ATI
Modular Technology Corp
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Statements
of Cash Flows
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|
Year
Ended
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Six
Months Ended
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Years
Ended
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December
31
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December
31
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June
30
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2017
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|
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2016
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|
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2016
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2015
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Operating Activities
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|
|
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|
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|
|
|
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Net
income (loss) of the period
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|
$
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51,011
|
|
|
$
|
(102,510
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)
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|
$
|
(3,693
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)
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|
$
|
(3,859
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)
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Adjustments
to reconcile net loss from operations
|
|
|
|
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|
|
|
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Bad
debt expense
|
|
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65,435
|
|
|
|
17,895
|
|
|
|
6,250
|
|
|
|
—
|
|
Depreciation
|
|
|
1,893
|
|
|
|
416
|
|
|
|
—
|
|
|
|
—
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Shares
issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
100,000
|
|
|
|
—
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Amortization
on deferred compensation
|
|
|
100,000
|
|
|
|
50,000
|
|
|
|
—
|
|
|
|
—
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Changes
in Operating Assets and Liabilities
|
|
|
|
|
|
|
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|
|
|
|
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Accounts
receivable
|
|
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(1,002,882
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)
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|
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(357,900
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)
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|
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(125,000
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)
|
|
|
—
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Other
receivables
|
|
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61,348
|
|
|
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(159,772
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)
|
|
|
—
|
|
|
|
—
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|
Advances
to officers
|
|
|
—
|
|
|
|
19,241
|
|
|
|
(19,241
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)
|
|
|
—
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|
Accounts
payable and accrued expenses
|
|
|
(169,288
|
)
|
|
|
190,000
|
|
|
|
15,840
|
|
|
|
3,859
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|
Deposit
from customers
|
|
|
—
|
|
|
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(30,000
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)
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|
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30,000
|
|
|
|
—
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Deferred
revenue
|
|
|
930,000
|
|
|
|
324,387
|
|
|
|
—
|
|
|
|
—
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Income
tax payable
|
|
|
10,337
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
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Net cash provided
by (used in) operating activities
|
|
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47,854
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|
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(48,243
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)
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|
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4,156
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|
|
|
—
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Investing Activities
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|
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|
|
|
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|
|
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|
|
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Purchase
of fixed assets
|
|
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(6,397
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)
|
|
|
(2,540
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)
|
|
|
—
|
|
|
|
—
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Net cash used in investing
activities
|
|
|
(6,397
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)
|
|
|
(2,540
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)
|
|
|
—
|
|
|
|
—
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Proceeds from issuance
of stock
|
|
|
24,023
|
|
|
|
145,049
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|
|
|
—
|
|
|
|
—
|
|
Net cash provided
by financing activities
|
|
|
24,023
|
|
|
|
145,049
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|
|
|
—
|
|
|
|
—
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net increase (decrease)
in cash and equivalents
|
|
|
65,480
|
|
|
|
94,266
|
|
|
|
4,156
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash and equivalents
at beginning of the period
|
|
|
94,266
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
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|
Cash and equivalents
at end of the period
|
|
$
|
159,746
|
|
|
$
|
94,266
|
|
|
$
|
4,156
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Supplemental cash
flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest paid
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
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|
Income taxes paid
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
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|
|
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See
Notes to Financial Statements
|
ATI
MODULAR TECHNOLOGY CORP
Notes to Financial Statements
NOTE
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
ATI
Modular Technology Corp., defined above and herein as the “Company” 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. As with any business plan that is aspirational in nature, there is no assurance we
will be able to accomplish all our objective or that we will be able to meet our financing needs to accomplish our objectives.
The
Company is an operating company engaged in the development and the exporting of modular energy efficient and smart technology
and processes that allow government and private enterprises in China and elsewhere to use US-based methods for creating modular
spaces, facilities, and properties. The Company is in the business of all aspects of modular and smart construction, including
but not limited to, (a) the furtherance of modular and smart construction technology, education, development and production in
developed and undeveloped countries, (b) acquisition and/or installation of construction equipment, materials, furnishings, hardware,
insulation, flooring, roofing, wiring, plumbing, heating and air conditioning, and landscaping, and (c) other businesses directly
or tangentially related to these lines of services, including assisting businesses and entrepreneurs in securing naming, licensing
or promotional rights, driving internet and media traffic, increasing visibility of product and name recognition, and other services.
Our
principal executive offices are located at 4700 Homewood Court, Suite 100 in Raleigh, North Carolina. We are registered as a foreign
business entity in the State of North Carolina. We lease the office space from Yilaime Corporation, a Nevada corporation doing
business in North Carolina, and a related party to the Company, as set forth below. Our physical location for our operations in
China along with a manufacturing facility is Anhui Province Jiangnan Industrial Concentration Zone New Energy Industry Park A1,
A2, A5 Plant Chizhou City, Anhui Province, China. The Company has registering its wholly owned subsidiary Anhui Ao De Xin Modular
Building Technology Co. Ltd. in Jiangnan Industry Zone, Chizhou, China.
The
Company entered an Investment and Cooperation Agreement with the Jiangnan Industry Zone in Anhui Province, China dated September
8, 2016 (the “Jiangnan Cooperation Agreement”). On December 28, 2016, the Company entered the definitive agreement,
American ATI Modular Technology Company Project Investment Agreement (the “Investment Agreement”) with the Administrative
Committee, Jiangnan Industry Zone in Anhui Province. The Investment Agreement superseded the Jiangnan Cooperation Agreement. Under
the Investment Agreement, the Administrative Committee of Jiangnan Industrial Concentration Zone of Anhui Province (hereinafter,
“Jiangnan”) and the Company have agreed to the construction of the Company’s green, modular building and related
technology under the project name “Modular Plant Production Base.”
Under
the Investment Agreement, the Company has agreed to manufacture and install modular buildings, and provide research into the development
of green building module manufacturing using US based technology. The Company has agreed to provide appropriate technology and
intelligent systems in providing modular building lifecycle services. In addition, to modular and smart technology, the Company
and Jiangnan has agreed to establish: 1) a modular development institute research and training center; 2) an entrepreneurial incubator;
3) an engineering technology research center; 4) an industrial design center; 5) a post-doctoral workstations and engineering
laboratories; and 6) an international student intern summer work program. Where possible the Company’s aim is to increase
US exports by using American based technology, equipment and services. (Strategy).
The
Company presented to Anhui Project to United States Ex-Im Bank, which provided a Letter of Interest in providing support for the
Project. Additionally, pursuant to its agreement with Chizhou government, Chizhou preliminarily agreed to provide support for
EX-IM funding either by a guarantee or local bank support. Although no loan application has been submitted management is under
the impression that subject to meeting Ex-Im Bank’s standard underwriting requirements, there is a possibility of loans,
and other funding including working capital and insurance. Going forward, we plan on working with Ex-Im to seek insurance and
funding for the Chizhou operations. There is no assurance that funding and or insurance will be obtained.
The
Company entered the Modular Services Agreement with AmericaTowne, a related party and the majority and controlling shareholder
of the Company, to support AmericaTowne’s obligations under the Shexian Agreement in designing, installing and manufacturing
American modular technology for use in all government and private buildings throughout Shexian County, and elsewhere in China.
The terms and conditions of the Modular Services Agreement with AmericaTowne and the Shexian Agreement are set forth above.
Also,
the Company has entered the Yongan and Shexian Agreements to pursue the development of business opportunities involving modular
technology and investments, and business development. While we plan to have robust operations in the United States and international
locations, we expect the bulk of our operations and revenue will come from China.
China's
economy and its government impact our revenues and operations. While the Company has an agreement in place with the government
of Jiangnan as well as the approval by government officials in Shexian and Yongan China to operate facilities there is no assurance
that we will operate the facilities successfully. Additionally, the Company will need government approval in other locations 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 in other locations to operate other aspects of our business plan. Finally, Mr. Perkins, as a control person
of each entity – AmericaTowne and the Company, might elect to forego certain obligations of AmericaTowne under other Corporative
Agreements currently in place or not enter more definitive agreements with Governments in China and elsewhere, which in turn,
could impact the Company’s ability to meet its business plan set forth herein.
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”).
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.
Accounts
Receivable
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.
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 customer's financial condition, past payment history if any, any conversations with the customer about
the customer's financial conditions and any other extenuating circumstances. Based upon the above factors the Company makes a
determination whether the receivable are reasonable.
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
|
3-5
years
|
For
the years ended December 31 2017 and for the six months ended December 31, 2016 depreciation expense is $1,893 and $416, respectively
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 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 Nevada and is subject to U.S. federal income tax and Nevada state income
tax, if any. 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.
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 or net loss per share amounts are computed by dividing the net income or loss by the weighted average number of common
shares outstanding. Diluted earnings per share are the same as basic earnings per share due to the lack of dilutive items in the
Company.
At
December 31, 2017 and 2016, no potentially dilutive shares were outstanding.
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.
Revenue
Recognition
The
Company's revenue recognition policies comply with FASB ASC Topic 605. The Company follows paragraph 605-10-S99-1 of the FASB
Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable
and earned. The Company considers revenue realized or realizable and earned when all the following criteria are met: (i) persuasive
evidence of an arrangement exists,
(ii)
the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable,
and (iv) collectability is reasonably assured.
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 December 31, 2017.
NOTE
3. GOING CONCERN
The
Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable
to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business.
The
Company is still in development stage and has not created sufficient revenue to cover any operating losses it may incur. Management's
plans include the raising of capital through the equity markets to fund future operations, seeking additional acquisitions, and
generating of revenue through our business. However, there can be no assurances the Company will be successful in its efforts
to secure additional equity financing and obtaining sufficient revenue producing contracts. These factors raise substantial doubt
about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result
from this uncertainty.
NOTE
4. ACCOUNT RECEIVABLES – RELATED PARTIES
The
nature of the accounts receivable for December 31, 2017 in the amount of $1,469,686 are for modular construction and technology
services and utilization of anticipated modular construction technology by ATI pursuant to the Modular Construction & Technology
Services Agreement between ATI and the Company dated June 28, 2016 (hereinafter, the “ATI Services Agreement”) and
for the Sales and Support Services Agreement with Yilaime on June 27, 2016 (the “Yilaime Services Agreement”). On
December 31, 2017, the Company's allowance for bad debt is $73,484 which provides a net receivable balance of $1,396,202.
Accounts
receivable consist of the following:
|
|
Dec
31, 2017
|
|
Dec
31, 2016
|
Accounts
receivable- related parties
|
|
|
1,469,686
|
|
|
|
482,900
|
|
|
|
|
|
|
|
|
|
|
Less:
Allowance for doubtful accounts
|
|
|
(73,484
|
)
|
|
|
(24,145
|
)
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
$
|
1,396,202
|
|
|
$
|
458,755
|
|
Bad
debt expense was $65,435 and $17,895 for the year ended December 31, 2017 and for the six months ended December 31, 2016, respectively.
NOTE
5. DEFERRED REVENUE
The
Company receives $250,000 quarterly fee from Yilaime for Sales and Support Services Agreement. In accordance with ASC 605-50-45,
the Company defers and recognizes as a reduction to the future costs for quarterly fee. For the year December 31, 2017, $1,000,000
fee from exclusive agreement incurred; $1,254,387 is booked deferred revenue as current liability on December 31, 2017 and $70,000
went against cost charged by Yilaime.
NOTE
6. SHAREHOLDER'S EQUITY
The
stockholders' equity section of the Company contains the following classes of capital stock as of December 31, 2017 and 2016:
Common
stock, $ 0.001 par value: 500,000,000 shares authorized; 126,740,708 and 126,733,337 shares issued and outstanding as of December
31, 2017 and 2016, respectively;
Preferred
stock, none: 0 shares authorized; but not issued and outstanding.
NOTE
7. STOCK BASED COMPENSATION
The
Company 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
the Company retaining an option to extend in one-year periods. In consideration for Mr. Perkins' services, the Company has agreed
to issue to his designee, the Alton & Xiang Mei Lin Perkins Family Trust, 10,000,000 shares of common stock. The Company may
elect in the future to include money compensation to Mr. Perkins or his designee for his services provided there is sufficient
cash flow.
For
the year ended December 31, 2017, $100,000 of stock compensation was charged to operating expenses and $350,000 was recorded as
deferred compensation on December 31, 2017.
NOTE
8. RELATED PARTIES TRANSACTIONS
The
Company intends on relying on other businesses controlled by our sole director and officer, and beneficial owner of the majority
shares of common stock in the Company – Alton Perkins, in implementing its business plan.
Mr.
Perkins is the control person of Yilaime Corporation, AmericaTowne and AXP Holding Corporation. At this time, the purpose of the
Company is to service the construction and related technology needs of AmericaTowne under AmericaTowne’s agreements with
the Shexian County Investment Promotion Bureau in developing an AmericaTowne community in the Hanwang mountains in Shexian, China.
The Company also intends on supporting these services in other AmericaTowne ventures at the invitation of the Xiamen Longyan City
Chamber of Commerce, Xiamen/Longyan China and the Xiamen City Growth Planning Agency in developing an AmericaTowne Community and
an International School in Longyan County China.
The
related export services rendered to the Company in the implementation of its business plan cannot be provided by AmericaTowne
or through the AmericaTowne relationship. In order to avoid conflicts of interest, Mr. Perkins is of the opinion that there must
be a separate and distinct agreement between, in this case, the Company and AXP Holding Corporation. Furthermore, although other
similar IC-DISC entities exist, the Company is able to obtain better terms and conditions from AXP Holding Corporation in light
of Mr. Perkins’ control of AXP Holding Corporation.
AmericaTowne’s
Board of Directors determined that operating and controlling a separate but related entity focused on the development and the
exporting of modular energy efficient technology and processes for government and private enterprises in China would be more prudent
from a risk mitigation and operational standpoint than providing these services under the AmericaTowne business plan. Furthermore,
the intent of the Company is to expand its services and relationships to other similar endeavors in projects not related to AmericaTowne,
thus the need to maintain and operate a separate entity.
Cooperative
Agreement (Shexian County Government, China)
The
Company’s majority and controlling shareholder – AmericaTowne, is a party under the Cooperative Agreement with the
Shexian County Investment Promotion Bureau (the “Shexian Agreement”). Under the Shexian Agreement, AmericaTowne and
the Shexian County Bureau have agreed to a partnership in furthering the development of an AmericaTowne community in the Hanwang
mountains. Although not definitive at this time, the parties have agreed that, in consideration for AmericaTowne’s investment
of approximately $30,000,000 into the development, plus any additional tax paid to the local government, where applicable, the
Shexian County Bureau will dedicate local resources, including land (which AmericaTowne would be required to obtain rights through
local bid invitation), and participation with AmericaTowne in an agreed upon equity split through a future definitive agreement.
The
Company will be providing construction and technology services to AmericaTowne in facilitating AmericaTowne’s obligations
under the Shexian Agreement. The Company’s ability to generate revenue under its agreement with AmericaTowne could be impaired
in the event AmericaTowne is not able to meet its obligations under the Shexian Agreement. Furthermore, Mr. Perkins, as a control
person of each entity, might elect to forego certain obligations of AmericaTowne under the Shexian Agreement or not enter into
a more definitive agreement with the Shexian County Bureau, which in turn, could impact the Company’s ability to meet its
business plan set forth herein.
Sales
and Support Services Agreement (Yilaime Corporation)
On
June 27, 2016, we entered into a Sales and Support Services Agreement with Yilaime Corporation, a Nevada corporation (“Yilaime”).
Yilaime is controlled by Alton Perkins, who is our sole director and officer. Yilaime, and another related-party – Yilaime
Corporation of NC, Inc. (“Yilaime NC”), are the holders of the majority of issued and outstanding shares of common
stock in AmericaTowne, Inc. (“ATI”), a Delaware corporation and fully-reporting company with the United States Securities
and Exchange Commission (the “SEC”). Mr. Perkins is also the Trustee of the Alton & Xiang Mei Lin Perkins Family
Trust (“Perkins Trust”) and the AXP Nevada Asset Protection Trust 1 (“AXP”), which holds 5,100,367 and
120,000 shares, respectively, of the issued and outstanding common stock in ATI. Mr. Perkins is the beneficial owner of 20,674,484
shares of ATI, which equals 90.11% of issued and outstanding shares. Mr. Perkins is the beneficial owner of the majority and controlling
interest in the Company through his direct holdings, and beneficial holdings through Yilaime, AXP and the Perkins Trust. ATI,
Perkins Trust and Mr. Perkins beneficially own 110,117,593 shares, or 86%, of the Company’s common stock.
Under
the Services Agreement, Yilaime will provide the Company with marketing, sales and support services in the Company’s pursuit
of ATI Modular business in China in consideration of a commission equal to 10% of the gross amount of monies procured for the
Company through Yilaime’s services. In consideration of the right to receive this commission, Yilaime has agreed to pay
the Company 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 the Company by March 10, 2019. Yilaime has agreed to be the Company’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 the Company.
Modular
Construction & Technology Services Agreement (AmericaTowne)
On
June 28, 2016, we entered into a Modular Construction & Technology Services Agreement (the “Modular Services Agreement”)
with AmericaTowne Inc. (“ATI”), a Delaware corporation and fully-reporting company with the United States Securities
and Exchange Commission (the “SEC”). The impetus behind the Modular Services Agreement was the Company’s Cooperative
Agreement with the Shexian County Government, China. Under the Cooperative Agreement, ATI and the Shexian County Bureau have agreed
to a partnership in furthering the development of an AmericaTowne community in the Hanwang mountains, Shexian, China. In addition,
ATI, at the invitation of the Xiamen Longyan City Chamber of Commerce, Xiamen/Longyan China and the Xiamen City Growth Planning
Agency plan to pursue the development of an AmericaTowne Community and an International School in Longyan County China.
Under
the Modular Services Agreement, ATI Modular shall provide the research, development, training and modular technology in a manner
deemed commercially acceptable by ATI based on its commercially reasonable requirements, plans and specifications, which shall
be agreed upon in advance of any substantial and material construction. ATI will pay the Company a quarterly fee of $125,000 per
quarter. The initial fee was paid upon signing the Modular Services Agreement. The Services Agreement is set to expire on June
10, 2020, absent early termination for breach thereof by either party. ATI retains an option to extend the term under its sole
discretion until June 10, 2025 by providing written notice to the Company by March 10, 2019. Yilaime has agreed to be the Company’s
exclusive independent contractor in providing the services in the Services Agreement, and has agreed to a non-compete and non-circumvent
agreement.
Interest
Charge – Domestic International Sales Agreement (AXP Holding Corporation)
On
June 29, 2016, we entered into an IC-DISC Service Provider Agreement with AXP Holding Corporation, a Nevada corporation (“AXP
Holding”) and related party to the Company through Mr. Perkins control of AXP Holding. AXP Holding is an Interest Charge
- Domestic International Sales Corporation, or “IC-DISC”. AXP IC-DISC tax-exempt status was authorized and approved
by the United States Department of the Treasury, Internal Revenue Service. As an IC-DISC, AXP Holding may, under certain conditions,
act as a sister corporation to entities and provide services to assist a company in obtaining lower tax rates on export income.
In addition to the export tax savings provided by AXP, AXP can provide an additional array of services including promoting the
Company’s export activities, purchasing receivables from the Company at a discount through a factoring relationship, and
providing the Company with working capital loans.
The
term under the IC-DISC Service Provider Agreement is set to expire on December 6, 2019, absent early termination for breach thereof
by either party. AXP retains the right to extend the term, exercising its sole discretion, to December 6, 2024 by providing written
notice to the Company by November 6, 2019. AXP has agreed to a non-compete and non-circumvent in providing the services under
the IC-DISC Service Provider Agreement.
The
Company has agreed to pay AXP a commission fee up to the greater of 50% of the Company’s export net income or 4% of the
Company’s export gross receipts. The Company will determine the exact amount and the method of payment of the commission
fee. The commission fee shall be paid at the option of the Company periodically throughout the year, but no later than December
31 on annual basis. If there is no commission fee due to no export sales, the Company will pay AXP an export service fee of $50,000.
The export service fee, if any, is due on or before December 31 on an annual basis.
In
addition, for referring businesses from the Company’s “Export Platform” or “Community,” AXP agrees
to pay the Company 25% of each “Sales Export Service Fee” charged and received as an “IC-DISC Commission”
from each Exporter or Licensee resulting from participating in the Export Platform or Community. This fee is called a “Group
Export Consulting Fee” in the IC-DISC Service Provider Agreement, and is due no later than fifteen business days after receipt
from the Exporter or Licensee, but no later than December 31 on an annual basis. For illustrative purposes, if AXP receives and
or charges an Exporter 50% of its net export sales as a commission, and that value is $100,000, AXP would owe the Company 25%,
or $25,000. Furthermore, during the term, the Company shall pay AXP a flat fee of $5,000 per transaction for purchasing receivables
from the Company, plus an interest rate for such factoring at the prime rate plus one-percent.
The
Company recognizes and confirms the requirements in ACS 850- 10-50-6 to disclose all related party transactions between the Company
and related party transactions and or relationships.
The
Company also leases office space from Yilaime for $2,500/month.
Pursuant
to ASC 850-10-50-6, the Company makes the following transaction disclosures:
For
Statement of Operations for the year ended December 31, 2017 and for the six months ended December 31, 2016:
|
(a)
|
$500,000
and $250,000 in revenues for ATI Services Agreements with the Company;
|
|
(b)
|
$30,000
and $15,000 for general and administrative expenses for rent expenses the Company paid to Yilaime towards its lease agreement;
|
|
(c)
|
$61,348
and $0 of compensation expense for AXP Holding Corp charges for DISC.
|
|
(d)
|
$100,000
and $50,000 for general and administrative operating expenses recorded as stock compensation for respective employment agreements;
|
|
(e)
|
$3,477
and $3,334 for general and administrative expenses for commissions and fees
|
For
Balance Sheets on December 31, 2017 and 2016:
|
(a)
|
$349,642
and $60,088 net account receivables ATI owes to the Company;
|
|
(b)
|
$1,046,560
and $398,668 net account receivables Yilaime owes to the Company;
|
|
(c)
|
$98,424
and $159,772 prepayments to AXP Holding Corp;
|
|
(d)
|
$1,254,387
and $324,387 deferred revenue-Yilaime;
|
|
(e)
|
$23,712
and 198,000 as accounts payable to Anhui Ao De Xin Modular Construction Technology Co., Ltd.;
|
|
(f)
|
$350,000
and 450,000 as deferred compensation pursuant to respective employment agreements.
|
NOTE
9. INCOME TAXES
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant
components of income tax expense for the year ended December 31, 2017 and for the six months ended December 31, 2016 are as follows
|
|
Year
Ended
|
|
Six
Months Ended
|
|
|
December
31, 2017
|
|
December
31, 2016
|
Current
tax expense
|
|
$
|
10,337
|
|
|
$
|
—
|
|
Deferred tax expense
|
|
|
—
|
|
|
|
—
|
|
Tax expense (benefit)
|
|
$
|
10,337
|
|
|
$
|
—
|
|
The
Company had $10,337 and $0 of income tax liability as of December 31, 2017 and 2016, respectively.
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
The
cumulative tax effect at the expected rate of 34% of significant items comprising the net deferred tax amount is at December 31,
2017 and 2016 as follows:
|
|
December
31, 2017
|
|
December
31, 2016
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Net
operating losses
|
|
$
|
—
|
|
|
$
|
34,853
|
|
|
|
|
|
|
|
|
|
|
Total
deferred tax assets
|
|
|
—
|
|
|
|
34,853
|
|
Less:
valuation allowance
|
|
|
—
|
|
|
|
(34,853
|
)
|
Deferred
tax assets, net
|
|
$
|
—
|
|
|
$
|
—
|
|
Reconciliation
of Effective Income Tax Rate
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2017
|
|
|
|
Six
Months Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Statutory
U.S. tax rate
|
|
|
16.85
|
%
|
|
|
34.00
|
%
|
Less:
valuation allowance
|
|
|
—
|
|
|
|
(34.00
|
%)
|
Effective
income tax rate
|
|
|
16.85
|
%
|
|
|
0
|
%
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
We
qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely
on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required
to:
-
have
an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
-
comply
with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation
or a supplement to the auditor's report providing additional information about the audit and the financial statements (i.e., an
auditor discussion and analysis);
-
submit
certain executive compensation matters to shareholder advisory votes, such as "say-on-pay" and "say-on-frequency;"
and
-
disclose
certain executive compensation related items such as the correlation between executive compensation and performance and comparisons
of the CEO's compensation to median employee compensation.
In
addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words,
an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply
to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements
may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
The
Company is in the early stages of its operations, and many of its plans and objectives are aspirational in nature, and thus might
never come to fruition. At this time, the Company plans to retain engineering and architectural firms based in the United States
who have extensive experience in developing modular structures in the United States, China and other foreign locations based on
market demand, which has not been thoroughly researched to date. The Company has been focused on obtaining quotes, negotiating
formal engagements and researching all aspects of the modular construction industry. While the infrastructure is still in
the developmental stage, the Company is confident that it has the experience, or access to those with experience, in the modular
construction field.
The
Company plans on engaging in onsite placement and delivery of modular structures. Mr. Perkins has extensive experience in operating
business in China. One of the reasons that Mr. Perkins was sought out and invited to participate in developing the modular industry
in China is that he was the co-chairman of a construction company in China - Yilaime Foreign Partnership in Henghsui China. His
experience with Yilaime Foreign Partnership allows ATI Modular to call on local companies in China as well as modular companies
and experts in the United States to help provide on-site services. Yilaime Foreign Partnership is not a related party to the Company,
ATI, Yilaime or AXP.
In
addition, the Company recently joined the Modular Building Institute in Charlottesville, Virginia. In September of 2016, Mr. Perkins
attended the Institute’s annual exposition in order to line up available suppliers, and experts in the modular construction
field.
We
intend on offering support services in all phases of modular construction. Our approach will be to focus on exporting United States
based technology, services and equipment, and general know-how. Exporters in our related company, AmericaTowne, are experienced
in the modular field and we plan on allowing those experienced exporters to participate in various levels of our program.
The
Company currently does not have a principal supplier of raw materials. The Company has identified potential sources of raw materials
in the United States through its membership in the Modular Building Institute. One of our primary challenges will be pricing the
source of raw materials and delivery to China. We are also looking to potential raw material sources in China.
To
operate within China, the Company requires approval of government officials in China. In both cases where the Company has signed
Cooperative Agreements (and in the case of the Shexian Agreement), and at the invitation of the local government, we have the
approval to register and conduct business.
Fiscal
Year
Our
fiscal year ends December 31.
Results
of Operations for the Three Months Ended March 31, 2018 and 2017
Our
operating results for the three months ended March 31, 2018 and 2017 are summarized as follows:
|
|
Three
Months Ended
|
|
|
March
31, 2018
|
|
March
31, 2017
|
Revenue
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
Cost
of Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating
Expenses
|
|
$
|
94,796
|
|
|
$
|
110,235
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
25,673
|
|
|
$
|
12,550
|
|
Revenues
For
the three months ended March 31, 2018, the Company generated revenue of $125,000. The Company's revenues came from related parties
for services rendered for the service rights agreement with AmericaTowne. We can make no assurances that we will find commercial
success in any of our revenue producing contracts. Our revenues, thus far, rely entirely on related parties. 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 first three months ended March 31, 2018 and 2017 are outlined in the table below:
|
|
Three
Months Ended
|
|
|
March
31, 2018
|
|
March
31, 2017
|
General
and Administrative
|
|
$
|
94,796
|
|
|
$
|
110,235
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
$
|
94,796
|
|
|
$
|
110,235
|
|
Our
operating expenses are largely attributable to administrative expenses 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 before tax obligations of $30,204 for the three months ended March
31, 2018, an increase of $15,439 from the same period one year ago.
Liquidity
and Capital Resources
Working
Capital
|
|
March
31,
2018
|
|
December
31, 2017
|
Current
Assets
|
|
$
|
1,945,416
|
|
|
$
|
1,654,372
|
|
Current
Liabilities
|
|
$
|
1,554,666
|
|
|
$
|
1,305,135
|
|
|
|
|
|
|
|
|
|
|
Working
Capital
|
|
$
|
390,750
|
|
|
$
|
349,237
|
|
Cash
Flow
|
|
Three
Months Ended
|
|
|
March
31, 2018
|
|
March
31, 2017
|
Net
Cash Used in Operating Activities
|
|
$
|
13,686
|
|
|
$
|
26,362
|
|
Net
Cash Used in Investing Activities
|
|
$
|
—
|
|
|
$
|
861
|
|
Nat
Cash Provided by Financing Activities
|
|
$
|
—
|
|
|
$
|
22,500
|
|
|
|
|
|
|
|
|
|
|
Decrease
in Cash
|
|
$
|
13,686
|
|
|
$
|
4,723
|
|
Cash
Provided by Operating Activities
We
have $13,686 and $26,362 net cash used in operating activities for the three months ended March 31, 2018 and 2017, respectively.
The decrease is mainly due to increase in accounts receivable.
Cash
Used in Investing Activities
For
the three months ended March 31, 2018 and 2017, we spent $nil and $861 on purchasing fixed assets, respectively.
Cash
Provided by Financing Activities
We
received $22,500 from issuance of stock for the three months ended March 31, 2017. The Company did not issue any stock in the
first quarter of the 2018 fiscal year.
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.
Results
of Operations through December 31, 2017
Our
operating results are summarized as follows:
|
|
|
Year
Ended
|
|
|
|
Six
Months Ended
|
|
|
Years
Ended
|
|
|
|
|
December
31
|
|
|
|
December
31
|
|
|
June
30
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
500,000
|
|
|
$
|
250,000
|
|
|
$
|
125,000
|
|
|
|
—
|
|
Costs
of Revenues
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gross
Profit
|
|
$
|
500,000
|
|
|
$
|
250,000
|
|
|
$
|
125,000
|
|
|
|
—
|
|
Operating
Expenses
|
|
$
|
438,654
|
|
|
$
|
352,510
|
|
|
$
|
132,552
|
|
|
$
|
3,859
|
|
Other
Income
|
|
$
|
1
|
|
|
|
—
|
|
|
$
|
3,859
|
|
|
|
—
|
|
Provision
for Income Taxes
|
|
$
|
10,337
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
Income (Loss)
|
|
$
|
51,055
|
|
|
($
|
102,510
|
)
|
|
($
|
3,693
|
)
|
|
($
|
3,859
|
)
|
Revenues
Pursuant
to the Company’s Service Agreements, AmericaTowne and Yilaime paid the Company $500,000 in fiscal year 2017. In 2017 the
Company had paid an Operating Expenses of $438,654. The Operation Expenses primarily stem from implementing the Company’s
business plan, including legal and professional fees associated with the Company’s filing requirements under the Securities
Act and Securities and Exchange Act and the merger between AmericaTowne and the Company.
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 first quarter of 2017.
Operating
Expenses
Our
expenses for the period through December 31, 2017 are outlined in the table below:
|
|
|
Year
Ended
|
|
|
|
Six
Months Ended
|
|
|
Years
Ended
|
|
|
|
|
December
31
|
|
|
|
December
31
|
|
|
June
30
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
Administrative
|
|
$
|
438,654
|
|
|
$
|
352,510
|
|
|
$
|
132,552
|
|
|
$
|
3,859
|
|
Total
Operating Expenses
|
|
$
|
438,654
|
|
|
$
|
352,510
|
|
|
$
|
132,552
|
|
|
$
|
3,859
|
|
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. In 2017, our operating expenses were $438,654, compared to $352,510 in the six
months ending December 31, 2016, $132,553 in the year end June 30, 2016, and $3,859 in the year end June 30, 2015.
Net
Income
As
a result of our operations, for 2017, the Company reported net income after provision for income tax of $51,055. In the six months
ending December 31, 2016, our net loss was $102,510. The increase is due to further implementing our business plan. In the fiscal
years ending June 30, 2016 and 2015, we reported losses of $3,693 and $3,859, respectively.
Liquidity
and Capital Resources
Working
Capital
|
December
31, 2017
|
December
31, 2016
|
Current
Assets
|
$1,654,372
|
$712,793
|
Current
Liabilities
|
$1,305,135
|
$534,086
|
Working
Capital
|
$349,237
|
$178,707
|
We
have working capital of $349,237 on December 31, 2017. Compared to December 31, 2016, working capital of $178,707. The increase
is due to effectively implementing our initial business plans.
Cash
Flow
|
December
31, 2017
|
December
31, 2016
|
Net
cash provided by (used in) operating activities
|
$47,854
|
($48,243)
|
Cash
provided by (used in) investing activities
|
($6,397)
|
($2,540)
|
Cash
provided by financing activities
|
$24,023
|
$145,049
|
Increase
(Decrease) in cash
|
$65,480
|
$94,266
|
Cash
Provided by Operating Activities
Compared
to 2016, increase in cash provided by operating activities in 2017 is mainly due to decrease in accounts receivable.
Cash
Used in Investing Activities
We
spent $6,397 on fixed assets for 2017 compared to $2,540 in 2016.
Cash
Provided by Financing Activities
Compared
to 2016, our cash used in financing activities decreased by $121,026. This decrease was due to decrease in proceeds from issuance
of common stock.
As
of December 31, 2017, the Company had enough cash including receivables to operate its business at the current level for the next
twelve months, but insufficient cash to achieve our business goals and initiatives set forth above. To address the cash situation,
the Company continues to manage its cash accounts and receivables closely.
To
date, we have been able to meet all our account payable obligations within a five to ten-day window. If required, we can extend
this window to improve our cash flow position. Additionally, we have a plan to increase sales. There is no assurance that we will
be able to maintain this level of operations.
The
success of our business plan beyond the next twelve months is contingent upon us growing our business, keeping costs down, increasing
revenue and obtaining additional equity and/or debt financing. We intend to fund operations through our pro-active efforts to
monitor receivables, and debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures,
working capital, or other cash requirements. We do have a commitment from Chizhou government to provide cash infusions and or
loan guarantees as we complete our operations in China. Other than Chizhou, we do not have any formal commitments or arrangements
for the sales of stock or the advancement or loan of funds at this time. There is no assurance that such additional financing
will be available to us on acceptable terms, or at all or that our receivable plan will be effective in the future.
Critical
Accounting Policies
Our
financial statements and related public financial information are based on the application of accounting principles generally
accepted in the United States ("US GAAP"). US GAAP requires the use of estimates; assumptions, judgments and subjective
interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expenses amounts reported.
These estimates can also affect supplemental information contained in our external disclosures including information regarding
contingencies, risk and financial condition.
We
believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.
Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant
estimates made during the preparation of our financial statements.
We
believe the following is among the most critical accounting policies that impact our consolidated financial statements. We suggest
that our significant accounting policies, as described in our financial statements in the Summary of Significant Accounting Policies,
be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Revenue
Recognition
The
Company recognizes revenue at the date of delivery to customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. The
Company's Revenue Recognition policy is provided in detail at Note 2 of the Financial Statements.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC Topic 740, "Income Taxes." ASC 740 requires a company to use
the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary
differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not
be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Under
ASC 740, a tax position is recognized as a benefit only if it is "more likely than not" that the tax position would
be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more
likely than not" test, no tax benefit is recorded. The adoption had no effect on the Company's consolidated financial statements.
Recent
Accounting Pronouncements
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.
Plan
of Operation and Cash Requirements
The
Company anticipates that its expenses over the next twelve months will be approximately $8,000,000 as described in the table below.
These estimates may change significantly depending on the nature of our business activities and our ability to raise capital from
our shareholders or other sources.
Description
|
Potential
Completion Date
|
Estimated
Expenses $
|
|
|
|
Initial
Plant and Operations Set-up
|
12
months
|
2,250,000
|
Salaries
|
12
months
|
1,300,000
|
Utility
expenses
|
12
months
|
50,000
|
Investor
relations costs
|
12
months
|
50,000
|
Marketing
expenses
|
12
months
|
100,000
|
Professional
fees
|
12
months
|
150,000
|
Other
administrative expenses
|
12
months
|
100,000
|
Equipment
Purchases
|
12
months
|
4,000,000
|
Our
other administrative expenses for the year will consist primarily of transfer agent fees, bank and interest charges and general
office expenses. The professional fees are related to our regulatory filings throughout the year and include legal, accounting
and auditing fees. The equipment purchases and plant set-up are related to the materially definitive agreement with Jiangnan.
Based
on our planned expenditures, we will require approximately $8,000,000 to proceed with our business plan over the next twelve months.
If we secure less than the full amount of financing that we require, we will not be able to carry out our complete business
plan and we will be forced to proceed with a scaled back business plan based on our available financial resources.
We
intend to raise the balance of our cash requirements for the next twelve months pursuant to our agreement with Jiangnan by accessing
upon request bank loans, bank guarantees and equity funding. Additionally, we may have private placements, shareholder loans or
possibly a registered public offering (either self-underwritten or through a broker-dealer). If we are unsuccessful in raising
enough money through such efforts, we may review other financing possibilities such as bank loans. At this time, other than our
agreement with Jiangnan we do not have a commitment from any third-party to provide us with financing. There is no assurance that
any financing will be available to us or if available, on terms that will be acceptable to us.
Even
though we plan to raise capital through equity or debt financing, we believe that the latter may not be a viable alternative for
funding our operations, as we do not have sufficient tangible assets to secure any such financing. We anticipate that any additional
funding will be in the form of equity financing from the sale of our common stock. At the close of 2017, we are considering financing
arrangements for our common stock. However, the arrangements are not final and we cannot provide any assurance that we will be
able to raise sufficient funds from the sale of our common stock to finance our operations. In the absence of such financing,
we may be forced to abandon our business plan.
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 and would be considered material to investors.
Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure.
There
are not and have not been any changes in or disagreements between the Company and its accountants on any matter of accounting
principles, practices or financial statement disclosure
Quantitative
and Qualitative Disclosures About Market Risk.
As
a smaller reporting company, as defined in 17 CFR § 229.10(f)(1), we are not required to provide the information requested
by this Item.
INFORMATION
WITH RESPECT TO
AMERICATOWNE,
INC.
(the
“Acquired Company”)
General
Description of Business
AmericaTowne
aims 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, AmericaTowne focuses 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 franchise operations in the United States and internationally to support and advance the above-referenced
initiatives.
These
initiatives are aspirational in nature. AmericaTowne’s intent is to accomplish the majority, if not all, of these initiatives,
but there is no assurance of success.
General
Discussion
AmericaTowne
aims to earn revenues and income, and generate cash, by focusing on the four core business operations and initiatives set forth
above. At this point, AmericaTowne revenue is generated from Service Provider, Exporter Service Agreements, and related agreements
with companies throughout the United States. AmericaTowne generates revenues and cash by servicing these agreements. It works
with exporters carefully and focus on our accounts receivable as part of managing its projected tight liquidity position. Additionally,
AmericaTowne works with exporters closely in developing export strategies for the goods and services they planned to export. AmericaTowne
has successfully engaged in multiple Export Service Agreements with entities throughout the United States since the Company’s
inception.
At
present, the bulk of AmericaTowne’s operations take place in its Raleigh, North Carolina office, which acts as a model for
plans for our United States Trade Center Operations. AmericaTowne is in the process of outfitting operations in Chizhou, China.
Two full-time managers have been hired to operate the facilities located at Chizhou and other locations in China. AmericaTowne
is working with the Chizhou Port Authorities to ensure that our operational procedures are in compliance with various import laws.
AmericaTowne’s
short-term operational objective is to develop exporter pipeline, grow revenues and increase operations and facilities in the
United States, Africa and Europe while bringing the facility online in Chizhou, China. AmericaTowne’s focus currently is
on enhancing an 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 its United States operations, AmericaTowne
aims to expand additional key staff in the United States and China that can help implement its plan.
To
achieve its long-term objectives, AmericaTowne 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 Chizhou trade center, and activities within our AmericaTowne complexes
and Chinese-based internet sites. Each of AmericaTowne’s four core initiatives presents challenges, risks, and opportunities.
AmericaTowne
sees positive trends in the export area. Additionally, AmericaTowne plans to pursue opportunities in export not often thought
of as an "exported commodity. Along with AmericaTowne’s planned core “AmericaTowne communities,” trade
centers in the United States and China, and Internet operations, AmericaTowne plans on pursuing opportunities that are traditionally
not thought of as an export commodity.
AmericaTowne’s
Investment in ATI Nationwide Holding Corp.
On
July 5, 2016, AmericaTowne entered into a Master Joint Venture and Operational Agreement (the “Joint Venture Agreement”)
with Nationwide Microfinance Limited, a Ghanaian corporation (“Nationwide”). Under the terms of the Joint Venture
Agreement,
the parties agreed combine efforts,
resources and established relationship in furthering the operational and financial development of a Savings and Loan company operating
under the laws of Ghana, and potentially related services, in the United States and Ghana through a publicly reporting and trading
entity in the United States. Nationwide has represented that it currently operates a Tier 2 microfinance company providing retail
and commercial financial products and services in Ghana pursuant to a valid license in good standing issued by the Ghana Banking
Authority.
The
intent, at this time, is that AmericaTowne will be issued 51% of the voting shares in the joint venture entity; however, as set
forth in more detail in the Joint Venture Agreement, AmericaTowne will not be involved in financing, insurance, securities or
other investment company or banking matters. Rather, a subcommittee to the Board of Directors called the “Ghana Committee”
will operate under the sole direction of the Accountable Manager of Nationwide, and will be responsible for the day-to-day operations
in Ghana, and the operational recommendations to the Board of Directors, and to the Operations and Ethics Committee (another subcommittee
as set forth in the Joint Venture Agreement) related to any and all aspects of Nationwide’s financial services business,
including but not limited to, (i) final decisions concerning day-to-day operations of the savings and loans programs, (ii) determination
of personnel employed in support of savings and loan service operations including the managing director, human resources, customers,
operations, sales and marketing, quality assurance, and accounting and payroll, and (iii) any other commercially necessary and
reasonable services benefiting Nationwide and the joint venture business combination entity. The Ghana Committee will report directly
to the Board of Directors, and the officers of the joint venture business combination entity shall implement the directives of
the Ghana Committee.
On
October 3, 2016 AmericaTowne entered into two Stock Purchase Agreements with sellers Carson Holdings, LLC, and Joseph C. Passalaqua
in furtherance of the Joint Venture Agreement. Pursuant to the Stock Purchase Agreements, the Company acquired 65,000,000 shares
of common stock in EXA, Inc., a Florida corporation, traded on the OTC Pink Sheets under the symbol EXAI. The Stock Purchase Agreements
were privately negotiated between the parties without facilitation through brokers or promotors, or third-parties, except legal
counsel, and were approved by the Company’s Board of Directors as being in the best interests of the Company. As a result
of the Stock Purchase Agreements, AmericaTowne became the controlling and majority shareholder in EXA, Inc.
AmericaTowne
owns 65,000,000 of the 99,175,486 issued and outstanding shares of EXA, Inc. The shares under the Stock Purchase Agreement were
purchased for $175,000, and the source of funds was working capital from AmericaTowne. AmericaTowne purchased the shares with
the intent to hold in its personal account on a restricted basis absent registration or qualification under an exemption to registration.
Following
the acquisition of EXA, Inc., AmericaTowne filed Amended Articles of Incorporation, changing EXA, Inc.’s name to ATI Nationwide
Holding Corp. (“ATI Nationwide”). AmericaTowne has since filed ATI Nationwide’s corporate action, which was
approved in fiscal year 2017, effectively changing the name of the corporation to ATI Nationwide Holding Corp., as well as the
trading symbol to “ATIN.” ATI Nationwide’s Form 10 information has been filed with the Securities and Exchange
Commission. As a result of the Plan of Merger discussed herein, ATI Nationwide will become a subsidiary of ATI Modular.
Business
Developments in Fiscal Year 2017
Trade
Center Agreements and Exporter Service Agreements
The
Company has entered into a series of International Trade Center Service Provider Agreements (the “Trade Center Agreements”,
or singularly, the “Trade Center Agreement”). As disclosed in prior filings, the general purpose behind the Trade
Center Agreements is for the specific “Service Provider,” defined under the Trade Center Agreement, to support the
operations of the Company’s programs in a specific geographical area. As a Service Provider, the party represents to the
Company that the individual or his related entity has distinct experience working with individuals and businesses who may be candidates
for the Company’s operations and business, including but not limited to, experience assisting businesses and entrepreneurs
who may be candidates for occupancy and participation in an AmericaTowne community, or facilitating the acquisition of goods and
performing services to the Company, securing funding (credit lines, loans and loan guarantees), insurance, supplier and export
contracts and other related services that could assist candidates in conducting business with the Company. These services are
referred to in similar and previously disclosed agreements as “Support Services.” Trade Center Agreements are for
both International services (International Trade Center Agreements) and services based in the United States (U.S. Trade Center
Agreements). The US Trade Service Agreements provide for the same, or similar, “Support Services” as the Trade Center
Agreement in foreign jurisdictions, but the joint venture’s hub of operations is in the United States.
In
consideration for the Service Provider entering into the Trade Center Agreement, the parties agree to form a joint venture limited
liability company (or similarly structured entity upon consent of the parties) in which the Service Provider would be issued a
specific percentage of equity and would deploy its resources in furtherance of an AmericaTowne community in a given geographical
area. Each party has agreed to a mutual compensation schedule, which is incorporated into the Trade Center Agreements resulting
in a fully integrated and materially definitive agreement. The reader is directed to the exhibits for the full copy of the Trade
Center Agreements executed by the Company.
The
Company also enters into Exporter Service Agreements. Under the Exporter Services Agreements, the Company represents to the customer
that it is in the process of preparing the AmericaTowne Platform. This platform will consist of exhibition, showroom and display
facilities, support office(s) and staff located in the United States and China, and the platform will provide a buyer’s
network, and online websites either directly owned by AmericaTowne or in a partnership with third-parties in order to support
the exhibition center, showroom and network to market imported goods and services to consumers in China. The AmericaTowne Platform
will provide the customer with access to and participation in a program whereby the Company will exercise its experience, expertise
and training in assessing the customer’s market acceptance and demand of the customer’s products or services in China
(and perhaps other locales depending on the Company’s findings). In short, the Company is focused on increasing USA exports
to China and elsewhere.
In
2017, the Company entered into a total of twenty-three (23) Trade Center Agreements and three (3) Export Service Agreements. If
all twenty-six contracts are performed without breach, the Company stands to earn a total of $2,173,500 in revenue over the lifetime
of these agreements. Each individual agreement is discussed in detail below. The Company notes that, while this revenue is projected,
it is not certain as there are risks associated with these contracts, including non-performance by the service providers. Details
regarding these agreements can be found in AmericaTowne’s Annual Report on Form 10-K for the fiscal year 2017, hereby incorporated
by reference.
Description
of Property
AmericaTowne’s
principal executive offices are located at 4700 Homewood Court, Suite 100 in Raleigh, North Carolina. AmericaTowne also leases
office space from Yilaime Corporation, a Nevada corporation doing business in North Carolina. Yilaime is a related party to the
Company and AmericaTowne.
Legal
Proceedings
There
are not presently any material pending legal proceedings to which AmericaTowne is a party or as to which any of its property is
subject, and no such proceedings are known to AmericaTowne to be threatened or contemplated against it.
Market
Price of and Dividends on the Registrants Common Equity and Related Stockholder Matters.
Authorized
Capital Stock
AmericaTowne
has 100,000,000 shares of authorized Common Stock, par value $.0001 per share, of which there are 49,200,932
shares
issued and outstanding. AmericaTowne has 5,000,000 shares of Preferred Stock, par value $.0001 per share, of which none
have been designated or issued. AmericaTowne’s common stock is not traded on a public market, though it is registered with
the Securities and Exchange Commission.
Holders
of shares of AmericaTowne’s common stock are entitled to one vote for each share on all matters to be voted on by the stockholders.
Holders do not have cumulative voting rights. Holders of common stock are entitled to share ratably in dividends, if any, as may
be declared from time to time by AmericaTowne’s Board of Directors in its discretion from funds legally available. In the
event of a liquidation, dissolution or winding up of AmericaTowne, the holders of common stock are entitled to share pro rata
all assets remaining after payment in full of all liabilities. All of the outstanding shares of common stock are fully paid and
non-assessable. Holders of common stock have no preemptive rights to purchase the AmericaTowne’s common stock. There are
no conversion or redemption rights or sinking fund provisions with respect to the common stock.
AmericaTowne
has not paid any dividends on its common stock and does not presently intend to pay cash dividends. The payment of cash dividends
in the future, if any, will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition
subsequent to consummation of a business combination, if any. The payment of any dividends subsequent to a business combination,
if any, will be within the discretion of AmericaTowne’s then existing board of directors. It is the present intention of
AmericaTowne’s board of directors to retain all earnings, if any, for use in its business operations and, accordingly, the
board of directors does not anticipate paying any cash dividends in the foreseeable future.
Securities
Authorized for Issuance under Equity Compensation Plans
In
2017, the Company entered into Employment Agreements with four (3) employees. Three of these employees were issued shares of restricted
common stock in lieu of compensation in 2017. These employees are as follows:
Name
|
Position
|
Date
of Employment Agreement
|
Stock
Issuance
|
Andre
Chaslin
|
Executive
Vice President for Export & Europe Operations
|
October
18, 2017
|
120,000
shares of restricted common stock
|
Brian
Eberhart
|
Vice
President for Procurement Services
|
October
18, 2017
|
20,000
shares of restricted common stock
|
Du
Jixiang
|
Executive
Sales & Marketing Manager—China
|
November
1, 2017
|
10,000
shares of restricted common stock
|
Financial
Statements
Item
1. Financial Statements.
AMERICATOWNE
Inc. and Subsidiaries
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
March
31
|
|
December
31
|
|
|
2018
|
|
2017
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
913,289
|
|
|
$
|
900,168
|
|
Notes
receivable - related parties
|
|
|
71,750
|
|
|
|
73,000
|
|
Accounts
receivable, net
|
|
|
812,868
|
|
|
|
764,800
|
|
Accounts
receivable, net - related parties
|
|
|
2,779,409
|
|
|
|
2,336,179
|
|
Other
receivables - related parties
|
|
|
127,343
|
|
|
|
180,547
|
|
Prepayment-current
|
|
|
644
|
|
|
|
644
|
|
Total
Current Assets
|
|
|
4,705,303
|
|
|
|
4,255,338
|
|
|
|
|
|
|
|
|
|
|
Prepayment-non
current
|
|
|
6,715
|
|
|
|
7,035
|
|
Property,
plant and equipment, net
|
|
|
38,729
|
|
|
|
41,264
|
|
Deferred
tax assets
|
|
|
239,613
|
|
|
|
169,291
|
|
Goodwill
|
|
|
40,331
|
|
|
|
40,331
|
|
Investments
|
|
|
3,860
|
|
|
|
3,860
|
|
Total
Assets
|
|
$
|
5,034,551
|
|
|
$
|
4,517,119
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
55,511
|
|
|
$
|
80,611
|
|
Deferred
revenues-current
|
|
|
1,508,929
|
|
|
|
1,258,930
|
|
Other
payables
|
|
|
560
|
|
|
|
1,060
|
|
Deposit
from customers
|
|
|
1,469
|
|
|
|
1,469
|
|
Due
to related parties
|
|
|
—
|
|
|
|
8,646
|
|
Income
tax payable
|
|
|
57,840
|
|
|
|
53,309
|
|
Total
Current Liabilities
|
|
|
1,624,309
|
|
|
|
1,404,025
|
|
Deferred
revenues-non current
|
|
|
48,306
|
|
|
|
49,441
|
|
Total
Liabilities
|
|
|
1,672,615
|
|
|
|
1,453,466
|
|
|
|
|
|
|
|
|
|
|
Commitments
& Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 par value; 5,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
none
issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Common
stock, $0.0001 par value; 100,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
49,421,350
and 48,985,026 shares issued and outstanding
|
|
|
4,942
|
|
|
|
4,899
|
|
Common
stock subscribed
|
|
|
154
|
|
|
|
87
|
|
Additional
paid-in capital
|
|
|
5,910,632
|
|
|
|
5,684,903
|
|
Deferred
compensation
|
|
|
(2,161,542
|
)
|
|
|
(2,359,220
|
)
|
Receivable
for issuance of stock
|
|
|
(90,223
|
)
|
|
|
(90,223
|
)
|
Retained
Earnings
|
|
|
(325,281
|
)
|
|
|
(204,425
|
)
|
Noncontrolling
interest
|
|
|
23,254
|
|
|
|
27,632
|
|
Shareholders'
Equity
|
|
|
3,361,936
|
|
|
|
3,063,653
|
|
Total
Liabilities and Shareholders' Equity
|
|
$
|
5,034,551
|
|
|
$
|
4,517,119
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements
|
AMERICATOWNE
Inc. and Subsidiaries
|
Consolidated
Statements of Operations
|
(Unaudited)
|
|
|
|
|
|
|
|
For
the Three Months Ended
|
|
|
March
31,
2018
|
|
March
31,
2017
|
Revenues
|
|
|
|
|
Sales
|
|
$
|
111,135
|
|
|
$
|
61,135
|
|
Services-related
parties
|
|
|
237,000
|
|
|
|
230,000
|
|
|
|
|
348,135
|
|
|
|
291,135
|
|
Cost
of Revenues-Related Parties
|
|
|
35,499
|
|
|
|
59,416
|
|
Gross
Profit
|
|
|
312,636
|
|
|
|
231,719
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
418,756
|
|
|
|
247,451
|
|
Professional
fees
|
|
|
84,899
|
|
|
|
75,064
|
|
Total
operating expenses
|
|
|
503,655
|
|
|
|
322,515
|
|
Income
from operations
|
|
|
(191,019
|
)
|
|
|
(90,796
|
)
|
|
|
|
|
|
|
|
|
|
Other
Expenses (Income)
|
|
|
8
|
|
|
|
(228
|
)
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
(65,792
|
)
|
|
|
2,215
|
|
Net
Income (Loss)
|
|
|
(125,235
|
)
|
|
|
(92,783
|
)
|
|
|
|
|
|
|
|
|
|
Less:
Net loss (income) attributable to the noncontrolling interest
|
|
|
4,379
|
|
|
|
3,107
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to AMERICATOWNE, Inc common stockholders
|
|
$
|
(120,856
|
)
|
|
$
|
(89,676
|
)
|
|
|
|
|
|
|
|
|
|
Earnings
per share - basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.003
|
)
|
Weighted
average shares outstanding- basic and diluted
|
|
|
49,136,685
|
|
|
|
27,004,775
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
AMERICATOWNE
Inc. and Subsidiaries
|
Consolidated
Statements of Cash Flows
|
(Unaudited)
|
|
|
|
|
|
|
|
For
the Three Months Ended
|
|
|
March
31,
2018
|
|
March
31,
2017
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(125,235
|
)
|
|
$
|
(92,783
|
)
|
Adjustments
to reconcile net income to net cash provided by operations
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,054
|
|
|
|
4,513
|
|
Stock
compensation
|
|
|
240,178
|
|
|
|
123,429
|
|
Bad
debt provision
|
|
|
24,036
|
|
|
|
19,494
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(515,334
|
)
|
|
|
(412,638
|
)
|
Other
receivable - related parties
|
|
|
28,399
|
|
|
|
(196,917
|
)
|
Prepayment
|
|
|
320
|
|
|
|
316
|
|
Deferred
tax assets
|
|
|
(70,322
|
)
|
|
|
—
|
|
Accounts
payable and accrued expenses
|
|
|
(25,100
|
)
|
|
|
150,316
|
|
Deferred
revenues
|
|
|
248,865
|
|
|
|
213,865
|
|
Other
payables
|
|
|
(500
|
)
|
|
|
(1,928
|
)
|
Deposit
from customers
|
|
|
—
|
|
|
|
13,672
|
|
Due
to related parties
|
|
|
16,160
|
|
|
|
16,090
|
|
Income
tax payable
|
|
|
4,531
|
|
|
|
2,215
|
|
Net
cash provided by (used in) operating activities
|
|
|
(169,948
|
)
|
|
|
(160,357
|
)
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets
|
|
|
(1,520
|
)
|
|
|
(3,123
|
)
|
Issuance
of notes receivable
|
|
|
1,250
|
|
|
|
—
|
|
Net
cash used in Investing activities
|
|
|
(270
|
)
|
|
|
(3,123
|
)
|
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
183,339
|
|
|
|
22,500
|
|
Net
cash provided by financing activities
|
|
|
183,339
|
|
|
|
22,500
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) in cash and cash equivalents
|
|
|
13,121
|
|
|
|
(140,981
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
900,168
|
|
|
|
973,015
|
|
Cash
and cash equivalents at end of period
|
|
$
|
913,289
|
|
|
|
832,034
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
—
|
|
|
|
|
|
Interest
paid
|
|
$
|
—
|
|
|
$
|
—
|
|
Income
taxes paid
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
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 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.
On
October 3, 2016, the Company purchased the majority and controlling interest in ATI Nationwide Holding Corp (“ATI Nationwide”),
formerly EXA, Inc. OTC:Pinks (EXAI) through the acquisition of 65,000,000 shares (65.5%) shares of restricted common stock. The
Stock Purchase and Sale Agreement dated October 3, 2016 (the “SPA EXAI”) closed on October 10, 2016 with the $175,000
payment of the purchase price to Joseph C. Passalaqua, prior shareholder and director and officer of ATI Nationwide.
The
Company intends on using this acquisition to facilitate its performance under the July 11, 2016 Master Joint Venture and Operational
Agreement with Nationwide Microfinance Limited, a Ghanaian corporation, as disclosed in the Company’s July 14, 2016 Form
8-K (see exhibit table above).
In
both acquisitions, the Company purchased the shares with the intent to hold in its personal account on a restricted basis absent
registration or qualification under an exemption to registration. The Stock Purchase Agreements were privately negotiated between
the parties without facilitation through brokers or promotors, or third-parties, except legal counsel, and were approved by the
Company’s Board of Directors as being in the best interests of the Company. The source of funds was working capital from
the Company. There is no material relationship between the Company and any of the parties under the Stock Purchase Agreements.
As
with any business plan that is aspirational in nature, there is no assurance we will be able to accomplish all our objective or
that we will be able to meet our financing needs to accomplish our objectives.
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.
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 years ended December 31, 2017
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 March 31, 2018, and the
results of its operations and cash flows for the three months ended March 31, 2018. The results of operations for the period ended
March 31, 2018 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
|
3-5
years
|
For
the three months ended March 31, 2018 and 2017, depreciation expense is $4,054 and $4,513, respectively.
Investments
Investments
primarily include cost method investments. On March 31, 2018 and December 31, 2017, the carrying amount of investments was $3,860
and $3,860, respectively. There are no identified events or changes in circumstances that may have a significant adverse effect
on fair value of the investment as of March 31, 2018.
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 March 31, 2018 and December 31, 2017 and 2016,
there is deferred tax assets of $239,613 and $169,291, respectively. The Company had $57,840 and $53,309 of income tax liability
as of March 31, 2018 and December 31, 2017, 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 three months ended March 31, 2018 and 2017, 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 March 31, 2018, all assets and liabilities are in the United States where the income
and expense has been incurred since inception to March 31, 2018.
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.
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 December 31, 2017.
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 March 31, 2018. 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. NOTES RECEIVABLE – RELATED PARTIES
On
July 12, 2017, the Company issued $15,000 secured promissory note to a shareholder with annual 6% interest rate. The note is due
on October 30, 2017. The interest rate is 9% after the due date. The note is secured by the personal guarantee of the borrower
and the borrower’s stock of the Company. The company has got repayment of $1,250 till March 31, 2018. The note is past due
as of March 31, 2018.
On
August 31, 2017, the Company issued $58,000 secured promissory note to a shareholder with annual 3.5% interest rate. The note
is due on April 1, 2018. The interest rate is 9% after the due date. The note is secured by the borrower’s stock of the
Company.
NOTE
4. ACCOUNTS RECEIVABLE
The
nature of the net accounts receivable for March 31, 2018, in the amount of $4,020,680 are for Export Service Agreements. The Company's
allowance for bad debt is $428,403 which provides a net receivable balance of $3,592,277.
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:
|
|
March 31,
|
|
December
31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
1,097,034
|
|
|
$
|
1,045,412
|
|
Accounts
receivable- related parties
|
|
|
2,923,646
|
|
|
|
2,459,135
|
|
Less:
Allowance for doubtful accounts
|
|
|
(428,403
|
)
|
|
|
(403,568
|
)
|
Accounts
receivable, net
|
|
$
|
3,592,277
|
|
|
$
|
3,100,979
|
|
Bad
debt expense was $24,036 and $19,494 for the three months ended March 31, 2018 and 2017, 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
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 March 31, 2018:
-
Common
stock, $ 0.0001 par value: 100,000,000 shares authorized; 49,421,350 shares issued and outstanding
-
Preferred
stock, $ 0.0001 par value: 5,000,000 shares authorized; but not issued and outstanding.
NOTE
6. DEFFERED REVENUE
ATI
Modular receives $250,000 quarterly fee from Yilaime for Sales and Support Services Agreement. In accordance with ASC 605-50-45,
the Company defers and recognizes as a reduction to the future costs for quarterly fee. For the three months ended March 31, 2018,
$250,000 fee from exclusive agreement incurred; $1,504,387 is booked deferred revenue as current liability on March 31, 2018 and
$70,000 went against cost charged by Yilaime.
NOTE
7. STOCK BASED COMPENSATION
For
the three months ended March 31, 2018 and 2017, $240,178 and $123,429 of stock compensation were charged to operating expenses,
respectively. $2,161,542 and $2,359,220 were recorded as deferred compensation on March 31, 2018 and December 31, 2017, 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.
On
June 20, 2017, the Company signed the “First Amendment Employment Agreement with Alton Perkins amending the original Employment
Agreement dated November 21, 2014. The new Agreement lifts up any lock-up provisions related to shares issued to Alton Perkins
or its designee. In addition, in accordance with the new Agreement, the Company issued Alton Perkins additional 10,000,000 shares
of restricted common stock and extend his employment until June 19, 2022.
On
September 11, 2017, the Company signed the “Second Amendment Employment Agreement with Alton Perkins amending the original
Employment Agreement dated November 21, 2014, as amended on June 20, 2017. Mr. Perkins agreed to serve as the Chairman and Chief
Executive of AmericaTowne Holdings, Inc. as well as continue to serve for five years through September 11, 2022, in the same capacity
for AmericaTowne, Inc., ATI Modular Technology Corp, and its subsidiary Anhui Ao De Xin Modular New Building Material Co., Ltd.
In accordance with the new amended Agreement, the Company issued Alton Perkins and or his designee 8,831,145 shares of restricted
common stock.
NOTE
8. 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.
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 $3,516 per 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 three months ending March 31,
Consolidated
Operating Statement Related Party Transactions (for three months ending March 31, 2018 and 2017).
(a)
$50,000 and $50,000 in revenues for Yilaime's exclusive agreement with the Company;
(b)
$187,000 and $180,000 in Trade Center Service Agreement Revenue;
(c)
$35,338 and $59,416 in costs of revenues to Yilaime for services pursuant to the Service Agreement;
(d)
$174,775 and $159,686 for general and administrative expenses for commissions and fees.
(e)
For the year ended, March 31, 2018, $10,547 for general and administrative expenses for rent expenses the Company paid to Yilaime
towards its lease agreement; For the three months ended, March 31, 2018, $7,500 for general and administrative expenses for rent
expenses ATI Modular paid to Yilaime towards its lease agreement. For the three months ended, March 31, 2018, $7,500 for general
and administrative expenses for rent expenses ATI Nationwide paid to Yilaime towards its lease agreement.
(f)
For the three months ended, March 31, 2017, $10,555 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; $7,500 for general and administrative expenses for rent expenses ATI Nationwide Holding Corp paid
to Yilaime towards its lease agreement
(g)
$240,178 and $123,429 for general and administrative operating expenses recorded as stock compensation for respective employment
agreements.
Consolidated
Balance Sheet Related Party Transactions (on March 31, 2018 and December 31, 2017)
(a)
$71,750 and $73,000 notes receivable to shareholders;
(b)
$1,377,010 and $1,128,033 net account receivables Yilaime owes to the Company;
(c)
$1,402,399 and $1,208,146 Trade Center receivables owed to the Company;
(d)
On March 31, 2018, other receivables include $112,666 owed by Perkins Hsu Export Corporation and $14,677 purchase mining equipment
and advances for Yilaime Nairobi Ltd.
On
December 31, 2017, other receivables include $165,870 owed by Perkins Hsu Export Corporation and $14,677 purchase mining equipment
and advances for Yilaime Nairobi Ltd;
(e)
$1,504,387 and $1,254,387 deferred revenue-Yilaime;
(f)
$13,712 and 23,712 as accounts payable to Anhui Ao De Xin Modular Construction Technology Co., Ltd.
Fiscal
Year
Our
fiscal year ends December 31.
Results
of Operations for the Three Months Ended March 31, 2018 and 2017
The
following table sets forth the summary income statement for the three month periods ended March 31, 2018 and 2017:
|
|
Three
Months Ended
|
|
|
March
31, 2018
|
|
March
31, 2017
|
Revenue
|
|
$
|
348,135
|
|
|
$
|
291,135
|
|
|
Cost
of Revenues-Related Parties
|
|
$
|
35,499
|
|
|
$
|
59,416
|
|
|
Operating
Expense
|
|
$
|
503,655
|
|
|
$
|
322,515
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(125,235
|
)
|
|
$
|
(92,783)
|
|
|
Revenues
During
the first quarter of 2018, the Company had revenues of $348,135, as compared to $291,135 for the same period in 2017. This increase
is due primarily to an increase in revenue from service fee, as well as a slight increase in services from related parties.
Operating
Expenses
Our
expenses for the three months ended March 31, 2018 and 2017 are outlined in the table below:
|
|
Three
Months Ended
|
|
|
March
31, 2018
|
|
March
31, 2017
|
General
and Administrative
|
|
$
|
418,756
|
|
|
$
|
247,451
|
|
|
Professional
Fees
|
|
$
|
84,899
|
|
|
$
|
75,064
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
$
|
503,655
|
|
|
$
|
322,515
|
|
|
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. Compared to the same period in 2017, the increase of operating expenses in 2018
is due to increases in professional fees related to our pending merger with related-party ATI Modular Technology Corp., and increased
in general administrative expenses attributed to stock based compensation.
Net
Loss
As
a result of our operations, the Company reported net loss of $125,235 for the first quarter of 2018, a $92,783 increase in net
loss from the same period one year ago.
Liquidity
and Capital Resources
Working
Capital
|
|
|
|
|
March
31, 2018
(Unaudited)
|
|
December
31, 2017
|
Current
Assets
|
|
$
|
4,705,303
|
|
|
$
|
4,255,338
|
|
|
Current
Liabilities
|
|
$
|
1,624,309
|
|
|
$
|
1,404,025
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
Capital
|
|
$
|
3,080,994
|
|
|
$
|
2,851,313
|
|
|
Cash
Flow
|
|
Three
Months Ended
|
|
|
March
31, 2018
|
|
March
31, 2017
|
Net
Cash Used in Operating Activities
|
|
$
|
169,948
|
|
|
$
|
160,357
|
|
|
Net
Cash Used in Investing Activities
|
|
$
|
270
|
|
|
$
|
3,123
|
|
|
Nat
Cash Provided by Financing Activities
|
|
$
|
183,339
|
|
|
$
|
22,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) in Cash and Cash Equivalents
|
|
$
|
13,121
|
|
|
$
|
(140,981)
|
|
|
Cash
Used in Operating Activities
Higher
net cash used in operating activities for the three months ended March 31, 2018 is mainly due to an increase in accounts receivable.
Cash
Used in Investing Activities
We
spent $270 and $3,123 on fixed assets for three months ended March 31, 2018 and 2017, respectively.
Cash
Provided by Financing Activities
We
received proceeds of $183,339 and $22,500 from issuing common stock for the three months ended March 31, 2018 and 2017, respectively.
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.
Critical
Accounting Policies
Our
financial statements and related public financial information are based on the application of accounting principles generally
accepted in the United States ("US GAAP"). US GAAP requires the use of estimates; assumptions, judgments and subjective
interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expenses amounts reported.
These estimates can also affect supplemental information contained in our external disclosures including information regarding
contingencies, risk and financial condition.
We
believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.
Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant
estimates made during the preparation of our financial statements.
We
believe the following is among the most critical accounting policies that impact our consolidated financial statements. We suggest
that our significant accounting policies, as described in our financial statements in the Summary of Significant Accounting Policies,
be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Revenue
Recognition
The
Company recognizes revenue at the date of delivery to customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. The
Company's Revenue Recognition policy is provided in detail at Note 2 of the Financial Statements.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC Topic 740, "Income Taxes." ASC 740 requires a company to use
the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary
differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not
be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Under
ASC 740, a tax position is recognized as a benefit only if it is "more likely than not" that the tax position would
be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more
likely than not" test, no tax benefit is recorded. The adoption had no effect on the Company's consolidated financial statements.
Recent
Accounting Pronouncements
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.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of AMERICATOWNE Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of AMERICATOWNE Inc. and its subsidiaries (the “Company”)
as of December 31, 2017 and 2016, and the related statement of operations, stockholders' equity, and cash flows for each of the
years in the two-year period ended December 31, 2017, and the related notes (collectively referred to as the financial statements).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
the Company. as of December 31, 2017 and 2016, and the results of operations and cash flows for each of the years in the two–year
period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Yichien
Yeh, CPA
We
have served as the Company’s auditor since 2014
Oakland
Gardens, New York
May
17, 2018
AMERICATOWNE
Inc. and Subsidiaries
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
December
31
|
|
December
31
|
|
|
2017
|
|
2016
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
900,168
|
|
|
$
|
973,015
|
|
Notes
receivable - related parties
|
|
|
73,000
|
|
|
|
—
|
|
Accounts
receivable, net
|
|
|
764,800
|
|
|
|
610,715
|
|
Accounts
receivable, net - related parties
|
|
|
2,336,179
|
|
|
|
687,966
|
|
Other
receivables - related parties
|
|
|
180,547
|
|
|
|
259,569
|
|
Prepayment-current
|
|
|
644
|
|
|
|
644
|
|
Total
Current Assets
|
|
|
4,255,338
|
|
|
|
2,531,909
|
|
|
|
|
|
|
|
|
|
|
Prepayment-non
current
|
|
|
7,035
|
|
|
|
7,675
|
|
Property,
plant and equipment, net
|
|
|
41,264
|
|
|
|
25,861
|
|
Deferred
tax assets
|
|
|
169,291
|
|
|
|
10,774
|
|
Goodwill
|
|
|
40,331
|
|
|
|
40,331
|
|
Investments
|
|
|
3,860
|
|
|
|
3,860
|
|
Total
Assets
|
|
$
|
4,517,119
|
|
|
$
|
2,620,410
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
80,611
|
|
|
$
|
240,287
|
|
Deferred
revenues-current
|
|
|
1,258,930
|
|
|
|
328,929
|
|
Other
payables
|
|
|
1,060
|
|
|
|
5,016
|
|
Deposit
from customers
|
|
|
1,469
|
|
|
|
—
|
|
Due
to related parties
|
|
|
8,646
|
|
|
|
42,839
|
|
Income
tax payable
|
|
|
53,309
|
|
|
|
42,972
|
|
Total
Current Liabilities
|
|
|
1,404,025
|
|
|
|
660,043
|
|
Deferred
revenues-non current
|
|
|
49,441
|
|
|
|
53,981
|
|
Total
Liabilities
|
|
|
1,453,466
|
|
|
|
714,024
|
|
|
|
|
|
|
|
|
|
|
Commitments
& Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 par value; 5,000,000 shares authorized; none issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Common
stock, $0.0001 par value; 100,000,000 shares authorized, 48,985,026 and 26,974,775 shares issued and outstanding
|
|
|
4,899
|
|
|
|
2,697
|
|
Common
stock subscribed
|
|
|
87
|
|
|
|
90
|
|
Additional
paid-in capital
|
|
|
5,684,903
|
|
|
|
3,329,750
|
|
Deferred
compensation
|
|
|
(2,359,220
|
)
|
|
|
(1,450,842
|
)
|
Receivable
for issuance of stock
|
|
|
(90,223
|
)
|
|
|
(65,223
|
)
|
Retained
Earnings
|
|
|
(204,425
|
)
|
|
|
98,631
|
|
Noncontrolling
interest
|
|
|
27,632
|
|
|
|
(8,717
|
)
|
Shareholders'
Equity
|
|
|
3,063,653
|
|
|
|
1,906,386
|
|
Total
Liabilities and Shareholders' Equity
|
|
$
|
4,517,119
|
|
|
$
|
2,620,410
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements
|
AMERICATOWNE
Inc. and Subsidiaries
|
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
For
the Years Ended
|
|
|
December
31, 2017
|
|
December
31, 2016
|
Revenues
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
478,011
|
|
|
$
|
1,209,540
|
|
Services-related
parties
|
|
|
1,296,992
|
|
|
|
550,000
|
|
|
|
|
1,775,003
|
|
|
|
1,759,540
|
|
Cost
of Revenues-Related Parties
|
|
|
303,549
|
|
|
|
244,486
|
|
Gross
Profit
|
|
|
1,471,454
|
|
|
|
1,515,054
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
1,567,366
|
|
|
|
1,275,141
|
|
Professional
fees
|
|
|
371,096
|
|
|
|
317,044
|
|
Total
operating expenses
|
|
|
1,938,462
|
|
|
|
1,592,185
|
|
Income
from operations
|
|
|
(467,008
|
)
|
|
|
(77,131
|
)
|
|
|
|
|
|
|
|
|
|
Other
Expenses (Income)
|
|
|
(2,352
|
)
|
|
|
(2,441
|
)
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
(146,512
|
)
|
|
|
(3,549
|
)
|
Net
Income (Loss)
|
|
|
(318,144
|
)
|
|
|
(71,141
|
)
|
|
|
|
|
|
|
|
|
|
Less:
Net loss (income) attributable to the noncontrolling interest
|
|
|
15,088
|
|
|
|
33,525
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to AMERICATOWNE, Inc common stockholders
|
|
$
|
(303,056
|
)
|
|
$
|
(37,616
|
)
|
|
|
|
|
|
|
|
|
|
Earnings
per share - basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.003
|
)
|
Weighted
average shares outstanding- basic and diluted
|
|
|
35,356,412
|
|
|
|
26,599,745
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
AMERICATOWNE
Inc. and Subsidiaries
|
Consolidated
Statements of Stockholders' Equity
|
For
the Years Ended December 31, 2017 and 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americatowne
Inc. Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Common
Stock
|
|
Additional
Paid-In
|
|
Retained
|
|
Deferred
|
|
Receivable
for Issuance
|
|
Non-Controlling
|
|
|
Total
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Subscribed
|
|
Capital
|
|
Earnings
|
|
Compensation
|
|
of
stock
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2015
|
|
$
|
1,343,671
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
25,243,205
|
|
|
$
|
2,524
|
|
|
$
|
—
|
|
|
$
|
2,438,099
|
|
|
$
|
136,246
|
|
|
$
|
(1,233,198
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Issued for Service
|
|
|
875
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,718
|
|
|
|
1
|
|
|
|
—
|
|
|
|
874
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Issued for Compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
617,190
|
|
|
|
62
|
|
|
|
—
|
|
|
|
654,236
|
|
|
|
—
|
|
|
|
(654,298
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of Deferred Compensation
|
|
|
436,653
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
436,653
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for Debt Conversion
|
|
|
169,168
|
|
|
|
—
|
|
|
|
—
|
|
|
|
171,628
|
|
|
|
17
|
|
|
|
—
|
|
|
|
169,151
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Issued for Proceeds
|
|
|
235,970
|
|
|
|
—
|
|
|
|
—
|
|
|
|
934,034
|
|
|
|
93
|
|
|
|
90
|
|
|
|
301,010
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(65,223
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Combination
|
|
|
(534
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Contribution
|
|
|
145,049
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
119,706
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of non-business entity
|
|
|
(353,325
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(353,325
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the Period
|
|
|
(71,141
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(37,616
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(33,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2016
|
|
$
|
1,906,386
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
26,974,775
|
|
|
$
|
2,697
|
|
|
$
|
90
|
|
|
$
|
3,329,750
|
|
|
$
|
98,631
|
|
|
$
|
(1,450,842
|
)
|
|
$
|
(65,223
|
)
|
|
$
|
(8,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Issued for Compensation
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
11,148,892
|
|
|
|
1,115
|
|
|
|
|
|
|
|
1,519,879
|
|
|
|
|
|
|
|
(1,520,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of Deferred Compensation
|
|
|
612,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
612,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Issued for Proceeds
|
|
|
734,991
|
|
|
|
|
|
|
|
|
|
|
|
10,861,359
|
|
|
|
1,086
|
|
|
|
(3
|
)
|
|
|
758,908
|
|
|
|
|
|
|
|
|
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Contribution
|
|
|
127,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the Period
|
|
|
(318,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(303,056
|
)
|
|
|
|
|
|
|
|
|
|
|
(15,088
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2017
|
|
|
3,063,653
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
48,985,026
|
|
|
$
|
4,899
|
|
|
$
|
87
|
|
|
$
|
5,684,903
|
|
|
$
|
(204,425
|
)
|
|
$
|
(2,359,220
|
)
|
|
$
|
(90,223
|
)
|
|
$
|
27,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
AMERICATOWNE
Inc. and Subsidiaries
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
For
the Years Ended
|
|
|
December
31, 2017
|
|
December
31, 2016
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(318,144
|
)
|
|
$
|
(71,141
|
|
Adjustments
to reconcile net income to net cash provided by operations
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
8,484
|
|
|
|
3,388
|
|
Stock
compensation
|
|
|
612,616
|
|
|
|
436,653
|
|
Stock
issued for services
|
|
|
—
|
|
|
|
875
|
|
Bad
debt provision
|
|
|
198,443
|
|
|
|
128,816
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(2,000,740
|
)
|
|
|
(568,573
|
|
Other
receivable
|
|
|
0
|
|
|
|
—
|
|
Other
receivable - related parties
|
|
|
74,495
|
|
|
|
(278,811
|
|
Prepayment
|
|
|
640
|
|
|
|
2,436
|
|
Deferred
tax assets
|
|
|
(158,517
|
)
|
|
|
(10,774
|
|
Accounts
payable and accrued expenses
|
|
|
(159,678
|
)
|
|
|
274,187
|
|
Deferred
revenues
|
|
|
925,460
|
|
|
|
319,847
|
|
Other
payables
|
|
|
(3,956
|
)
|
|
|
5,016
|
|
Deposit
from customers
|
|
|
1,469
|
|
|
|
—
|
|
Due
to related parties
|
|
|
74,114
|
|
|
|
62,080
|
|
Income
tax payable
|
|
|
10,337
|
|
|
|
7,225
|
|
Net
cash provided by (used in) operating activities
|
|
|
(734,977
|
)
|
|
|
311,224
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets
|
|
|
(23,885
|
)
|
|
|
(10,891
|
|
Issuance
of notes receivable
|
|
|
(73,000
|
)
|
|
|
—
|
|
Acquisition
of subsidiaries
|
|
|
—
|
|
|
|
(350,000
|
|
Net
cash used in Investing activities
|
|
|
(96,885
|
)
|
|
|
(360,891
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
759,015
|
|
|
|
381,019
|
|
Net
cash provided by financing activities
|
|
|
759,015
|
|
|
|
381,019
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) in cash and cash equivalents
|
|
|
(72,847
|
)
|
|
|
331,352
|
|
Cash
and cash equivalents at beginning of period
|
|
|
973,015
|
|
|
|
641,663
|
|
Cash
and cash equivalents at end of period
|
|
$
|
900,168
|
|
|
|
973,015
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
—
|
|
|
|
|
|
Interest
paid
|
|
$
|
—
|
|
|
$
|
535
|
|
Income
taxes paid
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Shares
issued to convert notes payable and other debts
|
|
$
|
—
|
|
|
|
169,168
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
AMERICATOWNE
Inc.
Notes to Consolidated Financial Statements
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.
On
October 3, 2016, the Company purchased the majority and controlling interest in ATI Nationwide Holding Corp (“ATI Nationwide”),
formerly EXA, Inc. OTC:Pinks (EXAI) through the acquisition of 65,000,000 shares (65.5%) shares of restricted common stock. The
Stock Purchase and Sale Agreement dated October 3, 2016 (the “SPA EXAI”) closed on October 10, 2016 with the $175,000
payment of the purchase price to Joseph C. Passalaqua, prior shareholder and director and officer of ATI Nationwide.
The
Company intends on using this acquisition to facilitate its performance under the July 11, 2016 Master Joint Venture and Operational
Agreement with Nationwide Microfinance Limited, a Ghanaian corporation, as disclosed in the Company’s July 14, 2016 Form
8-K (see exhibit table above).
In
both acquisitions, the Company purchased the shares with the intent to hold in its personal account on a restricted basis absent
registration or qualification under an exemption to registration. The Stock Purchase Agreements were privately negotiated between
the parties without facilitation through brokers or promotors, or third-parties, except legal counsel, and were approved by the
Company’s Board of Directors as being in the best interests of the Company. The source of funds was working capital from
the Company. There is no material relationship between the Company and any of the parties under the Stock Purchase Agreements.
As
with any business plan that is aspirational in nature, there is no assurance we will be able to accomplish all our objective or
that we will be able to meet our financing needs to accomplish our objectives.
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.
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
|
3-5
years
|
For
the years ended December 31, 2017 and 2016, depreciation expense is $8,484 and $3,388, respectively.
Investments
Investments
primarily include cost method investments. On December 31, 2017 and 2016, the carrying amount of investments was $3,860 and $3,860,
respectively. There are no identified events or changes in circumstances that may have a significant adverse effect on fair value
of the investment as of December 31, 2017.
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, 2017 and 2016, there is deferred tax
assets of $169,291 $10,774, respectively. The Company had $53,309 and $42,972 of income tax liability as of December 31, 2017
and 2016, 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 years ended December 31, 2017 and 2016, 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 December 31, 2017, all assets and liabilities are in the United States where the
income and expense has been incurred since inception to December 31, 2017.
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.
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 December 31, 2017.
Valuation
of Goodwill
We
assess goodwill for potential impairments at the end of each fiscal year, or during the year if an event or other circumstance
indicates that we may not be able to recover the carrying amount of the asset. In evaluating goodwill for impairment, we first
assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that
the fair value of a reporting unit is less than its carrying amount. If we conclude that it is not more likely than not that the
fair value of a reporting unit is less than its carrying value, then no further testing of the goodwill assigned to the reporting
unit is required. However, if we conclude that it is more likely than not that the fair value of a reporting unit is less than
its carrying value, then we perform a two-step goodwill impairment test to identify potential goodwill impairment and measure
the amount of goodwill impairment to be recognized, if any.
In
the first step of the review process, we compare the estimated fair value of the reporting unit with its carrying value. If the
estimated fair value of the reporting unit exceeds its carrying amount, no further analysis is needed. If the estimated fair value
of the reporting unit is less than its carrying amount, we proceed to the second step of the review process to calculate the implied
fair value of the reporting unit goodwill in order to determine whether any impairment is required. We calculate the implied fair
value of the reporting unit goodwill by allocating the estimated fair value of the reporting unit to all of the assets and liabilities
of the reporting unit as if the reporting unit had been acquired in a business combination. If the carrying value of the reporting
unit's goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss for that excess amount. In allocating
the estimated fair value of the reporting unit to all of the assets and liabilities of the reporting unit, we use industry and
market data, as well as knowledge of the industry and our past experiences.
We
base our calculation of the estimated fair value of a reporting unit on the income approach. For the income approach, we use internally
developed discounted cash flow models that include, among others, the following assumptions: projections of revenues and expenses
and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units;
and estimated discount rates. We base these assumptions on our historical data and experience, third-party appraisals, industry
projections, micro and macro general economic condition projections, and our expectations.
We
have had no goodwill impairment charges for the nine months ended September 30, 2017. 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. NOTES RECEIVABLE – RELATED PARTIES
On
July 12, 2017, the Company issued $15,000 secured promissory note to a shareholder with annual 6% interest rate. The note is due
on October 30, 2017. The interest rate is 9% after the due date. The note is secured by the personal guarantee of the borrower
and the borrower’s stock of the Company. The note is past due as of December 31, 2017
On
August 31, 2017, the Company issued $58,000 secured promissory note to a shareholder with annual 3.5% interest rate. The note
is due on April 1, 2018. The interest rate is 9% after the due date. The note is secured by the borrower’s stock of the
Company.
NOTE
4. ACCOUNTS RECEIVABLE
The
nature of the net accounts receivable for December 31, 2017, in the amount of $3,504,547 are for Export Service Agreements. The
Company's allowance for bad debt is $403,568 which provides a net receivable balance of $3,100,979
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:
|
|
December
31
|
|
December
31
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
1,045,412
|
|
|
$
|
795,727
|
|
Accounts
receivable- related parties
|
|
|
2,459,135
|
|
|
|
724,175
|
|
Less:
Allowance for doubtful accounts
|
|
|
(403,568
|
)
|
|
|
(221,221
|
)
|
Accounts
receivable, net
|
|
$
|
3,100,979
|
|
|
$
|
1,298,681
|
|
Bad
debt expense was $198,443 and $128,816 for the years ended December 31, 2017 and 2016, 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
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, 2017:
-
Common
stock, $ 0.0001 par value: 100,000,000 shares authorized; 48,985,026 shares issued and outstanding
-
Preferred
stock, $ 0.0001 par value: 5,000,000 shares authorized; but not issued and outstanding.
NOTE
6. DEFFERED REVENUE
ATI
Modular receives $250,000 quarterly fee from Yilaime for Sales and Support Services Agreement. In accordance with ASC 605-50-45,
the Company defers and recognizes as a reduction to the future costs for quarterly fee. For the year December 31, 2017, $1,000,000
fee from exclusive agreement incurred; $1,258,929 is booked deferred revenue as current liability on December 31, 2017 and $70,000
went against cost charged by Yilaime.
NOTE
7. STOCK BASED COMPENSATION
For
the years ended December 31, 2017 and 2016, $612,616 and $436,653 of stock compensation were charged to operating expenses, respectively.
$2,359,220 and $1,450,842 were recorded as deferred compensation on December 31, 2017 and 2016, 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.
On
June 20, 2017, the Company signed the “First Amendment Employment Agreement with Alton Perkins amending the original Employment
Agreement dated November 21, 2014. The new Agreement lifts up any lock-up provisions related to shares issued to Alton Perkins
or its designee. In addition, in accordance with the new Agreement, the Company issued Alton Perkins additional 10,000,000 shares
of restricted common stock and extend his employment until June 19, 2022.
On
September 11, 2017, the Company signed the “Second Amendment Employment Agreement with Alton Perkins amending the original
Employment Agreement dated November 21, 2014, as amended on June 20, 2017. Mr. Perkins agreed to serve as the Chairman and Chief
Executive of AmericaTowne Holdings, Inc. as well as continue to serve for five years through September 11, 2022, in the same capacity
for AmericaTowne, Inc., ATI Modular Technology Corp, and its subsidiary Anhui Ao De Xin Modular New Building Material Co., Ltd.
In accordance with the new amended Agreement, the Company issued Alton Perkins and or his designee 8,831,145 shares of restricted
common stock.
NOTE
8. INCOME TAXES
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The cumulative tax effect of significant items comprising the
net deferred tax amount is at December 31, 2017 and 2016 as follows:
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating
losses
|
|
$
|
419,019
|
|
|
$
|
260,502
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax
assets
|
|
|
419,019
|
|
|
|
260,502
|
|
Less: valuation allowance
|
|
|
(249,728
|
)
|
|
|
(249,728
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets,
net
|
|
$
|
169,291
|
|
|
$
|
10,774
|
|
As
of December 31, 2017, for U.S. federal income tax reporting purposes, the Company has approximately $1,271,862 of unused net operating
losses (“NOLs”) available for carry forward to future years. Because United States tax laws limit the time during
which NOL carry forwards may be applied against future taxable income, the Company may be unable to take full advantage of its
NOLs for federal income tax purposes should the Company generate taxable income. Further, the benefit from utilization of NOL
carry forwards could be subject to limitations due to material ownership changes that could occur in the Company as it continues
to raise additional capital. Based on such limitations, the Company has significant NOLs for which realization of tax benefits
is uncertain.
Significant
components of income tax expense for the years ended December 31, 2017 and 2016 are as follows
|
|
2017
|
|
2016
|
Current
tax expense
|
|
$
|
12,005
|
|
|
$
|
7,225
|
|
Benefits of operating
loss carryforwards
|
|
|
(158,517
|
)
|
|
|
(10,774
|
)
|
Tax expense (benefit)
|
|
$
|
(146,512
|
)
|
|
$
|
(3,549
|
)
|
The
Company had $53,309 and $42,972 of income tax liability as of December 31, 2017 and 2016 respectively.
Reconciliation
of Effective Income Tax Expense is as follows
|
|
2017
|
|
2016
|
Statutory
U.S. tax
|
|
$
|
(158,517
|
)
|
|
$
|
(253,277
|
)
|
Adjustment of tax
in prior years
|
|
|
12,005
|
|
|
|
—
|
|
Less: Valuation Allowance
|
|
|
—
|
|
|
|
249,728
|
|
Tax expense (benefit)
|
|
$
|
(146,512
|
)
|
|
$
|
(3,549
|
)
|
NOTE
9. 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.
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 $3,516 per 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 years ending December 31,
Consolidated
Operating Statement Related Party Transactions (for years ending December 31, 2017 and 2016).
(a)
$200,000 and $200,000 in revenues for Yilaime's exclusive agreement with the Company;
(b)
$1,066,750 and $350,000 in Trade Center Service Agreement Revenue;
(c)
$30,242 and $0 in commission revenue with Nationwide Microfinance Limited;
(d)
$112,916 and $244,486 in costs of revenues to Yilaime for services pursuant to the Service Agreement;
(e)
$823,836 and $282,829 for general and administrative expenses for commissions and fees.
(f)
For the year ended, December 31, 2017, $42,594 for general and administrative expenses for rent expenses the Company paid to Yilaime
towards its lease agreement; For the year ended, December 31, 2017, $30,000 for general and administrative expenses for rent expenses
ATI Modular paid to Yilaime towards its lease agreement. For the year ended, December 31, 2017, $30,000 for general and administrative
expenses for rent expenses ATI Nationwide paid to Yilaime towards its lease agreement.
For
the year ended, December 31, 2016, $33,118 for general and administrative expenses for rent expenses the Company paid to Yilaime
towards its lease agreement; $15,000 for general and administrative expenses for rent expenses ATI Modular paid to Yilaime towards
its lease agreement; $7,500 for general and administrative expenses for rent expenses ATI Nationwide Holding Corp paid to Yilaime
towards its lease agreement
(g)
$612,616 and $436,653 for general and administrative operating expenses recorded as stock compensation for respective employment
agreements.
Consolidated
Balance Sheet Related Party Transactions (on December 31, 2017 and December 31, 2016)
(a)
$73,000 and $0 notes receivable to a shareholder;
(b)
$1,128,033 and $405,817 net account receivables Yilaime owes to the Company;
(c)
$0 and $42,839 due to Yilaime;
(d)
$1,208,146
and $282,149 Trade Center receivables owed to the Company;
(e)
On December 31, 2017, other receivables include $165,870 owed by Perkins Hsu Export Corporation and $14,677 purchase mining equipment
and advances for Yilaime Nairobi Ltd
On
December 31, 2016, other receivables include $69,120 owed by Yilaime $175,772 owed by Perkins Hsu Export Corporation and $14,677
purchase mining equipment and advances for Yilaime Nairobi Ltd;
(f)
$1,254,387 and $324,387 deferred revenue-Yilaime;
(g)
$23,712 and 198,000 as accounts payable to Anhui Ao De Xin Modular Construction Technology Co., Ltd.
M
anagement’s
Discussion and Analysis of Financial Condition and Results of Operations
You
should read the following discussion of our financial condition and results of operations together with the audited financial
statements and the notes to the audited financial statements included in this Annual Report on Form 10-K. This discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those
anticipated in these forward-looking statements.
We
qualify as an "emerging growth company" under the JOBS Act. As a result, we are permitted to, and intend to, rely on
exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
-
have
an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
-
comply
with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation
or a supplement to the auditor's report providing additional information about the audit and the financial statements (i.e., an
auditor discussion and analysis);
-
submit
certain executive compensation matters to shareholder advisory votes, such as "say-on-pay" and "say-on-frequency;"
and
-
disclose
certain executive compensation related items such as the correlation between executive compensation and performance and comparisons
of the CEO's compensation to median employee compensation.
In
addition, Section 107 of the JOBS Act also provides that an emerging growth company can
take advantage of the extended transition period provided in Section 7(a)(2)(B) of the
Securities Act for complying with new or revised accounting standards. In other words,
an emerging growth company can delay the adoption of certain accounting standards until
those standards would otherwise apply to private companies. We have elected to take advantage
of the benefits of this extended transition period. Our financial statements may therefore
not be comparable to those of companies that comply with such new or revised accounting
standards.
We
will remain an "emerging growth company" for up to five years, or until the earliest of (i) the last day of the first
fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a "large accelerated
filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary
shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal
quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year
period. As an emerging growth company, the company is exempt from Section 14A and B of the Securities Exchange Act of 1934 which
require the shareholder approval of executive compensation and golden parachutes. The Company is an Emerging Growth Company under
the JOBS Act of 2012, but the Company has irrevocably opted out of the extended transition period for complying with new or revised
accounting standards pursuant to Section 107(B) of the JOBS Act.
The
Company incorporates by reference the historical information set forth above, including but not limited to the discussion related
to material definitive agreements under Item 1.01 and completion of acquisition of assets under Item 2.01. In further response,
we were originally organized as a vehicle to investigate and, if such investigation warrants, acquire a target company or business
seeking the perceived advantages of being a publicly held corporation.
We
plan to raise capital following our recent change in status to an operating entity through the offering of shares of common stock
or preferred stock to investors. We anticipate we will need to pursue capital to fund our operations over the next twelve months.
We believe we will be able to raise the necessary capital to carry out our business plan, but there is no assurance that we will
be able to do so.
Overview
As
a result of the Contribution Agreement, the Company acquired all rights, title and interest in and to AmericaTowne and AmericaStreet
images, signatures, business plans, studies, analyses, likenesses and goodwill appurtenant thereto. The Company acquired certain
rights of publicity in the trademark and registration of AmericaTowne, and the name, image, likeness, signature and other elements
of AmericaTowne persona and identity. The Company acquired all rights, title and interest in any derivative or joint development
programs using the intellectual property contributed under the Contribution Agreement, plus all historical contacts, business
relationships, business expectancies, references and any other actual or perceived business interests in China. Using these assets,
the Company procured those agreements set forth in Item 1.01 (i.e. the Exporter Services Agreement and the Licensing, Lease and
Use Agreement).
In
fiscal year 2017, the Company achieved $1,775,003 in revenue, compared to $1,759,540 in revenue for the fiscal year 2016. We can
make no assurances that we will find commercial success in any of our products. We also rely upon the Service Agreement with Yilaime
NC, November 11, 2014 Form 8K, under Item 15(a)(3) 10.8, for revenues. 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
for the first quarter of 2016. We intend on relying on Yilaime for operational support. If we cannot achieve independent commercial
success, we may need to continue to rely on Yilaime for support. If Yilaime at any time decides to alter or change materially
our arrangement, we could experience a material adverse effect on the Company.
Results
of Operations through December 31, 2017
Our
operating results are summarized as follows:
|
For
the Year Ended December 31, 2017
|
For
the Year Ended
December
31, 2016
|
Revenues
|
$1,775,003
|
$1,759,540
|
Cost
of Revenues
|
$303,549
|
$244,486
|
Gross
Profit
|
$1,471,454
|
$1,515,054
|
Operating
Expenses
|
$1,938,462
|
$1,592,185
|
Provision
for income taxes
|
($146,512)
|
($3,549)
|
Net
Income (Loss)
|
($318,144)
|
($71,141)
|
Revenues
During
fiscal year 2017, the Company had revenues of $1,775,003, compared to 2016 sales of $1,759,540. Our sales consisted of $478,011
in primarily Export Service Agreements, and $1,209,540 in Services to related parties for Operation fees. The Cost of Revenues
to related parties were $303,549 and 244,486 for the years ended December 31, 2017 and 2016, respectively. Compared to 2016, our
revenues increased $15,463 or less than 1%. The increase is due to implementing our business plan focusing on increasing exporters
in our program.
Pursuant
to the Company’s Service Agreement with Yilaime, Yilaime paid the Company $200,000 in fiscal year 2017 for an “Operations
Fee.” In 2016, the Company had paid an Operations Fee of $200,000. The Operations Fee stems from the agreement between Yilaime
and the Company whereby Yilaime acts as the Company’s exclusive representative. In 2017, the Operations Fee remained the
same as 2016. The Operations Fee is not related to costs of revenues.
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 first quarter of 2016.
Operating
Expenses
Our
expenses for the period through December 31, 2017 are outlined in the table below:
|
December
31, 2017
|
December
31, 2016
|
General
and administrative
|
$1,567,366
|
$1,275,141
|
Professional
fees
|
$371,096
|
$317,044
|
Total
operating expenses
|
$1,938,462
|
$1,592,185
|
Our
operating expenses are largely attributable to office, rent and professional fees related to our reporting requirements as a public
company and preparing our Registration Statement on Form S-1, and implementing our business plan. Compared to 2016, our operating
expenses decreased by $346,277.
Net
Income
As
a result of our operations, for 2017, the Company reported net loss after provision for income tax of $318,144. Compared to 2016,
our net loss increased $246,973. This increase is due to starting our marketing strategy to increase exporters, as well as increased
costs associated with implementing our business plan.
Liquidity
and Capital Resources
Working
Capital
|
December
31, 2017
|
December
31, 2016
|
Total
Current Assets
|
$4,255,338
|
$2,531,909
|
Total
Current Liabilities
|
$1,404,024
|
$660,043
|
Working
Capital
|
$2,851,314
|
$1,871,866
|
We
have working capital of $2,851,314 on December 31, 2017. Compared to December 31, 2016, our working capital increased $979,448
or 52%. The increase is due to effectively implementing our marketing, growth and equity sales plans.
Cash
Flow
|
December
31, 2017
|
December
31, 2016
|
Net
cash provided by (used in) operating activities
|
($734,977)
|
$311,225
|
Cash
used in investing activities
|
$96,885
|
$360,891
|
Cash
provided by financing activities
|
$759,015
|
$381,019
|
Increase
(Decrease) in cash
|
($72,847)
|
$331,352
|
Cash
Provided by (Used in) Operating Activities
Compared
to 2016, increase in cash used in operating activities in 2017 is mainly due to increase in accounts receivable.
Cash
Used in Investing Activities
We
spent $23,885 on fixed assets for 2017.
Cash
Provided by Financing Activities
Compared
to 2016, our cash used in financing activities increased $377,996. The increase is due to proceeds from issuance of common stock
in 2017.
As
of December 31, 2017, the Company had sufficient amount of cash to operate its business at the current level for the next twelve
months, but insufficient cash to achieve our business goals and initiatives set forth above. To address the cash situation, the
Company continues to manage its cash accounts and receivables closely.
To
date, we have been able to meet all of our account payable obligations within a five to ten day window. If required, we can extend
this window to improve our cash flow position. Additionally, we have a plan to increase sales. There is no assurance that we will
be able to maintain this level of operations.
The
success of our business plan beyond the next twelve months is contingent upon us growing our business, keeping costs down, increasing
revenue and obtaining additional equity and/or debt financing. We intend to fund operations through our pro-active efforts to
monitor receivables, and debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures,
working capital, or other cash requirements. We do not have any formal commitments or arrangements for the sales of stock or the
advancement or loan of funds at this time. There is no assurance that such additional financing will be available to us on acceptable
terms, or at all or that our receivable plan will be effective in the future.
Plan
of Operation and Cash Requirements
The
Company anticipates that its expenses over the next twelve months will be approximately $5,000,000 as described in the table below.
These estimates may change significantly depending on the nature of our business activities and our ability to raise capital from
our shareholders or other sources.
|
|
Estimated
|
|
Potential
|
Expenses
|
Description
|
Completion
Date
|
($)
|
Trade
Center Operations
|
12
months
|
550,000
|
Salaries
|
12
months
|
2,500,000
|
Utility
expenses
|
12
months
|
50,000
|
Investor
relations costs
|
12
months
|
100,000
|
Marketing
expenses
|
12
months
|
350,000
|
Professional
fees
|
12
months
|
150,000
|
Other
administrative expenses
|
12
months
|
1,200,000
|
Total
|
|
5,000,000
|
Our
other administrative expenses for the year will consist primarily of transfer agent fees, bank and interest charges and general
office expenses. The professional fees are related to our regulatory filings throughout the year and include legal, accounting
and auditing fees.
Based
on our planned expenditures, we will require approximately $5,000,000 to proceed with our business plan over the next twelve months.
If we secure less than the full amount of financing that we require, we will not be able to carry out our complete business plan
and we will be forced to proceed with a scaled back business plan based on our available financial resources.
We
intend to raise the balance of our cash requirements for the next twelve months from private placements, shareholder loans or
possibly a registered public offering (either self-underwritten or through a broker-dealer). If we are unsuccessful in raising
enough money through such efforts, we may review other financing possibilities such as bank loans. At this time we do not have
a commitment from any third-party to provide us with financing. There is no assurance that any financing will be available to
us or if available, on terms that will be acceptable to us.
Even
though we plan to raise capital through equity or debt financing, we believe that the latter may not be a viable alternative for
funding our operations, as we do not have sufficient tangible assets to secure any such financing. We anticipate that any additional
funding will be in the form of equity financing from the sale of our common stock. At the close of 2017, we are considering financing
arrangements for our common stock. However, the arrangements are not final and we cannot provide any assurance that we will be
able to raise sufficient funds from the sale of our common stock to finance our operations. In the absence of such financing,
we may be forced to abandon our business plan.
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.
Critical
Accounting Policies
Our
financial statements and related public financial information are based on the application of accounting principles generally
accepted in the United States ("US GAAP"). US GAAP requires the use of estimates; assumptions, judgments and subjective
interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expenses amounts reported.
These estimates can also affect supplemental information contained in our external disclosures including information regarding
contingencies, risk and financial condition.
We
believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.
Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant
estimates made during the preparation of our financial statements.
We
believe the following is among the most critical accounting policies that impact our consolidated financial statements. We suggest
that our significant accounting policies, as described in our financial statements in the Summary of Significant Accounting Policies,
be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Revenue
Recognition
The
Company recognizes revenue at the date of delivery to customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. The
Company's Revenue Recognition policy is provided in detail at Note 2, page F11 of the Financial Statements.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC Topic 740, "Income Taxes." ASC 740 requires a company to use
the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary
differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not
be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Under
ASC 740, a tax position is recognized as a benefit only if it is "more likely than not" that the tax position would
be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more
likely than not" test, no tax benefit is recorded. The adoption had no effect on the Company's consolidated financial statements.
Recent
Accounting Pronouncements
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.
Contractual
Obligations
As
a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this
information.
Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure.
There
are not and have not been any changes in or disagreements between the Company and its accountants on any matter of accounting
principles, practices or financial statement disclosure
Quantitative
and Qualitative Disclosures About Market Risk.
As
a smaller reporting company, as defined in 17 CFR § 229.10(f)(1), we are not required to provide the information requested
by this Item
THIS
IS NOT A NOTICE OF A MEETING OF STOCKHOLDERS AND NO STOCKHOLDERS’ MEETING WILL BE HELD TO CONSIDER ANY MATTER DESCRIBED
HEREIN.
THIS
INFORMATION STATEMENT IS BEING FURNISHED TO YOU SOLELY FOR THE PURPOSE OF INFORMING YOU OF THE MATTERS DESCRIBED HEREIN.
STOCKHOLDERS’
RIGHTS
The
elimination of the need for a special meeting of the stockholders to approve the Actions described in this Information Sheet is
authorized by Section 78.320 of the Nevada Revised Statutes (“NRS”). Section 78.320 provides that, unless otherwise
provided in a company’s articles of incorporation, action taken at an annual or special meeting may be taken without a meeting,
without prior notice, and without a vote, if consents are signed by shareholders that constitute a majority of the votes of issued
and outstanding common stock in the company.
THE
NAME CHANGE
Overview
Pursuant
to Article II, Section 8 of the Bylaws of the Company, the Company’s majority shareholder AmericaTowne approved the recommendation
of the Board of Directors to change the Company’s name from ATI Modular Technology Corp. to AmericaTowne Holdings, Inc.
The name changes was recommended as it relates to the Plan of Merger, which is described below. It is the intent of the Company,
once the Plan of Merger below is implemented, to continue forward under the name AmericaTowne Holdings, Inc. The Company’s
name change will be effective twenty (20) days after this Information Sheet is mailed to shareholders. As of the date of this
filing, the Company has 126,740,708 shares of Common Stock issued and outstanding to 181 active shareholders. Approval for the
name change is memorialized in the Consent of Shareholders in Lieu of Meeting dated June 23, 2017 and the Board of Directors’
Resolution dated the same day. Both are attached hereto.
The
Board of Directors originally recommended the Company’s name be changed to “ATI Holdings, Inc.” However, the
name “ATI Holdings, Inc.” was already registered in the State of Nevada. The original recommendation by the Board
of Directors is memorialized in the Board of Directors Resolution dated June 23, 2017, with the shareholders consenting to said
action occurring on the same day. The Board of Directors Resolution dated June 23, 2017 and the Consent of Shareholders in Lieu
of Meeting dated June 23, 2017 are attached hereto, as they remain effective and outline the remaining actions approved by Shareholders
described herein.
Reasons
for the Name Change
Changing
the Company’s name was recommended for purposes of facilitating the Plan of Merger, discussed below. In order to meet the
conditions precedent to effectuating the Plan of Merger, the Company had to execute the Certificate of Amendment to its Articles
of Incorporation to change the name of the Company to AmericaTowne Holdings, Inc. The Plan of Merger is attached to this Information
Statement. It is a legal document and shareholders are urged to read the document in its entirety.
The
purpose of the Name Change is to provide the Company with a new, more accurate name once the Company merges with AmericaTowne.
The Company will no longer be focused solely on modular technology. Rather, being the “Surviving Entity” in the Plan
of Merger, the Company will assume the various business enterprises in which AmericaTowne is presently involved and plans on expanding
into new markets as well. Changing the Company’s name to AmericaTowne Holdings, Inc., allows for the Company to accurately
reflect the Company’s new business plan and the combination of two, previously related entities.
Effect
of the Amendments
Simply
put, the Company’s name will be changed from ATI Modular Technology Corp. to AmericaTowne Holdings, Inc. The Company believes
the name “AmericaTowne Holdings, Inc.” will project to customers, investors, and target markets that the Company has
expanded its market to include both modular technology and the business endeavors of AmericaTowne. The term “Holdings”
also suggests that the Company now oversees a variety of different activities, which more accurately reflects the new business
plan of the Company.
THE
STOCK SPLIT
Overview
AmericaTowne
approved the recommendation of the Board of Directors to effectuate a fifty-to-one (50-to-1) reverse stock split, meaning that
every fifty (50) Common Stock shares issued and outstanding, which are held by stockholders will be combined, reconfigured, and
reissued as a single share of Common Stock at par value of $0.0001 without any affirmative action on behalf of the stockholders.
Any fractional shares will be rounded up to the nearest whole share. These actions are outlined in the aforementioned Consent
of Shareholders in Lieu of Meeting dated June 23, 2017 and the Board of Directors’ Resolution dated the same day.
Reason
for the Stock Split
AmericaTowne
believes that the Stock Split will increase shareholder value and allow for a more competitive market once the Plan of Merger,
discussed below, is effectuated. By reducing the number of issued and outstanding Common Stock shares of the Company, AmericaTowne
hopes to drastically increase the value of each individual share.
Effect
of the Stock Split
The
Stock Split will result in a significant decrease in the number of issued and outstanding Common Stock shares. Those shareholders
with fewer than fifty shares will receive one (1) share as a result of the Stock Split, and any individual with a fractional share
remaining will have that fraction rounded up. By way of example, if a shareholder holds seventy-five (75) shares of Common Stock
prior to the Stock Split, after the Certificate of Change is filed, the shareholder will hold a total of two (2) shares.
The
Stock Split may increase the value of each shareholder’s shares. The Company hopes that the Stock Split will increase trading
interest in the Company’s stock as a result of the higher valuation, though the higher prices and smaller market may have
the reverse effect.
THE
PLAN OF MERGER
Overview
The
Agreement and Plan of Merger executed in June 29, 2017 and First Amendment to the Agreement and Plan of Merger dated July 14,
2017 (collectively, “Plan of Merger”) is an agreement entered into between the Company and AmericaTowne, the Company’s
majority shareholder. The Company is a Nevada corporation and a publicly reporting company with the Securities and Exchange Commission.
It is publicly traded on the Over-the-Counter Marketplace, which is governed by the Financial Industry Regulatory Authority, under
the trading symbol “ATMO.”
The
Plan of Merger outlines the merger between the Company and AmericaTowne. AmericaTowne is defined as the “Merging Entity”
while the Company is defined as the “Surviving Entity.” Pursuant to the merger, AmericaTowne will merge into the Company
to increase operational efficiency and to increase shareholder value. Additionally, shareholders of AmericaTowne will have their
shares exchanged on a pro rata basis with the Company’s shares. The Company, being traded over-the-counter, provides former
shareholders of AmericaTowne with a resource to sell or transfer their shares.
There
are several conditions that must be met prior to closing the Plan of Merger. These include (1) changing the Company’s name
from ATI Modular Technology Corp., to AmericaTowne Holdings, Inc., (2) the completion of the Company’s 50-to-1 reverse stock
split, as described herein, and (3) AmericaTowne’s completion of its 1-to-4 stock split. Additionally, effectiveness of
this transaction is dependent upon the registration of the Company’s shares to be used in this transaction, which have been
filed in a Registration Statement on Form S-4 with the Securities and Exchange Commission. After these conditions are met, and
the Registration Statement on Form S-4 is approved, the Company will issue to AmericaTowne shares of the Company’s restricted
common stock equal to the total amount of AmericaTowne common stock shares issued and outstanding. The Company’s issuance
will then be used by AmericaTowne to effectuate a 1-for-1 exchange with all AmericaTowne shareholders. Thus, after the Plan of
Merger closes, each AmericaTowne shareholder will hold shares of the Company’s common stock equal to the shareholder’s
prior AmericaTowne holdings.
By
way of example, an AmericaTowne shareholder that held 100 shares of AmericaTowne common stock prior to the Plan of Merger will
have 400 shares of AmericaTowne common stock after the conditions precedent to the Plan of Merger are met. Thereafter, the Plan
of Merger will close, resulting in the AmericaTowne shareholder receiving 400 shares of the Company’s restricted common
stock in exchange for his 400 shares of AmericaTowne common stock.
The
Surviving Entity will be named AmericaTowne Holdings, Inc., and will assume the contracts and liabilities of the Company and AmericaTowne.
The Surviving Entity will, if necessary, develop separate committees to address commitments or business of AmericaTowne and the
Company. It is estimated that this Plan of Merger will be deemed effective 20 days after this Information Statement is distributed
to shareholders of the Company.
Reasons
for the Plan of Merger
AmericaTowne
has an interest in registering its shares with a national market, such as the OTC Markets Group. In researching the most cost-effective
ways to move forward with registration, it became apparent that merging into ATI Modular, the Company’s subsidiary, which
is already trading over-the-counter, would provide two benefits to the Company’s shareholders.
First,
by merging operations, the Company and AmericaTowne will benefit from a decrease in operational costs. Presently, both entities
have reporting obligations under the Securities Exchange Act, resulting in duplicative reporting. By merging the entities, the
Company and AmericaTowne eliminate the duplicative work, resulting in decreased administrative and professional costs. Though
not guaranteed, the Plan of Merger would ideally allow for the Surviving Entity to be more profitable, have less overhead, increasing
shareholder value.
Second,
the Plan of Merger allows for AmericaTowne’s issued and outstanding shares to be exchanged with the shares of ATI Modular
and traded on OTCPink under the symbol “ATMO.” This may provide AmericaTowne investors with greater liquidity and
allow shareholders to enter a marketplace where they more easily transfer their shares, subject to all applicable federal and
state regulations.
Effect
of the Plan of Merger
The
Plan of Merger will result in AmericaTowne merging into the Company. The Company will amend its Articles of Incorporation to change
its name to AmericaTowne Holdings, Inc., as detailed above. Additionally, the Company will absorb AmericaTowne’s shareholders,
allowing for a larger shareholder base. The Surviving Entity will assume the obligations and assets of AmericaTowne. Shareholders
of AmericaTowne will have their shares exchanged on a pro rata basis. Thus, once the Plan of Merger is complete, the remaining
entity—AmericaTowne Holdings, Inc.—will be trading on the OTCPink using the symbol “ATMO.”
This
Plan of Merger is entered into in accordance with the Nevada Revised Statutes.
DISSENTERS’
RIGHT OF APPRAISAL
With
respect to the Actions described herein, Stockholders have no right under the NRS, the Company’s Articles, or the Company’s
Bylaws to exercise dissenters’ rights of appraisal.