Attached files
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission file number: 000-55206
Registrant's telephone number, including area code: (888) 406 2713
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of September 30, 2015, the issuer had 22,943,624 shares of its common stock issued and outstanding.
PART I
|
FINANCIAL INFORMATION
|
PAGE
|
Item 1.
|
Financial Statements
|
4
|
Balance Sheet as of September 30, 2015 (Unaudited) and December 31, 2014
|
5
|
|
Statement of Operations for the nine and three months ended September 30, 2015 (Unaudited)
|
6
|
|
Statement of Cash Flows for the nine months ended September 30, 2015 (Unaudited)
|
7
|
|
Notes to Financial Statements (Unaudited)
|
8
|
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
16
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
20
|
Item 4.
|
Controls and Procedures
|
20
|
PART II
|
||
Item 1.
|
Legal Proceedings
|
21
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
21
|
Item 3.
|
Defaults Upon Senior Securities
|
21
|
Item 4.
|
Mine Safety Disclosures
|
21
|
Item 5.
|
Other Information
|
22
|
Signatures
|
Exhibits
|
22
|
Item 1. Financial Statements.
AMERICATOWNE Inc. Financial Statements (Unaudited)
Contents
Financial Statements
|
Page
|
Balance Sheet as of September 30, 2015 and December 31, 2014
|
5
|
Statement of Operations for the nine and three months ended September 30, 2015
|
6
|
Statement of Cash Flows for the nine months ended September 30, 2015
|
7
|
Notes to Financial Statements
|
8 |
Balance Sheets
September 30, 2015 (unaudited)
|
December 31 2014
|
|
ASSETS
|
||
Current Assets
|
||
Cash and cash equivalents
|
$43,278
|
$16,403
|
Accounts receivable, net
|
704,475
|
143,132
|
Accounts receivable, net - related parties
|
53,025
|
|
Pre Payment-Current
|
644
|
644
|
Total Current Assets
|
$801,422
|
$160,179
|
Prepayment-non current
|
8,323
|
8,808
|
Property, plant and equipment, net
|
15,239
|
-
|
Goodwill
|
40,331
|
40,331
|
Investments
|
3,860
|
-
|
TOTAL ASSETS
|
$869,175
|
$209,318
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
||
Current Liabilities
|
||
Accounts payable and accrued expenses
|
$29,419
|
$26,539
|
Deferred revenues-current
|
4,542
|
4,542
|
Income tax payable
|
109,048
|
15,394
|
Total Current Liabilities
|
143,009
|
46,475
|
Deferred Revenues Non-Current
|
59,656
|
63,062
|
Total Liabilities
|
202,665
|
109,537
|
|
||
Commitments & Contingencies
|
||
Shareholders' Equity
|
||
Preferred stock, $0.0001 par value; 5,000,000 shares authorized;
|
||
none issued and outstanding
|
||
Common stock, $0.0001 par value; 100,000,000 shares authorized,
|
||
22,943,624 and 18,577,565 shares issued and outstanding
|
2,294
|
1,858
|
Additional paid-in capital
|
1,435,956
|
1,432,533
|
Deferred compensation
|
(1,082,461)
|
(1,363,198)
|
Retained Earnings
|
310,721
|
28,588
|
Shareholders' Equity
|
666,510
|
99,781
|
Total Liabilities and Shareholders' Equity
|
$869,175
|
$209,318
|
Statements of Operations
(Unaudited)
For the Three Months Ended
|
For the Nine Months Ended
|
|||
September 30,
|
September 30
|
|||
2015
|
2014
|
2015
|
2014 |
|
Revenues
|
||||
Sales
|
$311,135
|
$52,722
|
$768,406
|
$52,722
|
Services-related parties
|
50,000
|
25,000
|
150,000
|
25,000
|
361,135
|
77,722
|
918,406
|
77,722
|
|
Cost of Revenues-Related Parties
|
31,162
|
5,303
|
97,035
|
5,303
|
Gross Profit
|
329,973
|
72,419
|
821,371
|
72,419
|
Operating Expenses
|
||||
General and administrative
|
115,782
|
10,224
|
366,450
|
13,674
|
Professional fees
|
35,965
|
21,390
|
78,482
|
21,390
|
Total operating expenses
|
151,747
|
31,614
|
444,932
|
35,064
|
Income from operations
|
178,226
|
40,805
|
376,439
|
37,355
|
Other Expenses
|
||||
Finance expenses
|
361
|
0
|
652
|
0
|
Income before income taxes
|
177,865
|
40,805
|
375,787
|
37,355
|
Provision for income taxes
|
19,642
|
0
|
93,654
|
|
Net Income
|
158,223
|
40,805
|
282,133
|
37,355
|
Earnings per share - basic and diluted
|
$0.01
|
$0.00
|
$0.01
|
$0.00
|
Weighted average shares outstanding- basic and diluted
|
22,943,624
|
11,663,043
|
21,108,269
|
10,950,311 |
Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
|
||
September 30,
|
||
2015
|
2014
|
|
|
|
|
Operating Activities:
|
||
Net income
|
$ 282,133
|
37,355
|
Adjustments to reconcile net income to net cash provided by operations
|
|
|
Stock compensation
|
280,737
|
-
|
Depreciation
|
1,078
|
-
|
Bad debt provision
|
29,811
|
-
|
Changes in operating assets and liabilities:
|
||
Accounts receivable, net
|
(644,179)
|
(48,000)
|
Prepayment
|
485
|
(9,614)
|
Accounts payable and accrued expenses
|
2,879
|
1,000
|
Deferred revenues
|
(3,406)
|
39,778
|
Income tax payable
|
93,654
|
-
|
Net cash provided by operating activities
|
43,192
|
20,519
|
Investing Activities:
|
||
Purchase of fixed assets
|
(16,317)
|
-
|
Net cash used in Investing activities
|
(16,317)
|
-
|
Financing Activities:
|
||
Proceeds from issuance of common stock
|
-
|
3,119
|
Net cash provided by financing activities
|
-
|
3,119
|
Increase in cash and cash equivalents
|
26,875
|
23,638
|
Cash and cash equivalents at beginning of period
|
16,403
|
-
|
Cash and cash equivalents at end of period
|
$ 43,278
|
$ 23,638
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
Interest paid
|
$ 638
|
$ -
|
Income taxes paid
|
$ 0
|
$ -
|
AMERICATOWNE Inc.
Notes to Financial Statements
(Unaudited)
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
AmericaTowne, Inc. (the "Company") was incorporated under the laws of the State of Delaware on April 22, 2014. The Company exited shell status on March 3, 2015. The Company is engaged in exporting and consulting in the exporting of American made goods, products and services to China and Africa through strategic relationships in China and in the United States, which is referred to internally by the Company as the "AmericaTowne Platform". The Company's forward-looking vision is to create a physical location called AmericaTowne in China that incorporates business selling the "American experience" in housing, retail, senior care and entertainment. The Company's Registration Statement on Form S-1/A went effective on November 6, 2015.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP").
Interim Financial Statements
These interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. They do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. Therefore, these consolidated financial statements should be read in conjunction with the Company's audited financial statements and notes thereto contained in its report on Form 10 K for the period from April 22, 2014 (inception) through December 31, 2014.
The consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company's financial position at September 30, 2015, and the results of its operations and cash flows for the three months ended September 30, 2015. The results of operations for the period ended September 30, 2015 are not necessarily indicative of the results to be expected for future quarters or the full year.
Accounting Method
The Company's financial statements are prepared using the accrual method of accounting. The Company has elected a fiscal year ending on December 31.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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. In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. However, management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
Property, Plant, and Equipment
Property, plant and equipment are initially recognized recorded at cost. Gains or losses on disposals are reflected as gain or loss in the period of disposal. The cost of improvements that extend the life of plant and equipment are capitalized. These capitalized costs may include structural improvements, equipment and fixtures. All ordinary repairs and maintenance costs are expensed as incurred.
Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets:
Investments
Investments primarily include cost method investments. On September 30, 2015, the carrying amount of investments is $3,860. There are no identified events or changes in circumstances that may have a significant adverse effect on fair value of the investment as of September 30, 2015.
Income Taxes
Income taxes are provided in accordance with Statement of Financial Accounting Standards ASC 740 Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Company was established under the laws of the State of Delaware and is subject to U.S. federal income tax and Delaware state income tax. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts and are based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. On September 30, 2015 and December 31, 2014, there are no deferred tax assets and liabilities. The Company accrued $93,654 income tax for the nine months ended September 30, 2015. The Company had tax liability of $109,048 and $15,394 on September 30, 2015 and December 31, 2014, respectively.
Earnings per Share
In February 1997, the FASB issued ASC 260, "Earnings per Share", which specifies the computation, presentation and disclosure requirements for earnings (loss) per share for entities with publicly held common stock. ASC 260 supersedes the provisions of APB No. 15, and requires the presentation of basic earnings (loss) per share and diluted earnings (loss) per share. The Company has adopted the provisions of ASC 260 effective (inception).
Basic earnings and net loss per share amounts are computed by dividing the net income by the weighted average number of common shares outstanding. Diluted earnings per share are the same as basic earnings per share due to the lack of dilutive items in the Company.
Segment Information
The standard, "Disclosures about Segments of an Enterprise and Related Information", codified with ASC 280, requires certain financial and supplementary information to be disclosed on an annual and interim basis for each reportable segment of an enterprise. The Company believes that it operates in business segment of marketing and sales in China while the Company's general administration function is performed in the United States. On September 30, 2015, all assets and liabilities are located in the United States where the income and expense has been incurred for the nine months ended September 30, 2015.
Impact of New Accounting Standards
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position, or cash flow.
Pushdown Accounting and Goodwill
Pursuant to applicable rules (FASB ASC 805-50-S99) the Company used push down accounting to reflect Yilaime Corporation's purchase of 100% of the shares of the Company's common stock. Richard Chiang, the Company's prior sole shareholder entered into an agreement to sell an aggregate of 10,000,000 shares of the Company's common stock to Yilaime Corporation effective upon the closing date of the Share Purchase Agreement dated June 26, 2014. Richard Chiang executed the agreement and owned no shares of the Company's common stock. This transaction resulted in Yilaime Corporation retaining rights, title and interest to all issued and outstanding shares of common stock in the Company.
The purchase cost for the agreement was $40,000. The Company used $40,000 as a new accounting basis for its net assets. Since there was no assets on the company's book on June 26, 2014, to make the company's net assets $40,000, the Company recorded $40,331 in goodwill ($40,331-$331=$40,000; $331 was a liability due to a related party). Therefore, in recognizing push down accounting, the Company's net asset increased by the amount reflected by Goodwill.
Revenue Recognition
The Company's revenue recognition policies comply with FASB ASC Topic 605. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, collectability is reasonably assured, and there are no significant subsequent obligations for the Company to assume.
Prior to an agreement, the Company assesses whether collectability from the potential customer is reasonably assured. The Company reviews the customer's financial condition, which is an indicator of both its ability to pay, and, in turn, whether or not revenue is realizable.
The ability to pay is an important criterion for entrance into an agreement with the customer. If management believes that the potential customer does not have the ability to pay, normally an agreement is not entered into with the customer.
If, at the outset an arrangement is entered into and the Company determines that the collectability of the revenue amount from the customer is questionable, management would not recognize revenue until it receives the amount due or conditions change so that collectability is reasonably assured. If collectability is reasonably assured at the outset of an arrangement, but subsequent changes in facts and circumstances indicate collection from the customer is no longer probable, the amount is recorded as bad debt expense.
There are two primary customer agreements currently offered to the Company's customers - (a) Licensing, Lease and Use Agreement ("Licensing Agreement"), and (b) Exporter Services Agreement ("Exporter Agreement").
(a) Licensing, Lease and Use Agreement
For the License, Lease and Use Agreement, the Company reflects revenue recognition over the course of the term.
(b) Exporter Services Agreement.
For services provided in the Exporter Service Agreement, the Company has two primary types of services called the Service Fee and Transaction Fee. Additionally, under certain circumstances, the Company may charge an Extension Fee. The customer under the Exporter Services Agreement is defined in this section as the "Exporter."
The Service Fee
Upon signing the Exporters Agreement, the Exporter is provided with services consisting of eight related components including: 1) market analysis; 2) review of proposed goods and services; 3) expectations for supply and demand in the market; 4) conducting export business in China; 5) information on financing; 6) information on the export tax savings programs; 7) international trade center assistance; and 8) selecting and assigning a tax saving company. All eight components of the Service Fee are delivered as one deliverable upon the signing or shortly thereafter of the Exporter Service Agreement with the exporter. The Company completes the earnings process upon the signing the Exporter Service Agreement since the one service fee deliverable has been delivered and we have no further obligations. Revenue is not recognized until the completion of these eight components and the Company has no further obligations.
The Transaction Fee
During this process, the Exporter's goods and services are tested in the market, buyers or identified, deals or negotiated and the exporter products and services are delivered, and payment is made. The Transaction Fee is normally a percentage of each transaction.
The Transaction Fee process includes the Exporter's participation in three programs: 1) the Sample and Test Market Program; 2) Market Acceptance Program; and 3) Export Delivery Action. In the Sample and Test Market Program, an Exporter's products and services are tested in the market; sources of goods and services are confirmed; price indications are confirmed; and an Exporter and buyer match occurs. In the Market Acceptance Program, the export deal is identified and negotiated. Finally, in the Export Delivery Action, the goods are shipped and delivered and payment is made. The Company does not recognize revenue until completion of these three programs and the Company has no further obligations.
Throughout the life of the Exporter Agreement, the Company expects Exporters to complete multiple transactions. Each transaction is a separate and independent process.
The Extension Fee
The Extension Fee is an independent accounting unit. The Extension Fee is a fee charged to those Exporters who in rare cases for whatever reason fail to avail themselves of the Transaction Process. The Exporter has one-year to participate in the Sample and Test Market Program. Afterwards, provided no transaction has occurred and the Exporter agrees to pay a fee equal to 25% of the original Service fee within thirty (30) days (the "Extension Fee"), the Exporter may continue the Transaction Process. If the Extension Fee is not paid, the Exporter's participation and membership in the Sample and Test Program terminates. In the event of termination, the balance of any prior fees is still due and payable.
Provided that the Exporter agrees to pay the Extension Fee and continues with the Transaction Process, at the end of the Transaction Process and the last Transaction Fee deliverable is made, the Transaction Fee Process is completed. Upon completion, the Company has no further obligations, revenue is recognized, and the Exporter is invoiced for both the Extension Fee and the Transaction Fee.
After the Exporter pays the Extension Fee, if no transaction has occurred for sixty (60) calendars days, the Company is exempt from any obligation to provide further Transaction Process services and it recognizes revenue of the Extension Fee.
The Company recognizes revenue on a gross basis.
We have gross presentation for services provided by Yilaime, a contractor to the Company prior to the consummation of an arrangement.
In accordance with ASC605-45-45, the gross basis to recognize revenue applies since the Company is the primary obligor in the arrangement.
The Company expects to realize revenue for export funding and support, and franchise and license fees for United States support locations, and education initiatives. Additionally, if and when the Company further develops AmericaTowne, revenues would be expected to be recognized for (a) villa sales, rentals, timeshare and leasing; (b) hotel leasing and or operational revenues and sales; (c) theme park and performing art center operations, sales and/or leasing; and (d) senior care facilities, operations and or sales.
The Company does not provide unconditional right of return, price protection or any other concessions to its customers.
Sales returns and allowances was $0 as of September 30, 2015.
Valuation of Goodwill
We assess goodwill for potential impairments at the end of each fiscal year, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. In evaluating goodwill for impairment, we first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then no further testing of the goodwill assigned to the reporting unit is required. However, if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we perform a two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment to be recognized, if any.
In the first step of the review process, we compare the estimated fair value of the reporting unit with its carrying value. If the estimated fair value of the reporting unit exceeds its carrying amount, no further analysis is needed. If the estimated fair value of the reporting unit is less than its carrying amount, we proceed to the second step of the review process to calculate the implied fair value of the reporting unit goodwill in order to determine whether any impairment is required. We calculate the implied fair value of the reporting unit goodwill by allocating the estimated fair value of the reporting unit to all of the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss for that excess amount. In allocating the estimated fair value of the reporting unit to all of the assets and liabilities of the reporting unit, we use industry and market data, as well as knowledge of the industry and our past experiences.
We base our calculation of the estimated fair value of a reporting unit on the income approach. For the income approach, we use internally developed discounted cash flow models that include, among others, the following assumptions: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. We base these assumptions on our historical data and experience, third-party appraisals, industry projections, micro and macro general economic condition projections, and our expectations.
We have had no goodwill impairment charges for the nine months ended September 30, 2015 and 2014, the estimated fair value of each of our reporting units exceeded its' respective carrying amount by more than 100 percent based on our models and assumptions.
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
Bad debt expense was $29,811 and $0 for the nine months ended September 30, 2015 and 2014, respectively.
Allowance for bad debt policy
Our bad debt policy is determined by the Company's periodic review of each account receivable for reasonable assurance of collection. Factors considered are the exporter's financial condition, past payment history if any, any conversations with the exporter about the exporter's financial conditions and any other extenuating circumstances. Based upon the above factors the Company makes a determination whether the receivable are reasonable assured of collection. Based upon our review if required we adjust the allowance for bad debt. As of September 30, 2015, based upon our limited history, we set what we considered a rate for allowance for bad debt of 5% of receivables with the understanding and intention of reviewing accounts and adjusting allowance for bad debts as we progress.
NOTE 4. SHAREHOLDER'S EQUITY
The Company incorporates by reference all prior disclosures for the period identified herein. See Part II, Item 6. The stockholders' equity section of the Company contains the following classes of capital stock as of September 30, 2015:
- Common stock, $ 0.0001 par value: 100,000,000 shares authorized; 22,943,624 shares issued and outstanding;
- Preferred stock, $ 0.0001 par value: 5,000,000 shares authorized; but not issued and outstanding.
NOTE 5. STOCK BASED COMPENSATION
On November 25, 2014, the Company entered into an Employment, Lock-Up and Options Agreement with Mabiala T. Phuati to serve as the Company's Vice President Worldwide Operations effective retroactively to November 15, 2014. The term of the agreement is one year with an option held by the Company to extend employment for another year. The Company has agreed to issue 477,198 shares of common stock to Mr. Phuati in consideration of his services during the term, and to the extent the Company has sufficient cash flow and capital, the Company may elect to include money compensation to Mr. Phuati for his services.
The Company entered into a similar agreement on November 21, 2014 with Alton Perkins to serve as the Chairman of the Board, President, Chief Executive Officer, Chief Financial Officer and Secretary. The term of Mr. Perkins' agreement is five years with the Company retaining an option to extend in one-year periods. In consideration for Mr. Perkins' services, the Company has agreed to issue to his designee, the Alton & Xiang Mei Lin Perkins Family Trust, 5,100,367 shares of common stock. The Company may elect in the future to include money compensation to Mr. Perkins or his designee for his services provided there is sufficient cash flow.
For the nine months ended September 30, 2015, $280,737 of the above stock compensation was charged to operating expenses and $1,082,461 was recorded as deferred compensation on September 30, 2015.
NOTE 6. RELATED PARTY TRANSACTIONS
Yilaime Corporation, a Nevada corporation ("Yilaime") and Yilaime Corporation of NC ("Yilaime NC") are related parties to the Company. Yilaime is a "Control Party" to AmericaTowne because it has title to greater than 50% of the issued and outstanding shares of common stock in the Company. Alton Perkins is the majority shareholder and controlling principal of Yilaime, Yilaime NC and the Company. Mr. Perkins directs all major activities and operating policies of each entity. The common control may result in operating results or a financial position significantly different from that, which would have been obtained if the enterprises were autonomous. Further, pursuant to ASC 850-10-50-6 the Company lists and provides details for all material Related Party transactions so that readers of the financial statements can better assess and predict the possible impact on performance.
Nature of Related Parties' Relationship
On October 8, 2014, the Company entered into the Stock Exchange Agreement with Yilaime NC. Pursuant to the terms of the Stock Exchange Agreement, in consideration for the issuance of 3,616,059 shares of common stock in the Company to Yilaime NC, Yilaime NC conveyed 10,848,178 shares of its restricted common stock to the Company. The intent of the parties in executing and performing under the Stock Exchange Agreement is to effectuate tax-free reorganization under Section 368 of the Internal Revenue Code of 1986. The Company issued the 3,616,059 shares of common stock to Yilaime NC on May 14, 2015. As result of receiving 10,848,178 shares of issued and outstanding common stock in Yilaime (4.5% of issued and outstanding), the Company record $3,860 investment in use of Cost Method.
Pursuant to a Board of Directors resolution prior to the issuance of these shares, the Company has authorized Yilaime NC to transfer 1,791,942 of these shares to sixty-nine (69) of its shareholders as part of a restructuring of Yilaime NC. The shares associated with this issuance have been registered by virtue of the effectiveness of the Company's registration statement on Form S-1/A on November 5, 2015. The Board of Directors further authorized Yilaime NC to transfer 1,824,107 shares of common stock of the Company to Yilaime as part of a restructuring agreement between Yilaime NC and Yilaime (99% of shares of common stock held by Yilaime in Yilaime NC were tendered back to Yilaime NC).
The Company entered into a Service Provider Agreement with Yilaime on October 27, 2014 (the "Service Agreement") wherein certain "Export Funding and Support Services" and "Occupancy Services," as defined therein, are provided to the Company in consideration for a fee. In addition to these fees, Yilaime has to pay an Operations Fee to the Company for exclusive rights. Mr. Perkins is the Chief Executive Officer of the Company and is the majority shareholder and controlling person of Yilaime. The Company recognizes and confirms the requirements in ACS 850-10-50-6 to disclose all related party transactions between the Company and Yilaime, and any other related party transactions and or relationships.
The Company also leased office space from Yilaime NC for $900/month.
Pursuant to ASC 850-10-50-6, the Company makes the following transaction disclosures for nine months ending September 30, 2015:
Operating Statement Related Party Transactions (for the nine months ended September 30, 2015 and 2014)
(a) $150,000 and $25,000 in revenues for Yilaime's exclusive agreement with the Company;
(b) $97,035 and $5,303 in expenses under costs of revenues paid to Yilaime for services pursuant to the Service Agreement;
(c) $8,100 and $5,400 for general and administrative expenses for rent expenses the Company paid to Yilaime towards its lease agreement; and
(d) $280,737 and $0 for general and administrative operating expenses recorded as stock compensation for Mr. Perkins and Mr. Phuati pursuant to their respective employment agreements.
Balance Sheet Related Party Transactions (on September 30, 2015)
(a) $53,025 net account receivables Yilaime owes to the Company;
(b) $3,860 investment under assets associated with the Stock Exchange Agreement; and
(c) $1,082,461 as deferred compensation pursuant to Mr. Perkins' and Mr. Phuati's respective employment agreements.
Other Related Party Transactions
On January 8, 2015, the Board of Directors for the Company authorized its Chairman of the Board to execute the Contribution Agreement between the Company and Yilaime. Pursuant to the terms of the Contribution Agreement, in consideration for the issuance of 750,000 shares of common stock in the Company to Yilaime, Yilaime is contributing to the operations of the Company certain assets previously acquired by Yilaime through an agreement with the Ningbo Meishan Free Trade Port Zone Administrative Committee dated April 1, 2014 (the "Meishan Agreement"). More specifically, the Company, as assignee of Yilaime's rights under the Meishan Agreement, shall receive certain incentives, preferential policies and financial support from Meishan in consideration of the Company meeting specific exporting benchmarks mutually agreed upon by the parties following good faith negotiations.
NOTE 7. COMMITMENT
The Company has entered a business agreement to establish operations in Meishan Island, China. The company is committed to pay $25,000 starting on or before December 31, 2015 for the related start-up cost to the individual who is responsible for establishing operations in Meishan Island, China.
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
FORWARD LOOKING STATEMENTS
Certain statements in this report, including statements of our expectations, intentions, plans and beliefs, including those contained in or implied by "Management's Discussion and Analysis" and the Notes to Financial Statements, are "forward-looking statements", within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are subject to certain events, risks and uncertainties that may be outside our control. The words "believe", "expect", "anticipate", "optimistic", "intend", "will", and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements. These forward-looking statements include statements of management's plans and objectives for our future operations and statements of future economic performance, information regarding our expansion and possible results from expansion, our expected growth, our capital budget and future capital requirements, the availability of funds and our ability to meet future capital needs, the realization of our deferred tax assets, and the assumptions described in this report underlying such forward-looking statements. Actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors, including, without limitation, those described in the context of such forward-looking statements.
General Description of Business
The Company incorporates by reference all prior disclosures for the period identified herein, more specifically, the Form 8-K filed on March 2, 2015. See Part II, Item 5.
As with any business plan that is aspirational in nature, there is no assurance we will be able to accomplish all of our objectives or that we will be able to meet our financing needs to accomplish our objectives.
Mission
"AmericaTowne is to be a world-class, globally respected and profitable company, providing value to its customers, the environment and the lives of the people we service." This statement is a forward-looking statement; however, the Company has already made strides in facilitating relationships intended to advance its mission.
The Company's aim is to increase US export and employment by providing upper and middle-income consumers in China with "Made In The USA" goods and services allowing customers to experience the United States' culture and lifestyle. In achieving this objective, our focus is on four initiatives:
(1) The development of a United States International Trade Center in Meishan Ningbo China with employees and/or independent contractors focusing on advancing our initial business objective, which is to be the "go-to" place for all things "Made In The USA."
(2) The development of upwards of 20 AmericaTowne communities in China with each community consisting of upwards of 50 United States based companies, and upscale hotels, villas, children theme parks, senior care and educational facilities - all based upon United States culture and lifestyle.
(3) The development of an internet platform in Chinese to complement (1) and (2), above, focusing on importing "Made In The USA" goods and services to China through internet sales.
(4) The development of franchise operations in the United States and internationally to support and advance the above-referenced initiatives.
These initiatives are admittedly aspirational in nature. Our intent is to accomplish the majority, if not all, of our initiatives, but there is no assurance we will or that our financing needs to meet our initiatives will be met.
The Company currently has 21 exporters in our export program. In addition, Manhattan Institute of Management and six institutions associated with Student Resource USA (Capella University, Walden University, Western Governors University, Northcentral University, Belhaven University and National University) are represented in our education export initiative. Our intention is to bring the United States International Trade Center in Meishan Ningbo China online in 2015. We expect to complete our initial trade operations with our exporters in 2015. In addition, our office in Raleigh, North Carolina is operational, recently expanded and serves as our base and model for eight other export Trade Center Support Service Centers planned in the United States and other locations.
Though we are planning to develop US Trade Centers in Richmond Virginia, Chicago Illinois, New York City New York, Las Vegas Nevada, Los Altos California, Dallas Texas, Seattle Washington, and Santo Domingo Dominican Republic we have no operations in these locations at this time and we may never have operations in these locations. Internationally, we plan on developing and operating Support Trade Centers in the Nairobi Kenya, Dakar Senegal, and the Kinshasa Democratic Republic of Congo. Though we are completing preliminary work in setting up these locations, none are operational and they may never be operational.
The AmericaTowne Community planned in China and our Internet operations with Chinese websites planned are not yet operational. While we plan to have robust operations in the United States and international locations to support the AmericaTowne concept and trade center, we expect 55% to 65% of our operations and revenue will come from China.
China's economy and its government impact our revenues and operations. While we have an agreement in place with the government in Meishan Ningbo China to operate the United States International Trade Center in Meishan Island China, there is no assurance that we will operate the center successfully. Additionally, the Company will need government approval in China to operate other aspects of our business plan. There is no assurance that we will be successful in obtaining approvals from government entities to operate other aspects of our business plan.
General Discussion
We plan to earn revenues and income, and generate cash, by focusing on our four core business operations and initiatives, as set forth above. At this point, the Company's revenue is generated from our Service Provider and Exporter Service Agreements. We generate revenues and cash by servicing these agreements. We work with exporters carefully and focus on our accounts receivable as part of managing our projected tight liquidity position. Additionally, we work with exporters closely in developing export strategies for the goods and services they planned to export.
At present, the bulk of our operations take place at our Raleigh, North Carolina office, which acts as a model for plans for our United States Trade Center Operations. We are in the process of outfitting our operations in Meishan, China. We have hired a full-time manager to operate the facilities located at Meishan and selected our first exporter, and the products we plan to export. Additionally, we are working with the Meishan Port Authorities to ensure that our operational procedures are in compliance with various import laws at Meishan.
Our short-term operational objectives are to develop our exporter pipeline, grow revenues and increase operations and facilities in the United States while bringing our facility online in Meishan, China. Our focus currently is on enhancing our exporter base, including working with state export agencies to identify exporters as well as sources of goods and services made in the United States that are in demand in China. Along with increasing our United States operations, we are hoping to identify additional key staff in the United States and China that can help us implement our plan. While we feel optimistic about meeting the challenges as well as the opportunities before us, there is no assurance that we will be able to meet the challenges or take advantage of opportunities we perceive are available.
To achieve its long-term objectives, the Company intends on shifting its revenue stream from a United Stated-based to a China-based stream by fully operating all planned activities at the planned Meishan trade center, and activities within our AmericaTowne complexes and Chinese-based internet sites. Each of the Company's four core initiatives presents challenges, risks, and opportunities.
We believe that we see positive trends in the export area. Additionally, the Company plans to pursue opportunities in export not often thought of as an "exported commodity. Along with our planned core AmericaTowne communities, trade centers in the United States and China, and Internet operations, the Company plans on pursuing opportunities that are traditionally not thought of as an export commodity.
There is no assurance we will be able to pursue these opportunities successfully. Additionally, our short and long-term liquidity position is impacted by the success we achieve in implementing our plans. We do plan on pursuing the full range of available funding opportunities. Additionally, we expect to help those in our exporting program with funding opportunities and various programs that may be available to them in the private community, and at the state and national level within the United States.
Additionally, going forward we expect to take advantage of the various export tax laws that will help our cash flow position as well as assist our exporters with their growth. There is no assurance that our plans will be successful. There will be cost to bring all of the planned facilities online in China, including the costs involved with the Trade Center in Meishan, China. While we do have a plan to cover these costs, there can be no assurance that our plan will be successful. While we have discussed the possibility of outside investments in various forms, there are no agreements in place or any assurance that they will be realized in the future.
The uncertainty of implementing our business plan in China and the various laws and policies in China and how they may impact our Company going forward is real. There is no assurance that we will be able to navigate the laws and policies at the national or local level that will allow us to achieve objectives outlined in our business plan. Though our results of operations thus far have been effective, there can be no assurance that we will obtain the same results going forward.
Results of Operations for the Three Months Ended September 30, 2015 and 2014
Our operating results for the three months ended September 30, 2015 are summarized as follows:
Revenues
Compared to the second Quarter 2015 sales of $341,135, for the third quarter of 2015, the Company had sales of $361,115. For the first three quarters of 2015, total sales were $918,406. In the third quarter 2015, the Company's sales consisted of $311,135 in Service Fees and $50,000 in services to related parties for Operations Fees. Cost of Revenue to related parties totaled $31,162. The $311,135 in revenue was from Service Fees charged to Landmark Auto Sales Inc., Hi-Esteem Inc., LFTE USA Inc., Lion Export Inc., and Mwaka Aircraft Services, LLC each for $55,000; and Rocker Electrical Company Limited for $35,000. The $31,162 in related party Costs of Revenues was attributed to payments to Yilaime under its Service Agreement. Cost of Revenue expenses for $5,500 each were attributed to Landmark Auto Sales Inc., Hi-Esteem Inc., LFTE USA Inc., Lion Export Inc., and Mwaka Aircraft Services, LLC, and $3,500 was attributed to Rocker Electrical Company Limited. During the third Quarter 2015 export contracts increased from 16 to 21. We can make no assurances that we will find commercial success in any of our revenue producing contracts. We are a new company and thus have very limited experience in sales expectations and forecasting. We also have not fully discovered any seasonality to our business as we began operations in the third quarter of 2015. Compared to the same period 2014, our revenues increased $283,413 or 365%. The increase is due to implementing our business plan focusing on increasing exporters in our program.
Operating Expenses
Our expenses for the three months ended September 30, 2015 and 2014 are outlined in the table below:
September 30, 2015
September 30, 2014
Our operating expenses are largely attributable to office, rent and professional fees related to our reporting requirements as a public company and preparing our Form S-1 Registration Statement. Compared to the same period in 2014, our operating expenses increased $120,133 or 380%. The increase is due to implementing our business model beyond startup.
Net Income
As a result of our operations, the Company reported net income after provision for income tax of $19,642 for the third Quarter of 2015. Compared to the same period in 2014, our net income increased $117,418 or 288%. The increase is due to implementing our plans beyond startup.
Results of Operations for the Nine Months Ended September 30, 2015 and 2014
Our operating results for the nine months ended September 30, 2015 are summarized as follows:
September 30, 2015
September 30, 2014
Revenues
For the first three quarters of 2015, total sales were $918,406. The Company's sales consisted of $768,406 in Service Fees and $150,000 in services to related parties for Operations Fees. Cost of Revenue to related parties totaled $97,035. The $768,406 in revenue was from Service Fees charged to World Class International Development LLC, Bett & Ndungu Partnership, the Society Cooperative Pour Transaction Agricoles (SOCOOTRA), Community and Global Learning Systems, Chariot Group LLC, US Africa Business, KCC Construction, Inc., Landmark Auto Sales Inc., Hi-Esteem Inc., LFTE USA Inc., Lion Export Inc., and Mwaka Aircraft Services, LLC each for $55,000; and International Consulting Business Center, Canaan Care Home LLC, and Rocker Electrical Company Limited for $35,000 each. The $97,035 in Costs of Revenues was attributed to payments to Yilaime under its Service Agreement. Cost of Revenue expenses for $5,500 each were attributed to World Class International Development LLC, Bett & Ndungu Partnership, SOCOOTRA, Community and Global Learning Systems, Chariot Group LLC, US Africa Business, KCC Construction, Inc., Landmark Auto Sales Inc., Hi-Esteem Inc., LFTE USA Inc., Lion Export Inc., and Mwaka Aircraft Services, LLC, $20,373, were attributed to services provided for goods and services funding requests, while expenses of $3,500 each was attributed to services for International Consulting Business Center, Canaan Care Home LLC, and Rocker Electrical Company Limited. During nine months ending September 30 2015 export contracts increased from 6 to 21. We can make no assurances that we will find commercial success in any of our revenue producing contracts. We are a new company and thus have very limited experience in sales expectations and forecasting. We also have not fully discovered any seasonality to our business as we began operations in the fourth quarter of 2015. Compared to the same period 2014, our revenues increased $840,684 or 1,082%. The increase is due to implementing our marketing plans.
Operating Expenses
Our expenses for the nine months ended September 30, 2015 and 2014 are outlined in the table below:
Our operating expenses are largely attributable to office, rent and professional fees related to our reporting requirements as a public company and preparing our Form S-1 Registration Statement. Compared to the same period in 2014, our operating expenses increased $409,868 or 1169%. The increase is due to the costs of implementing our marketing and growth plans.
Net Income
As a result of our operations for nine months ending September 30, 2015, the Company reported net income after provision for income taxes of $93,654. Compared to the same period in 2014, our net income increased $244,778 or 655%. The increase is due to starting our marketing strategy to increase exporters.
Liquidity and Capital Resources
Working Capital
We have working capital of $658,413 on September 30, 2015. Compared to December 31, 2014, our working capital increased $544,709 or 479%. The increase is due to effectively implementing our marketing and growth plans.
Cash Flow
Cash Provided by Operating Activities
Our net profit for the first three quarters in 2015 was the main contributing factor for our positive operating cash flow. Compared to the same period in 2014, our cash provided by operating activities increase $22,673 or 110%. The increase is mainly due to higher net income in 2015
Cash Used in Investing Activities
We spent $16,317 on fixed assets for the nine months ended September 30, 2015.
Cash Provided by Financing Activities
We received proceeds of $0 from loan for the nine months ended September 30, 2015. Compared to the same period in 2014, our cash used in financing activities decrease $3,119 or 100%. The decrease is due to no proceeds from issuance of common stock in 2015.
Off-Balance Sheet Arrangements
We have not entered into any 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
None.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
As required by Rule 13a-15 of the Securities Exchange Act of 1934, our principal executive officer and principal financial officer evaluated our company's disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of the end of the period covered by this report, these disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities Exchange Commission and to ensure that such information is accumulated and communicated to our company's management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. The conclusion that our disclosure controls and procedures were not effective was due to the presence of the following material weaknesses in internal control over financial reporting which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both United States generally accepted accounting principles and Securities and Exchange Commission guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.
As described in Basis of Presentation in this Third Quarter Report for fiscal year 2015, the Company recently determined that a material weakness existed in the Firm's internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) as of September 30, 2015. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
As a result of that determination, the Company's Chief Executive Officer and Chief Financial Officer have since concluded that the Firm's disclosure controls and procedures were not effective as of September 30, 2015.
We plan to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending December 31, 2015, subject to obtaining additional financing: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out above are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2015 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There are not presently any material pending legal proceedings to which the Company is an actual or threatened party or as to which any of its property is subject.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The Company incorporates by reference all prior disclosures for the period identified herein.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
The Company incorporates by reference all prior disclosures for the period identified herein.
Item 6. Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
/s/Alton Perkins
AMERICATOWNE, INC.
By: Alton Perkins
Its: Chairman of the Board, Chief
Executive Officer, Chief Financial Officer
Date: November 9, 2015