Arvana Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
(Expressed in U.S. Dollars)
1. Nature of Business and Ability to Continue as a Going Concern
Arvana, Inc. (“our”, “we”, “us” and the “Company”) was incorporated under the laws of the State of
Nevada as Turinco, Inc. on September 16, 1977, with authorized common stock of 2,500 shares with a par
value of $0.25. On October 16, 1998, the authorized capital stock was increased to 100,000,000 common
shares with a par value of $0.001 and a forward common stock split of eight shares for each outstanding
share. In 2005, we completed another forward common stock split of nine shares for each outstanding
share. On July 24, 2006, the shareholders approved a change of the Company’s name from Turinco, Inc.
to Arvana, Inc. On September 30, 2010, the authorized capital stock was decreased to 5,000,000 common
shares with a par value of $0.001 and effected a reverse split of one share for every twenty shares
outstanding.
These consolidated financial statements for the year ended December 31, 2015, include the accounts of
the Company and its subsidiary Arvana Networks Inc. (including its wholly-owned subsidiaries, Arvana
Participaçōes S.A. (
“
Arvana Par
”
) and Arvana Comunicações do Brasil S. A. (
“
Arvana Com
”
)). The
Company has ceased all operations in its subsidiary companies, and has written-off or disposed of all
assets in the subsidiary companies, consequently same are all considered to be inactive subsidiaries.
The reporting currency and functional currency of the Company and its subsidiaries is the United States
dollar (“US Dollar”) and the accompanying consolidated financial statements have been expressed in US
Dollars.
These consolidated financial statements have been prepared on a going concern basis, which assumes the
realization of assets and settlement of liabilities in the normal course of business. For the year ended
December 31, 2015, the Company recognized net income from operations of $92,650. At December 31,
2015, the Company had a working capital deficiency of $2,249,077. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern.
Accordingly, the Company will require continued financial support from its stockholders and creditors
until it is able to generate sufficient cash flow from operations on a sustained basis. There is substantial
doubt that the Company will be successful at achieving these results. Failure to obtain the ongoing
support of its shareholders and creditors may make the going concern basis of accounting inappropriate,
in which case the Company’s assets and liabilities would need to be recognized at their liquidation values.
These financial statements do not include any adjustments relating to the recoverability and classification
of recorded asset amounts and classification of liabilities that might arise from this uncertainty.
F-6
Arvana Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
(Expressed in U.S. Dollars)
2. Summary of Significant Accounting Policies
a) Basis of presentation
The Company is in the process of evaluating business opportunities and has minimal operating levels.
The Company’s fiscal year end is December 31. The accompanying consolidated financial statements of
Arvana, Inc. for the years ended December 31, 2015 and 2014, have been prepared in accordance with
accounting principles generally accepted in the United States (“US GAAP”) for financial information
with the instructions to Form 10-K and Regulation S-K. Results are not necessarily indicative of results
which may be achieved in the future.
b) Basis of consolidation
Included in the financial statements are the accounts of the Company, its wholly-owned inactive
subsidiaries Arvana Networks, Arvana Par, and Arvana Com. All inter-company transactions and
balances have been eliminated.
c) Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates. These
estimates include the recognition of deferred tax assets based on the change in unrecognized deductible
temporary tax differences.
d) Foreign currency translation and transactions
Transactions conducted in foreign currencies are recorded using the exchange rate in effect on the
transaction date. At the period end, monetary assets and liabilities are translated to the functional currency
of each entity using the exchange rate in effect at the period end date. Transaction gains and losses are
recorded in foreign exchange gain or loss in the statement of operations and comprehensive income.
e) Comprehensive income
The Company considers comprehensive income (loss) as a change in equity (net assets) of a business
entity during a period from transactions and other events and circumstances from non-owner sources. It
includes all changes in equity during a period except those resulting from investments by owners and
distributions to owners.
f) Cash equivalents
The Company considers all highly liquid investments, with terms to maturity of three months or less
when acquired, to be cash equivalents.
F-7
Arvana Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
(Expressed in U.S. Dollars)
2. Summary of Significant Accounting Policies (continued)
g) Financial instruments
The Company uses the following methods and assumptions to estimate the fair value of each class of
financial instruments for which it is practicable to estimate such values:
Cash - the carrying amount approximates fair value because the amounts consist of cash held at a bank.
Accounts payable and accrued liabilities and loans payable - the carrying amount approximates fair value
due to the short-term nature of the obligations.
The estimated fair values of the Company's financial instruments as of December 31, 2015 and December
31, 2014 follows:
December 31,
December 31,
2015
2014
Carrying
Fair
Carrying
Fair
Amount
Value
Amount
Value
Cash
$53
$53
$1,876
$1,876
Accounts payable and accrued liabilities
1,018,963
1,018,963
1,041,503
1,041,503
Loans payable to stockholders
619,671
619,671
647,702
647,702
Loans payable to related party
28,941
28,941
32,791
32,791
Loans payable
147,225
147,225
148,620
148,620
Amounts due to related parties
434,330
434,330
472,987
472,987
The following table presents information about the assets that are measured at fair value on a recurring
basis as of December 31, 2015, and indicates the fair value hierarchy of the valuation techniques the
Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize
quoted prices (unadjusted) in active markets for identical assets. Fair values determined by Level 2 inputs
utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values
determined by Level 3 inputs are unobservable data points for the asset or liability, and included
situations where there is little, if any, market activity for the asset:
Quoted
Significant
Prices
Other
Significant
December
in Active
Observable
Unobservable
31,
Markets
Inputs
Inputs
2015
(Level 1)
(
L
evel 2)
(Level 3)
Assets:
Cash
$
53
$
53
$
—
$
—
The fair value of cash is determined through market, observable and corroborated sources.
F-8
Arvana Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
(Expressed in U.S. Dollars)
2. Summary of Significant Accounting Policies (continued)
h) Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consists of
cash. The Company maintains cash in bank accounts that, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts and believes it is not exposed to any
significant risks on its cash in bank accounts.
i) Income taxes
A deferred tax asset or liability is recorded for all temporary differences between financial and tax
reporting and net operating loss carry-forwards. Deferred tax expense (benefit) results from the net
change during the year of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
j) Stock-based compensation
The Company accounts for all stock-based payments to employees and non-employees under ASC 718
“Stock Compensation,” using the fair value based method. Under the fair value method, stock-based
payments are measured at the fair value of the consideration received, or the fair value of the equity
instruments issued, or liabilities incurred, whichever is more reliably measurable. The cost of stock-based
payments to non-employees that are fully vested and non-forfeitable at the grant date is measured and
recognized at that date.
k) Earnings (loss )per share
Basic earnings (loss) per share is computed using the weighted average number of common shares
outstanding during the year. Diluted earnings (loss) per share is computed using the weighted average
number of common shares and potentially dilutive common stock equivalents, including stock options
and warrants. There were no outstanding stock options or warrants as at December 31, 2015 and 2014.
F-9
Arvana Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
(Expressed in U.S. Dollars)
2. Summary of Significant Accounting Policies (continued)
l) Recent accounting pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update 2016-02,
Leases (Topic 842).
The standard requires the recognition of lease assets and lease
liabilities by lessees for those leases classified as operating leases. Leases will be classified as either
finance or operating, with classification affecting the pattern of expense recognition. The standard
requires lessors to classify leases as either sales-type, finance or operating. A sales-type lease occurs if the
lessor transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If
risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If
the lessor does not convey risks and rewards or control, an operating lease results. The standard will
become effective for the Company beginning January 1, 2019. The Company is currently assessing the
impact adoption of this standard will have on its consolidated results of operations, financial condition,
cash flows, and financial statement disclosures.
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates
(ASU) 2015-03 which requires that debt issuance costs be reported in the balance sheet as a direct
deduction from the face amount of the related liability, consistent with the presentation of debt discounts.
Prior to the amendments, debt issuance costs were presented as a deferred charge (i.e., an asset) on the
balance sheet. The ASU provides examples illustrating the balance sheet presentation of notes net of their
related discounts and debt issuance costs. Further, the amendments require the amortization of debt
issuance costs to be reported as interest expense. Similarly, debt issuance costs and any discount or
premium is considered in the aggregate when determining the effective interest rate on the debt. The
amendments are effective for public business entities for fiscal years beginning after December 15, 2015,
and interim periods within those fiscal years.
In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates
(ASU) 2014-15 requiring an entity’s management to evaluate whether there are conditions or events,
considered in aggregate, that raise substantial doubt about entity’s ability to continue as a going concern
within one year after the date that the financial statements are issued (or within one year after the date that
the financial statements are available to be issued when applicable). The amendments to (ASU) 2014-15
are effective for the annual period ending after December 15, 2016, and for annual periods and interim
periods thereafter. Early application is permitted. The Company is in the process of evaluating the
prospective impact that (ASU) 2014-15 will have on its balance sheet.
F-10
Arvana Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
(Expressed in U.S. Dollars)
3. Amounts Due to Related Parties and Loans Payable to Stockholders
From February, 2007, until December 31, 2015, the Company received a number of loans from
stockholders, related parties and unrelated third parties. As of December 31, 2015, the Company had
received loans of $619,671 (Euro 225,000; CAD$ 72,300; $323,107) (December 31, 2014 - $647,702:
Euro 225,000; CAD$ 72,300; $313,107) from stockholders, loans of $28,941 (CAD$ 27,600; $9,000)
(December 31, 2014 – $32,791: CAD$ 27,600; $9,000) from a related party and loans of $147,225
(CAD$ 10,000; $ 140,000) (December 31, 2014 – $ 148,620: CAD$ 10,000; $140,000) from unrelated
third parties. All of the loans bear interest at 6% per annum. The loans were made in 3 different
currencies, Euros, Canadian Dollars and US Dollars. All amounts reflected on these consolidated
financial statements are expressed in US Dollars. Repayment of the loans is due on closing of any future
financing arrangement by the Company. The balance of accrued interest of $330,536 and $317,295 is
included in accounts payable and accrued expenses at December 31, 2015, and December 31, 2014,
respectively. Interest expense recognized on these loans was $48,089 for the year ended December 31,
2015, compared to $50,390 for the year ended December 31, 2014.
At December 31, 2015, and December 31, 2014, the Company had amounts due to related parties of
$434,330 and $472,987, respectively. This amount includes $136,100 at December 31, 2015, and
December 31, 2014, payable to two former directors and a current director for services rendered during
2007. This amount is to be paid part in cash and part in stock at a future date with the number of common
shares determined by the fair value of the shares on the settlement date. The amounts owing bear no
interest, are unsecured, and have no fixed terms of repayment.
4. Common stock
We have a stock option plan in place under which we are authorized to grant options to executive officers
and directors, employees and consultants enabling them to acquire up to 10% of our issued and
outstanding common stock. Under the plan, the exercise price of each option equals the market price of
our stock as calculated on the date of grant. The options can be granted for a maximum term of 10 years.
Vesting terms are determined at the time of grant.
At December 31, 2015 and December 31, 2014, there were no stock options outstanding. No options
were granted, exercised or expired during the year ended December 31, 2015 or the year ended December
31, 2014.
5. Segmented Information
The Company has no reportable segments.
F-11
Arvana Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
(Expressed in U.S. Dollars)
6. Deferred Income Taxes
Income tax benefits attributable to losses from operations in the United States of America was $Nil for
the years ended December 31, 2015 and 2014, and differed from the amounts computed by applying the
United States of America federal income tax rate of 34 percent to pretax losses from operations as a result
of the following:
2015
2014
Income for the year before income taxes
$
92,650 $
54,290
Computed expected tax benefit
$
31,501 $
18,459
Non-deductible expenses
(60,242)
(49,414)
Change in valuation allowance
28,741
30,955
Income tax expense
$
- $
-
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 2015 and 2014 are presented below:
2015
2014
Deferred tax assets:
Net operating loss carry forwards - US
$
816,935
$
788,194
Valuation allowance
(816,935)
(788,194
)
Net deferred tax asset
$
-
$
-
The valuation allowance for deferred tax assets as of December 31, 2015, and 2014, was $816,935 and
$788,194, respectively. 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 assessing the realizability of deferred tax assets. In order to fully realize the
deferred tax asset attributable to net operating loss carryforwards, the Company will need to generate
future taxable income of approximately $2,400,000 (2014 - $2,300,000) prior to the expiration of the net
operating loss carry-forwards.
F-12
Arvana Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
(Expressed in U.S. Dollars)
7. Related Party Transactions
Other than amounts payable to related parties as disclosed below and in Note 3, the Company also
incurred directors’ fees of $1,600 (2014 - $1,600) and consulting fees of $7,894 (2014 - $7,138) paid to a
company controlled by our chief executive officer during the year ended December 31, 2015.
Our former chief executive officer and former director entered into a consulting arrangement on a month
to month basis that provided for a monthly fee of CAD 5,000. These amounts have been accrued and are
currently unpaid. This consulting arrangement ended on May 24, 2013. As of December 31, 2015, our
former chief executive officer was owed $60,480 (CAD 83,710) for services rendered as an officer,
compared to $72,158 (CAD 83,710) as at December 31, 2014. The amounts owing for past services have
been included in the total payable of $159,979 as of December 31, 2015 and $186,011 as of December 31, 2014 detailed below.
Our former chief financial officer and former director had entered into a consulting agreement on a month
to month basis that provides for a monthly fee of $2,000. These amounts have been accrued and are
currently unpaid. This consulting arrangement ended on June 14, 2013. As of December 31, 2015 and
2014 our former chief financial officer was owed $58,870 for services rendered as an officer.
Our former chief executive officer and former director entered into a debt assignment agreement effective
January 1, 2012, with a corporation with a former director in common and thereby assigned $146,493
(CAD 202,759) of unpaid amounts payable.
Our former chief executive officer and former director entered into a debt assignment agreement effective
January 1, 2012, with an unrelated third party and thereby assigned $53,357 of unpaid amounts payable
and $100,000 of unpaid loans.
Our former chief executive officer and former director is owed $159,979 for unsecured non-interest
bearing amounts due on demand loaned to the Company as of December 31, 2015, compared to $186,011
as of December 31, 2014.
Our former chief executive officer and former director is owed $28,941 for unsecured amounts bearing
6% interest due on demand loaned to the Company as of December 31, 2015, compared to $32,791 as of
December 31, 2014.
Our other former officers are owed a total of $79,381 for their prior services rendered as officers as at
December 31, 2015, compared to $92,006 as of December 31, 2014.
A director of the Company is owed $60,000 as of December 31, 2015 and December 31, 2014, for
services rendered as a director during 2007. Two former directors of the Company are owed $76,100 as of
December 31, 2015 and December 31, 2014 for services rendered as directors during 2007.
F-13
Arvana Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
(Expressed in U.S. Dollars)
8. Subsequent Events
The Company evaluated its December 31, 2015, financial statements for subsequent events through the
date the financial statements were issued. The Company is not aware of any subsequent events which
would require recognition or disclosure in the financial statements except as provided below:
On March 17, 2016, the Company entered into a non-binding Memorandum of Understanding (“MOU”)
with CaiE Food Partnership Ltd. (“CaiE”) for the purpose of acquiring CaiE as a wholly owned
subsidiary. The MOU anticipates that the Company will issue, subject to shareholder approval, a fully dilued 67% interest in its common stock in exchange for CaiE. The MOU further provides that CaiE lend the Company $50,000 on a convertible basis prior to the consummation of the transaction. CaiE had loaned the Company $20,000 as of the filing date of this report.
F-14
CONTROLS
AND PROCEDURES
Disclosure Controls and Procedures
In connection with the preparation of this annual report, an evaluation was carried out by the Company’s
management, with the participation of the chief executive officer and the chief financial officer, of the
effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of December 31, 2015.
Disclosure controls and procedures are designed to ensure that information required to be disclosed in
reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the Commission’s rules and forms, and that such information is
accumulated and communicated to management, including the chief executive officer and the chief
financial officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, the Company’s management concluded, as of the end of the period covered by
this report, that the Company’s disclosure controls and procedures were not effective in recording,
processing, summarizing, and reporting information required to be disclosed, within the time periods
specified in the Commission’s rules and forms, and such information was not accumulated and
communicated to management, including the chief executive officer and the chief financial officer, to
allow timely decisions regarding required disclosures.
Management's Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control
over financial reporting. The Company’s internal control over financial reporting is a process, under the
supervision of the chief executive officer and the chief financial officer, designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the Company’s financial
statements for external purposes in accordance with United States generally accepted accounting
principles (GAAP). Internal control over financial reporting includes those policies and procedures that:
§
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the Company’s assets.
§
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
the financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures are being made only in accordance with authorizations of management
and the board of directors.
§
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.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
16
The Company’s management conducted an assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013),
to determine whether there existed material weaknesses in internal control over financial reporting. A
material weakness is a control deficiency, or a combination of deficiencies in internal control over
financial reporting that creates a reasonable possibility that a material misstatement in annual or interim
financial statements will not be prevented or detected on a timely basis. The assessment identified a
material weakness in internal control over financial reporting. Since the assessment of the effectiveness of
our internal control over financial reporting did identify a material weakness, management considers its
internal control over financial reporting to be ineffective.
The matter involving internal control over financial reporting that our management considers to be a
material weakness is:
§
Failure to segregate the duties of chief executive officer and chief financial officer, which failure
could result in inadequate implementation and review of financial reporting control procedures.
The aforementioned material weaknesses were identified by our chief executive officer and chief
financial officer in connection with his review of our financial statements as of December 31, 2015.
Management believes that the material weakness set forth above did not have an effect on our financial
results. However, management believes that the failure to segregate the duties of chief executive officer
and chief financial officer could result in ineffective oversight of the monitoring of required internal
controls over financial reporting, which weakness could result in a material misstatement in our financial
statements in future periods.
Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and enhance our internal controls over
financial reporting, the Company plans to take the following measures, as soon as is practicable, subject
to the availability of capital and personnel resources:
§
Bifurcate the position of chief executive officer and chief financial officer into two separate
positions.
This annual report does not include an attestation report of our independent registered public accounting
firm regarding internal control over financial reporting. We were not required to have, nor have we,
engaged our independent registered public accounting firm to perform an audit of internal control over
financial reporting pursuant to the rules of the Commission that permit us to provide only management’s
report in this annual report.
Changes in internal control over financial reporting
During the year ended December 31, 2015, there has been no change in internal control over financial
reporting that has materially affected, or is reasonably likely to materially affect our internal control over
financial reporting.
9B.
OTHER
INFORMATION
Not applicable.
17