Notes
to Consolidated Financial Statements
For the
Years Ended December 31, 2017 and 2016
(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 Company’s 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 in combination with a reverse split of one share for every twenty shares outstanding.
These
consolidated financial statements for the year ended December 31, 2017, 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, 2017, the Company recognized net loss from operations
of $224,914. At December 31, 2017, the Company had a working capital deficiency of $2,477,275. These conditions raise substantial
doubt about the Company’s 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 Company’s 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.
Arvana
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
For the
Years Ended December 31, 2017 and 2016
(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 expenses. Our fiscal year end is December
31. The accompanying consolidated financial statements of Arvana Inc. for the years ended December 31, 2017 and 2016, 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
loss.
e)
Comprehensive income (loss)
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.
Arvana
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
For the
Years Ended December 31, 2017 and 2016
(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, convertible loan, loans payable and amounts due to related parties - 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, 2017 and December 31, 2016 follows:
|
|
December
31,
2017
|
|
December
31,
2016
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Cash
|
|
$
|
4,730
|
|
|
$
|
4,730
|
|
|
$
|
6,045
|
|
|
$
|
6,045
|
|
Accounts payable and accrued liabilities
|
|
|
1,075,409
|
|
|
|
1,075,409
|
|
|
|
955,632
|
|
|
|
955,632
|
|
Convertible loan
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
35,417
|
|
|
|
35,417
|
|
Loans
payable to stockholders
|
|
|
600,651
|
|
|
|
600,651
|
|
|
|
564,399
|
|
|
|
564,399
|
|
Loans payable to related party
|
|
|
131,000
|
|
|
|
131,000
|
|
|
|
129,556
|
|
|
|
129,556
|
|
Loans payable
|
|
|
75,813
|
|
|
|
75,813
|
|
|
|
47,448
|
|
|
|
47,448
|
|
Amounts
due to related parties
|
|
$
|
549,132
|
|
|
$
|
549,132
|
|
|
$
|
525,954
|
|
|
$
|
525,954
|
|
The
following table presents information about the assets that are measured at fair value on a recurring basis as of December 31,
2017, 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:
|
|
December
31,
2017
|
|
Quoted
Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,730
|
|
|
$
|
4,730
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The
fair value of cash is determined through market, observable and corroborated sources.
Arvana
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
For the
Years Ended December 31, 2017 and 2016
(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 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, 2017
and 2016.
Arvana
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
For the
Years Ended December 31, 2017 and 2016
(Expressed
in U.S. Dollars)
2.
Summary of Significant Accounting Policies (continued)
m)
Recent accounting pronouncements
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
June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2016-13,
Financial Instruments—Credit
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.
Arvana
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
For the
Years Ended December 31, 2017 and 2016
(Expressed
in U.S. Dollars)
3.
Loans Payable
As
of December 31, 2017, the Company had received loans of $600,651 (Euro 225,000; CAD$ 72,300; $273,107) (December 31, 2016 - $564,399:
Euro 225,000; CAD$ 72,300; $273,107) from stockholders, loans of $131,000 (CAD$ 27,600; $109,000) (December 31, 2016 – $129,556:
CAD$ 27,600; $109,000) from a related party and loans of $75,813 (CAD$ 10,000; $67,800) (December 31, 2016 – $47,742: CAD$
10,000; $40,000) from unrelated third parties. All of the loans bear interest at 6% per annum except for $27,800 in loans to unrelated
third parties which bears interest at 10% 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 $425,405 and $349,186
is included in accounts payable and accrued expenses at December 31, 2017, and December 31, 2016, respectively. Interest expense
recognized on these loans was $60,553 for the year ended December 31, 2017, compared to $46,530 for the year ended December 31,
2016, respectively. Interest expense includes $14,583 in accretion of the discount on the convertible debt during the year ended
December 31, 2017, compared to $10,417 for the year ended December 31, 2016. The Company also received a convertible loan of $50,000
from CaiE Food Partnership Ltd. (“CaiE”) as per Note 9. 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 matured on March 31, 2018 pursuant to an amending agreement dated
November 17, 2017. Interest expense recognized on the CaiE loan was $5,000 for the year ended December 31, 2017, compared to $3,383
for the year ended December 31, 2016.
4.
Stock Options
The
Company’s 2006 Stock Option Plan expired on June 4, 2016.
At
December 31, 2017 and December 31, 2016, there were no stock options outstanding. No options were granted, exercised or expired
during the year ended December 31, 2017 or the year ended December 31, 2016.
5.
Common Stock
During
the years ended December 31, 2017 and December 31, 2016, the Company issued nil shares and 148,900 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.
Arvana
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
For the
Years Ended December 31, 2017 and 2016
(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,
2017 and 2016, 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:
|
|
2017
|
|
2016
|
Loss for the year before income
taxes
|
|
$
|
(224,914
|
)
|
|
$
|
(62,531
|
)
|
Computed expected tax benefit
|
|
$
|
(76,471
|
)
|
|
$
|
(21,260
|
)
|
Non-deductible expenses
|
|
|
40,926
|
|
|
|
1,968
|
|
Change in tax rates
|
|
|
319,734
|
|
|
|
—
|
|
True up of prior-year provision to statutory tax returns
|
|
|
530,084
|
|
|
|
—
|
|
Change in valuation allowance
|
|
|
(814,273
|
)
|
|
|
19,292
|
|
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, 2017 and 2016 are presented below:
|
|
2017
|
|
2016
|
Deferred tax assets (tax rate: 21 percent):
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
- US
|
|
$
|
21,954
|
|
|
$
|
836,227
|
|
Valuation allowance
|
|
|
(21,954
|
)
|
|
|
(836,227
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The
valuation allowance for deferred tax assets as of December 31, 2017, and 2016, was $871,772 and $836,227, 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 $100,000 (2016 - $2,450,000) prior
to the expiration of the net operating loss carry-forwards.
Arvana
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
For the
Years Ended December 31, 2017 and 2016
(Expressed
in U.S. Dollars)
8.
Related Party Transactions and Amounts Due to Related Parties
At
December 31, 2017, and December 31, 2016, the Company had amounts due to related parties of $549,132 and $525,954, respectively.
This amount includes $136,100 at December 31, 2017, and December 31, 2016, 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.
The
Company incurred consulting fees of $8,981 (2016 - $9,631) paid to a company controlled by our chief executive officer during
the year ended December 31, 2017.
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, 2017, our former chief executive officer was owed $268,029 and $249,585 as of December 31, 2016
which are unsecured non-interest bearing amounts due on demand.
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, 2017 and December 31, 2016 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 $131,000 for unsecured amounts bearing 6% interest due on demand loaned
to the Company as of December 31, 2017, compared to $129,556 as of December 31, 2016.
Our
former chief executive officer and former director entered into a debt assignment agreement effective December 31, 2016, 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 $86,133 for their prior services rendered as officers as at December 31, 2017, compared
to $81,399 as of December 31, 2016.
A
director of the Company is owed $60,000 as of December 31, 2017 and December 31, 2016, for services rendered as a director during
2007. Two former directors of the Company are owed $76,100 as of December 31, 2017 and December 31, 2016 for services rendered
as directors during 2007.
Arvana
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
For the
Years Ended December 31, 2017 and 2016
(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 from 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 issuance date, a beneficial conversion feature was recognized as a discount
against the convertible note. The Convertible Note accrues interest at a rate equal to 10% per year. During the year ended December
31, 2017 and 2016, $14,583 and $10,417 of the discount was amortized as interest expense, respectively. Interest expense recognized
on this loan was $5,000 for the year ended December 31, 2017, compared to $3,383 for the year ended December 31, 2016, respectively.
As at December 31, 2017 and 2016, the balance of the Convertible Note was $50,000 and $35,417 respectively. On November 17, 2017
the Company entered into an amending agreement to extend the maturity date to March 31, 2018, all other terms remained unchanged.
10.
Subsequent Events
The
Company evaluated its December 31, 2017, 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 31, 2018, the Company entered into an amending agreement to extend the maturity date of the Convertible Note to March 31,
2019. All other terms remained unchanged.
On
April 12, 2018, the Company received an additional loan from CaiE in the amount of $10,000 with terms and conditions of this loan
to be finalized at a later date.