NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
1. ORGANIZATION AND BUSINESS
Amanasu
Environment Corporation (the “Company”) is a Nevada
Corporation, formed on February 22, 1999. The Company’s
principal business, through its wholly owned subsidiary in Japan,
is to complete the 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 and 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
sales.
2. GOING CONCERN
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
shown in the consolidated financial statements, the Company had a
working capital deficiency of $708,843 and an accumulated deficit
of $5,539,235 at December 31, 2020, and a record of continuing
losses. These factors, among others, raise substantial doubt about
the ability of the Company to continue as a going concern. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this
uncertainty.
The
Company's present plans, the realization of which cannot be
assured, to overcome these difficulties include, but are not
limited to, a continuing effort to investigate business
acquisitions and joint ventures. The Company will also continue to
investigate and develop technologies, which the Company believes
have great market potential. As such, the Company may need to
pursue additional sources of financing or will need to rely on
loans from stockholders and officers to support the operations.
There can be no assurances that the Company can secure additional
financing.
The
Company’s operations may be affected by the recent and
ongoing outbreak of the coronavirus disease 2019 (COVID-19), which
in March 2020 was declared a pandemic by the World Health
Organiztion. The ultimate disruption which may be caused by the
outbreak is uncertain, however, it may result in a material adverse
impact on the Company’s financial position and cash flows.
Possible areas that may be affected include, but are not limited
to, disruption to the Company’s ability to obtain funding and
performing further research on certain projects.
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 wholly-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 accounting
principles generally accepted in the United States of America
requires that management 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 reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2020 and 2019
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Reclassification
Certain
last year’s amounts were reclassified to conform with current
year presentation.
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.
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
amounts are translated at the rate of exchange in effect at balance
sheet dates, 103.25 Japanese Yen to $1.00 USD at December 31, 2020
and 108.61 Japanese Yen to $1.00 USD at December 31, 2019. 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, 2020 and 2019.
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 consolidated
statements of comprehensive loss.
Accounting for 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.
Fair Value of Financial Instruments
The
Company has adopted the provisions of ASC Topic 820, Fair Value
Measurements and Disclosures”, which defines the fair value
as used in numerous 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 loans from stockholder 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.
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2020 and 2019
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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.
New Accounting Pronouncements
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes -
simplifying the accounting for income taxes (Topic 740), which is
meant to simplify the accounting for income taxes by removing
certain exceptions to the general principles in Topic 740, Income
Taxes. The amendment also improves consistent application and
simplify GAAP for other areas of Topic 740 by clarifying and
amending existing guidance. This ASU is effective January 1,
2021, and we do not expect the adoption of this standard to have a
significant impact on our financial position and results of
operations.
No
other recently issued accounting pronouncements had or are expected
to have a material impact on the Company’s consolidated
financial statements.
4. RELATED PARTY TRANSACTIONS
The
Company receives periodic loans from its principal stockholders and
officers based upon the Company’s cash flow needs. There is
no written loan agreement between the Company and the stockholders
and officers. All loans bear interest at 4.45%, due on demand and
no repayment terms have been established. As a result, the amount
is classified as a current liability. During the years ended
December 31, 2020 and 2019, the Company borrowed $3,530 and
$33,850, respectively, from a stockholder. The balances due as of
December 31, 2020 and 2019 were $394,100 and $390,570,
respectively. Interest expense associated with these loans were
$17,739 and $17,110 for the years ended December 31, 2020 and 2019,
respectively. Accrued interest on these loans were $79,286 and
$61,547 at December 31, 2020 and 2019, respectively.
The
Company has an arrangement with a stockholder of the Company to
perform consulting services. The agreement is not written, and no
payment terms have been established. The fee is $10,000 annually.
As of December 31, 2020, and 2019 amounts due to the stockholder
were $40,000 and $30,000, respectively. For the most part, these
payments are made by the Company’s affiliate. As such, when
the payments are made by the Company’s affiliate or the lease
payments are made by the Company on behalf of the affiliate, such
amounts are shown as a reduction in or addition to the amount due
from affiliate in the accompanying balance sheets.
The Company's executive offices are located at 244 Fifth Avenue 2nd
Floor New York, NY 10001 and Vancouver, British Columbia. The total
premises in Vancouver are 2,000 square feet and are leased from a
stockholder at a monthly rate of $2,500 under a lease agreement
which expired October 1, 2021. At
December 31, 2020 and 2019, amounts due to the stockholder were
$60,371 and $44,620, respectively. The Company shares the space with Amanasu Techno
Holdings Corp, a reporting company under the Securities Exchange
Act of 1934. Amanasu Techno Holdings Corp is responsible for 50% of
the rent.
The
office in New York is rented at the rate of $360 each year and is
also shared with Amanasu Techno Holdings Corp. In addition, the
Company maintains an office at Suite 905, 1-6-1 Senzoku Taito-Ku
Tokyo Japan. The net balance due to Amanasu Techno Holdings at
December 31, 2020 was $11,338 as compared to an amount due from
Amanasu Techno Holdings of $24,509 at December 31
2019.
Amanasu
Corp. is the principle shareholder of the Company. The balance due
to Amanasu Corp. was $50,000 and $50,000 at December 31, 2020 and
2019, respectively. No terms of payment have been established and,
as a result, the amount is classified as a current liability. The
amounts bear interest of 4.45% annually. Interest expenses
associated with this loan were $2,263 and $2,256 for the years
ended December 31, 2020 and 2019, respectively. Accrued interest on
this loan was $13,480 and $11,217 at December 31, 2020 and 2019,
respectively.
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2020 and 2019
5. OPERATING LEASE LIABILITY
The
Company's executive offices are located at 244 Fifth Avenue 2nd
Floor New York, NY 10001 and Vancouver, British Columbia. The total
premises in Vancouver are 2,000 square feet and are leased at a
monthly rate of $2,500 under a lease agreement between the Company
and the Secretary of the Company's board of directors and the
stockholders of the Company which expires October 1, 2021. The
Company shares the space with ATH, a reporting company under the
Securities Exchange Act of 1934. Our major shareholder and officer
own approximately 86% of ATH’s outstanding shares of common
stock. ATH is responsible for 50% of the rent or $1,250 each
month.
The
Company's lease does not provide an implicit rate, and therefore
the Company uses an estimated incremental borrowing rate as the
discount rate when measuring operating lease liabilities. The
incremental borrowing rate represents an estimate of the interest
rate the Company would incur at lease commencement to borrow an
amount equal to the lease payments on a collateralized basis over
the term of a lease. The Company used incremental borrowing rate of
5% for calculation of operating lease liabilties.
Upon
adoption of ASC 842, Leases, on January 1, 2019 the Company
recorded $10,353 of right-of-use assets and related operating
leases liabilities. This asset was fully amortized as of September
30, 2019.
On October 1, 2019, the Company commenced a new lease with same
stockholder from October 1, 2019 to September 30, 2021 with a
monthly payment of approximately $1,250. As such, the Company
recorded $28,492 of right-of-use assets and related
operating leases liabilities. For the year ended December 31, 2020,
the Company amortized $14,065 of right-of-use assets.
The
following table reconciles the undiscounted future minimum lease
under the non-cancelable operating leases with terms of more than
one year to the total lease liabilities recognized on the
consolidated balance sheet as of December 31, 2020:
|
2021
|
$11,250
|
|
Total
undiscounted future minimum lease payments
|
11,250
|
|
Less:
Difference between undiscounted lease payments and discounted lease
liabilities
|
(231)
|
|
Total
operating lease liabilities
|
11,019
|
|
Less
current portion
|
(11,019)
|
|
Long-term
lease liabilities
|
$-0-
|
Total
rent expense under operating leases for the year ended December 31,
2020 was $15,929 as compared to $15,948 for the year ended December
31, 2019.
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2020 and 2019
6. INCOME TAXES
In accordance with the current tax law in the U.S., the Company is
subject to a corporate tax rate of 21% on its taxable income. No
provision for taxes is made for U.S. income tax for the years ended
December 31, 2020 and 2019 as it had no taxable income. The Company
can carry forward net operating losses (NOL’s) to be applied
against future profits for a period of twenty years in the U.S. and
80% of the NOL can be carried forward for three years in
Japan.
The
Company had NOL carryforwards of approximately $3.73 million in the
U.S. at December 31, 2020. Approximately $3.48 million in the U.S.
will expire in the years 2021 through 2037, and $0.25 million can
be carried forward indefinitely.
Deferred
income taxes are recorded to reflect the tax consequences or
benefits to future years of any temporary differences between the
tax basis of assets and liabilities, and of net operating loss
carryforwards. 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 us 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 assets
relating to the NOL’s for every period because it is more
likely than not that all of the deferred tax assets will not be
realized.
The tax
returns for the years 2017, 2018, and 2019 are subject to audit by
the Internal Revenue Service.
The
reconciliation of income tax at the U.S. statutory rate of 21% to
the Company’s effective tax rate is as follows:
|
|
|
|
|
Income tax expense
at statutory rate
|
21%
|
21%
|
|
Change in valuation
allowance
|
(21%)
|
(21%)
|
|
Income tax
expense
|
-
|
-
|
The tax
effects of temporary differences that give rise to the
Company’s net deferred tax assets as of December 31, 2020 are
as follows:
|
|
|
|
|
Net Operating Loss
Carryforwards
|
$784,464
|
$-0-
|
|
Valuation
Allowance
|
(784,464)
|
-0-
|
|
Deferred Tax
Assets
|
$-0-
|
$-0-
|
The tax
effects of temporary differences that give rise to the
Company’s net deferred tax assets as of December 31, 2019 are
as follows:
|
|
|
|
|
Net Operating Loss
Carryforwards
|
$814,313
|
$1,991
|
|
Valuation
Allowance
|
(814,313)
|
(1,991)
|
|
Deferred Tax
Assets
|
$-0-
|
$-0-
|
7. SUBSEQUENT EVENT
The Company evaluated subsequent events or transaction that
occurred after December 31, 2020 through the issuance date of the
accompanying financial statements and determined that no
significant subsequent event need to be recognized or
disclosed.