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EX-32.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - AMERICATOWNE Inc.e322.htm
EX-32.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - AMERICATOWNE Inc.e321.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 - AMERICATOWNE Inc.e312.htm
EX-31.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 - AMERICATOWNE Inc.e311.htm

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, 2016


OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


Commission file number: 000-55206

 

AMERICATOWNE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

 

Delaware
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)

 

000-55206
(COMMISSION FILE NO.)

 

46-5488722
(IRS EMPLOYEE IDENTIFICATION NO.)

4700 Homewood Court, Suite 100, Raleigh North Carolina 27609
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

 

(888) 406 2713
(ISS-UER TELEPHONE NUMBER)

 

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Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [X] 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

Large accelerated filer [    ] Accelerated filer [    ]
Non-accelerated filer [    ] Smaller reporting company [ X ]

 

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 October 31, 2016, the issuer had 26,834,775 shares of its common stock issued and outstanding.

 

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TABLE OF CONTENTS

PART I FINANCIAL INFORMATION PAGE
     
Item 1. Financial Statements 4
  Balance Sheet as of September 30, 2016 (Unaudited) and December 31, 2016 5
  Statement of Operations for nine and three months ended September 30, 2016 (Unaudited) 6
  Statement of Cash Flows for nine and three months ended September 30, 2016 (Unaudited) 7
  Notes to Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
Item 4. Controls and Procedures 26
     
PART II    
     
Item 1. Legal Proceedings 27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Mine Safety Disclosures 27
Item 5. Other Information 27
Item 6. Exhibits 28
  Signatures 28

 

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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICATOWNE Inc. Financial Statements (Unaudited)
Contents

Financial Statements Page
   
Consolidated Balance Sheets as of September 30, 2016 and December 31, 2016 5
   
Consolidated Statements of Operations for nine and three months ended September 30, 2016 6
   
Consolidated Statements of Cash Flows for nine and three months ended September 30, 2016 7
   
Notes to Consolidated Financial Statements 8
   

 

 

 

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AMERICATOWNE Inc.
Consolidated Balance Sheets

 

         
    September 30,   December 31,
    2016   2015
    (Unaudited)    
ASSETS        
Current Assets        
Cash and cash equivalents $  934,144 $  641,663
Accounts receivable, net    1,506,887    823,144
Accounts receivable, net - related parties    338,964    35,779
Other receivables - related parties    44,316    -   
Prepayment-current    100,644    2,594
Total Current Assets    2,924,955    1,503,180
         
Prepayment-non current    7,675    8,161
Property, plant and equipment, net    21,099    18,357
Goodwill    218,656    40,331
Investments    3,860    3,860
Total Assets $  3,176,245 $  1,573,889
         
LIABILITIES        
Current Liabilities        
Accounts payable and accrued expenses $  358,542 $  121,408
Deferred revenues-current    4,542    4,542
Notes payable    -       10,000
Other payables    5,016    -   
      Deposit from customers    500,000    
Income tax payable    71,743    35,747
Total Current Liabilities    939,843    171,697
Deferred revenues-non current    55,116    58,521
Total Liabilities    994,959    230,218
         
Commitments & Contingencies        
         
EQUITY        
AMERICATOWNE Inc. Stockholders' 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,
     26,834,775 and 25,243,205 shares issued and outstanding  2,683    2,524
     Additional paid-in capital    3,143,192    2,438,099
     Deferred compensation    (1,090,105)    (1,233,198)
     Receivable for issuance of stock    (16,100)    -   
     Retained Earnings    109,888    136,246
          Total AMERICATOWNE Inc. Stockholders' Equity  2,149,558    1,343,671
     Noncontrolling interest    31,728    -   
     Total Equity    2,181,286    1,343,671
         
          Total Liabilities and Equity $  3,176,245 $  1,573,889

 

 

See Notes to Consolidated Financial Statements

 

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AMERICATOWNE Inc. 

Consolidated Statement of Operations
(Unaudited)

 

    For the Three Months Ended For the Nine Months Ended  
      September 30, 2016   September 30, 2015   September 30, 2016   September 30, 2015  
                     
  Revenues                  
  Sales $  1,135 $  311,135 $ 1,002,405 $  768,406  
  Services-related parties    300,000    50,000    575,000    150,000  
       301,135    361,135    1,577,405    918,406  
  Cost of Revenues    162    31,162    460,066    97,035  
  Gross Profit    300,973    329,973    1,117,339    821,371  
                     
  Operating Expenses                  
     General and administrative    383,365    115,782    891,964    366,450  
     Professional fees    70,316    35,965    186,512    78,482  
  Total operating expenses    453,681    151,747    1,078,476    444,932  
  Income from operations    (152,708)    178,226    38,863    376,439  
                     
  Other Expenses (Income)    409    361    (2,638)    652  
                     
  Provision for income taxes    2,918    19,642    35,996    93,654  
  Net Income (Loss)    (156,035)    158,223    5,505    282,133  
                     
 

Less: Net income attributable to

the noncontrolling interest

  (18,526)       (31,864)      
  Net income attributable to AMERITOWNE Inc.        -        -  
  common stockholders $  (174,561) $  158,223 $  (26,359) $  282,133  
                     
  Earnings per share - basic and diluted $ (0.01) $ 0.01 $ (0.00) $ 0.01  
 

Weighted average shares

outstanding- basic and diluted

  26,833,837   22,943,624   26,510,465   21,108,269  

 

 

 

See Notes to Consolidated Financial Statements

 

 

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AMERICATOWNE Inc.
Consolidated Statement of Cash Flows

(Unaudited)

 

  For the Nine Months Ended
    September 30, 2016   September 30, 2015
         
Operating Activities:        
Net income $ 5,505 $  282,133
Adjustments to reconcile net income to net cash provided by operations        
Depreciation   3,180    1,078
Stock Compensation   287,390    280,737
Stock issued for services   875    -   
Bad debt provision   49,852    29,811
Changes in operating assets and liabilities:        
Accounts receivable, net   (1,036,780)    (644,179)
Other receivable - related parties   (44,317)    -   
Prepayment   (97,564)    485
Accounts payable and accrued expenses   392,443    2,879
Deferred revenues   (33,405)    (3,406)
Other payables   5,016    -   
   Deposit from customers   530,000    -   
Income tax payable   35,996    93,654
Net cash provided by operating activities    98,191    43,192
         
Investing Activities:        
Purchase of fixed assets    (5,921)    (16,317)
Acquisition of investment    (175,000)    -   
Net cash used in Investing activities    (180,921)    (16,317)
         
Financing Activities:        
Proceeds from issuance of common stock    375,211    -   
Proceeds from loan payable    -       -   
Net cash provided by financing activities    375,211    -   
         
Increase (Decrease) in cash and cash equivalents    292,481    26,875
Cash and cash equivalents at beginning of period   641,663    16,403
Cash and cash equivalents at end of period $  934,144 $  43,278
         
Supplemental disclosure of cash flow information        
Interest paid $  -    $  638
Income taxes paid $  -    $  -   

 

 

See Notes to Consolidated Financial Statements

 

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AMERICATOWNE Inc.
Notes to Consolidated 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 is engaged in exporting and consulting in the exportation 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, education, senior care and entertainment. On June 6, 2016, the Company purchased the majority and controlling interest in ATI Modular Technology Corp (“ATI Modular”), formerly Global Recycle Energy, Inc. through the acquisition of 100,000,000 shares (86%) of restricted common stock. The Stock Purchase and Sale Agreement dated June 2, 2016 (the “SPA”) closed on June 6, 2016 with the $175,000 payment of the purchase price to Joseph Arcaro, prior shareholder and sole director and officer of ATI Modular.

ATI Modular is engaged in the development and the exporting of modular energy efficient technology and processes that allow government and private enterprises in China to use US based methods for creating modular spaces, facilities, and properties. The Company's forward-looking vision is to create a physical location and manufacturing facility that promotes the export of US based technology, equipment, and process that focuses on building modular buildings, and structures of all types that will be used by both the public and private building and technology sectors in China.

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").

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all its majority-owned subsidiaries which require consolidation. Inter-company transactions have been eliminated in consolidation.

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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 0and 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, and December 31, 2015.

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, 2016, and the results of its operations and cash flows for the nine months ended September 30, 2016. The results of operations for the period ended September 30, 2016 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 0disclosure 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.

Financial Instruments

The carrying amount reported in the balance sheet for cash, accounts receivable, accounts payable, accrued expenses, interest payable and short-term notes payable approximate fair value because of the immediate or short-term maturity of these financial instruments.

 

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.

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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:

Office equipment 5 years

For nine months ended September 30, 2016 and 2015, depreciation expense is $3,180 and $1,078, respectively.

Investments

Investments primarily include cost method investments. On September 30, 2016, 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, 2016.

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, 2016 and December 31, 2015, there are no deferred tax assets and liabilities. The Company had $71,743 and $35,747 of income tax liability as of September 30, 2016 and December 31, 2015, respectively.

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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 (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued. There were no potentially dilutive securities outstanding during the periods presented.

For the nine months ended September 30, 2016 and 2015, 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, 2016, all assets and liabilities are located in the United States where the income and expense has been incurred since inception to September 30, 2016.

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.

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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 were no assets on the company's books 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.

 

According to the Stock Purchase and Sale Agreement dated June 2, 2016 (the “SPA”) closed on June 6, 2016, the Company purchased 86% of the shares of ATI Modular. The purchase cost for the agreement was $175,000 and book value of ATI Modular’s net assets on June 2, 2016 is ($3,859). The Company accordingly recognized 178,325 Goodwill in consolidation with ATI Modular.

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."

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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.

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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.

There were no sales returns and allowances from inception to September 30, 2016.

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.

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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, 2016. 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

The nature of the net accounts receivable for September 30, 2016, in the amount of $1,988,108 are for Export Service Agreements with 27 exporter and 7 trade center receivable balances. The Company's allowance for bad debt is $142,257, which provides a net receivable balance of $1,845,851.

Accounts' receivable is stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollected amounts through a charge to earnings and a credit to an allowance for bad debts based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for bad debts and a credit to accounts receivable.

Accounts receivable consist of the following:

      Sept
 30
      Jun
30
 
      2016       2016  
Accounts receivable   $                         1,586,197       $ 1,668,365  
Accounts receivable- related parties     356,891         194,500  
Less: Allowance for doubtful accounts     (142,257)       (135,912 )
Accounts receivable, net   $ 1,800,831     $ 1,726,953  

Bad debt expense was $49,852 and $29,811 for the nine months ended September 30, 2016 and 2015, 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.

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NOTE 4. NOTES PAYABLE

On February 1, 2016, a $107,760 promissory note was issued to Mr. Xianghai Lin for operations in Meishan and elsewhere in China. The note bears a 5% annual interest rate and its principal and accrued interest are due on December 31, 2016. After the maturity date, the interest rate will increase to 10.5%. This Note is secured by the personal guarantee of Alton Perkins, Chairman of the Company.

 

On February 13, 2016 a note previously issued to Mr. Xianghai Lin with a balance of $10,935 was exchanged for 3,976 shares of the Company’s common stock.

 

On February 13, 2016 the $107,760 note was exchanged for 39,185 shares of the Company’s common stock.

 

NOTE 5. 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, 2016:

  • Common stock, $ 0.0001 par value: 100,000,000 shares authorized; 26,834,775 shares issued and outstanding
  • Preferred stock, $ 0.0001 par value: 5,000,000 shares authorized; but not issued and outstanding.

NOTE 6. STOCK BASED COMPENSATION

For the nine months ended September 30, 2016 and 2015, $287,390 and $280,737 of stock compensation were charged to operating expenses, respectively. $1,090,105 and $1,233,198 were recorded as deferred compensation on September 30, 2016 and December 31, 2015, respectively.

ATI Modular entered into an employment lock-up agreement on July 1, 2016 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 ATI Modular retaining an option to extend in one-year periods. In consideration for Mr. Perkins' services, ATI Modular has agreed to issue to his designee, the Alton & Xiang Mei Lin Perkins Family Trust, 10,000,000 shares of common stock. ATI Modular may elect in the future to include money compensation to Mr. Perkins or his designee for his services provided there is sufficient cash flow. The shares have not issued on September 30, 2016 and the ATI Modular accrued $500 for related compensation.

NOTE 7. 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, Perkins DISC and the Company. Additionally, for those “trade centers” set forth below, 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.

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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 recorded a $3,860 investment in use of Cost Method.

The Company authorized Yilaime NC to transfer 3,616,059 of these shares pursuant to the Company's effective registration statement on Form S-1/A on November 5, 2015.

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 also leased office space from Yilaime NC for $3,416/month.

On June 27, 2016, ATI Modular entered into a Sales and Support Services Agreement with Yilaime. Under the Services Agreement, Yilaime will provide ATI Modular with marketing, sales and support services in the ATI Modular’s pursuit of ATI Modular business in China in consideration of a commission equal to 10% of the gross amount of monies procured for ATI Modular through Yilaime’s services. In consideration of the right to receive this commission, Yilaime has agreed to pay ATI Modular a quarterly fee of $250,000 starting on July 1, 2016. The Services Agreement is set to expire on June 10, 2020, absent early termination for breach thereof by either party. Yilaime retains an option to extend the term under its sole discretion until June 10, 2025 by providing written notice to ATI Modular by March 10, 2019. Yilaime has agreed to be ATI Modular’s exclusive independent contractor in providing the services in the Services Agreement, and has agreed to a non-compete and non-circumvent agreement.

 

Yilaime is obligated to provide support services only in a manner that is deemed commercially acceptable by Yilaime and Yilaime has the sole right to determine the means, manner and method by which services will be provided and at the time and location of its choosing. Furthermore, as the control person of Yilaime, Mr. Perkins might make decisions he deems are in the best interests of Yilaime, which might be to the detriment of the goals and objectives of ATI Modular.

Pursuant to ASC 850-10-50-6, the Company makes the following transaction disclosures for nine months ending September 30, 2016:

Consolidated Operating Statement Related Party Transactions (for nine months ending September 30, 2016).

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(a) $150,000 and $250,000 in revenues for Yilaime's exclusive agreement with the Company and ATI Modular, respectively;

(b) $175,000 in Trade Center Service Agreement Revenue;

(c) $117,062 in expenses under costs of revenues paid to Yilaime for services pursuant to the Service Agreement;

(d) $463,000 for general and administrative expenses for commissions and fees.

(e) $22,665 for general and administrative expenses for rent expenses the Company paid to Yilaime towards its lease agreement; $7,500 for general and administrative expenses for rent expenses ATI Modular paid to Yilaime towards its lease agreement.

(f) $287,390 for general and administrative operating expenses recorded as stock compensation for respective employment agreements.

(g) 16,536 shares issued to Perkins Hsu Export Corporation at $2.75 per share in an exchange for an Accounts Payable of $45,472.76 owed by the Company.

(h) $3,859 other income of debt forgiveness from Joseph Arcaro to ATI Modular.

Consolidated Balance Sheet Related Party Transactions (on September 30, 2016)

(a) $165,000 Trade Center receivables owed to the Company.

(b) $191,891 receivables owed to ATI Modular by Yilaime.

(c) $100,000 prepayment made to Yilaime.

(d) Other receivables include $29,639 advances to Officers-Alton Perkins (The Company: $24,327; ATI Modular: $5,312) and $14,677 purchase mining equipment and advances for Yilaime Nairobi Ltd.

(e) $3,860 investment under assets associated with the Stock Exchange Agreement

(f) The Perkins Family Trust purchased 51,671 shares at $2.75 per share for $125,000 pursuant to the Company’s Direct Public Offering. Yilaime purchased 6,216 shares at $2.75 per share for $17,094 pursuant to the Company’s Direct Public Offering.

(g) $1,090,105 as deferred compensation pursuant to respective employment agreements.

(h) Alton Perkins is the control person of Yilaime and Yilaime NC.

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Special Note Regarding Forward-Looking Statements

 

Information included or incorporated by reference in this Quarterly Report on Form 10-Q contains forward-looking statements. All forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. Forward-looking statements may contain the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions, and are subject to numerous known and unknown risks and uncertainties. Additionally, statements relating to implementation of business strategy, future financial performance, acquisition strategies, capital raising transactions, performance of contractual obligations, and similar statements may contain forward-looking statements.  In evaluating such statements, prospective investors and shareholders should carefully review various risks and uncertainties identified in this Report, including the matters set forth under the captions “Risk Factors” and in the Company’s other SEC filings. These risks and uncertainties could cause the Company’s actual results to differ materially from those indicated in the forward-looking statements. The Company disclaims any obligation to update or publicly announce revisions to any forward-looking statements to reflect future events or developments.

 

Although forward-looking statements in this Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risk Factors Related to Our Business” below, as well as those discussed elsewhere in this Form 10-Q. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. We file reports with the Securities and Exchange Commission (“SEC”). You can read and copy any materials we file with the SEC at the SEC’s Public Reference Room, 100 F. Street, NE, Washington, D.C. 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

 

We disclaim any obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report on Form 10-Q. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

 

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

General Description of Business

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, Africa and in the United States, which is referred to internally by the Company as the "AmericaTowne Platform". The AmericaTowne Platform is advanced, in part, through the trade center agreements defined above as: (a) AmericaTowne New Jersey, (b) AmericaTowne PA, (c) AmericaTowne Philadelphia, (d) AmericaTowne Ghana, (e) AmericaTowne Nigeria (f) AmericaTowne Ivory Coast and (g) Yilaime Nairobi. Yilaime Nairobi has an actual physical location and operations, as disclosed herein. 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." Although this statement is forward-looking, 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 and elsewhere 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 and elsewhere 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, wellness 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 Trade Center 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 27 exporters and 7 trade center operators 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.

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From September 4 - 11, 2016, at the invitation of Government officials the Company visited Chizhou, Xiamen, Yongan and Longyan China. Previously, during a trip in June 2016, the Company signed two agreements with Shexian County Investment Promotion Bureau (the “Shexian County Bureau”) in Shexian China for AmericaTowne Communities and Modular Construction, both of which were disclosed on Form 8K on June 28, 2016.

Investment and Cooperation Agreement for ATI Modular Green Building Manufacturing Project (Jiangnan)

 On September 8, 2016, ATI Modular, entered into the Investment and Cooperation Agreement for ATI Modular Green Building Manufacturing Project with the Jiangnan Industry Zone in Anhui Province (the “Jiangnan Agreement”). Under the Jiangnan Agreement, ATI has agreed to manufacture and install modular buildings, and provide research into the development of green building module manufacturing. ATI Modular has agreed to provide appropriate technology and intelligent systems in providing modular building lifecycle services. The location of the planned project is the New Material Industry Park in the Jiangnan Industry Zone in Anhui Province. The parties have projected a cost of $30,000,000.

 

ATI Modular has agreed to grant the Jiangnan Industry Zone audit, access, supervision, inspection and other rights. The Jiangnan Industry Zone has agreed to coordinate any and all necessary services in securing benefits associated with ATI Modular being a foreign investment enterprise, including but not limited to, providing the site for the manufacturing facility, tax relief, access to financing and a “Project Headquarter” for ATI Modular, which is defined in the Jiangnan Agreement.

 

The Jiangnan Agreement is not a definitive agreement; rather, it is a memorialization of the parties’ future intent as to the subject matter therein. ATI Modular’s business plans and objectives could be impaired in the event the parties do not reach a definitive agreement.

 

Investment and Cooperation Agreement for ATI Modular Green Building Manufacturing Project (Yongan)

 

On September 9, 2016, ATI Modular entered into the Investment and Cooperation Agreement for ATI Modular Green Building Manufacturing Project with the Yongan government in the Fujian province (the “Yongan Agreement”). Under the Yongan Agreement, similar to the Jiangnan Agreement, ATI Modular has agreed to manufacture and install modular buildings, and provide research into the development of green building module manufacturing. ATI Modular has agreed to provide appropriate technology and intelligent systems in providing modular building lifecycle services. The location of the planned project is Yongan city in the Fujian province, China. The parties have projected a cost of $30,000,000.

 

ATI Modular has agreed to grant the Yongan government audit, access, supervision, inspection and other rights. The Yongan government has agreed to coordinate any and all necessary services in securing benefits associated with ATI Modular being a foreign investment enterprise, including but not limited to, providing the site for the manufacturing facility, tax relief, access to financing and a “Project Headquarter” for ATI Modular, which is defined in the Yongan Agreement. The Yongan Agreement is not a definitive agreement; rather, it is a memorialization of the parties’ future intent as to the subject matter therein. ATI Modular’s business plans and objectives could be impaired in the event the parties do not reach a definitive agreement.

Though we are planning to develop additional United States trade centers in other areas in the United States and Africa through our relationship with ATI Modular (or perhaps through similar agreements with unrelated parties), other than those set forth above, we are completing preliminary work in setting up these locations. AmericaTowne Nairobi, AmericaTowne Nigeria, AmericaTowne Ivory Coast, and AmericaTowne Ghana are operational with physical locations and staff.

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, and the government of Shexian to operate both a modular construction facility and AmericaTowne communities, there is no assurance that we will operate the businesses 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 and possibly other locations in China. We have hired two full-time managers to operate the facilities located at Meishan and other locations in China.

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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 facilities online in Chizhou, 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 locations and other trade centers, 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. While we are developing our core export businesses we will seek too diverse by acquiring and or partnering with other businesses that we expect to provide sustained long term growth.

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 and other locations in 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.

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Results of Operations for the Three Months Ended September 30, 2016

Our operating results for the three months ended September 30, 2016 are summarized as follows:

  Three months ended September 30, 2016
Revenues $301,135
Cost of Revenues $162
Operating Expenses $453,681
   
Net Loss $156,035

Revenues

During the third quarter of 2016, the Company had sales of $301,135. The Company's sales consisted of $50,000 in services to Yilaime for Operations Fees and $250,000 recognized by ATI Modular Support Services Agreement with Yilaime.

Operating Expenses

Our expenses for the three months ended September 30, 2016 are outlined in the table below:

  Three months ended September 30, 2016
General and administrative $383,365
Professional fees   $70,316
Total operating expenses $453,681

Our operating expenses are largely attributable to commissions and professional fees related to our reporting requirements as a public company and implementation of our business plan.

Net Income

As a result of our operations, the Company reported net loss after tax obligations of $156,035 for the third Quarter of 2016.

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Results of Operations for the Nine Months Ended September 30, 2016

Our operating results for the nine months ended September 30, 2016 are summarized as follows:

  Nine months ended September 30, 2016
Revenues $1,577,405
Cost of Revenues $460,066
Operating Expenses $1,078,476
   
Net Income $5,505

Revenues

For three quarters ending September 30, 2016, total sales were $1,577,405. The Company's sales consisted of $999,000 in Service Fees, $325,000 in services to related parties for Operations Fees and $250,000 recognized by ATI Modular Support Services Agreement with Yilaime. Total Cost of Revenue was $460,066, and Cost of Revenue to related parties totaled $117,062. The $1,577,405 in revenue was from Service Fees charged to FEMEB Nigeria Limited for $849,000; $5,000 for the education program; and Ivory Coast, Nigeria, Ghana, Kenya and New Jersey Trade Centers for $35,000 each as related parties, Hosana Home Healthcare Exports for $35,000 and CVRT, and Golden Ventures for $55,000 each and $250,000 recognized by ATI Modular Support Services Agreement with Yilaime. The 117,062 in Costs of Revenues was attributed to payments to Yilaime under its Service Agreement. Costs of Revenue expenses for $342,680 were attributed to supplies and machinery due under the FEMEB Nigeria agreement. 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 2016.

Operating Expenses

Our expenses for the nine months ended September 30, 2016 are outlined in the table below:

  Nine months ended September 30, 2016
General and administrative $891,964
Professional fees $186,512
Total operating expenses $1,078,476

Our operating expenses are largely attributable to commissions and professional fees related to our reporting requirements as a public company.

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Net Income

As a result of our operations for nine months ending September 30, 2016, the Company reported net income after tax obligations of $5,505.

Liquidity and Capital Resources

Working Capital

  September 30, 2016
Current Assets $2,924,955
Current Liabilities $939,843
Working Capital $1,985,112

Cash Flow

  Nine months ended September 30, 2016
Net cash provided by operating activities $98,191
Net cash used in investing activities $180,921
Net cash provided by financing activities $375,211
Increase in cash $292,481

Cash Provided by Operating Activities

Increase in accounts payable and deposit from customers for the nine months ended September 30, 2016, was the main contributing factor for our positive operating cash flow.

Cash Used in Investing Activities

We spent $1,765 on fixed assets and $175,000 in acquisition of a subsidiary for nine months ended September 30, 2016.

Cash Provided by Financing Activities

We received proceeds of $375,211 from issuing common stock for the nine months ended September 30, 2016.

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.

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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 2016, 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, 2016. 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, 2016.

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, 2016, 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.

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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, 2016 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 a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.

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.

The Company incorporates by reference all prior disclosures for the period identified herein. The number of shares sold during the nine months ended September 30, 2016 under our direct public offering was 1,591,570.

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Item 6. Exhibits.

        Incorporated by reference
Exhibit Exhibit Description Filed herewith Form Period ending Exhibit Filing date
31.1 and 31.2 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X        
32.1 and 32.2 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X        

 

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 14, 2016

 

 

 

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