Arvana Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2016 and 2015
(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
Companys
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,
2016,
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,
2016,
the
Company
recognized
net
loss
from
operations
of
$62,531.
At
December
31,
2016,
the
Company
had
a
working
capital
deficiency
of
$2,252,361.
These
conditions
raise
substantial
doubt about the Companys 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 Companys 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, 2016 and 2015
(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
Companys
fiscal
year
end
is
December
31.
The
accompanying
consolidated
financial
statements
of
Arvana
Inc.
for
the
years
ended
December
31,
2016
and
2015,
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, 2016 and 2015
(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, 2016 and December
31, 2015 follows:
December 31,
December 31,
2016
2015
Carrying
Fair
Carrying
Fair
Amount
Value
Amount
Value
Cash
$6,045
$6,045
$53
$53
Accounts payable and accrued liabilities
955,632
955,632
1,018,963
1,018,963
Convertible loan
35,417
35,417
-
-
Loans payable to stockholders
564,399
564,399
619,671
619,671
Loans payable to related party
129,556
129,556
28,941
28,941
Loans payable
47,448
47,448
147,225
147,225
Amounts due to related parties
525,954
525,954
434,330
434,330
The
following
table
presents
information
about
the
assets
that
are
measured
at
fair
value
on
a
recurring
basis
as
of
December
31,
2016,
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
2016
(Level 1)
(
L
evel 2)
(Level 3)
Assets:
Cash
$
6,045
$
6,045
$
$
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, 2016 and 2015
(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 consist 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) Beneficial conversion feature
From time
to
time,
the Company may issue
convertible
notes
that
may have
conversion
prices
that
create
an
embedded
beneficial
conversion
feature.
A
beneficial
conversion
feature
exists
on
the
date
a
convertible
note
is
issued
when
the
fair
value
of
the
underlying
common
stock
to
which
the
note
is
convertible
into
is
in
excess
of
the
remaining
unallocated
proceeds
of
the
note
after
first
considering
the
allocation
of
a
portion
of
the
note
proceeds
to
the
fair
value
of
any
attached
equity
instruments,
if
any
related
equity
instruments
were
granted
with
the
debt.
The
intrinsic
value
of
the
beneficial
conversion
feature
is recorded
as
a
debt
discount
with
a corresponding amount
to
additional
paid in
capital.
The debt
discount is amortized to interest expense over the life of the note using the effective interest method.
l) Earnings (loss) per share
Basic
earnings
(loss)
per
share
are
computed
using
the
weighted
average
number
of
common
shares
outstanding
during
the
year.
Diluted
earnings
(loss)
per
share
are
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, 2016 and 2015.
F-9
Arvana Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2016 and 2015
(Expressed in U.S. Dollars)
2. Summary of Significant Accounting Policies (continued)
m) Recent accounting pronouncements
In January 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
2016-01,
Financial
InstrumentsOverall
(Subtopic 825-10):
Recognition
and
Measurement
of
Financial
Assets
and
Financial
Liabilities.
The
update
requires
several
changes
with
respect
to
recognition
and
measurement
as
well
as
disclosure
requirements
with
respect
to
financial
instruments).
The
amendments
to
(ASU)
2016-01
are
effective
for
the
annual
period
ending
after
December
15,
2017,
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) 2016-01 will have on its balance sheet.
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
March 2016,
the Financial
Accounting Standards Board
(FASB) issued Accounting Standards Updates
ASU
2016-9,
CompensationStock Compensation
(Topic
718): Improvements
to
Employee
Share-Based
Payment
Accounting
,
requiring
certain
changes
to
recognition
and
measurement
as
well
as
disclosure
of
Share-Based
Payments.
The
standard
will
become
effective
for
the
Company beginning
January 1,
2017.
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
June
2016,
the
Financial
Accounting
Standards
Board
(FASB)
issued
Accounting
Standards
Updates
ASU 2016-13,
Financial
InstrumentsCredit Losses
(Topic
326):
Measurement of Credit Losses on
Financial Instruments
, requiring certain changes to the recognition and measurement
as well as disclosure
of
incurred
and
expected
credit
losses.
The
standard
will
become
effective
for
the
Company
beginning
January 1, 2020. 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 November
2016, the
Financial Accounting
Standards
Board
(FASB)
issued
Accounting
Standards
Updates ASU 2016-18, requiring that restricted cash and restricted cash equivalents be included with cash
and
cash
equivalents
when
reconciling
the
beginning-of-period
and
end-of-
period
total
cash
amounts
shown
on
the
statement
of
cash
flows.
Consequently,
transfers
between
cash
and
restricted
cash
will
not
be
presented
as
a
separate
line
item
in
the
operating,
investing
or
financing
sections
of
the
cash
flow
statement. The amendments
are
effective for public
business entities
for
fiscal years
beginning
after
December
15,
2017,
and
interim
periods
within
those
fiscal
years.
The
Company
considers
that
ASU
2016-18 will
have a
limited
impact on
the
presentation
of the statement of cash
flows.
F-10
Arvana Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2016 and 2015
(Expressed in U.S. Dollars)
3. Amounts Due to Related Parties and Loans Payable to Stockholders
From
February,
2007,
until
December
31,
2016,
the
Company
received
a
number
of
loans
from
stockholders,
related
parties
and
unrelated
third
parties.
As
of
December
31,
2016,
the
Company
had
received
loans
of
$564,399
(Euro
225,000;
CAD$
72,300;
$273,107)
(December
31,
2015
-
$619,671:
Euro
225,000; CAD$
72,300;
$323,107)
from stockholders, loans
of
$129,556
(CAD$
27,600;
$109,000)
(December 31,
2015 $28,941: CAD$ 27,600;
$9,000)
from a
related party and loans of $47,742 (CAD$
10,000;
$40,000)
(December
31,
2015
$147,225:
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
$349,186
and
$330,536
is
included
in
accounts
payable
and
accrued
expenses
at
December
31,
2016,
and
December
31,
2015,
respectively.
Interest
expense
recognized
on
these
loans
was
$46,530
for
the
year
ended
December
31,
2016,
compared
to
$48,089
for
the
year
ended
December
31,
2015,
respectively.
The
Company
also
received
a
convertible
loan
of
$50,000
from
CaiE
Food
Partnership
Ltd.
as
per
Note
8.
This
loan
bears
interest
of
10%
and
is
convertible
into
common
shares
of
the
Company
at
a
price
of
$0.20
per
share.
This
loan
matures
on
November 17, 2017.
At
December
31,
2016,
and
December
31,
2015,
the
Company
had
amounts
due
to
related
parties
of
$525,954 and $434,330, respectively.
This amount includes $136,100 at December 31, 2016,
and
December
31,
2015,
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. Stock Options
The Companys 2006 Stock Option Plan expired on June 4, 2016.
At
December
31,
2016
and
December
31,
2015,
there
were
no
stock
options
outstanding. No
options
were granted, exercised or expired during the year ended December 31, 2016 or the year ended December
31, 2015.
5. Common Stock
At
December
31,
2016
and
December
31,
2015,
the
Company
had
issued
148,900
shares
and
nil
shares
respectively.
Shares
issued during the
year ended December 31, 2016
were valued at
$0.23
a share in exchange
for
the
extinguishment
of
debt
in the
amount of
$74,450, resulting in
a
gain
on settlement
of debt
of
$40,203,
an
amount comprised of principal and accrued interest on a loan from 2008.
6. 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, 2016 and 2015
(Expressed in U.S. Dollars)
7. 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,
2016
and
2015,
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:
2016
2015
Income (loss) for the year before income taxes
$
(62,531
)
$
92,650
Computed expected tax benefit
$
(21,260)
$
31,501
Non-deductible expenses
1,968
(60,242)
Change in valuation allowance
19,292
28,741
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, 2016 and 2015 are presented below:
2016
2015
Deferred tax assets:
Net operating loss carry forwards - US
$
836,227 $
816,935
Valuation allowance
(836,227
)
(
816,935
)
Net deferred tax asset
$
-
$
-
The
valuation
allowance
for
deferred
tax
assets
as
of
December
31,
2016,
and
2015,
was
$836,227
and
$816,935,
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 $2,450,000
(2015
-
$2,400,000)
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, 2016 and 2015
(Expressed in U.S. Dollars)
8. Related Party Transactions
Other
than
amounts payable
to
related
parties
as
disclosed
below
and
in
Note
3, the
Company
also
incurred
consulting
fees
of
$9,631
(2015
-
$7,894)
paid
to
a
company
controlled
by
our
chief
executive
officer during the year ended December 31, 2016.
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,
2016,
our
former
chief
executive
officer
was
owed
$62,347
(CAD$83,710)
for
services
rendered
as
an
officer,
compared to $60,480
(CAD$83,710) as at December 31, 2015. The amounts owing for
past services have
been included in the total payable of $249,585 as of December 31, 2016 and $159,979 as of December 31,
2015 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,
2016
and
December
31,
2015
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
$151,015
(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 $249,585
for
unsecured
non-interest
bearing amounts due on demand loaned to the Company as of December 31, 2016, compared to $159,979
as of December 31, 2015.
Our
former
chief
executive
officer
and
former
director
is
owed
$129,556
for
unsecured
amounts
bearing
6%
interest
due
on
demand loaned
to
the
Company as
of December
31,
2016,
compared
to
$28,941
as
of
December 31, 2015.
Our
former
chief
executive officer
and former director
entered into a
debt assignment agreement
to
assume $100,000 in unpaid loans and $83,357 in unpaid amounts payable from a third party.
Our
other
former
officers
are
owed
a
total
of
$81,399
for
their
prior
services
rendered
as
officers
as
at
December 31, 2016, compared to $79,381 as of December 31, 2015.
A
director
of
the
Company
is
owed
$60,000
as
of
December
31,
2016
and
December
31,
2015,
for
services rendered as a director during 2007. Two former directors of the Company are owed $76,100 as of
December 31, 2016 and December 31, 2015 for services rendered as directors during 2007.
F-13
Arvana Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2016 and 2015
(Expressed in U.S. Dollars)
9. Convertible Loan
On May 18, 2016, the Company entered into a Convertible Promissory Note (Convertible Note)
agreement
pursuant
to
which
the
Company
received
$50,000
(2015
-
$Nil)
from
CaiE
Food
Partnership
Ltd. (CaiE). The $50,000 Convertible Note is convertible into common stock, in whole or in part, at any
time
and
from time
to time
before
maturity at
the
option
of
the
holder
at
a
fixed
price
of
$0.20
per
share.
Due
to
the
conversion
price
being
lower
than
the
closing
share
price
on
the
grant
date,
a
beneficial
conversion
feature
resulted
from
this
issuance.
The
Convertible
Note
accrues
interest
at
a
rate
equal
to
10% per year. During the year ended December 31, 2016 and 2015, $10,417 and $Nil of the discount was
amortized,
respectively.
As
at
December
31,
2016
and
2015,
the
balance
of
the
Convertible
Note
was
$35,417 and $Nil respectively.
10. Subsequent Events
The
Company
evaluated
its
December
31,
2016,
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
24,
2017,
the
Company received
an
additional
loan
from
CaiE
in
the
amount
of
$17,800
with
terms and conditions of this loan to be finalized at a later date.
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 Companys
management, with the participation of the chief executive officer and the chief financial officer, of the
effectiveness of the Companys 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, 2016.
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 Commissions 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 Companys management concluded, as of the end of the period covered by
this report, that the Companys 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 Commissions 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 Companys management is responsible for establishing and maintaining adequate internal control
over financial reporting. The Companys 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 Companys 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 Companys 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 Companys 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 Companys management conducted an assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2016, 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, 2016.
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.
Managements 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 managements
report in this annual report.
Changes in internal control over financial reporting
During the year ended December 31, 2016, 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