NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
1. ORGANIZATION AND BUSINESS
Organization of Company
The Company is a Nevada Corporation, formed February 22, 1999, as Forte International, Inc. The name was changed to Amanasu Energy Corporation on March 27, 2001, and to Amanasu Environment Corporation on October 18, 2002. The majority shareholder of the Company is a Japanese corporation named Amanasu Corporation (Amanasu).
Business
On October 19, 2004, the Company invested $100,000 for a 100% interest in a newly formed subsidiary, Amanasu Shinwa Corporation (Shinwa), which is located in Gunma, Japan. On December 16, 2005, a second 100% owned subsidiary was formed, Amanasu Holdings, Inc. (Holdings), which is located in Tokyo, Japan. Holdings made investments in five other Japanese companies during 2005. The investee companies were involved in a variety of businesses.
Investments in the five companies mentioned above have either been repaid, written off by the absorption of accumulated losses, or written off because of abandonment.
On September 21, 2006, a 9% non-controlling interest was sold in Holdings. Also on September 21, 2006, Holdings formed another subsidiary, named Amanasu Water Corporation (Water). Water's plan of operation was to market a new type of water called "Hydrogen-ion water". On April 27, 2009, the Company sold its 100% equity interest in Water to Amanasu Techno Holdings Corporation, a company that is controlled by Amanasu. That sale was accounted for as a sale between companies under common control. Consideration for the sale was 200,000 shares of the common stock of the buyer, which had essentially no value.
On July 1, 2008, the Company sold its equity interest in Shinwa to the president of Shinwa for cash. On the same day, Holdings sold its equity interest in Shinwa to the president of Shinwa for a cash payment and the right to collect a debt that was owed to Shinwa by Amanasu.
The Company is actively seeking investment capital and investments in new businesses. Its subsidiary, Holdings, has been renamed Amanasu Maritek Corporation.
2. AMENDMENTS TO DEVELOP STAGE ENTITY REPORTING REQUIREMENTS
The Company follows Topic 915 of the (FASB) Accounting Standards Codification (ASC) for disclosures on development stage reporting requirements. Topic 915 eliminates the requirements for development stage entities to (1) present inception to date information in the statements of income, cash flows, and shareholder’s equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years I had been in the development stage. Topic 915 is effective for annual reporting periods beginning after December 15, 2014 and interims therein. Early application of Topic 915 is permitted for any annual reporting period for which the entities financial statements have not been issued or made available for issuance. The Company has opted to adopt Topic 915 earlier than the effective date as this did not have a material effect on the financial statements.
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015
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.
On September 21, 2006, a 9% non-controlling interest was sold in Holdings. Also on September 21, 2006, Holdings formed another subsidiary, named Amanasu Water Corporation (Water). Water's plan of operation was to market a new type of water called "Hydrogen-ion water". On April 27, 2009, the Company sold its 100% equity interest in Water to Amanasu Techno Holdings Corporation, a company that is controlled by Amanasu. That sale was accounted for as a sale between companies under common control. Consideration for the sale was 200,000 shares of the common stock of the buyer, which had essentially no value.
Cash
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.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, miscellaneous receivables, and miscellaneous payables. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
Fixed Assets
Fixed assets are recorded at cost. Depreciation is computed on a straight-line basis, with lives of seven years for furniture and equipment and five years for computers and automobiles.
Accounting for Income Taxes
The Company accounts for income taxes using the asset and liability method described in FASB ASC 740, “Income Taxes”. Deferred tax assets arise from a variety of sources, the most significant being: a) tax losses that can be carried forward to be utilized against profits in future years; b) expenses recognized for financial reporting purposes but disallowed in the tax return until the associated cash flow occurs; and c) valuation changes of assets which need to be tax effected for book purposes but are deductible only when the valuation change is realized.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when such differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefit which is not more likely than not to be realized. In assessing the need for a valuation allowance, future taxable income is estimated, considering the realization of tax loss carryforwards. Valuation allowances related to deferred tax assets can also be affected by changes to tax laws, changes to statutory tax rates and
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting for Income Taxes (continued)
future taxable income levels. In the event it was determined that the Company would not be able to realize all or a portion of our deferred tax assets in the future, we would reduce such amounts through a charge to income in the period in which that determination is made. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through an increase to income in the period in which that determination is made.
Recognition of Revenue
Revenue will be realized from sales of products and services. Recognition occurs upon delivery. In determining recognition, the following criteria are considered: persuasive evidence exists that there is an arrangement between the buyer and seller; delivery has occurred; the sales price is fixed or determinable; and collectability is reasonably assured.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimated.
Foreign Currency Translation
Some Company assets are located in Japan. These assets and related liabilities are recorded on the books of the Company in the currency of Japan (Yen), which is the functional currency. They are translated into US dollars as follows:
a. Assets and liabilities at the rates of exchange in effect at balance sheet dates 120.22 Japanese Yen to $ 1 USD at December 31. 2015 and 119.93 Japanese Yen to $1 USD at December 31. 2014.
b. Equity accounts at the exchange rates prevailing at the time of the transactions that established the equity accounts; and
c. Revenues and expenses, at the average rates of exchange for each reporting period 105.85 Japanese Yen to $ 1 USD for the year ended December 31, 2014. There were no revenues or expenses related to the operations in Japan for the year ended December 31, 2015.
Other Comprehensive Income
The Company reports as other comprehensive income revenues, expenses, and gains and losses that are not included in the determination of net income. Principal among these has been unrealized gains and losses from exchange rate fluctuation.
Advertising Costs
The Company will expense advertising costs when an advertisement occurs. There were no expenditures for advertising during either of the periods reported.
Segment Reporting
Management treats the operations of the Company as one segment.
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
The Company estimates that the fair value of all financial instruments at December 31, 2015 and, 2014, as defined in Financial Accounting Standards Board (“FASB”) ASC 825 “Financial Instruments”, does not differ materially, except for the items discussed below, from the aggregate carrying values of its financial instruments recorded in the accompanying consolidated balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value.
The carrying amounts reported in the balance sheets as of December 31, 2015 and 2014, which include cash and certificates of deposit and accounts payable, accrued liabilities, loans payable and advances from related parties approximate the fair value because of the immediate or short-term maturity of these financial instruments. Each reporting period we evaluate market conditions including available interest rates, credit spreads relative to our credit rating and liquidity in estimating the fair value of our debt. After considering such market conditions, we estimate that the fair value of debt approximates its carrying value.
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.
Income Tax Uncertainties
The Company accounts for uncertainties in income taxes under ASC 740-10-50 which 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 740-10 requires that the Company determine whether the benefits of its tax positions are more-likely-than-not of being sustained upon audit based on the technical merits of the tax position. The Company recognizes the impact of an uncertain income tax position taken on its income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. The implementation of ASC 740-10 had no impact on the Company’s results of operations or financial position.
Despite the Company’s belief that its tax return positions are consistent with applicable tax laws, one or more positions may be challenged by taxing authorities. Settlement of any challenge can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation.
Interest and penalties related to income tax matters, if applicable, will be recognized as income tax expense. During the years ended December 31, 2015 and 2014, the Company did not incur any expense related to interest or penalties for income tax matters, and no such amounts were accrued as of December 31, 2015 and 2014.
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, 2015
4. RELATED PARTY TRANSACTIONS
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 at a monthly rate of $2,500 under a lease agreement which expires October 1, 2017. 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. 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, 2015 and 2014 were $25,297 and $13,871, respectively.
Amanasu Corp. is the principle shareholder of the Company. In 2008 the Company acquired the right to collect debt owed by Amanasu to Shinwa. The current balance of that receivable with foreign exchange fluctuations is $29,184. During 2007 and 2008 Amanasu advanced funds to the Company totaling $1,045 (with exchange fluctuations.) During 2013 Amanasu advanced funds to the Company in the amount of $50,000. The net balance due to Amanasu Corp. was $20,887 and $21,861 at December 31, 2015 and 2014, respectively. (See Item 13 – Certain Relationships and Related Transactions, and Director Independence).
The Company receives periodic advances from the Company’s President, based upon the Company’s cash flow needs. Amounts are due on demand. At December 31, 2015 and December 31, 2014, $153,055 and $-0-, respectively, was due to the Company’s President. Interest expense is accrued at 4.45% at December 31, 2015 and December 31, 2014, respectively. Accrued interest was $7,459 and $7,087 at December 31, 2015 and 2014, respectively. No terms for repayment have been established. As a result, the amount is classified as a current liability.
Loans from shareholder and affiliate were $61,136 and $80,982, respectively, at December 31, 2015 and 2014.
5. RENTALS UNDER OPERATING LEASES
The Company conducts its operations from leased office facilities in Vancouver, British Columbia, New York City, and in Tokyo. During the years ended December 31, 2015 and 2014, the Company incurred rent expense of $17,178 and $17,514, respectively.
6. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
There was no cash paid for income taxes or interest during 2015 or 2014. There were no non-cash financing or investing activities during either of these years.
7. EXPENSES
Major categories of expense consist of the following:
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Auto, travel and entertainment
|
|
$
|
18,318
|
|
|
$
|
13,098
|
|
Consultant
|
|
|
20,000
|
|
|
|
-
|
|
Rent
|
|
|
17,178
|
|
|
|
17,514
|
|
Utilities
|
|
|
3,775
|
|
|
|
3,107
|
|
Office and miscellaneous
|
|
|
8,774
|
|
|
|
7,521
|
|
Professional fees and corporate filing fees
|
|
|
29,920
|
|
|
|
22,814
|
|
Interest
|
|
|
6,283
|
|
|
|
9,984
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
104,248
|
|
|
$
|
66,595
|
|
AMANASU ENVIRONMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015
8. INCOME TAXES
The Company has experienced losses since inception. As a result, it has incurred no Federal income tax. The Internal Revenue Code allows net operating losses (NOL's) to be carried forward and applied against future profits for a period of twenty years. The Japanese Tax Code permits such carryforwards for a period of seven years. The total of these NOL's at December 31, 2015 was $133,629 in Japan and $3,486,105 in the U.S. The potential benefit of these NOL's has been recognized on the books of the Company, but it has been offset by valuation allowances.
Under provisions of pronouncements of the FASB, recognition of deferred tax assets is permitted unless it is more likely than not that the assets will not be realized. The Company has recorded noncurrent deferred tax assets as presented below. These deferred tax assets increased during 2015 by $104,248 in the U.S., and decreased by $240,805 in Japan. The Japanese tax asset declined in 2014 because of expired net operating loss from a prior year, offset by benefit of current loss.
|
|
U.S.
|
|
|
JAPAN
|
|
Deferred Tax Assets
|
|
$
|
1,185,276
|
|
|
$
|
53,986
|
|
Valuation Allowance
|
|
|
(
1,185,276
|
)
|
|
|
(
53,986
|
)
|
Balance Recognized
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
If not used, these carryforwards will expire as follows:
|
|
U.S.
|
|
|
JAPAN
|
|
2016
|
|
|
-
|
|
|
|
97,415
|
|
2017
|
|
|
-
|
|
|
|
6,888
|
|
2018
|
|
|
-
|
|
|
|
21,804
|
|
2019
|
|
|
2,703
|
|
|
|
1,322
|
|
2020
|
|
|
51,086
|
|
|
|
6,200
|
|
2021
|
|
|
224,737
|
|
|
|
-
|
|
2022
|
|
|
73,550
|
|
|
|
-
|
|
2023
|
|
|
110,126
|
|
|
|
-
|
|
2024
|
|
|
107,443
|
|
|
|
-
|
|
2025
|
|
|
598,417
|
|
|
|
-
|
|
2026
|
|
|
332,988
|
|
|
|
-
|
|
2027
|
|
|
553,371
|
|
|
|
-
|
|
2028
|
|
|
363,595
|
|
|
|
-
|
|
2029
|
|
|
135,200
|
|
|
|
-
|
|
2030
|
|
|
320,802
|
|
|
|
-
|
|
2031
|
|
|
166,733
|
|
|
|
-
|
|
2032
|
|
|
141,835
|
|
|
|
-
|
|
2033
|
|
|
132,676
|
|
|
|
-
|
|
2034
|
|
|
66,595
|
|
|
|
-
|
|
2035
|
|
|
104,248
|
|
|
|
-
|
|
|
|
$
|
3,486,105
|
|
|
$
|
133,629
|
|
9. GOING CONCERN
The Company's financial statements have been presented assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has negative working capital, has an accumulated deficit of $5,112,581, and presently does not have the resources to accomplish its objectives during the next twelve months. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments related 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 plans, the realization of which cannot be assured, are to obtain funds from the sale of securities or working capital loans from its parent company or its officers.
10. SUBSEQUENT EVENT
The Company evaluated all events subsequent to December 31, 2015 through the date of issuance of the financial statements and concluded that there are no significant or material transactions to be reported.