U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the period ended September 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE Act of 1934 for the transition period from ___ to ___.
Commission file number: 0-32905
AMANASU ENVIRONMENT CORPORATION
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(Name of Small Business Issuer in its charter)
Nevada 98-0347883
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(State or other jurisdiction of (IRS Employer
incorporation) Identification No.)
701 Fifth Avenue, 42nd Floor, Seattle, WA 98109
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(Address of principal executive offices)
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206-262-8188
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(Issuer's telephone number)
Securities registered under Section 12 (b) of the Act:
Title of each class Name of exchange on which
to be registered each class is to be registered
None None
Securities registered under Section 12(g) of the Act:
Common Stock
-----------
(Title of Class)
Check whether issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
(1). Yes: No: X
(2). Yes: X No:
The number of shares issued and outstanding of issuer's common stock,
$.001 par value, as of September 30, 2003 was 43,000,816.
Transitional Small Business Issuer Format (Check One):
Yes: No: X
Part 1. Financial Information.
AMANASU ENVIRONMENT CORPORATION
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
September 30,
December 31,
1
2002
(Unaudited)
(Unaudited)
ASSETS
Current Assets:
Cash
$ 118,516
$ 78,432
Total current assets
118,516
78,432
Fixed Assets:
Automotive equipment
25,859
25,859
Less accumulated depreciation
10,172
7,960
Net fixed assets
15,687
17,899
Other Assets:
Licensing agreement, net of accumulated
amortization of $18,992 and $4,632
327,508
310,368
Security investment
10,000
-
Rent deposit
5,000
8,028
Total other assets
342,508
318,396
Total Assets
$ 476,711
$ 414,727
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Amount due for licensing agreement
$ 95,000
$ 95,000
Stockholder advance
998,700
100
Total current liabilities
1,093,700
95,100
Stockholder’s Equity:
Common stock: authorized 100,000,000 shares
of $.001 par value; issued and outstanding,
43,020,816 and 41,950,816, respectively
28,821
27,751
Additional paid-in capital
777,219
646,789
Deficit accumulated during the development stage (434,429)
(354,913)
Accumulated other comprehensive loss
(988,600)
-
Total stockholders’ equity
(616,989)
319,627
Total Liabilities and Stockholders’ Equity
$ 476,711
$ 414,727
These statements should be read in conjunction with the year-end financial statements.
1
AMANASU ENVIRONMENT CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND DEFICIT
ACCUMULATED DURING DEVELOPMENT STAGE
(Unaudited)
Nine Month Periods Ended
September 30,
February 22, 1999
(Date of Inception)
1
2002
To September 30, 2003
Revenue:
Interest income
$ 286
$ 28
$ 3,224
Expenses
79,802
16,955
437,653
Loss accumulated
during development stage
(79,516)
(16,927)
(434,429)
Other Comprehensive Loss:
Holding loss arising
during period
(988,600)
-
(988,600)
Comprehensive loss
$ (1,068,116)
$ (16,927)
$(1,423,029)
Loss Per Share –
Basic and Diluted
$ -
$ -
Weighted average number
of shares outstanding
42,335,816
41,247,816
These statements should be read in conjunction with the year-end financial statements.
2
AMANASU ENVIRONMENT CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND DEFICIT
ACCUMULATED DURING DEVELOPMENT STAGE
(Unaudited)
Three Month Periods Ended
September 30,
February 22, 1999
(Date of Inception)
2003
2002
To September 30, 2003
Revenue:
Interest income
$ 86
$ -
$ 3,224
Expenses
19,623
15,710
437,653
Loss accumulated
during development stage
(19,537)
(15,710)
(434,429)
Other Comprehensive Loss:
Holding loss arising
during period
(90,000)
-
(988,600)
Comprehensive loss
$ (109,537)
$ (15,710)
$(1,423,029)
Loss Per Share –
Basic and Diluted
$ -
$ -
Weighted average number
of shares outstanding
43,000,816
41,247,816
These statements should be read in conjunction with the year-end financial statements.
3
AMANASU ENVIRONMENT CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Month Periods Ended
September 30,
February 22, 1999
(Date of Inception)
2003
2002
To September 30, 2003
CASH FLOWS FROM
OPERATIONS:
Net loss
$ (79,516)
$(16,927)
$ (434,329)
Charges not requiring the
outlay of cash:
Depreciation and amortization
16,572
2,450
29,164
Services provided for common stock
-
-
70,000
Changes in assets and liabilities:
Increase in accounts payable
-
960
-
Net Cash Consumed By
Operating Activities
(62,944)
(13,517)
(335,165)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of licensing agreement
-
-
(155,000)
Purchase of automobile
-
-
(25,859)
Rent deposit for warehouse lease
3,028
-
(5,000)
Acquisition of equity investment
(998,600)
-
(998,600)
Net Cash Consumed By
Investing Activities
(995,572)
-
(1,184,459)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Sales of common stock
100,000
50,000
639,440
Advances received in anticipation of
common stock sales
-
-
100
Stockholder advances
998,600
50,000
998,600
Net Cash Provided By
Financing Activities
1,098,600
50,000
1,638,140
Net change in cash
40,084
36,483
118,516
Cash balance, beginning of period
78,432
35,287
-
Cash balance, end of period
$ 118,516
$ 71,770
$ 118,516
These statements should be read in conjunction with the year-end financial statements.
4
AMANASU ENVIRONMENT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
1.
BASIS OF PRESENTATION
The unaudited interim financial statements of Amanasu Environment Corporation (“the Company”) as of September 30, 2003 and for the three month and nine month periods ended September 30, 2003 and 2002, have been prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such periods. The results of operations for the quarter and six month period ended September 30, 2003 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2003.
Certain information and disclosures normally included in the notes to financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission, although the Company believes the disclosure is adequate to make the information presented not misleading. The accompanying unaudited financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2002.
2.
LICENSE ACQUISITION
On September 30, 2002, the Company acquired the exclusive worldwide rights to produce and market a patented product known as Firebird PD 5000, which is a hot water boiler that collects heat from waste tires. As consideration for this acquisition, the Company paid $155,000 and issued 650,000 shares of common stock; it is obligated to pay on demand an additional $95,000.
On June 30, 2003, the Company acquired the exclusive worldwide rights to produce and market a patented process that purifies seawater, and removes hazardous pollutants from wastewater. As consideration for this acquisition, the Company issued 1,050,000 shares of common stock.
5
AMANASU ENVIRONMENT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
3.
SECURITY INVESTMENT
On May 14, 2003, the Company entered into an agreement (Stock Purchase Agreement) to acquire 10,000,000 shares of the common stock of Kyoei Reiki Industrial Corporation, Ltd. (Kyoei Reiki), a Japanese company publicly traded on a Japanese exchange. The purchase price was 580,000,000 Japanese Yen (approximately $4,993,000). This investment has been treated as "available for sale". A down payment of 116,000,000 Japanese Yen (approximately $998,600) was made; this was financed by a non-interest bearing advance from the controlling stockholder. The balance due on the contract of 464,000,000 Japanese Yen (approximately $3,994,400) is collateralized by 1,000,000 shares of Company stock which is owned by the controlling shareholder. The 464,000,000 Japanese Yen balance has not been paid and the stock has not been delivered to the Company.
The Stock Purchase Agreement contains a provision that the remaining balance on the contract will be waived if Kyoei Reiki becomes bankrupt or is placed under receivership for bankruptcy. On June 25, 2003, Kyoei Reiki was placed under receivership with Tokyo District Court, thereby relieving the Company of its obligation for the 464,000,000 Japanese Yen remaining balance due on the Stock Purchase Agreement. The value of the Kyoei Reiki stock has declined significantly since May 14, 2003, and management is attempting to renegotiate the terms of the contract. No assurance can be given that these negotiations will be successful.
The decline in value of the Kyoei Reiki stock has been recognized as a holding loss in the comprehensive loss section of the Statement of Operations and Deficit Accumulated During Development Stage. The investment has been written down to $10,000.
4.
SUPPLEMENTAL CASH FLOWS INFORMATION:
There was no cash used during the periods for interest or income taxes.
The Company issued 1,050,000 shares of common stock during the second quarter as consideration for licensing rights (see Note 2), which were valued at $31,500.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement
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This report on Form 10-QSB contains certain forward-looking statements within the meaning of section 21e of the Securities Exchange Act of 1934, as amended, and other applicable securities laws. All statements other than statements of historical fact are "forward-looking statements" for the purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.
See the Company's Annual Report on Form 10-KSB for the period ending December 31, 2002 (“Form 10-KSB”) for additional statements concerning operations and future capital requirements. Certain risks exist with respect to the Company and its business, which risks include the need for additional capital, and lack of commercial product, among other risks. Readers are urged to refer to the section entitled “Risk Factors” in the Company’s Form 10-KSB for a broader discussion of such risks and uncertainties. In addition to the risks described therein, the Company has incurred a significant loss with respect to a transaction which the Company entered into during the second quarter of 2003 (“Company Overview – Capital Stock of Kyoei Reiki Industrial Corporation Ltd.”).
The following discussion should be read in conjunction with the Company's Financial Statements, including the Notes thereto, appearing elsewhere in this Quarterly Report and in the Annual Report for the year ended December 31, 2002.
COMPANY OVERVIEW
Licensed Technologies.
Amanasu Environment Corporation, formerly known as Amanasu Energy Corporation (the "Company"), is a development stage company. It has acquired the exclusive, worldwide licensee rights to a high temperature furnace, a hot water boiler, and ring-tube desalination methodology. At this time, the Company is not engaged in the commercial sale of any of its licensed technologies. Its operations to date have been limited to acquiring the technologies and testing the technologies for commercial sale. For each such technology, the Company has acquired proto-type or demonstrational units from the respective licensor of the technology. The Company also has conducted various testing on these units to determine the commercial viability of the underlying technology. As a result of such testing, the Company believes that its technologies are commercially viable and are ready for commercial sale. It i s the present intention of the Company not to engage in the actual production and sale of its products. Rather, it is seeking joint venture or other affiliations with companies competitive in each respective product market whereby the Company can capitalize on the existing infrastructure of such other companies, such as warranty and post-warranty service and repair. The Company can not predict whether it will be successful in establishing affiliations with any such company, or whether it will be able to successfully produce and market its products.
Capital Stock of Kyoei Reiki Industrial Corporation Ltd.
On May 14, 2003, the Company entered into a Stock Purchase Agreement to acquire from Jipangu Inc. ("Jipangu"), a private, unaffiliated Japanese company, 10,000,000 shares of Kyoei Reiki Industrial Corporation Ltd (“Kyoei”), a publicly traded company in Tokyo, Japan. ��The purchase price for the shares is $4,993,000. On or about May 31, 2003, 20% of the total amount, approximately $1,000,000, was paid to Jipangu. The remaining amount was due on June 25, 2003. However, the Stock Purchase Agreement with Jipangu provided that if Kyoei becomes bankrupt or is under receivership for bankruptcy before the remaining amount (80%) is due, Jipangu waives the right to collect the final amount. On June 25, 2003, Kyoei was placed under receivership with Tokyo District Court. The Company believes that it is not required to pay Jipangu the remaining amount due under the Stock Purchase Agreement. The partial payment amount was advanced to Jipangu by the Company’s President, Mr. Atsushi Maki, the Company’s controlling shareholder, on behalf of the Company as an interest free loan. Repayment terms have not been established by the parties at this time. Although the Company has not received the shares of Kyoei, it believes that it is entitled to receive them from Jipangu. Since the date of the transaction, the value of the shares as traded on the Nikkei Stock Market has dropped significantly in value. The value of the shares as of the date of this report is $10,000. As a result of the significant drop in the value of the shares of Kyoei, the Company has experience a significant loss of the investment.
MARKETS AND PRODUCTS
Amanasu Furnace
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On June 8, 2002, the Company acquired the exclusive, worldwide license to a technology that disposes of toxic and hazardous wastes through a proprietary, high temperature combustion system, known as the Amanasu Furnace. The term of the license is 30 years from the contract date and provides for a payment of a 2% royalty to the licensor.
The combustion system is a low cost methodology of generating extremely high temperatures in excess of 2,000 degrees Celsius. Waste matter exposed to the extreme temperature system is instantly decomposed to a gaseous matter and a magna-like liquid. The process leaves a 1-2% residue of an inert, carbon substance and oxygen which is vented out of the system. The process produces no toxins, smoke, ash, or soot. Hazardous and toxic waste generally consists of a large number of chemicals, metals, pesticides, biological agents, toxic pollutants, and other substances. The treatment of toxic and hazardous waste worldwide is a growing and diverse industry. Significant legislation and regulation worldwide has contributed to the growth of this industry. These regulations are directed at protecting the environment by requiring originating parties to be responsible for managing the hazardous wastes that they generate. Although the Company's proprietary furnace disposes of various forms of waste, the Company will seek to promote its product as a toxic and hazardous waste disposal system. This position is premised upon the higher disposal fees for hazardous and toxic compared with the disposal fees of non-toxic or hazardous waste.
Hot Water Boiler
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On September 30, 2002, the Company received the exclusive license for the production and marketing of a state of the art hot water boiler. Its function is to extract heat energy from waste tires. The term of the license is 30 years from the contract date and provides for a payment of a 2% royalty to the licensors. The Company acquired the technology for the sum of $155,000 and issued 650,000 shares of its common stock. The Company also is obligated to pay on demand an additional $95,000.
A complete system has been shipped to a prospective distributor in Mexico to undergo testing for compliance with government regulations. As of this date, testing of the product has not commenced. The Company expects that the tests will commence during the first quarter of 2004. The Company can not predict whether it will be able to effect any sales through this arrangement.
Ring-tube Desalinization Equipment
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During the 2nd quarter of 2003, the Company acquired the exclusive worldwide license to a technology that purifies seawater through various fine ring tubes into drinking water. The term of the license is 30 years from the date of the agreement. As consideration for obtaining the license, the Company issued 1,000,000 shares to Etsuro Sakagami and 50,000 shares to a finder. The license agreement provides for the payment of a royalty of 2% of gross receipts to the licensor within 60 days upon receipt of the royalty. The technology also treats sewage and wastewater and removes hazardous pollutants. This system is known as the Ring-tube Desalinization Equipment. The process uses high temperature and pressure to break down harmful pollutants and bacteria. This equipment is use d as a filter to purify seawater into drinking water and also treats sewage and wastewater, removing pollutants and bacteria. The equipment filters bacteria and other impurities through its fine rings and comb type filter. The impurities are then destroyed by the high pressure and temperature in the Ring-tube. Other harsher pollutants are treated with Cinderelite (an artificial zeolite) in the ring tube. This substance is commonly used for purifying wastewater and sludge.
The Company expects to marketing this product in Japan as approximately 40% of its waste materials consist of sludge that is mostly disposed of in landfills by mining and construction companies. The Company believes that use of the Ring-tube will substantially reduce the level of pollutants and toxins, allowing for a safer means for disposing of waste.
PLAN OF OPERATIONS.
As stated above, the Company is a development stage corporation. It has not commenced the manufacture or sale of any of its products.
The Company's activities over the next twelve months will be devoted to identifying one or more companies that offer products similar to the Company’s technologies, and attempt to form a joint venture or other affiliation with such companies in an effort to produce, market and sell the Company’s products. The Company’s capital requirements for the next 12 months are expect to be approximately $100,000. The funds will be used for general working capital associated with its existing offices and salaries to existing personnel.
The Company raised $265,000 during fiscal year 2002 through the issuance of common stock. During 2003, the Company raised $100,000 from the sale of 20,000 shares of its common stock to a private investor. The Company intends to raise an additional $100,000 during the remainder of 2003 to meet its working capital needs for the next 12 months through private placements of its common stock or loans from its major shareholder. The Company has entered into discussions with a number of private investors concerning a private placement of its common stock. At this time, however, it has not received commitments from any source. The Company can not predict whether it will be able to raise such additional capital.
CRITICAL ACCOUNTING POLICIES
The following discussion and analysis of the Company's financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates these estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonabl e under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Item 3. Effectiveness of the registrant’s disclosure controls and procedures
At September 30, 2003, the Company carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined by Rule 13a-14(c) under the Securities Exchange Act of 1934) under the supervision and with the participation of the Company’s chief executive officer and chief financial officer. Based on and as of the date of such evaluation, the aforementioned officers have concluded that the Company’s disclosure controls and procedures have functioned effectively so as to provide those officers the information necessary whether:
(i) this quarterly report on Form 10 QSB contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report on Form 10 QSB, and(ii) the financial statements, and other financial information included in this quarterly report on Form 10 QSB, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report on Form 10 QSB.
There have been no significant changes in the Company's internal controls or in other factors since the date of the Chief Executive Officer's and Principal Financial Officer's evaluation that could significantly affect these internal controls, including any corrective actions with regards to significant deficiencies and material weaknesses.
Part II OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
During the second quarter of 2003, the Company received $100,000 from the private placement of 20,000 shares of its common stock. The Company believes that above common stock issuance was exempt from registration pursuant to Section 3(b) and 4(2) of the Securities Act of 1933, as amended (the “Act”), including Regulation D promulgated under the Act.
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Securityholders.
None
Item 5. Other Information.
Item 6. Exhibits.
(a). Furnish the Exhibits required by Item 601 of Regulation S-B.
Exhibit 31 – Certification Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002.
Exhibit 32 – Certification Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002.
(b) Reports on Form 8-K.
On July 22, 2003 the Company filed a Form 8-K to report events under Items 6 and 7.
On October 11, 2003 the Company filed a Form 8-K to report events under Items 6 and 7.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMANASU ENVIRONMENT COPRPORATION
Date: November 26, 2003 /s/ Atsushi Maki
Atsushi Maki
Chairman, President and
Chief Accounting Officer
