(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (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.
x
Yes
¨
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x
Yes
¨
No
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
x
Yes
¨
No
As of August 10, 2016, there were 99,750,097 shares of the Issuer's common stock, par value $0.000006 outstanding.
ARIEL CLEAN ENERGY, INC.
Balance Sheets
(Unaudited)
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
9,346
|
|
|
$
|
2,500
|
|
|
Total Current Assets
|
|
|
9,346
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
9,346
|
|
|
$
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,326
|
|
|
$
|
3,510
|
|
|
Accrued expenses
|
|
|
800
|
|
|
|
-
|
|
|
Accrued interest - related party
|
|
|
8,754
|
|
|
|
4,191
|
|
|
Note payable - related party
|
|
|
88,468
|
|
|
|
61,585
|
|
|
Total Current Liabilities
|
|
|
102,348
|
|
|
|
69,286
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
102,348
|
|
|
|
69,286
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
Preferred stock: 50,000,000 authorized; $0.000006 par value; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Common stock Class A: 1,000,000,000 authorized; $0.000006 par value; 99,750,097 shares issued and outstanding
|
|
|
599
|
|
|
|
599
|
|
|
Common stock Class B: 200,000,000 authorized; $0.000006 par value; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Additional paid-in capital
|
|
|
41,209
|
|
|
|
41,209
|
|
|
Accumulated deficit
|
|
|
(134,810
|
)
|
|
|
(108,594
|
)
|
|
Total Stockholders' Deficit
|
|
|
(93,002
|
)
|
|
|
(66,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
9,346
|
|
|
$
|
2,500
|
|
The accompanying notes are an integral part of these unaudited financial statements.
ARIEL CLEAN ENERGY, INC.
Statements of Operations
(Unaudited)
|
|
|
For the three months ended
|
|
|
For the six months ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
2,882
|
|
|
|
4,819
|
|
|
|
7,417
|
|
|
|
8,161
|
|
|
Professional fees
|
|
|
4,800
|
|
|
|
14,939
|
|
|
|
14,236
|
|
|
|
21,557
|
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250
|
|
|
Loss on abandonment of assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
414
|
|
|
Total operating expenses
|
|
|
7,682
|
|
|
|
19,758
|
|
|
|
21,653
|
|
|
|
30,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(7,682
|
)
|
|
|
(19,758
|
)
|
|
|
(21,653
|
)
|
|
|
(30,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2,541
|
)
|
|
|
(836
|
)
|
|
|
(4,563
|
)
|
|
|
(949
|
)
|
|
Total other expense
|
|
|
(2,541
|
)
|
|
|
(836
|
)
|
|
|
(4,563
|
)
|
|
|
(949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
|
(10,223
|
)
|
|
|
(20,594
|
)
|
|
|
(26,216
|
)
|
|
|
(31,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,223
|
)
|
|
$
|
(20,594
|
)
|
|
$
|
(26,216
|
)
|
|
$
|
(31,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and dilutive net loss per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic and diluted
|
|
|
99,750,097
|
|
|
|
99,750,097
|
|
|
|
99,750,097
|
|
|
|
99,750,097
|
|
The accompanying notes are an integral part of these unaudited financial statements.
ARIEL CLEAN ENERGY, INC.
Statements of Cash Flows
(Unaudited)
|
|
|
For the six months ended
|
|
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(26,216
|
)
|
|
$
|
(31,331
|
)
|
|
Adjustments to reconcile net loss to net cash used in operations:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
250
|
|
|
Loss on abandonment of assets
|
|
|
-
|
|
|
|
414
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(6,846
|
)
|
|
|
(6,705
|
)
|
|
Accounts payable
|
|
|
27,699
|
|
|
|
41,366
|
|
|
Accrued expenses
|
|
|
800
|
|
|
|
(4,943
|
)
|
|
Accrued interest - related party
|
|
|
4,563
|
|
|
|
949
|
|
|
Net Cash Used in Operating Activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
-
|
|
|
|
-
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Cash paid for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing transactions:
|
|
|
|
|
|
|
|
|
|
Note payable - related party
|
|
$
|
26,883
|
|
|
$
|
36,717
|
|
The accompanying notes are an integral part of these unaudited financial statements.
ARIEL CLEAN ENERGY, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2016
Note 1 - Organization and Description of Business
Ariel Clean Energy, Inc. ("Ariel" or "the Company") began its existence as the Pacific Development Corporation which was incorporated under the laws of the State of Colorado on September 21, 1992. On March 23, 2000, Pacific and Cheshire Holdings, Inc. were merged into a single corporation existing under the laws of the State of Delaware, with Cheshire Holdings, Inc. being the surviving corporation. The name of the surviving corporation was changed to Cheshire Distributors, Inc. On July 17, 2003, Cheshire Distributors, Inc. changed its name to LMIC, Inc. and on October 31, 2012 changed its name to Z Holdings, Inc. Ariel Clean Energy, Inc. adopted fresh start accounting on May 6, 2005 with an objective to acquire or merge with an operating business.
Big Time Acquisition (BTA) was originally organized to acquire a target company or business seeking the perceived advantages of being a publicly held corporation. On October 29, 2012, by written consent in lieu of a meeting, the respective Boards of Directors and requisite majority shareholders of Ariel and Big Time Acquisition, Inc. approved the merger of Big Time Acquisition, Inc. into Ariel with Ariel as the surviving corporation.
Immediately before the effective time of merger, any and all outstanding shares of Big Time Acquisition, Inc. held by Ariel Clean Energy, Inc. were canceled, and at the closing of the Merger Agreement, Ariel issued a total of 90,000 restricted Class A common shares to the former shareholders of Big Time Acquisition, Inc. for their then outstanding shares of Big Time common stock. In the share exchange, Ariel received 90,000 shares of Big Time common stock representing 100% of the issued and outstanding shares of Big Time, which were deemed to be canceled. As a result of the Merger Agreement, Ariel is now the surviving company of the merger pursuant to Delaware General Corporate Law (DGCL), and deemed to be Successor Registrant. The issuance of such shares was exempt from registration pursuant to Section 4(2) of the Securities Act, and Regulation D promulgated thereunder.
On July 15, 2015, the Company's Board of Directors approved to amend the Articles of Incorporation to change the Company's name from Z Holdings, Inc. to Ariel Clean Energy, Inc.
Ariel Clean Energy, Inc. has a December 31 year end.
Note 2 - Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the periods presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been made in order to make the financial statements presented not misleading. The results of operations for such interim periods are not necessarily indicative of operations for a full year. The accompanying unaudited interim financial statements should be read in conjunction with the financial statements and related notes included in the Company's Annual Report on Form 10-K, for the year ended December 31, 2015, as filed with the SEC on March 22, 2016.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation
Going Concern and Liquidity Considerations
The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established a source of revenue. As a result, the Company has continued net losses, negative operating cash flows, an accumulated deficit, and a capital deficiency. The ability of the Company to continue as a going concern for the next twelve months is dependent on the Company being able to fund current operations until it achieves a successful merger or acquisition. If the Company is unable to obtain sufficient funding, it could be forced to cease operations. These factors raise substantial doubt about its ability to continue as a going concern.
It is management's plan to fund current operations, which consists primarily of maintaining registration status, with loans and capital contributions from management, directors, and shareholders. Some of these loans will be from related parties. With no principal operations or revenues traditional financing and equity sales are not readily available as viable options and therefore not part of management's plan.
There is no assurance that the Company will be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company. Management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.
The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 3 - Related Party Transactions
Note Payable
During the six month period ended June 30, 2016, a corporation controlled by the company's officers paid operating expenses totaling $26, 883 on behalf of the Company. Unpaid balances are due on demand and accrue an annual interest rate of 12%.
|
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
|
Note payable
|
|
$
|
88,468
|
|
|
$
|
61,585
|
|
|
Accrued interest
|
|
$
|
8,754
|
|
|
$
|
4,191
|
|
The Company plans to pay the note payable and accrued interest as cash flows become available.
Other
The Company utilizes home office space at the residence of our President to conduct activities at no charge.
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 who 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 six months ended June 30, 2016, we incurred operating expenses of $21,653, compared to operating expenses of $29,968 during the six months ended June 30, 2015.
Liquidity and Financial Condition
Working Capital
The following table provides selected financial data about our company as of June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
Working Capital
|
|
|
Balance Sheet Date
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
|
Increase
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
$
|
9,346
|
|
|
$
|
2,500
|
|
|
$
|
6,846
|
|
|
Total Current Liabilities
|
|
|
(102,348
|
)
|
|
|
(69,286
|
)
|
|
|
(33,062
|
)
|
|
Working Capital Deficiency
|
|
$
|
(93,002
|
)
|
|
$
|
(66,786
|
)
|
|
$
|
(26,216
|
)
|
Our working capital decreased $26,216 as of June 30, 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
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
Cash Flows Used in Operating Activities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Cash Flows Provided by Financing Activities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Net Increase (Decrease) in Cash During Period
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. For the six months ended June 30, 2016, net cash flows used in operating activities was $0 consisting of a net loss of $26,216 which was increased from cash used from an increase in current operating assets of $6,846 and an increase in trade payables of $816, increase of note payable to a related party of $26,883, accrued interest of $4,563 and accrued expenses of $800. For the six months ended June 30, 2015, net cash flows used in operating activities was $0 consisting of a net loss of $31,331 which was increased from cash used from an increase in current operating assets of $6,705 and was reduced by amortization of $250, loss on asset abandonment of $414, and increased trade payables of $4,649, increase of note payable to a related party of $36,717, decreased accrued expenses of $4,943 and increased accrued interest of $949.
Cash Flows from Investing Activities
During the six months ended June 30, 2016 and 2015, we have not used any cash for investing activities.
Cash Flows from Financing Activities
During the six months ended June 30, 2016 and 2015, we have not received any cash from financing activities.
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 June 30, 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 June 30, 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 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to a smaller reporting company.
ITEM 4 - CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
As of June 30, 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 June 30, 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 June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.