ARVANA INC - Quarter Report: 2017 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended September 30, 2017.

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from to

Commission file number: 0-30695

ARVANA INC.

(Exact name of registrant as specified in its charter)

299 S. Main Street, 13th Floor, Salt Lake City, Utah 84111

(Address of principal executive offices) (Zip Code)

(801) 232-7395

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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.

Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☐  No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☒  No ☐

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. The number of shares outstanding of the registrant’s common stock, $0.001 par value (the only class of voting stock), at November 14, 2017, was 1,034,030.

TABLE OF CONTENTS

ITEM 1. FINANCIAL STATEMENTS

As used herein, the terms “Company,” “we,” “our,” “us,” “it,” and “its” refer to Arvana Inc., a Nevada corporation and its wholly owned subsidiaries, unless otherwise indicated. In the opinion of management, the accompanying unaudited condensed consolidated financial statements included in this Form 10-Q reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

Arvana Inc.
Condensed Consolidated Balance Sheets

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements. 

Arvana Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Arvana Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

There were no non-cash investing or financing transactions for the nine month periods ended September 30, 2017 and 2016.

The accompanying notes are an integral part of these condensed consolidated financial statements. 

Arvana Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2017

(Unaudited)

1. Nature of Business and Ability to Continue as a Going Concern

Arvana Inc. (“our”, “we”,”us” and the “Company”) was incorporated under the laws of the State of Nevada as Turinco, Inc. on September 16, 1977. On July 24, 2006, the shareholders approved a change of the Company’s name from Turinco, Inc. to Arvana Inc.

These condensed consolidated financial statements for the nine month period ended September 30, 2017, include the accounts of the Company and its subsidiary Arvana Networks Inc. (including its wholly-owned subsidiaries, Arvana Participaçōes S.A. and Arvana Comunicações do Brasil S. A. The Company has ceased all operations in its subsidiary companies, and has written-off or disposed of all assets in the subsidiary companies, consequently they are now all considered to be inactive subsidiaries.

Our reporting currency and functional currency is the United States dollar (“US Dollar”) and the accompanying condensed consolidated financial statements have been expressed in US Dollars.

These condensed consolidated financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business. For the nine month period ended September 30, 2017, the Company recognized a net loss of $187,605 as a result of general administrative expenses, interest expenses and foreign exchange losses. At September 30, 2017, the Company had a working capital deficiency of $2,439,966. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Accordingly, the Company will require continued financial support from its shareholders and creditors until it is able to generate sufficient cash flow from operations on a sustained basis. There is substantial doubt that the Company will be successful at achieving these results. Failure to obtain the ongoing support of its shareholders and creditors may make the going concern basis of accounting inappropriate, in which case the Company’s assets and liabilities would need to be recognized at their liquidation values. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might arise from this uncertainty.

Arvana Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2017

(Unaudited)

2. Summary of Significant Accounting Policies

Basis of presentation

The Company is in the process of transacting a business opportunity and has minimal operating levels. The Company’s fiscal year end is December 31. The accompanying condensed interim consolidated financial statements of Arvana Inc. for the nine months ended September 30, 2017 and 2016, have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for financial information with the instructions to Form 10-Q and Regulation S-X. Results are not necessarily indicative of results which may be achieved in the future. Although they are unaudited, in the opinion of management, they include all adjustments, consisting only of normal recurring items, necessary for a fair presentation. Results are not necessarily indicative of results which may be achieved in the future. The condensed consolidated interim financial statements and notes appearing in this report should be read in conjunction with our consolidated audited financial statements and related notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission (“SEC”) on April 7, 2017.

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to 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 the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates include the recognition of deferred tax assets based on the change in unrecognized deductible temporary tax differences.

Financial instruments

The Company uses the following methods and assumptions to estimate the fair value of each class of financial instruments for which it is practicable to estimate such values:

Cash - the carrying amount approximates fair value because the amounts consist of cash held at a bank.

Accounts payable and accrued liabilities and loans payable - the carrying amount approximates fair value due to the short-term nature of the obligations.

Arvana Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2017

(Unaudited)

2. Summary of Significant Accounting Policies (continued)

Financial instruments (continued)

The estimated fair values of the Company's financial instruments as of September 30, 2017 and December 31, 2016 follows:

The following table presents information about the assets that are measured at fair value on a recurring basis as of September 30, 2017, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and included situations where there is little, if any, market activity for the asset:

The fair value of cash is determined through market, observable and corroborated sources.

Arvana Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2017

(Unaudited)

2. Summary of Significant Accounting Policies (continued)

Recent accounting pronouncements

In January 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update requires several changes with respect to recognition and measurement as well as disclosure requirements with respect to financial instruments). The amendments to (ASU) 2016-01 are effective for the annual period ending after December 15, 2017, and for annual periods and interim periods thereafter. Early application is permitted. The Company is in the process of evaluating the prospective impact that (ASU) 2016-01 will have on its balance sheet.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. The standard requires lessors to classify leases as either sales-type, finance or operating. A sales-type lease occurs if the lessor transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor does not convey risks and rewards or control, an operating lease results. The standard will become effective for the Company beginning January 1, 2019. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures

In March 2016, the FASB issued ASU 2016-9, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, requiring certain changes to recognition and measurement as well as disclosure of Share-Based Payments. The standard will become effective for the Company beginning January 1, 2017. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, requiring certain changes to the recognition and measurement as well as disclosure of incurred and expected credit losses. The standard will become effective for the Company beginning January 1, 2020. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures.

In November 2016, the FASB issued ASU 2016-18, requiring that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. Consequently, transfers between cash and restricted cash will not be presented as a separate line item in the operating, investing or financing sections of the cash flow statement. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company considers that ASU 2016-18 will have a limited impact on the presentation of the statement of cash flows.

Arvana Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2017

(Unaudited)

2. Summary of Significant Accounting Policies (continued)

Recent accounting pronouncements (continued)

In March 2017, the FASB issued ASU 2017-07, requiring certain changes to the presentation of the expenses related to postretirement benefits accounted for under Topic 715. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures.

3. Amounts Due to Related Parties and Loans Payable to Stockholders

From February, 2007, until September 30, 2017, the Company received a number of loans from stockholders, related parties and unrelated third parties. As of September 30, 2017, the Company had received loans of $596,834 (Euro 225,000; CAD$ 72,300; $273,107) (December 31, 2016 - $564,399: Euro 225,000; CAD$ 72,300; $273,107) from stockholders, loans of $131,116 (CAD$ 27,600; $109,000) (December 31, 2016 – $129,556: CAD$ 27,600; $109,000) from a related party and loans of $75,813 (CAD$ 10,000; $67,800) (December 31, 2016 – $47,448: CAD$10,000; $40,000) from unrelated third parties. All of the loans bear interest at 6% per annum. The loans were made in 3 different currencies, Euros, Canadian Dollars and US Dollars. All amounts reflected on these consolidated financial statements are expressed in US Dollars. Repayment of the loans is due on closing of any future financing arrangement by the Company. The balance of accrued interest of $410,107 and $349,186 is included in accounts payable and accrued expenses at September 30, 2017, and December 31, 2016, respectively. Interest expense recognized on these loans was $17,056 and $50,526 for the three and nine months ended September 30, 2017, respectively, compared to $12,132 and $36,409 for the three and nine months ended September 30, 2016, respectively. The Company also received a convertible loan of $50,000 from CaiE Food Partnership Ltd. as per Note 7. This loan bears interest of 10% and is convertible into common shares of the Company at a price of $0.20 per share. This loan matures on November 17, 2017. The Company also received additional loans of $27,800 from CaiE Food Partnership Ltd. with terms and conditions of this loan to be finalized at a later date.

At September 30, 2017, and December 31, 2016, the Company had amounts due to related parties of $548,402 and $525,954, respectively. This amount includes $136,100 at September 30, 2017, and December 31, 2016, payable to two former directors and a current director for services rendered during 2007. This amount is to be paid part in cash and part in stock at a future date with the number of common shares determined by the fair value of the shares on the settlement date. The amounts owing bear no interest, are unsecured, and have no fixed terms of repayment.

Arvana Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2017

(Unaudited)

4. Common stock

During the nine months ended September 30, 2017 and year ended December 31, 2016, the Company had issued nil shares and 148,900 shares respectively.

Shares issued during the year ended December 31, 2016 were valued at $0.23 a share in exchange for the extinguishment of debt in the amount of $74,450, resulting in a gain on settlement of debt of $40,203, an amount comprised of principal and accrued interest on a loan from 2008.

5. Segmented Information

The Company has no reportable segments.

6. Related Party Transactions

Other than amounts payable to related parties as disclosed below and in Note 3, the Company also incurred consulting fees of $6,181 (2016 - $7,438) paid to a company controlled by our chief executive officer during the nine months ended September 30, 2017.

Our former chief executive officer and former director entered into a consulting arrangement on a month to month basis that provided for a monthly fee of CAD$5,000. These amounts have been accrued and are currently unpaid. This consulting arrangement ended on May 24, 2013. As of September 30, 2017, our former chief executive officer was owed $67,077 (CAD$83,710) for services rendered as an officer, compared to $62,347 (CAD$83,710) as at December 31, 2016. The amounts owing for past services have been included in the total payable of $266,919 as of September 30, 2017 and $249,585 as of December 31, 2016.

Our former chief financial officer and former director had entered into a consulting agreement on a month to month basis that provides for a monthly fee of $2,000. These amounts have been accrued and are currently unpaid. This consulting arrangement ended on June 14, 2013. As of September 30, 2017 and December 31, 2016 our former chief financial officer was owed $58,870 for services rendered.

Our former chief executive officer and former director is owed $266,919 for unsecured non-interest bearing amounts due on demand loaned to the Company as of September 30, 2017, compared to $249,585 as of December 31, 2016.

Our former chief executive officer and former director is owed $131,116 for unsecured amounts bearing 6% interest due on demand loaned to the Company as of September 30, 2017, compared to $129,556 as of December 31, 2016.

Our former chief executive officer and former director entered into a debt assignment agreement during the year ended December 31, 2016 to assume $100,000 in unpaid loans and $83,357 in unpaid amounts payable from a third party.

Our other former officers are owed a total of $86,513 for their prior services rendered as officers as at September 30, 2017, compared to $81,399 as of December 31, 2016.

Arvana Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2017

(Unaudited)

6. Related Party Transactions (continued)

A director of the Company is owed $60,000 as of September 30, 2017 and December 31, 2016, for services rendered as a director during 2007. Two former directors of the Company are owed $76,100 as of September 30, 2017 and December 31, 2016 for services rendered as directors during 2007.

7. Convertible Loan

On May 18, 2016, the Company entered into a Convertible Promissory Note (“Convertible Note”) agreement pursuant to which the Company received $50,000 (2015 - $Nil) from CaiE Food Partnership Ltd. (“CaiE”). The $50,000 Convertible Note is convertible into common stock, in whole or in part, at any time and from time to time before maturity at the option of the holder at a fixed price of $0.20 per share. Due to the conversion price being lower than the closing share price on the grant date, a beneficial conversion feature resulted from this issuance. The Convertible Note accrues interest at a rate equal to 10% per year. During the nine months ended September 30, 2017 and year ended December 31, 2016, $12,501 and $10,417 of the discount was amortized, respectively. As at September 30, 2017 and December 31, 2016, the balance of the Convertible Note was $47,918 and $35,417 respectively.

On March 24, 2017, the Company obtained an additional loan from CaiE in the amount of $17,800. The terms and conditions of this loan have not been finalized.

On August 10, 2017, the Company obtained an additional loan from CaiE in the amount of $10,000. The terms and conditions of this loan have not been finalized.

8. Subsequent Events

The Company evaluated its September 30, 2017, financial statements for subsequent events through the date the financial statements were issued. The Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this quarterly report contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include but are not limited to those discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition below. The following discussion should be read in conjunction with our financial statements and notes thereto included in this report. Our fiscal year end is December 31. All information presented herein is based on the three and nine months ended September 30, 2017 and September 30, 2016.

Overview

On March 17, 2016, the Company entered into a non-binding Memorandum of Understanding (“MOU”) with CaiE Food Partnership Ltd. (“CaiE”) for the purpose of acquiring CaiE as a wholly owned subsidiary. CaiE is in the business of manufacturing and distributing fresh Dim Sum food products from a facility in Sparks Nevada. The MOU anticipates that the Company will issue, subject to shareholder approval, a fully diluted sixty-seven percent (67%) interest in its common stock in exchange for CaiE. The MOU further provides that CaiE lend the Company fifty thousand dollars ($50,000) on a convertible basis prior to the consummation of the transaction. The anticipated transaction will require the Company to convert existing debt into shares of its common stock, increase the number of authorized common shares, elect a new Board of Directors and change its name to reflect the new business. CaiE had loaned the Company a total of $77,800 as of the filing date of this report.

In the event that the Company does not complete the acquisition of CaiE, its intention will be to identify and evaluate alternative business opportunities that might be a good match for the Company. We will not be able to develop any identified business opportunities without additional financing. Our Board of Directors and management are actively pursuing financing in order to maintain operations but are not evaluating other potential opportunities pending the anticipated transaction with CaiE.

Our Plan of Operation

The Company’s plan of operation over the next twelve months is to acquire CaiE as a wholly owned subsidiary on those terms to be provided within definitive agreements based on the MOU and thereafter to focus on CaiE’s business model. We will require a minimum of $50,000 in funding over the next 12 months to maintain operations and acquire CaiE. On completing the acquisition of CaiE the Company may need additional capital to grow CaiE’s business. The amount of funding that may be required for this purpose is not determinable at this time.

Should the Company not complete the anticipated transaction with CaiE then it will seek to identify an alternative business opportunity for which purpose it will require a minimum of $25,000 in funding over the next 12 months. The Company will most likely need additional funding to complete any alternative transaction that might be identified within this time frame.

We anticipate that the required prospective funding in the near term will be in the form of convertible debt financing from CaiE. Should the Company not complete the anticipated transaction with CaiE, then requisite funding may come from the sale of our common shares or unsecured shareholder loans. The Company does not have any alternative financing arranged and cannot be certain that it will be able to realize funding from the sale of equity or that shareholders will continue to provide loans. Accordingly, we will require continued financial support from our shareholders and creditors until the Company is able to generate sufficient cash flow to maintain operations on a sustained basis. There is substantial doubt that the Company will be successful in maintaining operations unless it completes the acquisition of CaiE.

Results of Operations

During the nine months ended September 30, 2017, the Company (i) obtained additional loans from CaiE; and (ii) satisfied continuous public disclosure requirements.

Our operations for the three and nine months ended September 30, 2017 and 2016 are summarized below.

Net Losses

Net loss for the three months ended September 30, 2017, was $71,191 as compared to net loss of $19,210 for the three months ended September 30, 2016. The increase of net losses over the three month period ended September 30, 2017, compared to the three month period ended September 30, 2016, can be attributed to an increase in foreign exchange loss, and an increase in interest expense as a result of accretion on the convertible loan, which are offset by a decrease in general and administrative expenses and professional fees over the comparable three month periods. The loss on foreign exchange is due to an increase in the value of foreign currencies against the US dollar, which increase has negatively impacted the cost of those expenses that are payable in foreign currencies.

Net loss for the nine months ended September 30, 2017 was $187,605 as compared to net loss of $115,602 for the nine months ended September 30, 2016. The increase of net loss over the nine month period ended September 30, 2017, compared to the nine month period ended September 30, 2016, can be attributed to an increase in foreign exchange loss, and an increase in interest expense as a result of accretion on the convertible loan, which are offset by a decrease in general and administrative expenses over the comparable nine month periods. The loss on foreign exchange is due to an increase in the value of foreign currencies against the US dollar, which has negatively impacted the cost of those expenses that are payable in foreign currencies.

We did not generate revenue during this period and expect to continue to incur losses over the next twelve months at a rate comparable to the prior annual period presented here or until such time as we are able to conclude the acquisition or development of a new business opportunity that produces net income.

Capital Expenditures

The Company expended no amounts on capital expenditures for the nine month period ended September 30, 2017.

Income Tax Expense (Benefit)

The Company has a prospective income tax benefit resulting from a net operating loss carry-forward and start up costs that will offset any future operating profit.

Impact of Inflation

The Company believes that inflation has had a negligible effect on operations over the past three years.

Liquidity and Capital Resources

Since inception, the Company has experienced significant changes in liquidity, capital resources, and stockholders’ deficiency.

The Company had current and total assets of $8,622 as of September 30, 2017, consisting solely of cash and a working capital deficit of $2,439,966, as compared to current and total assets of $6,045, consisting solely of cash and a working capital deficit of $2,252,361 as of December 31, 2016. Net stockholders' deficiency in the Company was $2,439,966 at September 30, 2017, as compared to a net stockholder’s deficiency in the Company of $2,252,361 at December 31, 2016.

Cash Used in Operating Activities

Net cash flow used in operating activities for the nine month period ended September 30, 2017 was $25,223 as compared to $39,597 for the nine month period ended September 30, 2016. Changes in net cash used in operating activities in the current nine month period can be attributed primarily to a number of items that are book expense items which do not affect the total amount relative to actual cash used such as unrealized foreign exchange and accretion of convertible debt. Balance sheet accounts that actually affect cash, but are not income statement related items that are added or deducted to arrive at net cash used in operating activities, include accounts payable and amounts due to related parties.

We expect to continue to use net cash flow in operating activities over the next twelve months or until such time as the Company can generate sufficient revenue to offset operating expenses.

Cash Used in Investing Activities

We do expect to use net cash flow in investing activities in connection with the prospective acquisition of CaiE. However, until such time as such transaction is concluded, we do not expect to use net cash flows in investing activities.

Cash Flows from Financing Activities

Cash flow provided by financing activities for the nine months ended September 30, 2017, was $27,800 as compared to $50,000 for the nine months ended September 30, 2016. The cash flows provided from financing activities over the comparative nine month periods can be wholly attributed to loans received from CaiE.

We expect to continue to use cash flow provided by financing activities to maintain operations, acquire CaiE and alternatively, in the event the acquisition of CaiE is not completed, to seek out suitable business opportunities.

The Company’s current assets are insufficient to conduct its plan of operation over the next twelve (12) months as it will need at least $25,000 to maintain operations. The Company secured a convertible loan in the amount of $50,000 in 2016 and has received additional loans in the aggregate of $27,800 in 2017 from CaiE in order to maintain operations. However, the Company has no commitments or arrangements for the funding necessary to complete the prospective acquisition of CaiE though it does expect that funding will become available. The Company’s shareholders or CaiE remain the most likely sources of new funding in the form of loans or equity placements though none have made any commitment for future investment as of the date of this report. The Company’s inability to obtain sufficient funding to maintain operations would have a material adverse affect on its ability to acquire CaiE.

The Company does not intend to pay cash dividends in the foreseeable future.

The Company had no lines of credit or other bank financing arrangements as of September 30, 2017.

The Company had no commitments for future capital expenditures that were material at September 30, 2017.

The Company has no defined benefit plan or contractual commitment with any of its officers or directors.

The Company has no current plans for the purchase or sale of any plant or equipment.

The Company has no current plans to make any changes in the number of employees.

Off-Balance Sheet Arrangements

As of September 30, 2017, we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to stockholders.

Future Financings

We anticipate continuing to rely on debt or equity sales of our shares of common stock in order to continue to fund our business operations. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our plan of operations.

Critical Accounting Policies 

In Note 2 to the audited consolidated financial statements for the years ended December 31, 2016 and 2015, included in our Form 10-K, the Company discusses those accounting policies that are considered to be significant in determining the results of operations and its financial position. The Company believes that the accounting principles utilized by it conform to accounting principles generally accepted in the United States.

The preparation of consolidated financial statements requires Company management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an on-going basis, the Company evaluates estimates. The Company bases its estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.

Going Concern

Management of the Company has expressed an opinion as to the Company’s ability to continue as a going concern as a result of an accumulated deficit of $23,663,381 since inception and negative cash flows from operating activities as of September 30, 2017. The Company’s ability to continue as a going concern is subject to the ability of the Company to obtain funding from outside sources. Management’s plan to address the Company’s ability to continue as a going concern includes obtaining funding from a private placement of equity or through a debt financing. Management believes that it will be able to obtain funding to allow the Company to remain a going concern through the methods discussed above, though there can be no assurances that such methods will prove successful.

Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition

The statements contained in the section titled Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this current report, with the exception of historical facts, are forward-looking statements. Forward-looking statements reflect our current expectations and beliefs regarding our future results of operations, performance, and achievements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not materialize. These statements include, but are not limited to, statements concerning:

We wish to caution readers that our operating results are subject to various risks and uncertainties that could cause our actual results to differ materially from those discussed or anticipated. We also wish to advise readers not to place any undue reliance on the forward-looking statements contained in this report, which reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update or revise these forward-looking statements to reflect new events or circumstances or any changes in our beliefs or expectations, other than as required by law.

Stock-Based Compensation

We have adopted Accounting Standards Codification Topic (“ASC”) 718, Share-Based Payment, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments.

We account for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 505. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

In connection with the preparation of this quarterly report, an evaluation was carried out by the Company’s management, with the participation of the chief executive officer and the acting chief financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of September 30, 2017. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.

Based on that evaluation, the Company’s management concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were ineffective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission’s rules and forms, and such information was not accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the period ended September 30, 2017, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors

Not required for smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on page 22 of this Form 10-Q, and are incorporated herein by this reference.

SIGNATURES

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.

INDEX TO EXHIBITS