NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(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, 2020, the results of operations for the three and
nine months ended September 30, 2020 and 2019, and cash flows for
the nine months ended September 30, 2020 and 2019. These
results are not necessarily indicative of the results to be
expected for the full year or any other period. The December
31, 2019 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, 2019, as filed with the Securities and Exchange
Commission (“SEC”) on March 30, 2020.
2. GOING CONCERN UNCERTAINTY
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 $690,726 and an accumulated deficit of $5,517,781 at September
30, 2020, 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 that might result from the outcome of this
uncertainty.
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.
The Company’s operations may be affected by the recent and
ongoing outbreak of the coronavirus disease 2019 (COVID-19) which
in March 2020, was declared a pandemic by the World Health
Organization. The ultimate disruption which may be caused by the
outbreak is uncertain; however, it may result in a material adverse
impact on the Company’s financial position, operations and
cash flows. Possible areas that may be affected include, but are
not limited to, disruption to the Company’s ability to obtain
funding and performing further research on certain
projects.
AMANASU ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recently Adopted Authoritative Pronouncements
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 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 (see Note 6).
Certain
amounts in the prior period financial statements have been
reclassified to conform to the presentation of the current period
financial information. These reclassifications had no effect on the
previously reported net loss.
During
the nine months ended September 30, 2020, 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, 2020
(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, 2020, the Company borrowed $2,930 from a stockholder.
The balances due as of September 30, 2020 and December 31, 2019
were $393,500 and $390,570, respectively. Interest expense
associated with these loans were $4,464 and $13,263 for the three
and nine months ended September 30, 2020 as compared to $4,413 and
$12,674 for the three and nine months ended September 30, 2019.
Accrued interest on these loans were $74,810 and $61,547 at
September 30, 2020 and December 31, 2019,
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, 2020 and December 31, 2019
amounts due to the stockholder were $37,500 and $30,000,
respectively.
The
Company leases its office space in Vancouver from a stockholder of
the Company at a monthly rate of $2,500 under a lease agreement
which expires October 1, 2021. At September 30, 2020 and
December 31, 2019 amounts due to the stockholder were $56,433 and
$44,620, 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.
The
office in New York is rented at the rate of approximately $360 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.
Amanasu
Corp. is the principal stockholder of the Company. The balance
due to Amanasu Corp. was $50,000 and $50,000 at September 30, 2020
and December 31, 2019, respectively. Interest expense associated
with this loan were $569 and $1,693 for the three and nine months
ended September 30, 2020, respectively, as compared to $569 and
$1,687 for the three and nine months ended September 30, 2019,
respectively. No terms for repayment have been established. As a
result, the amount is classified as a current liability in due to
related parties. Accrued interest on this loan were $12,911 and
$11,218 at September 30, 2020 and December 31, 2019,
respectively.
AMANASU
ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
5. INCOME TAXES
In
accordance with the current tax laws in the U.S., the Company is
subject to a corporate tax rate of 21% on its taxable income. No
provision for taxes is made for U.S. income tax for the nine months
ended September 30, 2020 and 2019 as it has no taxable income in
the U.S. 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 three years in Japan.
The Company had NOL carryforwards of approximately $3.89 million in
the U.S. and $6,200 in Japan at September 30, 2020. Approximately
$3.65 million in the U.S. and $6,200 in Japan will expire in the
years 2020 through 2037, and $0.24 million can be carried forward
indefinitely.
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. 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, the “Tax Cuts and Jobs Act”
(“The 2017 Tax Act”) was enacted in the United States.
Under the provisions of the Act, the U.S. corporate tax rate
decreased from 34% to 21%. Accordingly, the Company has re-measured
its deferred tax assets on net operating loss carry forwards in the
U.S at the lower enacted cooperated tax rate of 21%. However, this
re-measurement has no effect on the Company’s income tax
expenses as the Company has provided a 100% valuation allowance on
its deferred tax assets previously.
Additionally, the 2017 Tax Act implemented a modified territorial
tax system and imposing a tax on previously untaxed accumulated
earnings and profits (“E&P”) of foreign
subsidiaries (the “Toll Charge”). The Toll Charge is
based in part on the amount of E&P held in cash and other
specific assets as of December 31, 2017. The Toll Charge can be
paid over an eight-year period, starting in 2018, and will not
accrue interest. The 2017 Tax Act also imposed a global intangible
low-taxed income tax (“GILTI”), which is a new tax on
certain off-shore earnings at an effective rate of 10.5% for tax
years beginning after December 31, 2017 (increasing to 13.125% for
tax years beginning after December 31, 2025) with a partial offset
for foreign tax credits. The Company has determined that this
one-time Toll Charge has no effect on the Company’s income
tax expenses as the Company has no undistributed foreign earnings
at either of the two testing dates of November 2, 2017 and December
31, 2017. For purposes of the inclusion of GILTI, the Company has
determined that the Company has no taxable offshore earnings as of
September 30, 2020 and 2019, respectively. Therefore, this is no
accrual of US income tax for GILTI as of September 30,
2020.
The extent of the Company’s operations involves dealing with
uncertainties and judgments in the application of complex tax
regulations in a multitude of jurisdictions. The final taxes paid
are dependent upon many factors, including negotiations with taxing
authorities in various jurisdictions and resolution of disputes
arising from federal, state and international tax audits. The
Company recognizes potential liabilities and records tax
liabilities for anticipated tax audit issues in the United States
and other tax jurisdictions based on its estimate of whether, and
the extent to which, additional taxes will be due.
AMANASU ENVIRONMENTAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
6. OPERATING LEASE LIABILITY
The
Company's executive offices are located at 244 Fifth Avenue 2nd
Floor New York, NY 10001 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 between the Company
and the Secretary of the Company which expired October 1, 2019. The
Company entered into a new lease with the Secretary of the Company
at a monthly rate of $2,500, which expires October 1, 2021. The
Company shares the space with AEC, a reporting company under the
Securities Exchange Act of 1934. Our major shareholder and officer
own approximately 81% of AEC’s outstanding shares of common
stock. AEC is responsible for 50% of the rent or $1,250 each month.
The office in New York is rented at the rate of $360 each year and
shares with AEC. In addition, the Company maintains an office at
Suite 905, 1-6-1 Senzoku Taito-Ku Tokyo Japan, and the Company pays
no rent.
Upon
adoption of ASC 842, Leases, on January 1, 2019 the Company
recorded $10,353 of right-of-use assets and related operating lease
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% 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 approximately $1,250. As such, the Company
recorded $28,492 of right-of-use assets and related operating
leases liabilities. For the nine months from January 1, 2020
through September 30, 2020, the Company amortized $10,482 of
right-of-use assets.
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 September 30, 2020:
|
2020
– three months
|
$3,750
|
|
2021
|
11,250
|
|
Total
undiscounted future minimum lease payments
|
15,000
|
|
Less:
Difference between undiscounted lease payments and discounted lease
liabilities
|
(398)
|
|
Total
operating lease liabilities
|
14,602
|
|
Less
current portion
|
(14,602)
|
|
Long-term
lease liabilities
|
$-0-
|
Total
rent expense under operating leases for the three and nine months
ended September 30, 2020 was $3,750 and $11,250, respectively, as
compared to $3,750 and $11,250 for the three and nine months ended
September 30, 2019, respectively.
7. SUBSEQUENT EVENTS
The Company evaluated subsequent events, which are events or
transactions that occurred after September 30, 2020 through the
issuance of the accompanying financial statements and determined
that no significant subsequent event need to be recognized or
disclosed.