We have audited the accompanying balance sheet of Ariel Clean Energy Inc. (the "Company") as of December 31, 2017, the related statements of operations, stockholders’ deficit and cash flows for the year then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The financial statements of the Company as of December 31, 2016, and for the year then ended, were audited by other auditors whose report dated March 13, 2017, expressed an unqualified opinion on those statements. We also audited the adjustments described in Note 7 that were applied to restate the 2016 financial statements. In our opinion, such adjustments are appropriate and have been properly applied.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has not generated revenues since inception, has incurred losses in developing its business, and further losses are anticipated. The Company requires additional funds to meet its obligations and the costs of its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 1 – ORGANIZATION, DESCRIPTION OF BUSINESS, AND GOING CONCERN
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.
Our Current Business
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.
Going concern and Liquidity Considerations
The Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company does not have material assets, nor does it have operations or a source of revenue sufficient to cover its operation costs and allow it to continue as a going concern. The Company has an accumulated deficit of $196,269. The Company will be dependent upon the raising of additional capital through placement of our common stock in order to implement its business plan, or merge with an operating company. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts of and classification of liabilities that might be necessary in the event the company cannot continue in existence. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern.
The officers and directors have committed to advancing certain operating costs of the Company, including compliance costs for being a public company.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles (“GAAP”) of the United States.
Use of Estimates and Assumptions
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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Fair Value of Financial Instruments
As required by the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The Company does not have any financial instruments subject to fair value measurements.
The Company's financial instruments consist primarily of accounts payable and accrued expenses, and related party loans. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and interest rates that approximate market interest rates for similar instruments.
Concentrations of Credit Risks
The Company’s financial instruments are not exposed to concentrations of credit risk.
Related Parties
The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions (see Note 6).
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. As at December 31, 2017 and 2016, the Company did not have any amounts recorded pertaining to uncertain tax positions. (See Note 5)
Basic and Diluted Net Loss per Share
The Company computes loss per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period. During the years ended December 31, 2017 and 2016, the Company had no potential dilutive instruments and accordingly basic loss and diluted loss per share are the same.
Recently Issued Accounting Pronouncements
Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
NOTE 3 - PREPAID EXPENSE
Prepaid expenses at December 31, 2017 and 2016 consist of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
OTC Markets fees
|
|
$
|
3,333
|
|
|
$
|
3,333
|
|
Professional fees
|
|
|
-
|
|
|
|
1,013
|
|
|
|
$
|
3,333
|
|
|
$
|
4,346
|
|
NOTE 4 - STOCKHOLDERS' EQUITY
The capitalization of the Company consists of the following classes of capital stock:
Preferred Stock
The authorized preferred stock consists of 50,000,000 shares with a per share par value of $0.000006. Any series of new preferred stock may be designated, fixed, and determined as provided by the board of directors by the affirmative vote of a majority of the voting power of all the then outstanding shares of Class B Common Stock.
No preferred stock was issued or outstanding as at December 31, 2017 and 2016.
Common Stock
Class A
The authorized common stock consists of 1,000,000,000 shares of Class A Common Stock at a par value of $0.000006 per share. Each share of Class A common stock is entitled to one vote. The number of authorized shares of Class A common stock may be increased or decreased (but not below the number of shares outstanding) by the affirmative vote of the holders of capital stock representing a majority of the voting power of the outstanding shares of capital stock of the company entitled to vote.
On November 9, 2017, the Company issued 13,531,000 shares of common stock at $0.01 per share to repay $135,310 of debt and accrued interest due to a corporation controlled by the company’s officers (note 6).
There were 113,296,421 shares and 99,765,421 shares of Class A common stock issued and outstanding at December 31, 2017 and 2016, respectively.
Class B
The authorized common stock consists of 200,000,000 shares of Class B Common Stock, $0.000006 par value per share. Each share of Class B of Common Stock is entitled to 10 votes. The number of authorized shares of Class B common stock may be increased or decreased (but not below the number of shares outstanding) by the affirmative vote of the holders of capital stock representing a majority of the voting power of the outstanding shares of capital stock of the company entitled to vote.
There was no Class B Common Stock issued or outstanding as at December 31, 2017 and 2016.
NOTE 5 - INCOME TAXES
The Company did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because it has experienced operating losses since inception. Accounting for Uncertainty in Income Taxes when it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit.
|
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December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Net loss for the year
|
|
$
|
(41,527
|
)
|
|
$
|
(46,148
|
)
|
Effective Tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Tax Recovery
|
|
|
(14,119
|
)
|
|
|
(15,690
|
)
|
Effect of change in tax rates
|
|
|
25,515
|
|
|
|
-
|
|
Increase (Decrease) in Valuation Allowance
|
|
|
(11,396
|
)
|
|
|
15,690
|
|
Net deferred asset
|
|
$
|
-
|
|
|
$
|
-
|
|
We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward period.
The components of the Company’s deferred tax asset and reconciliation of income taxes computed at the statutory rate to the income tax amount recorded as of December 31, 2017 and 2016 is as follows:
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|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Net operating loss carryforward
|
|
$
|
41,216
|
|
|
$
|
52,612
|
|
Less: Valuation Allowance
|
|
|
(41,216
|
)
|
|
|
(52,612
|
)
|
Net deferred asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has not filed tax returns from inception to December 31, 2017. All tax years are subject to examination by the tax authority.
At December 31, 2017, the Company has estimated that $196,000 in net operating losses (“NOLs”), on completion of the Company’s tax filings, would be available to offset future taxable income, which would expire between 2032 and 2037. In accordance with Section 382 of the U.S. Internal Revenue Code, the usage of the Company’s net operating loss carry forwards are subject to annual limitations following greater than 50% ownership changes.
NOTE 6 - RELATED-PARTY TRANSACTIONS
Note Payable
During the years ended December 31, 2017 and 2016, a corporation controlled by the Company's officers paid operating expenses totaling $40,981 and $35,286, respectively on behalf of the Company. Unpaid balances are due on demand and accrue an annual interest rate of 12%. During the year ended December 31, 2017, the Company settled principal of notes payable to a related party for $117,876 and accrued interest of $17,433 through the issue of 13,531,000 shares of common stock with a fair value of $0.01 (2016: nil). The fair value of each share of common stock was determined with reference to the trading price of the Company’s stock on the date the shares were issued.
Note payable and accrued interest at December 31, 2017 and 2016 consist of the following:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Note payable
|
|
$
|
19,975
|
|
|
$
|
96,871
|
|
Accrued interest
|
|
$
|
1,241
|
|
|
$
|
14,296
|
|
For the years ended December 31, 2017 and 2016, interest expense was $4,378 and $10,105, respectively. The Company intends to repay the note payable and accrued interest as cash flows become available.
NOTE 7 – RESTATEMENT
During the year, management identified that the 2003 reverse stock split did not correctly include 15,324 shares of common stock. Accordingly the opening shares of common stock outstanding as at December 31, 2015 and 2016 was increased to 99,765,421. The increase in outstanding shares of common stock did not impact basic or diluted loss per share.