U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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		000-55206		46-5488722
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)		(COMMISSION FILE NO.)		(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)

---

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 ☒ 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 ☒ No ☐

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of July 6, 2016, the issuer had 26,831,311

shares of its common stock issued and outstanding.

 

 

 

 

EXPLANATORY NOTE

 

The Company is filing this Amendment to its previously filed Quarterly Report on Form 10-Q filed on August 15, 2016 to restate its financial statements on June 30, 2016. The information in the Quarterly Report is amended to read in its entirety as set forth in this Amendment. Except to reflect the restatement of the financial statements, the related disclosure controls and procedures matters, the information in the Quarterly Report and this Amendment has not been updated or otherwise changed to reflect any events, conditions or other developments that have occurred or existed since August 15, 2016, the date the Form 10-Q was filed. Accordingly, except solely with regard to the restatement, the related disclosure controls and procedures matters, all information in the Transition Report and this Amendment speaks only as of August 15, 2016. References made in this Amendment to "this Form 10-Q" mean this Amendment on Form 10-Q/A unless the context requires otherwise.

 

 

 

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	PAGE
Item 1.	Financial Statements	4
	Balance Sheet as of June 30, 2016 (Unaudited) and December 31, 2015	5
	Statement of Operations for six and three months ended June 30, 2016	6
	Statement of Cash Flows for six months ended June 30, 2016 (Unaudited)	7
	Notes to Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II
Item 1.	Legal Proceedings	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	26
	Signatures	27

 

 

  

PART I - FINANCIAL INFORMATION 

Item 1. Financial Statements.

AMERICATOWNE Inc. Financial Statements

(Unaudited)
Contents

Financial Statements	Page
Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	5
Consolidated Statements of Operations for six and three months ended June 30, 2016	6
Consolidated Statements of Cash Flows for six months ended June 30, 2016	7
Notes to Consolidated Financial Statements	8

 

 

 

AMERICATOWNE Inc.
Consolidated Balance Sheets

 

			June 30, 2016				December 31, 2015
			(Unaudited)				(Restated)
			(Restated)
ASSETS
Current Assets
Cash and cash equivalents		$	670,293			$	641,663
Accounts receivable, net			1,542,178				823,144
Accounts receivable, net - related parties			184,775				35,779
Other receivables - related parties			58,918				—
Prepayment-current			644				2,594
Total Current Assets			2,456,808				1,503,180
Prepayment-non current			7,837				8,161
Property, plant and equipment, net			22,297				18,357
Goodwill			40,331				40,331
Investments			3,860				3,860
Total Assets		$	2,531,133			$	1,573,889
LIABILITIES
Current Liabilities
Accounts payable and accrued expenses		$	457,441			$	121,408
Deferred revenues-current			4,542				4,542
Notes payable			—				10,000
Other payables			2,316				—
Deposit from customers			30,000
Income tax payable			68,825				35,747
Total Current Liabilities			563,124				171,697
Deferred revenues-non current			56,251				58,521
Total Liabilities			619,375				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,
26,831,311 and 25,243,205 shares issued and outstanding			2,683				2,524
Additional paid-in capital			2,786,955				2,438,099
Deferred compensation			(1,187,700	)			(1,233,198	)
Receivable for issuance of stock			(16,100	)			—
Retained Earnings			284,449				136,246
Total AMERICATOWNE Inc. Stockholders' Equity			1,870,287				1,343,671
Noncontrolling interest			41,471				—
Total Equity			1,911,758				1,343,671
Total Liabilities and Equity		$	2,531,133			$	1,573,889
See Notes to Consolidated Financial Statements

 

  

AMERICATOWNE Inc.
Consolidated Statements of Operations
(Unaudited)

 

			For the Three Months Ended								For the Six Months Ended
			June 30, 2016				June 30, 2015				June 30, 2016				June 30, 2015
Revenues
Sales		$	855,135			$	291,135			$	1,001,270			$	457,271
Services-related parties			85,000				50,000				275,000				100,000
			940,135				341,135				1,276,270				557,271
Cost of Revenues-Related Parties			431,242				29162				459,904				65,873
Gross Profit			508,893				311,973				816,366				491,398
Operating Expenses
General and administrative			334,830				122,259				508,599				250,668
Professional fees			52,357				25,803				116,196				42,517
Total operating expenses			387,187				148,062				624,795				293,185
Income from operations			121,706				163,911				191,571				198,213
Other Expenses (Income)			(3,529	)			291				(3,047	)			291
Provision for income taxes			6,350				74,012				33,078				74,012
Net Income (Loss)			118,885				89,608				161,540				123,910
Less: Net income attributable to the noncontrolling interest			(13,338	)			—				(13,338	)			—
Net income attributable to AMERICATOWNE, Inc common stockholders		$	(105,547	)		$	89,608			$	148,202			$	123,910
Earnings per share - basic and diluted		$	0			$	0			$	0.01			$	0.01
Weighted average shares outstanding- basic and diluted			26,774,532				21,195,200				26,346,859				20,175,381
See Notes to Consolidated Financial Statements

 

 

AMERICATOWNE Inc.
Consolidated Statements of Cash Flows
(Unaudited)
		For the Six Months Ended
			June 30, 2016				June 30, 2015
Operating Activities:
Net income		$	161,540			$	123,910
Adjustments to reconcile net income to net cash provided by operations
Depreciation			1,981				347
Stock compensation			189,795				187,158
Stock issued for services			875				—
Bad debt provision			43,507				18,898
Changes in operating assets and liabilities:
Accounts receivable, net			(911,537	)			(379,936	)
Other receivable - related parties			(58,918	)			—
Prepayment			2,274				323
Accounts payable and accrued expenses			491,343				(3,539	)
Deferred revenues			(2,270	)			(2,271	)
Other payables			2,316				—
Deposit from customers			30,000				—
Income tax payable			33,078				74,012
Net cash provided by (used in) operating activities			(16,016	)			(18,902	)
Investing Activities:
Purchase of fixed assets			(5,921	)			(7,739	)
Acquisition of subsidiaries			(175,000	)			—
Net cash used in Investing activities			(180,921	)			(7,739	)
Financing Activities:
Proceeds from issuance of common stock			225,567				—
Proceeds from loan payable			—				4,500
Net cash provided by financing activities			225,567				4,500
Increase (Decrease) in cash and cash equivalents			28,630				15,663
Cash and cash equivalents at beginning of period			641,663				16,403
Cash and cash equivalents at end of period		$	670,293				32,066
Supplemental disclosure of cash flow information
Interest paid		$	—			$	—
Income taxes paid		$	—			$	—
Noncash investing and financing activities: Shares issued for notes payable and other debts		$	169,168			$	—
See Notes to Consolidated Financial Statements.

 

 

 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 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, 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 of ATI Modular Technology Corp.

ATI Modular Technology Corp, formerly Global Recycle Energy, Inc. was incorporated under the laws of the State of Nevada on March 7, 2008. The Company 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").

On January 29, 2018, the Company reached a determination to restate its previously filed financial statements for the three months ended. The restatement does not change net income for the six months ended June 30, 2016. The restatement relates to the following item

(1)

Derecognize the goodwill from acquisition of ATI Modular Technology Corporation in accordance with ASC 805-10-55-4 through 55-9.

 

 

The following summarizes the effects of restatement:

 

	Previously Reported	Adjustment	Restated
Goodwill:	$247,323	206,992	$40,331
Additional paid in capital:	$2,993,947	206,992	$2,786,955

 

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.

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, 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 June 30, 2016, and the results of its operations and cash flows for the three months ended June 30, 2016. The results of operations for the period ended June 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 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.

 

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.

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 six months ended June 30, 2016 and 2015, depreciation expense is $1,981 and $347, respectively.

Investments

Investments primarily include cost method investments. On June 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 June 30, 2016. See Note 7; Related Party Transactions.

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 December 31, 2015 and June 30, 2016, there are no deferred tax assets and liabilities. The Company had $68,825 and $35,747 of income tax liability as of June 30, 2016 and December 31, 2015, 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 (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 six months ended June 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 June 30, 2016, all assets and liabilities are located in the United States where the income and expense has been incurred since inception to June 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.

 

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.

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.

 

There were no sales returns and allowances from inception to June 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.

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 three months ended June 30, 2016 and 2015. 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 June 30, 2016, in the amount of $1,726,953 are for Export Service Agreements with 27 exporter and 7 trade center receivable balances. The Company's allowance for bad debt is $135,912, which provides a net receivable balance of $1,726,953.

Accounts' receivable are 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:

		June 30,			December 31,
		2016			2015
Accounts receivable	$	1,668,365		$	913,666
Accounts receivable- related parties		194,500			37,662
Less: Allowance for doubtful accounts		(135,912)			(92,405)
Accounts receivable, net	$	1,726,953		$	858,923

  

Bad debt expense was $43,507 and $18,898 for the six months ended June 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.

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 June 30, 2016:

• Common stock, $ 0.0001 par value: 100,000,000 shares authorized; 26,831,311 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 six months ended June 30, 2016 and 2015, $189,795 and $187,158 of stock compensation were charged to operating expenses, respectively. $1,187,700 and $1,233,198 were recorded as deferred compensation on June 30, 2016 and December 31, 2015, respectively.

 

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.

In addition, Joseph Arcaro is ATI Modular’s prior Chief Executive Officer, Chief Financial Officer, Secretary and Chairman of the Board of Directors.

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.

On June 6, 2016 the Company purchased the majority and controlling interest in Global Recycle Energy, Inc., a Nevada corporation (“GREI”; OTC Pink: GREI) whose name was changed to ATI Modular Technology Corp (ATI Modular) through the acquisition of 100,000,000 shares of restricted common stock from Joseph Arcaro (“Arcaro”). The Stock Purchase and Sale Agreement dated June 2, 2016 (the “SPA”) closed on June 6, 2016 with the payment of the purchase price to Arcaro of $175,000 and the transfer of the restricted common stock certificate to the Company. 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, as set forth below.

Trade Center Agreement – Ivory Coast

 

On May 16, 2016, the Company entered into a Trade Center Agreement with Anita Afua Gyasiwah Arthur with an address for notice purposes of Apt 19B, Blvd de Marseille, Abidjan 01, Côte d’Ivoire, Ivory Coast (the “Ivory Coast Trade Center Agreement”). The terms and conditions associated with the Ivory Coast Trade Center Agreement are set forth in the Company’s disclosures on Form 8-K dated May 18, 2016. Ms. Arthur is a shareholder of the Company. The anticipated “trade center” has been commonly referred to as “AmericaTowne Ivory Coast.” However, AmericaTowne Coast is not an actual entity or physical location at this time. Rather, the use of the term AmericaTowne Coast is for definition purposes only.

 

Under the Ivory Coast Trade Center Agreement, the parties agreed to organize a limited liability company whereby the Company, or a wholly-owned subsidiary of the Company, would own 75% of the authorized shares and the “Service Provider” would own 25% of the authorized shares. The geographical location under the Ivory Coast Trade Center Agreement is the Country of Ivory Coast. There is no related party relationship between Ms. Arthur and AmericaTowne Ivory Coast, and the Company and its principal officers, other than Ms. Arthur being a shareholder of the Company.

 

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

 

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

Operating Statement Related Party Transactions (for six months ending June 30, 2016).

(a) $100,000 in revenues for Yilaime's exclusive agreement with the Company;

(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) $212,451 for general and administrative expenses for commissions and fees.

(e) $12,416 for general and administrative expenses for rent expenses the Company paid to Yilaime towards its lease agreement; $2,500 for general and administrative expenses for rent expenses ATI Modular paid to Yilaime towards its lease agreement

(f) $189,795 for general and administrative operating expenses recorded as stock compensation for respective employment agreements.

(g) $92,062 for Commission and Fees paid to Perkins Hus Export Corporation pursuant to its qualification as an Interest Charge - Domestic International Sales Corporation ("IC-DISC").

(h) 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.

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

Balance Sheet Related Party Transactions (on June 30, 2016)

(a) $194,500 Trade Center receivables owed to the Company.

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

(c) 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.

(d) $1,187,700 as deferred compensation pursuant to respective employment agreements.

(e) $39,677 as other receivables-related parties with Yilaime Nairobi Ltd. for purchase mining equipment and advances; In ATI Modular, $19,241 was booked as other receivables-related parties for advances to officers-Alton Perkins.

(f) In ATI Modular, $30,000 deposit from customers- Yilaime.

(g) Yilaime Corporation is not to be confused with Yilaime Corporation in North Carolina. However, with each corporation, Alton Perkins is a control person.

 

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.

 

 

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.

 

In the second quarter of 2016, we continued our export operations by entering an agreement with FEMEB Nigeria Limited of Lagos Nigeria to deliver supplies and machinery. A form 8k filed on May 9, 2016. In this quarter, we received approval for our second education export action where a student the Company referred was accepted into Manhattan Management Institute education program. In addition, we signed an agreement to either acquire or develop an Export Trade Center Complex for our operations in Raleigh, North Carolina. A Form 8K on the agreement was filed May 24, 2016.

The Company’s intern program is well underway with students primarily from Duke, North Carolina University and North Carolina State University. Promising students with interests in business, exporting and international trade are actively participating in the Company’s intern program.

On June 6, 2016, the Company purchased the majority and controlling interest in Global Recycle Energy, Inc., a Nevada corporation (“GREI”; OTC Pink: GREI) whose name was changed to ATI Modular Technology Corp (ATI Modular), The Company’s goal from inception of AmericaTowne has been to expand and diversify operations and holdings, and to continue to evaluate acquisition targets in furtherance of our short-term and long-term objectives. The acquisition, and the potential for a business combination with a partner or two within this entity using the AmericaTowne platform further these objectives.

From June 16 -28, 2016, at the invitation of Government officials the Company visited Shexian, Xiamen, Zhangzhou, and Longyan China. In Shexian two agreements for AmericaTowne Communities and Modular Construction were signed with Shexian County Investment Promotion Bureau (the “Shexian County Bureau”) (hereinafter, the “Cooperative Agreement”). The first Cooperative Agreement related to the building of modular construction and development, and the second Cooperation Agreement related to the construction of an AmericaTowne location, as disclosed in prior filings by the Company, in advancing tourism in the Hanwang mountains. The Cooperative agreements were filed on a Form 8K on June 28, 2016.

On going discussions were entered with Longyan Vice Mayor and Director of Economic Development to develop an AmericaTowne Community, International School, and modular construction facility in Longyan. Additionally, the Xiamen Longyan City Chamber of Commerce and the Xiamen City Growth Planning Agency invited the Company to pursue investment and operational opportunities and partnerships with businesses and communities in the Xiamen area. Though no final decisions were made, it is anticipated that the Company in pursuing favorable opportunities as a foreign enterprises, will establish subsidiaries in both Shexian and Xiamen/Longyan China.

Though we are planning to develop additional United States trade centers in other areas in the United States and Africa, other than those set forth above, we are completing preliminary work in setting up these locations. As set forth above, AmericaTowne Nairobi and AmericaTowne Ghana are operational with physical locations. The Company is looking at structuring other trade centers in Nigeria, Ivory Coast, and other locations, some of which are going through the registration process; however, these locations 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, 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.

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 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.

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.

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

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

	Three months ended June 30, 2016
Revenues	$940,135
Cost of Revenues	$431,242
Operating Expenses	$387,187
Net Income	$118,885

  

Revenues

During the second quarter of 2016, the Company had sales of $940,135. The Company's sales consisted of $890,135 in primarily Export Service Agreements, and $50,000 in services to related parties for Operations Fees. The Cost of Revenue was $431,242, and to related parties was $88,400. The $890,135 in revenue was from Service Fees charged to FEMEB Nigeria Limited ($849,000), student programs ($5,000) and Ivory Coast trade center ($35,000 each) and $1,135 in deferred revenue.

Operating Expenses

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

	Three months ended June 30, 2016
General and administrative	$334,830
Professional fees	$52,357
Total operating expenses	$387,187

Our operating expenses are largely attributable to office, rent 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 income after tax obligations of $118,885 for the second Quarter of 2016.

Results of Operations for the Six Months Ended June 30, 2016

Our operating results for the six months ended June 30, 2016 are summarized as follows:

	Six months ended June 30, 2016
Revenues	$1,276,270
Cost of Revenues	$459,904
Operating Expenses	$624,795
Net Income	$161,540

  

Revenues

For the first two quarters of 2016, total sales were $1,276,270. The Company's sales consisted of $1,176,270 in Service Fees and $100,000 in services to related parties for Operations Fees. Total Cost of Revenue was $459,904, and Cost of Revenue to related parties totaled $117,062. The $1,176,270 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. 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 third quarter of 2016.

 

Operating Expenses

Our expenses for the six months ended June 30, 2016 are outlined in the table below:

	Six months ended June 30, 2016
General and administrative	$508,599
Professional fees	$116,196
Total operating expenses	$624,795

 

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, and implementing our business plan.

Net Income

As a result of our operations for six months ending June 30, 2016, the Company reported net income after tax obligations of $161,540.

Liquidity and Capital Resources 

Working Capital

	June 30, 2016
Current Assets	$2,456,808
Current Liabilities	$563,124
Working Capital	$1,893,684

 

 

Cash Flow

	Six months ended June 30, 2016
Net cash used in operating activities	$16,016
Net cash used in investing activities	$180,921
Net cash provided by financing activities	$225,567
Increase in cash	$53,630

 

Cash Used in Operating Activities

Increase in accounts receivable for the six months ended June 30, 2016, was the main contributing factor for our negative operating cash flow.

Cash Used in Investing Activities

We spent $1,765 on fixed assets and $175,000 in investments for six months ended June 30, 2016. 

Cash Provided by Financing Activities

We received proceeds of $225,567 from issuing common stock for the six months ended June 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.

 

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 First 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 June 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 June 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. 

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 June 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 quarter under our direct public offering was 61,197.

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, Principal Accounting Officer
Date:  February 6, 2018