NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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
September 30, 2019, the results of operations for the three and
nine months ended September 30, 2019 and 2018, and cash flows for
the nine months ended September 30, 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 $591,922 and an accumulated deficit of $5,433,925 at September
30, 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. An entity 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 an operating lease liability of
$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 nine months ended September 30, 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.
AMANASU
ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
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 nine months ended
September 30, 2019, the Company borrowed $33,220 from a
stockholder. The balances due as of September 30, 2019 and December
31, 2018 were $389,940 and $356,720, respectively. Interest expense
associated with these loans were $4,413 and $12,674 for the three
and nine months ended September 30, 2019 as compared to $3,935 and
$11,068 for the three and nine months ended September 30, 2018.
Accrued interest on these loans were $57,111 and $44,437 at
September 30, 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 September 30, 2019 and December 31, 2018
amounts due to the stockholder were $27,500 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.
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 September 30, 2019 and
December 31, 2018, amounts due to the stockholder were $80,058 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
September 30, 2019 and December 31, 2018 were $74,345 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 September 30, 2019
and December 31, 2018, respectively. Interest expense associated
with this loan was $569 and $1,687 for the three and nine months
ended September 30, 2019 as compared to $569 and $1,687 for the
three and nine months ended September 30. 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 $10,649 and $8,962 at September 30, 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 $3.8 million in
the U.S. and $7,500 in Japan at September 30, 2019. Approximately
$3.65 million in the U.S. and $7,500 in Japan will expire in the
years 2019 through 2037, and $0.15 million can be carried forward
indefinitely.
AMANASU
ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
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 $1,250.
Upon
adoption of ASC 842, Leases, on January 1, 2019 the Company
recorded $10,353 of right-use assets and related operating leases
liabilities. This asset was fully amortized as of September 30,
2019.
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.
On October 1, 2019, the Company commenced a new lease with its
shareholder from October 1, 2019 to September 30, 2021 with a
monthly payment of $1,250.
Total
rent expense under operating leases for the three and nine months
ended September 30, 2019 was $3,750 and $11,250, respectively, as
compared to $3,750 and $11,250 for the three and nine months ended
September 30, 2018, respectively.
7. SUBSEQUENT EVENTS
The Company evaluated subsequent events, which are events or
transactions that occurred after September 30, 2019 through the
issuance of the accompanying financial statements and determined
that no significant subsequent event need to be recognized or
disclosed.
