a holding company that currently has two operating subsidiaries, New
Century Structures, Inc. (“NCSI”), an entity which provides design,
manufacturing, and construction services for modular and component building
facilities utilizing concrete and steel and structural insulated panels (SIPs)
for use by commercial, educational clients and other government agencies, and
Sustainable Structures Leasing, Inc. (“SSL”), an entity which provides leasing
capabilities to customers of the Company on either a lease or lease-purchase
basis.
On August
10, 2007, ABCC acquired all of the outstanding common stock of NCSI. For
accounting purposes, the acquisition has been treated as a recapitalization of
NCSI with NCSI as the acquirer (reverse acquisition). The historical financial
statements prior to August 10, 2007 are those of NCSI.
OVERVIEW:
The
Company is a design, manufacturing, and construction company, engaged in the
construction of commercial, government and educational buildings in
Florida.
Founded
in 1993, the Company was originally a digital professional services company
that, until August 2001, historically provided consulting and development
services, including analysis, planning, systems design, creation and
implementation. In August 2001, upon the sale of assets to Integrated
Information Systems, Inc., the Company effectively ceased
operations.
On
January 29, 2007, the Company signed a letter of intent with New Century
Structures, Inc. ("NCSI") a Florida corporation, whereby NCSI would merge with
the Company. K2 Acquisition Corp. ("Merger Sub") and NCSI intend to enter into a
merger agreement whereby Merger Sub would merge with and into NCSI. In
connection with the merger, the shareholders of NCSI will acquire a controlling
interest in K2. NCSI's designees will be appointed as directors of K2 and the
Board and shareholders will approve a 1 for 10 reverse split of K2 shares such
that the current shareholders of K2 own 540,516 post merger shares representing
10% of the post merger shares issued and outstanding. In connection with this
transaction, Avante Holding Group, Inc. entered into an agreement with NPOWR
Digital Media, Inc. to acquire 1,000,000 shares of K2 preferred stock which is
convertible into 150,000 post merger common shares.
On April
27, 2007, the Company signed a Merger Agreement with New Century Structures,
Inc. ("NCSI") a Florida corporation, whereby NCSI would merge with the Company.
K2 Acquisition Corp. ("Merger Sub"). In connection with the merger, the
shareholders of NCSI will acquire a controlling interest in K2. NCSI's designees
will be appointed as directors of K2 and the Board and shareholders will approve
a 1 x 10 reverse split of K2 shares such that the current shareholders of K2 own
approximately 500,000 post merger shares representing 10% of the post merger
shares issued and outstanding. In connection with this transaction, Avante
Holding Group, Inc., an affiliate of NCSI, has acquired from NPOWR 1,000,000
shares of K2 preferred stock which is convertible into 1,500,000 common
shares.
Incorporated
in Florida in July 2001, NCSI provides architectural/engineering, manufacturing
and construction services for modular facilities utilizing concrete and
structural insulated panels (SIPS) for use in commercial, educational and
municipalities and residential developments. The Company utilizes processes that
meet the scrutiny for classrooms as well as several government agencies,
including NASA and the Smithsonian.
On August
10, 2007, the merger between NCSI and Merger Sub was completed. The former
shareholders of NCSI were issued 4,334,429 shares of the Company’s common stock.
The Company completed its 1 for 10 reverse split. The Company changed its name
from K2 Digital, Inc. to Accelerated Building Concepts Corporation.
The
following Management Discussion and Analysis should be read in conjunction with
the financial statements and accompanying notes included in this Form
10-QSB.
COMPARISON
OF THE THREE MONTHS ENDED JUNE 30, 2008 TO THE THREE MONTHS ENDED JUNE 30,
2007
Results
of Operations
Total
revenues increased to $393,547 from $349,162, respectively for the three months
ended June 30, 2008 and 2007. The increase of $44,385 (12.7%) is a result of a
variance of sales and has no specific reason for the increase.
Cost of
sales was $691,789 and $58,851, respectively for the three months ended June 30,
2008 and 2007. As a percent of revenue, the cost of sales for the manufacturing
division was 250.9% ($694,169) whereas the leasing division was -2.0% ($3,344).
The manufacturing division recorded a loss ($603,500) on the contract with
Gulfstream Aerospace (see Notes to Consolidated Financial Statements, Note 6 -
Related Parties). Without the accrued loss, the cost of sales would have been
$325,289 or 83.5% of revenue.
Gross
profit (loss) was ($298,241) and $290,312, respectively for the three months
ended June 30, 2008 and 2007.
Total
operating expenses increase to $233,789 from $180,163, respectively for the
three months ended June 30, 2008 and 2007. This 29.8% increase was mainly
attributable to the Company’s cost associated with administrative payroll, rent,
insurance, professional fees and payroll taxes.
COMPARISON
OF THE SIX MONTHS ENDED JUNE 30, 2008 TO THE SIX MONTHS ENDED JUNE 30,
2007
Results
of Operations
Total
revenues decreased to $1,228,969 from $1,650,009, respectively for the six
months ended June 30, 2008 and 2007. The decrease of $421,040 (25.5%) resulted
primarily from the lack of funding in which to fulfill its contractual
obligations. Currently $750,000 in contracts that were expected
to be fulfilled this year has been delayed. The Company expects to
fulfill these contracts in the third quarter.
Cost of
sales was $1,877,821 and $1,048,770, respectively for the six months ended June
30, 2008 and 2007. As a percent of revenue, the cost of sales for the
manufacturing division was 169.8% ($1,874,476) whereas the leasing division was
2.7% ($3,344). The manufacturing division recorded a loss ($605,500) on the
contract with Gulfstream Aerospace (see Notes to Consolidated Financial
Statements, Note 6 - Related Parties). Without the accrued loss, the cost of
sales would have been $1,274,321 or 103.5% of revenue.
Gross
loss for the six months ended June 30, 2008 $648,851 compared to a gross profit
of $601,240, respectively for the six months ended June 30, 2008 and
2007.
Total
operating expenses increase to $481,810 from $459,621, respectively for the six
months ended June 31, 2008 and 2007. This 4.8% increase was mainly attributable
to the Company costs for administrative payroll, rent,
insurance, professional fees and payroll taxes.
Liquidity and Capital
Resources
As of
June 30, 2008, the Company had a working capital deficit of $3,971,590. Net loss
was $1,160,046 for the six months ended June 30, 2008. The Company generated a
positive cash flow from operations of $536,063 for the six months ended June 30,
2008. The positive cash flow from operating activities for the period is
primarily attributable to the increase in accounts receivable ($333,867) and
decrease in billings in excess of costs on uncompleted contracts (38,010),
offset by an increase in prepaid expenses and other current assets (28,132), an
increase in accounts payable and accrued expenses ($1,509,354), and deferred
revenue ($520,000).
Cash
flows used in investing activities of $1,068,485 for the six months ended June
30, 2008 related to the construction-in-progress of modular buildings to be
leased by SSL.
Cash
flows provided by financing activities for the six months ended June 30, 2008
was $489,985 primarily due to the repayment of notes payable ($403,225), an
increase in due to shareholder ($793,210) and receipts of a subscription stock
receivable ($100,000).
The
Company had a net decrease in cash of $41,132 for the six months ended June 30,
2008 compared to a decrease of $446,708 for the six months ended June 30,
2007.
For the
next twelve months, the Company intends to fund its operations through private
debt and equity financing and revenues from operations. However, the current
economic downturn, while not necessarily adversely affecting the Company’s
prospective business, has severely impacted the Company’s ability to obtain
financing aand additional projects. The Company cannot predict when
the environment for obtaining financing will become more favorable. If 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.
The
effect of inflation on the Company's revenue and operating results was not
significant. The Company's operations are located in North America and there are
no seasonal aspects that would have a material effect on the Company's financial
condition or results of operations.
There
have been no material changes in the Company’s market risk exposures from those
reported in our Annual Report on Form 10-K for the year December 31,
2007.
The
Company’s management, under the supervision and with the participation of the
Company’s Chief Executive Officer (the “CEO”) and Interim Chief Financial
Officer (the “CFO”), performed an evaluation of the effectiveness of the design,
maintenance and operation of the Company’s disclosure controls and procedures of
June 30, 2008. Based on that evaluation, the CEO and CFO concluded that the
Company’s disclosure controls and procedures were effective. There have been no
significant changes in the Company’s internal controls or in other factors that
materially affected, or would reasonably be likely to materially affect, the
Company’s internal control over financial reporting.
ITEM
1 LEGAL PROCEEDINGS
On
October 2, 2006, NCSI was named in a lawsuit captioned New Millennium Enterprises,
LLC and Phoenixsurf.com, LLC v. Joseph Sorci, 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 $180,000 in NCSI in April 2006
and seeks rescission of this investment. Plaintiffs amended their complaint on
April 11, 2007. NCSI 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,
NCSI 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.
The
Company also has several pending lawsuits, with vendors and suppliers, each
for less than $15,000, and one less than $32,000.
You
should carefully consider the following discussion of various risks and
uncertainties. We believe these risk factors are the most relevant to our
business and could cause our results to differ materially from the
forward-looking statements made by us. The following risk factors are not the
only risk factors facing our Company. Additional risks that we do not consider
material, or of which we are not currently aware, may also have an adverse
impact on us. Our business, financial condition, and result of operations could
be seriously harmed if any of these risks or uncertainties actually occurs or
materializes. In that event, the market price for our common stock could
decline, and you may lose all of part of your investment.
If
we do not receive additional financing to meet sales growth and cash flow needs,
the Company will not be able to support ongoing operations.
The
Company currently has a working capital deficit. The current cash available will
not meet the current liabilities outstanding. In addition, the Company’s current
accounts payable exceed 60 days. NCSI, the primary operating entity, experienced
tremendous growth in 2005 followed by a slowdown in 2006, and a virtual stoppage
of all its educational contracts in 2007. This has created a net loss in
operations and has strained the Company’s ability to move forward. In addition,
the Company is dependent on purchasing materials from outside vendors to
manufacture its products. Should cash flow not be sufficient to support these
relationships, in addition to financing not being available, it would become
increasingly difficult to support ongoing operational expenses associated with
the Company's business. There is no guarantee that we will succeed in obtaining
additional financing, or if available, that it will be on terms favorable to us,
or that raw and/or component material prices will be in the range necessary to
support ongoing operations.
If
the price of raw and/or component materials increases or their availability
decreases, it may create a reduction in our capability to produce our
product.
The key
components to our product are concrete and steel. Steel is a commodity product
therefore the Company continues to seek various suppliers, to provide sufficient
source and pricing to meet our development schedule and pricing points. In the
current market for concrete and steel, key ingredients to our product rise and
fall in cost, which could affect our abilities to procure enough raw materials
based on cash and credit availability to produce enough products to meet demand
and sell finished products at a profit. With an increase in raw material
pricing, which often fluctuates due to availability, natural disasters, and
force majures, 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 is unable to pay off existing debt holders all of our
assets are collateral and would cause a closure of our operations.
Regions
Bank holds a note in the principal amount of $500,000 (with a current pay-off
amount of approximately $400,000) secured by all of our assets. The note
originally existed as a revolving credit agreement but was converted into a
five-year term note on July 1, 2007. The maturity date of the note is July 30,
2012. The note bears an interest rate equal to the prime rate and contains no
prepayment penalty clause. If we become in default of the payment terms or other
provisions of the note, there is no assurance that we will be able to
successfully negotiate new terms favorable to us. In that event, the lenders may
elect to accelerate the payment terms and may exercise their right against our
collateral.
The Company is
Dependent upon timely payments from its customers.
The Company is reliant upon
timely payments from its customers. Should any customer fail to pay for
the costs of construction, the Company may be at risk to its suppliers and
financing parties.
With
only an outdoor manufacturing facility leased on a month-by-month basis, the
Company could lose substantial revenue due to down time due to inclement weather
and/or having to relocate to an alternate facility.
The
Company currently builds in an open field with elongated concrete pads. While
this meets requirements for building modular facilities, work must be stopped,
or temporarily delayed when weather conditions are unfavorable. The Company
maintains three modular units on site for administrative use, tool storage and
security, and employee break rooms. The land consists of 4.3 acres and is
currently on a month-by-month lease basis. In the event the company is required
to vacate the premises, the Company would lose significant time and resources
relocating to an alternate site. There is no guarantee the company will find
adequate facilities in an appropriate time frame in order not to disrupt its
current operations.
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 resulting in expenses to repair or replace the damaged
manufacturing equipment and facility not covered by insurance.
We
may be required to indemnify our Directors and Officers at a high cost to the
Company.
We have
authority under Section 607.0850 of the Florida Business Corporation Act and
Delaware law 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
potential judgment exceeds the coverage under the policy, ABCC 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.
Future
changes in financial accounting standards and the applicable regulations by the
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
stock options was not required and therefore, no compensation expense for stock
options was included in reported net income and net income per
share.
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 of resources
may potentially increase over time, with respect to these legal
initiatives.
In
addition, if we do not adequately comply with or implement the requirements of
Section 404 in a timely manner, we may not be able to accurately report our
financial results or prevent 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 products liability laws that could
have a negative impact on the financial performance of the Company.
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.
Conducting
our routine businesses exposes us to risk of litigation from employees, vendors
and other third parties.
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.
If
we do not effectively manage our credit risk, collect on our accounts
receivable, or recover our rental equipment from our customers’ sites, it could
have a material adverse effect on our operating results.
We
generally sell to customers on a 30-day payment term; however, our average
collection time is 60 days. We individually perform credit evaluation procedures
on our customers on each transaction and will require security deposits or other
forms of security from our customers when a significant credit risk is
identified.
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 acceptance of our final payment. 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 to our specifications or on a
timely basis may harm our reputation and financial condition.
We are
dependent on third parties to provide steel, concrete, and other building
materials/components 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 produce our products or the third parties fail to produce our products to our
specifications or in a timely manner, our reputation and financial condition
could be harmed.
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 product to decline, which could result in a
reduction in our revenues and profitability.
Sales of
modular portable classrooms for the Florida public school districts for use as
portable classrooms, restroom buildings, and administrative offices for
kindergarten through grade twelve declined in 2007. 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 thereby resulting in lower revenues and related
profitability.
Public
policies that create demand for our products and services may change, stall in
Congress or State Legislation creating a downturn in 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. 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, we may
not experience the growth levels witnessed in 2005 and 2006, 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 industry have developed “best practices” which are
constantly evolving.
Our
warranty costs may increase reducing our gross profit margin.
Sales of
modular buildings constructed of concrete and/or structural insulated panels are
typically covered by warranties. We provide a one year warranty on our
facilities. 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 modular buildings 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 and operating income.
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
severity and length of any downturn on the construction industry may also affect
overall access to capital, which could adversely affect our customers. During
periods of reduced and declining demand for construction material, 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 is the primary portion of the areas in our focus, especially
with the devastation due to hurricanes in Florida in 2004 and 2005, 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.
On August
9, 2007, the Company issued 4,334,429 post-split shares proportionately to the
shareholders of New Century Structures, Inc., as part of a reverse merger into
K2 Acquisition, Inc.
On
September 20, 2007 the Company issued 2,000,000 shares of common stock as part
of a conversion of $500,000 in debt to six debt holders.
On
September 20, 2007 the Company issued 300,000 shares of restricted common stock
to Thomas G. Amon, the Company’s Corporate Counsel and member of the Board of
Directors in satisfaction of an outstanding payable of $75,000.
On
September 20, 2007 the Company issued 144,000 shares of restricted common stock
to Joseph J. Sorci, the Company’s CEO in exchange for the outstanding payable of
$36,500.
On
November 1, 2007, the Company issued 250,000 shares of restricted common stock
in exchange for Two Hundred Fifty Thousand Dollars ($250,000) in a private sale
of securities.
Each of
the foregoing transactions was exempt under Section 4(2) of the Securities Act
of 1933, as amended.
None.
None.
On August
18, 2008 Gina L. Bennett resigned from the Board of Directors.
Mr. Sin
Li was appointed as Interim CFO of the Company on August 1, 2008.
Exhibits
No.
|
|
Description
|
31.1
|
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.2
|
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
32.1
|
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, there unto duly
authorized.
Accelerated Building Concepts Corporation
Date:
August 19, 2008
|
By:
|
/s/
Joseph Sorci
|
|
Chairman
and Chief Executive Officer
|
|
(Principal
Executive Officer)
|
|
|
Date:
August 19, 2008
|
By:
|
/s/ Sin
Li
|
|
Interim
Chief Financial Officer (Principal
|
|
Accounting
and Financial Officer)
|