NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2019 and 2018
1. ORGANIZATION AND BUSINESS
Organization of Company
Amanasu
Techno Holdings Corporation ("Company") was incorporated in the
State of Nevada on December 1, 1997 under the name of Avani
Manufacturing (China) Inc. The Company changed its name to Genesis
Water Technology on August 17, 1999, and to Supreme Group
International, Inc. on December 24, 2000. On June 7, 2001, it
changed its name to Amanasu Technologies Corporation. It changed
its name again on December 21, 2007 to Amanasu Techno Holdings
Corporation. The Company is a development stage company, and has
not conducted any operations or generated any revenue since its
inception.
On
January 4, 2008, the Company invested $1,837 for a 100% interest in
a newly formed subsidiary, Amanasu Techno Holdings Japan
Corporation (Japan), which is located in Tokyo. This subsidiary is
inactive since inception.
Business
The
Company continues to investigate and develop technologies, which
the Company believes have great market potential.
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 $662,360 and an accumulated deficit
of $2,248,142 at December 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
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.
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.
AMANASU TECHNO HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Cash and Cash Equivalents:
For
purposes of the statements of cash flows, the Company considers all
short term debt securities purchased with an original maturity of
three months or less to be cash equivalents.
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.
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.
Recently Adopted Accounting 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.
AMANASU TECHNO HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Recently Adopted Accounting Pronouncements
(continued)
The Company adopted the new standard on January 1, 2019 and used
the effective date as the date of initial application.
Consequently, financial information was not updated and the
disclosures required under the new standard was not 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 has 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
$38,845 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).
The Company does not expect any other recently issued
pronouncements to have a significant effect on the Company’s
results of operations, financial position or cash
flows.
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 stockholders
and officers. All advances bear interest at 4.45% and due on
demand. No terms for repayment have been established. As a result,
the amount is classified as a current liability.
During
the years ended December 31, 2019 and 2018, the Company borrowed
$57,205 and $21,155, respectively, from a stockholder.
The
balances due as of December 31, 2019 and 2018 were $370,835 and
$313,630, respectively.
Interest
expense associated with these loans were $15,283 and $13,793 for
the years ended December 31, 2019 and 2018, respectively. Accrued
interest on these loans were $93,196 and $77,913 at December 31,
2019 and 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 December 31, 2019 and 2018 amounts due to
the stockholder were $50,000 and $40,000,
respectively.
The
Company also leases it office space from a stockholder of the
Company. At December 31, 2019 and 2018, amounts due to the
stockholder were $3,630. For the
most part, lease payments are made by the Company’s
affiliate. 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 from affiliate in the
accompanying balance sheets (see Note 6).
AMANASU TECHNO HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
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 Internal Revenue Code allows
net operating losses (NOL's) to carry forward and apply against
future profits for a period of twenty years.
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 is 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 asset
relating to NOL’s for every period because it is more likely
than not that all of the deferred tax asset 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. The Company did not have any earnings from
foreign subsidiaries, and, as such, the international aspects of
the Tax Act are not applicable.
The Company had NOL carryforwards of approximately $1.4 million at
December 31, 2019. Approximately $1.23 million will expire in the
years 2020 through 2037, and $0.17 million can be carried forward
indefinitely.
The tax
return for the years 2016, 2017 and 2018 are subject to audit by
the Internal Revenue Service.
The
reconciliation of income tax expense at the U.S. statutory rate of
21% to the Company’s effective tax rate is as
follows:
|
|
|
|
|
Income tax expense
at statutory rate
|
21%
|
21%
|
|
Change in valuation
allowance
|
(21%)
|
(21%)
|
|
Income tax
expense
|
-
|
-
|
The tax
effects of temporary differences that give rise to the
Company’s net deferred tax assets as of December 31, 2019 and
2018 are as follows:
|
|
|
|
|
Net Operating Loss
Carryforwards
|
$293,888
|
$276,817
|
|
Valuation
Allowance
|
(293,888)
|
(276,817)
|
|
Deferred Tax
Asset
|
$-
|
$-
|
AMANASU TECHNO HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019 and 2018
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 $392 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
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 approximately $1,250. As such, the Company
recorded $28,492 of right-of-use assets and related
operating leases liabilities. For the three months from October 1,
2019 to December 31, 2019, the Company amortized $3,408 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 December 31, 2019:
|
2020
|
$15,000
|
|
2021
|
11,250
|
|
Total
undiscounted future minimum lease payments
|
26,250
|
|
Less:
Difference between undiscounted lease payments and discounted lease
liabilities
|
(1,163)
|
|
Total
operating lease liabilities
|
25,084
|
|
Less
current portion
|
(14,065)
|
|
Long-term
lease liabilities
|
$11,019
|
Total
rent expense under operating leases for the year ended December 31,
2019 was $15,948 as compared to $16,034 for the year ended December
31, 2018.
7. DEPOSIT ON STOCK PURCHASE
During 2015, the Company received $61,030 for a deposit for the
purchase of common stock, this amount is classified as a current
liability in the accompanying balance sheet as of December 31, 2019
and 2018. No shares have been issued for these deposits as of
December 31, 2019.
8. SUBSEQUENT EVENT
The Company evaluated all events subsequent to December 31, 2019
through the date of issuance of the financial statements and
concluded the following subsequent event need to be
disclosed.
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 potential
customers, unavailability of products and supplies used in
operations, and the unavailability of capital.