NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)
1. BASIS OF PRESENTATION
The
unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States for interim financial information and the rules and
regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required
by GAAP for complete financial statements. In the opinion of
management, the accompanying unaudited financial statements contain
all adjustments (consisting of normal recurring accruals) necessary
to present fairly the financial position of the Company as of March
31, 2019, the results of operations, and cash flows for the three
months ended March 31, 2019 and 2018. These results are
not necessarily indicative of the results to be expected for the
full year or any other period. The December 31, 2018 balance
sheet included herein was derived from the audited financial
statements included in the Company’s Annual Report on Form
10-K as of that date. Accordingly, the financial
statements included herein should be reviewed in conjunction with
the financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2018, as filed with the Securities and Exchange
Commission (“SEC”) on April 1, 2019.
2. GOING CONCERN
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As shown in the
financial statements, the Company had a working capital deficiency
of $555,000 and an accumulated deficit of $5,397,209 at March 31,
2019, 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 financial statements do not
include adjustments relating 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
operations to date
have been limited to conducting various tests on its technologies
and seeking financing. The Company will continue to develop
and market its technologies, which the Company believes have great
market potential.
As such, the Company continues to pursue
additional sources of financing.
Currently the company is exploring various
potential investment partners in Japan, as well as China.
There can be no assurances that the Company can secure additional
financing.
.
The present plans,
the realization of which cannot be assured, to overcome these
difficulties also include, but are not limited to, a continuing
effort to investigate business acquisitions and joint
ventures.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In February 2016, the FASB established Topic 842, Leases, by
issuing Accounting Standards Update (ASU) No. 2016-02, which
requires lessees to recognize leases on-balance sheet and disclose
key information about leasing arrangements. Topic 842 was
subsequently amended by ASU No. 2018-01, Land Easement Practical
Expedient for Transition to Topic 842; ASU No. 2018-10,
Codification Improvements to Topic 842, Leases; and ASU No.
2018-11, Targeted Improvements. The new standard establishes a
right-of-use model (ROU) that requires a lessee to recognize a ROU
asset and lease liability on the balance sheet for all leases with
a term longer than 12 months. Leases will be classified as finance
or operating, with classification affecting the pattern and
classification of expense recognition in the income statement. The
new standard is effective on January 1, 2019. A modified
retrospective transition approach is required, applying the new
standard to all leases existing at the date of initial application.
Anentity may choose to use either (1) its effective date or (2) the
beginning of the earliest comparative period presented in the
financial statements as its date of initial application. If an
entity chooses the second option, the transition requirements for
existing leases also apply to leases entered into between the date
of initial application and the effective date. The entity must also
recast its comparative period financial statements and provide the
disclosures required by the new standard for the comparative
periods. The Company adopted the new standard on January 1, 2019
and use the effective date as the date of initial application.
Consequently, financial information will not be updated and the
disclosures required under the new standard will not be provided
for dates and periods before January 1, 2019. The new standard
provides a number of optional practical expedients in transition.
The Company elects the ‘package of practical
expedients’, which permits the Company not to reassess under
the new standard prior conclusions about lease identification,
lease classification and initial direct costs. The Company
determined that this standard will have a material effect on the
Company’s financial statements. While the Company continues
to assess all of the effects of adoption, the Company currently
believes the most significant effects relate to the recognition of
new ROU assets and lease liabilities on the Company’s balance
sheet for the Company’s real estate operating leases. On
adoption, the Company recognized additional an operating lease
liability of approximately $10,353 with corresponding ROU assets of
the same amount based on the present value of the remaining minimum
rental payments under current leasing standards for existing
operating leases.
During
the three months ended March 31, 2019, there have been no other
material changes in the Company’s significant accounting
policies to those previously disclosed in the Annual
Report.
No
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 advances 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 advances bear interest at 4.45% and
no repayment terms have been established. As a result, the amount
is classified as a current liability. During the three months ended
March 31, 2019, the Company borrowed $18,350 from a stockholder.
The balances due as of March 31, 2019 and December 31, 2018 were
$375,070 and $356,720, respectively. Interest expense associated
with these loans were $4,025 for the three months ended March 31,
2019 as compared to $3,345 for the three months ended March 31,
2018. Accrued interest on these loans were $48,462 and $44,437 at
March 31, 2019 and December 31, 2018, respectively.
The
Company has an arrangement with Lina Maki, a stockholder of the
Company, for her management consulting time. The agreement is not
written and no payment terms have been established. The fee is
$10,000 annually. As of March 31, 2019 and December 31, 2018
amounts due to the stockholder were $22,500 and $20,000,
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
accompany balance sheets.
AMANASU ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)
4. RELATED PARTY TRANSACTIONS (continued)
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
from a stockholder at a monthly rate of $2,625 under a lease
agreement which expires October 1, 2019. At March 31, 2019 and
December 31, 2018, amounts due to the stockholder were $64,308 and
$56,433, 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 $328 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 balances due from Amanasu Techno Holdings at
March 31, 2019 and December 31, 2018 were $68,796 and $55,785,
respectively.
Amanasu
Corp. is the principal stockholder of the Company. The balance
due to Amanasu Corp. was $50,000 and $50,000 at March 3, 2019 and
December 31, 2018, respectively. Interest expense associated with
this loan was $556 for the three months ended March 31, 2019 as
compared to $556 for the three months ended March 31. 2018. No
terms for repayment have been established. As a result, the amount
is classified as a current liability. Accrued interest on this loan
were $9,518 and $8,962 at March 31, 2019 and December 31, 2018,
respectively.
5.
INCOME TAXES
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. The Company has experienced losses since its
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.
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, 2018, we did not have any
earnings from foreign subsidiaries and the international aspects of
the Tax Act are not applicable.
The Company had NOL carryforwards of approximately $3.72 million in
the U.S. and $7,500 in Japan at March 31, 2019. Approximately $3.6
million in the U.S. and $7,500 in Japan will expire in the years
2019 through 2037, and $0.12 million can be carried forward
indefinitely.
6. OPERATING LEASE LIABILITY
The Company leases
office space from its officer in one
location from October 2017 to September 2019 with a monthly payment
of approximately $1,250.
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% as of January 1, 2019 for operating leases that commenced prior
to that date.
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 March 31, 2019:
|
Remainder
2019
|
$
7,500
|
Total
undiscounted future minimum lease payments
|
7,500
|
|
Less:
Difference between undiscounted lease payments and discounted lease
liabilities
|
641
|
|
Total
operating lease liabilities – current portion
|
$
6,859
|
Total
rent expense under operating leases for the three months ended
March 31, 2019 and 2018 was $3,750 and $3,750,
respectively.
7. SUBSEQUENT EVENTS
The Company evaluated subsequent events, which are events or
transactions that occurred after March 31, 2019 through the
issuance of the accompanying financial statements and determined
that no significant subsequent event need to be recognized or
disclosed.
