NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015
1. ORGANIZATION AND BUSINESS
Amanasu
Environment Corporation (“the Company”) is a Nevada
Corporation, formed in February 22, 1999. The Company’s
principal business, through its wholly owned subsidiary in Japan,
is in complete development of Environmental Technologies to improve
the quality of life for the future of the planet. The Company is
involved in all aspects of environmental technology development:
research and development, marketing, sales. It also produces and
acquires environmental technology and related patents. At this
time, the Company is not engaged in the commercial sale of any of
its licensed technologies. Its operations to date have been limited
to acquiring the technologies, conducting limited product
marketing, and testing the technologies for commercial
sale.
2. GOING CONCERN
The
Company's consolidated financial statements have been presented
assuming that the Company will continue as a going concern. As
shown in the consolidated financial statements, the Company has
negative working capital of 327,262 and stockholders’ deficit
attributable to the Company's stockholders of $327,028 at December
31, 2016, and has incurred operating losses since inception. These
conditions, among others, raise substantial doubt about the ability
of the Company to continue as a going concern. The financial
statements do not include any adjustments related to the
recoverability of assets and classification of liabilities that
might be necessary should the Company be unable to continue in
operation. The Company's plans, the realization of which cannot be
assured, are to obtain funds from the sale of securities or working
capital loans from its parent company or its officers.
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016 and 2015
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The
consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States,
and include the Company and its 91% owned subsidiary. All
significant inter-company accounts and transactions have been
eliminated.
Non-controlling Interest:
Non-controlling
interest represents third party ownership in the net assets of our
consolidated subsidiaries. For financial reporting purposes, the
assets and liabilities of our majority owned subsidiaries are
consolidated with those of our own, with any third party
investor’s interest shown as non-controlling
interest.
Cash and Cash Equivalents
For
purposes of the statements of cash flows, the Company considers all
short term debt securities purchased with a maturity of three
months or less to be cash equivalents.
Impairment of Long-Lived Assets
The
Company performs a review for potential impairment of long-lived
assets whenever an event or changes in circumstances indicate the
carrying value of an asset may not be recoverable.
Use of Estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ
from those estimated.
Foreign Currency Translation
The
Company’s subsidiary is located in Japan and use the currency
of Japan (Yen) as its functional currency. Assets and liabilities
are at the rates of exchange in effect at balance sheet dates 117.0
Japanese Yen to $ 1 USD at December 31, 2016 and 120.22 Japanese
Yen to $1 USD at December 31. 2015. Equity accounts are translated
at the exchange rates prevailing at the time of the transactions
that established the equity accounts; and income statement items
are translated at the average exchange rate for the period. There
were no revenues or expenses related to the operations in Japan for
the years ended December 31, 2016 and 2015. The resulting
translation adjustments are reported under other comprehensive
income
in accordance with ASC Topic
220, "Comprehensive Income." Gains and losses resulting from the
foreign currency transactions are reflected in the statements of
income.
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016 and 2015
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Development Stage Company
The
Company is considered to be in the development stage as defined in
ASC 915 “
Development Stage
Entities.
” The Company is devoting substantially all
of its efforts to the development of its business plans. The
Company has elected to adopt early application of Accounting
Standards Update No. 2014-10, Development Stage Entities (Topic
915): Elimination of Certain Financial Reporting Requirements; and
does not present or disclose inception-to-date information and
other remaining disclosure requirements of Topic 915.
Fair Value of Financial Instruments
The Company has adopted the provisions of ASC Topic 820, "Fair
Value Measurements and Disclosures", which defines fair value as
used in numerous accounting pronouncements, establishes a framework
for measuring fair value and expands disclosure of fair value
measurements.
ASC 820 defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants
on the measurement date. ASC 820 also establishes a fair
value hierarchy, which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value. ASC 820 describes three levels of
inputs that may be used to measure fair value:
Level 1 – quoted prices in active markets for identical
assets or liabilities.
Level 2 – quoted prices for similar assets and liabilities in
active markets or inputs that are observable
Level 3 – inputs that are unobservable (for example cash flow
modeling inputs based on assumptions)
The estimated fair value of certain financial instruments,
including cash, accrued expenses and advances from stockholders and
officers are carried at historical cost basis, which approximates
fair values because of the short-term maturing of these
instruments. We have no financial assets or liabilities measured at
fair value on a recurring basis.
Net Income (Loss) Per Share
The
Company computes net income (loss) per common share in accordance
with pronouncements of the Financial Accounting Standards Board
(FASB) and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under
these pronouncements, basic and diluted net income (loss) per
common share are computed by dividing the net income (loss)
available to common shareholders for each period by the weighted
average number of shares of common stock outstanding during the
period. Accordingly, the number of weighted average shares
outstanding as well as the amount of net income (loss) per share
are presented for basic and diluted per share calculations for all
periods reflected in the accompanying consolidated financial
statements.
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016 and 2015
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Income Taxes
The Company accounts for income taxes under the provisions of FASB
ASC Topic 740, “Income Tax,” which requires recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the consolidated
financial statements or tax returns. Deferred tax assets and
liabilities are recognized for the future tax consequence
attributable to the difference between the tax bases of assets and
liabilities and their reported amounts in the financial statements.
Deferred tax assets and liabilities are measured using the enacted
tax rate expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date. The Company establishes a valuation
when it is more likely than not that the assets will not be
recovered. ASC Topic 740.10.30 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s
financial statements and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return. ASC Topic 740.10.40 provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition. We have no material uncertain
tax positions for any of the reporting periods
presented.
Recent Accounting Pronouncements
The
Company does not expect recent accounting pronouncements to have a
material effect on its financial position, results of operations or
cash flows.
4. RELATED PARTY TRANSACTIONS
On July
21, 2015, the Board of Directors approved a $20,000 consulting fee
to Lina Maki a shareholder of the Company for her management
consulting time in the past. This fee is a shared expense between
the Company and its affiliate Amanasu Techno Holdings Corporation.
The Company has accrued its portion of the consulting fee of
$10,000, as of December 31, 2015.
The
Company also leases its office space from a shareholder of the
Company. At December 31, 2016 and December 31, 2015, amounts due to
the shareholder were $24,933 and $3,933, respectively. When the
lease payments are made by the Company’s affiliate or the
lease payments are made by the Company on behalf of affiliate, such
amounts are shown as a reduction in or addition to the amount due
to/from affiliate in the Company’s balance sheets. The
balance due from the Company’s affiliate was $5,911 and $nil
as of December 31, 2016 and 2015, respectively. The amount due to
the Company’s affiliate was $nil and $3,654 as of December
31, 2016 and 2015, respectively.
Amanasu
Corp. is the principal shareholder of the Company. The balance
due from Amanasu Corp. was $29,915 and $29,113 at December 31, 2016
and 2015, respectively. The balance due to Amanasu Corp. was
$50,000 and $50,000 at December 31, 2016 and 2015, respectively.
The amounts bear interest at 4.45%. Accrued interest has the
balance of $4,456 and $2,225 at December 31, 2016 and 2015,
respectively. Interest expense associated with these loans were
$2,231 and $2,225 for the years ended December 31, 2016 and 2015,
respectively. No terms for repayment have been established. As a
result, the amount is classified as a current liability. There was
no transactions between the Company and Amanasu Corp. during the
years ended December 31, 2016 and 2015.
The
Company receives periodic advances from its principal stockholders
and officers based upon the Company’s cash flow needs.
Amounts bear interest at 4.45%. At December 31, 2016 and
December 31, 2015, the balance due to stockholders were $228,855
and $207,355, respectively. The balance of accrued interest was
$17,735 and $8,200 at December 31, 2016 and 2015, respectively.
Interest expense associated with these loans were $9,535 and $5,109
for the years ended December 31, 2016 and 2015, respectively. No
terms for repayment have been established. As a result, the amount
is classified as a current liability.
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016 and 2015
5. RENTALS UNDER OPERATING LEASES
The
Company's executive offices are located at 445 Park Avenue Center
10th Floor New York, NY 10022, and Vancouver, British Columbia. The
total premises in Vancouver are 2,000 square feet and are leased at
a monthly rate of $2,500 and 5% tax under a lease agreement between
the Company and the Secretary of the Company which expires on
October 1, 2017. The Company shares the space with Amanasu Techno
Holding Corporation (“ATC”), a reporting company under
the Securities Exchange Act of 1934. Our major shareholder and
officer own approximately 86% of ATC’s outstanding shares of
common stock. ATC is responsible for 50% of the rent. The Company
recorded rental expense of $17,178 and $17,178 for the years ended
December 31, 2016 and 2015, respectively.
The
following is a schedule of approximate future minimum rental
payments for operating leases subsequent to the year ended December
31, 2016 based on the Company’s share of rent:
6. INCOME TAXES
The
Company has experienced losses since its inception. As a result, it
has incurred no income tax. The Company can carry forward operating
losses (NOL's) to apply against future profits for a period of
twenty years in the U.S. and 80% of NOL can be carryover for nine
years in Japan. The available NOL's totaled approximately $3.9
million in the U.S. and $1 million in Japan at December 31, 2016
which will expire in the years 2017 through 2036.
In
assessing the realization of deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will 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 making this
assessment. Based on the assessment, management has established a
full valuation allowance against all of the deferred tax asset
relating to NOLs for every period because it is more likely than
not that all of the deferred tax asset will not be
realized.
The tax
return for the years 2013, 2014, 2015 and 2016 are subject to audit
by the Internal Revenue Service.
The
reconciliation of income tax rate at the U.S. statutory rate of 34%
to the Company’s effective tax rate is as
follows:
|
|
|
Income tax expense
at statutory rate
|
34
%
|
34
%
|
Change in valuation
allowance
|
(34
%)
|
(34
%)
|
Income tax
expense
|
-
|
-
|
The tax
effects of temporary differences that give rise to the
Company’s net deferred tax assets as of December 31, 2016 are
as follows:
|
|
|
Net Operating Loss
Carryforwards
|
$
1,321,525
|
$
349,031
|
Valuation
Allowance
|
(1,321,525
)
|
(349,031
)
|
Balance
Recognized
|
$
-
|
$
0
|
The tax
effects of temporary differences that give rise to the
Company’s net deferred tax assets as of December 31, 2015 are
as follows:
|
|
|
Net Operating Loss
Carryforwards
|
$
1,293,601
|
$
349,031
|
Valuation
Allowance
|
(1,293,601
)
|
(349,031
)
|
Balance
Recognized
|
$
0
|
$
0
|
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016 and 2015
7. RESTATEMENT
The management of the Company has concluded that we should restate
our financial statements as of and for the year ended December 31,
2015 due to inaccurate allocation of expenses paid by an affiliated
company and miscalculation of accrued interest on stockholder
loans.
The effect of the restatement on specific line items in the
consolidated financial statements for the year ended December 31,
2015 is set forth in the table below:
|
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
$
25,375
|
$
(17,459
)
|
$
7,916
|
Accrued
expenses – related party
|
$
-0-
|
$
10,754
|
$
10,754
|
Accrued
interest - shareholders
|
$
-0
|
$
10,425
|
$
10,425
|
Due
to related parties
|
$
46,184
|
$
(21,643
)
|
$
24,541
|
Accumulated
deficit
|
$
(5,112,581
)
|
$
24,759
|
$
(5,087,822
)
|
Stockholders'
deficit
|
$
(269,528
)
|
$
24,759
|
$
(244,769
)
|
|
|
|
|
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
$
97,965
|
$
(25,810
)
|
$
72,155
|
Interest
expense - stockholders and officers
|
$
6,283
|
$
1,051
|
$
7,334
|
Net
loss
|
$
(104,248
)
|
$
24,759
|
$
(79,489
)
|
8. SUBSEQUENT EVENTS
The
Company evaluated all events subsequent to December 31, 2016
through the date of issuance of the financial statements and
concluded that there are no significant or material transactions to
be reported.