ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses. Such forward-looking statements include, among others, those statements including the words "expects," "anticipates," "intends," "believes" and similar language. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed herein as well as in the "Description of Business – Risk Factors" section in our Annual Report on Form 10-K, as filed on March 22, 2016. You should carefully review the risks described in our Annual Report and in other documents we file from time to time with the Securities and Exchange Commission. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.
Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.
All references in this Form 10-Q to the "Company," "Ariel Clean Energy," “Ariel,” "we," "us," or "our" are to Ariel Clean Energy, Inc.
Overview
We are currently seeking new business opportunities with established business entities for merger with or acquisition of a target business. In certain instances, a target business may wish to become our subsidiary, or may wish to contribute assets to us rather than merge. We have not yet begun negotiations or entered into any definitive agreements for potential new business opportunities, and there can be no assurance that we will be able to enter into any definitive agreements.
We may seek a business opportunity with entities which have recently commenced operations, or entities who wish to utilize the public marketplace in order to raise additional capital in order to expand business development activities, to develop a new product or service, or for other corporate purposes. We may acquire assets and establish wholly-owned subsidiaries in various businesses or acquire existing businesses as subsidiaries.
In implementing a structure for a particular business acquisition or opportunity, we may become a party to a merger, consolidation, reorganization, joint venture or licensing agreement with another corporation or entity. We may also acquire stock or assets of an existing business. Upon the consummation of a transaction, it is likely that our present management will no longer retain a majority control of our company. In addition, it is likely that as part of the terms of the acquisition transaction, one or more new officers and directors would join the Company.
We anticipate that the selection of a business opportunity in which to participate will be complex and without certainty of success. We believe that there are numerous firms in various industries seeking the perceived benefits of being a publicly registered corporation. Business opportunities may be available in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. Business opportunities that we believe are in the best interests of our company may be scarce, or we may be unable to obtain the ones that we want. We can provide no assurance that we will be able to locate compatible business opportunities.
We have not yet entered into any definitive agreements for potential new business opportunities. There can be no assurance that we will be able to identify an appropriate business opportunity or acquire the financing necessary to enable us to pursue a transaction if an appropriate opportunity is identified.
Currently, we do not have a source of revenue. We are not able to fund our cash requirements through our current operations. Historically, we have been able to raise a limited amount of capital through loans from a company controlled by our management, but we are uncertain about our continued ability to raise additional funds privately. We believe that our company may have difficulties raising capital until we locate a prospective business opportunity through which we can pursue our plan of operation. Further, we expect that any new acquisition or business opportunities that may become available to our Company will require additional financing. There can be no assurance that we will be able to acquire the financing necessary to enable us to pursue our plan of operation. If our Company requires additional financing and we are unable to acquire such funds, our business may fail. If we are unable to secure adequate capital to continue our acquisition efforts, our shareholders may lose some or all of their investment and our business may fail.
RESULTS OF OPERATIONS
During the three months ended March 31, 2016, we incurred general and administrative and professional fees of $13,971, compared to general and administrative and professional fees of $9,960 during the three months ended March 31, 2015.
Liquidity and Financial Condition
Working Capital
The following table provides selected financial data about our company as of March 31, 2016 and December 31, 2015 :
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
|
Working Capital
|
|
Balance Sheet Date
|
|
|
|
|
|
Increase (Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
$
|
10,000
|
|
|
$
|
2,500
|
|
|
$
|
7,500
|
|
Total Current Liabilities
|
|
|
(92,779
|
)
|
|
|
(69,286
|
)
|
|
|
(23,493
|
)
|
Working Capital Deficiency
|
|
$
|
(82,779
|
)
|
|
$
|
(66,786
|
)
|
|
$
|
(15,993
|
)
|
Our working capital decreased $15,993 as of March 31, 2016, from December 31, 2015. This was driven by an increase in current liabilities resulting from an increase in professional fees and continuous increase in note payable to a related company for
paying operating expenses
on behalf of the company.
Cash Flows
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
|
|
|
|
|
|
Cash Flows Used in Operating Activities
|
|
$
|
(17,910
|
)
|
|
$
|
(1,439
|
)
|
Cash Flows Provided by Financing Activities
|
|
$
|
17,910
|
|
|
$
|
1,439
|
|
Net Increase (Decrease) in Cash During Period
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. For the quarter ended March 31, 2016, net cash flows used in operating activities was $17,910 consisting of a net loss of $15,993 which was increased from cash used from an increase in current operating assets of $7,500 and an increase in trade payables of $3,161, accrued interest of $2,022 and accrued expenses of $400. For the quarter ended March 31, 2015, net cash flows used in operating activities was $1,439 consisting of a net loss of $10,737 which was decreased from cash used from a decrease in current operating assets of $795, and was reduced by amortization of $250,
loss on asset abandonment of $414
, and increased trade payables, accrued expenses and accrued interest totaling $7,839.
Cash Flows from Investing Activities
During the quarter ended March 31, 2016 and 2015, we have not used any cash for investing activities.
Cash Flows from Financing Activities
In the past we financed our operations solely from contributions to capital. During third quarter of 2014, we began financing our current operations with related party accounts and notes payable. For the quarter ended March 31, 2016 and 2015, we received cash proceeds of $17,910 and $1,439 from the related party for the continuous increase in
company's officers paying operating expenses
on behalf of the company.
Limited Operating History; Need for Additional Capital
There is no historical financial information about us upon which to base an evaluation of our performance. We are a development stage corporation and have not generated sufficient revenues from operations to fully implement our business plan. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, and competition from larger organizations. We will require equity and/or debt financing to provide for the capital required to implement our plans. We will require additional funds to operate for the next year.
We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations.
Capital Resources.
We had no material commitments for capital expenditures as of March 31, 2016 and 2015.
Off Balance Sheet Arrangements.
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
As of March 31, 2016, we have no off-balance sheet arrangements such as guarantees, retained or contingent interest in assets transferred, obligation under a derivative instrument and obligation arising out of or a variable interest in an unconsolidated entity.
Going Concern
Our auditors have issued a going concern opinion on our audited financial statements for the year ended December 31, 2015. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain sufficient debt or equity financing to fund our operating expenses. This is because we have not commenced planned principal operations. We have no actual or potential revenue source. There is no assurance we will ever reach this point. Our financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern.
The continuation of our business is dependent upon obtaining further financing or acquiring a new business and achieving a break even or profitable level of operations in that new business. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. It is not probable we would be able to obtaining traditional loans from financial institutions because we have no business operations, no assets and no revenues.
There are no assurances that we will be able to obtain additional financing through private placements, bank financing or other loans necessary to support our working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to us. We have been reliant on our majority shareholder to provide financial contributions and services to keep the company operating. We currently have no written or oral agreement from our majority shareholder to continue to provide financial contributions.
Critical Accounting Policy and Estimates
We prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared and actual results could differ from our estimates and such differences could be material. We have identified below the critical accounting policies which are assumptions made by management about matters that are highly uncertain and that are of critical importance in the presentation of our financial position, results of operations and cash flows. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical accounting policies and how they are applied in the preparation our financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
ITEM 4 CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
As of March 31, 2016, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee, (2) lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (3) inadequate segregation of duties consistent with control objectives; and (4) management is dominated by two individuals without adequate compensating controls. The aforementioned material weaknesses were identified by our Chief Executive and Financial Officer in connection with the review of our financial statements as of March 31, 2016.
Management believes that the material weaknesses set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.