N
OTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2017 and 2016
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 $441,038 and an accumulated deficit
of $5,283,423 at December 31, 2017, 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. There can be no assurances
that the Company can secure additional financing.
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.
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2017 and 2016
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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.
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
are at the rate of exchange in effect at balance sheet dates.
112.69 Japanese Yen to $1.00 USD at December 31, 2017 and 117
Japanese Yen to $1.00 USD at December 31, 2016. 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, 2017 and 2016.
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.
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2017 and 2016
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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 advances 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.
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.
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.
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2017 and 2016
4. RELATED PARTY TRANSACTIONS
The
Company's executive offices are located at 244 Fifth Avenue, Suite
D144 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 expires October 1, 2019. At December 31, 2017 and December
31, 2016, amounts due to the stockholder were $56,433 and $24,933,
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. As such, when the lease 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 to affiliate in the
accompanying balance sheets amounts due to related parties. The
office in New York is rented at the rate of $119 each month 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 balances due to Amanasu Techno Holdings at
December 31, 2017 and 2016 were $33,122 and $5,911,
respectively.
Amanasu
Corp. is the principle shareholder of the Company. The balance due
from Amanasu Corp. was $-0- and $29,915 at December 31, 2017 and
2016, respectively. The balance due to Amanasu Corp. was $50,000
and $50,000 at December 31, 2017 and 2016, 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
$2,250 and $2,231 for the years ended December 31, 2017 and 2016,
respectively. Accrued interest was $6,706 and $4,456 at December
31, 2017 and 2016, respectively.
The
Company receives periodic advances from its principal stockholders
and officers based upon the Company’s cash flow needs.
Amounts are due on demand. At December 31, 2017 and December 31,
2016, $278,255 and $228,855, respectively, was due to the
shareholders, affiliate and officers, and accrued interest of
$29,361 and $17,735 at December 31, 2017 and 2016, respectively.
Interest expense associated with these loans were $11,626 and
$9,535 for the years ended December 31, 2017 and 2016,
respectively. No terms for repayment have been established. As a
result, the amount is classified as a current
liability.
During
the year ended December 31, 2017, the board of directors approved
to transfer the amount from Amanasu Corp. for approximately $31,420
to Mr. Maki, the Company’s President and CEO for services
provided. The Company recorded $31,420 as a consulting fee for the
year ended December 31, 2017.
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2017 and 2016
5. RENTALS UNDER OPERATING LEASES
The
Company's executive offices are located at 244 Fifth Avenue, Suite
D144 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 expires October 1, 2019.
During
the years ended December 31, 2017 and 2016, the Company incurred
rent expense of $16,504 and $17,178, respectively.
The
following is a schedule of approximate future minimum rental
payments for operating leases subsequent to December 31,
2017:
|
|
|
|
2018
|
$
15,750
|
|
2019
|
11,813
|
|
|
$
27,563
|
6. INCOME TAXES
The
Company has experienced losses since inception. As a result, it has
incurred no Federal income tax. 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 nine years in Japan. The available NOL’s
totaled approximately $3.6 million in the U.S. and $36,000 in Japan
at December 31, 2017, which will expire in the years 2018 through
2037.
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.
On December 22, 2017, legislation commonly known as the Tax Cuts
and Jobs Act, or the Tax Act, was signed in to law. The Tax Act,
among other changes, reduces the U.S. federal corporate tax rate
from 35% to 21%, requires taxpayers to pay a one-time transition
tax on earnings of certain foreign subsidiaries that were
previously tax deferred and creates new taxes on certain foreign
sourced earnings. On December 31, 2017, we did not have any
earnings from foreign subsidiaries and the international aspects of
the Tax Act are not applicable.
In connection with the initial analysis of the impact of the Tax
Act, we remeasured certain deferred tax assets and liabilities
based on the rates at which they are expected to reverse in the
future, which is generally 21%. As a result, we recorded a decrease
in net deferred tax assets of approximately $500,000 with a
corresponding net adjustment to deferred income tax expense. These
adjustments were fully offset by a decrease in the valuation
allowance for the year ended December 31, 2017. We have completed
and recorded the adjustments necessary under Staff Accounting
Bulletin No. 118 related to the Tax Act.
The tax
returns for the years 2013, 2014, 2015, 2016 and 2017 are subject
to audit by the Internal Revenue Service.
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2017 and 2016
6. INCOME TAXES (continued)
The
reconciliation of income tax at the U.S. statutory rate of 34% to
the Company’s effective tax rate is as follows:
|
Income tax expense
at statutory rate
|
|
|
|
Change in valuation
allowance
|
34
%
|
34
%
|
|
Income tax
expense
|
(34
%)
|
(34
%)
|
|
|
-
|
-
|
The tax
effects of temporary differences that give rise to the
Company’s net deferred tax assets as of December 31, 2017 are
as follows:
|
|
|
|
|
Deferred Tax
Assets
|
$
767,557
|
$
14,630
|
|
Valuation
Allowance
|
(767,557
)
|
(14,630
)
|
|
Balance
Recognized
|
$
-0-
|
$
-0-
|
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:
|
|
|
|
|
Deferred Tax
Assets
|
$
1,321,525
|
$
349,031
|
|
Valuation
Allowance
|
(1,321,525
)
|
(349,031
)
|
|
Balance
Recognized
|
$
-0-
|
$
-0-
|
7. SUBSEQUENT EVENT
The
Company evaluated all events subsequent to December 31, 2017
through the date of issuance of the financial statements and
concluded that there are no significant or material transactions to
be recognized or disclosed.
