UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20202021
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 333-201029
AMERICAN EDUCATION CENTER, INC.
(Exact name of registrant as specified in its charter)
Nevada |
(646)722-2931 (Telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. Yes ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains certain forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). The statements herein which are not historical reflect our current expectations and projections about the Company’s future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and our interpretation of what we believe to be significant factors affecting our business, including many assumptions about future events. Such forward-looking statements include statements regarding, among other things:
Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “will,” “plan,” “could,” “target,” “contemplate,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these or similar words. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue the Company’s operations. These statements may be found under Part I, Item 2— “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as elsewhere in this Quarterly Report on Form 10-Q generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, matters described in this Quarterly Report on Form 10-Q. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Quarterly Report on Form 10-Q will in fact occur. Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. Such statements are presented only as a guide about future possibilities and do not represent assured events, and we anticipate that subsequent events and developments will cause our views to change. You should, therefore, not rely on these forward-looking statements as representing our views as of any date after the date of this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q also contains estimates and other statistical data prepared by independent parties and by us relating to market size and growth and other data about our industry. These estimates and data involve a number of assumptions and limitations, and potential investors are cautioned not to give undue weight to these estimates and data. We have not independently verified the statistical and other industry data generated by independent parties and contained in this Quarterly Report on Form 10-Q. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk. Potential investors should not make an investment decision based solely on our projections, estimates or expectations. 3 PART I. FINANCIAL INFORMATION AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
See accompanying notes to consolidated financial statements. 4 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
See accompanying notes to consolidated financial statements. 5 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
See accompanying notes to consolidated financial statements. 6 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
See accompanying notes to consolidated financial statements. 7 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
See accompanying notes to consolidated financial statements. 8 ITEM 1. FINANCIAL STATEMENTS AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, (UNAUDITED) American Education Center, Inc. (“AEC New York”) is a New York corporation incorporated on November 8, 1999 and is licensed by the Department of the State of New York to engage in education related consulting services. On May 7, 2014, the President and then sole shareholder of AEC New York formed a new company, American Education Center, Inc. in the State of Nevada
the Company. On July 13, 2018, pursuant to a Business Purchase Agreement (the “Purchase Agreement”), the Company acquired 51% of the issued and outstanding equity interests of American Institute of Financial Intelligence LLC (“AIFI”), a New Jersey limited liability company formed on May 10, 2017, in exchange for 100,000 shares of the Company common stock issued to the then sole shareholder of AIFI. As a result, AIFI became a 51% majority owned subsidiary of the Company. On October 23, 2018, AEC Nevada incorporated a subsidiary, AEC Management Ltd. (“AEC BVI”) in the British Virgin Islands, pursuant to the laws of British Virgin Islands. AEC BVI is a wholly owned subsidiary of AEC Nevada, and as of the date of this report, does not have significant business activities.
On May 22, 2020, AEC Southern HK formed Yiqilai (Shenzhen) Consulting Management Co., Ltd. On August 18, 2020, AEC YQL entered into a series of contractual arrangements, including an Equity Pledge Agreement, Exclusive Management Consulting Agreement, Exclusive Option Agreement, and Irrevocable Power of Attorney (collectively, the "VIE Agreements"), with Shenzhen Zhongwei Technology Co., Ltd. ("Zhongwei"), a PRC company, and Ding Xiang (Shenzhen) Investment Co., Ltd., a PRC company ("Pledgor"), the sole shareholder of Zhongwei controlled by Dewei Li and Bin Liu (collectively, the “Ding Xiang Shareholders”). Pursuant to the VIE Agreements, AEC YQL gained 100% fully control over Zhongwei and its subsidiaries. Zhongwei is involved in, among other things, e-commerce, and our company plans to leverage Zhongwei's current e-commerce platform, and to engage in business such as online education e-commerce. In consideration for entering into the transactions contemplated by the VIE Agreements, on August 18, 2020, the Company entered into a Share Issuance Agreement (the "Share Issuance Agreement") with the Ding Xiang Shareholders, whereby the Company agreed to issue to the Ding Xiang Shareholders an aggregate of 2,640,690 shares of the Company's common stock, par value $0.001. The transactions underlying the Share Issuance Agreement is closed in August 2020. 9 AMERICAN EDUCATION CENTER, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED) 1. ORGANIZATION AND BUSINESS (continued) VIE Agreements with Zhongwei Due to the restrictions imposed by PRC laws and regulations on foreign ownership of companies engaged in value-added telecommunication services and certain other businesses, we operate our businesses in which foreign investment is restricted or prohibited in the PRC through certain PRC domestic companies. As such, Zhongwei is controlled through VIE Arrangements in lieu of direct equity ownership by us or any of our subsidiaries. Such VIE Arrangements consist of a series of 4 agreements (collectively, the “VIE Arrangements”), which were signed on August 18, 2020. The significant terms of the VIE Arrangements by and among our wholly-owned subsidiary, AEC YQL, our consolidated variable interest entity, Zhongwei, and the shareholders of Zhongwei are as follows: Agreements that Provide Us Effective Control over Zhongwei Our PRC Wholly Foreign Owned Entity, AEC YQL, has entered into the following agreements with Zhongwei and its shareholders. Equity Pledge Agreement Pursuant to the equity interest pledge agreement dated August 18, 2020, each shareholder of Zhongwei (collectively “Shareholder”) has pledged all of its equity interest in Zhongwei to guarantee the shareholder’s and Zhongwei’s performance of their obligations under the exclusive management consulting and service agreement, exclusive option agreement and power of attorney. If Zhongwei or any of its shareholders breaches their contractual obligations under these agreements, AEC YQL, as pledgee, will be entitled to dispose the pledged equity interest entirely or partially. Each of the shareholders of Zhongwei agrees that, during the term of the equity pledge agreement, it will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests without the prior written consent of AEC YQL. In addition, AEC YQL has the right to collect dividends generated by the pledged equity interest during the term of the pledge. The equity pledge agreement conforms to the validity period of the exclusive management consulting and service agreement Power of Attorney Pursuant to the power of attorney dated August 18, 2020, each shareholder of Zhongwei has irrevocably appointed AEC YQL to act as such shareholder’s exclusive attorney-in-fact to exercise all shareholder rights, including, but not limited to, voting on all matters of Zhongwei requiring shareholder approval, disposing of all or part of the shareholder’s equity interest in Zhongwei, oversee and review Zhongwei’s operation and financial information. AEC YQL is entitled to designate any person to act as such shareholder’s exclusive attorney-in-fact without notifying or the approval of such shareholder, and if required by PRC law, AEC YQL shall designate a PRC citizen to exercise such right. Each power of attorney will remain in force for so long as the Zhongwei exists. The shareholders of Zhongwei do not have the right to terminate this agreement or revoke the appointment of the attorney-in-fact without the prior written consent of AEC YQL Exclusive Management Consulting and Service Agreement Under the exclusive management consulting and service agreement between AEC YQL and Zhongwei dated August 18, 2020, AEC YQL has the exclusive right to provide Zhongwei with technical support, consulting services and other services. AEC YQL has the right to designate and appoint, at its sole discretion, any entities affiliated with the AEC YQL to provide any and all services. The service fees are calculated and paid on a yearly basis and at the amount that equals to 100% of the consolidated net profits of Zhongwei. AEC YQL may adjust the service fee at its discretion after taking into account multiple factors, such as the difficulty of the services provided, the time consumed, the content and commercial value of services provided and the market price of comparable services. AEC YQL owns the intellectual property rights arising out of the performance of this agreements. Zhongwei shall seek approval from AEC YQL prior to entering into any contracts obtaining the same or similar services as provided under the Exclusive Management Consulting and Service Agreement. This agreement will remain effective as long as Zhongwei exists, unless AEC YQL advance written notice to Zhongwei and its shareholders or upon the transfer of all the equity interest held by Zhongwei’s shareholders to AEC YQL and/or a third party designated by AEC YQL. 10 AMERICAN EDUCATION CENTER, INC. AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED) 1. ORGANIZATION AND BUSINESS (continued) Agreements that Provide Us with the Option to Purchase the Equity Interest in Zhongwei Exclusive Option Agreement Pursuant to the exclusive option agreement dated August 18, 2020, each shareholder of Zhongwei has irrevocably granted AEC YQL an exclusive option to purchase, or have its designated person or persons to purchase, at its discretion, to the extent permitted under PRC law, all or part of the shareholder’s equity interests in Zhongwei. The purchase price is equal to the lowest price allowable under PRC laws and regulations at the time of the transfer. Zhongwei has agreed that without AEC YQL’s prior written consent, Zhongwei shall cause the persons designated by AEC YQL to be the directors and executive officers of Zhongwei, not amend its articles of association, increase or decrease the registered capital, sell or otherwise dispose of its assets or beneficial interest, create or allow any encumbrance on its assets or other beneficial interests, provide any loans to any third parties, enter into any material contract, merge with or acquire any other persons or make any investments, or distribute dividends to the shareholders. The shareholders of Zhongwei have agreed that, without AEC YQL’s prior written consent, they will not dispose of their equity interests in Zhongwei or create or allow any encumbrance on their equity interests. Moreover, without AEC YQL’s prior written consent, no dividend will be distributed to Zhongwei’s shareholders, and if any of the shareholders receives any profit, interest, dividend or proceeds of share transfer or liquidation, the shareholder must give such profit, interest, dividend and proceeds to AEC YQL. These agreements will remain effective as long as Zhongwei exists unless AEC YQL advance written notice to Zhongwei and the shareholders or upon the transfer of all the equity interest held by the shareholders to AEC YQL and/or its designee. The Company has concluded that the Company is the primary beneficiary of Zhongwei and its subsidiaries, and should consolidate their financial statements. The Company is the primary beneficiary based on the Power of Attorney entered into as part of the VIE Agreements that each equity holder of Zhongwei assigned their rights as a shareholder of Zhongwei to AEC YQL. These rights include, but are not limited to, voting on all matters of Zhongwei requiring shareholder approval, disposing of all or part of the shareholder’s equity interest in Zhongwei, oversee and review Zhongwei’s operation and financial information. As such, the Company, through AEC YQL, is deemed to hold all of the voting equity interest in Zhongwei and its subsidiaries. For the periods presented, the Company has not provided any financial or other support to either Zhongwei or its subsidiaries. However, pursuant to the Exclusive Management Consulting and Services Agreement, the Company may provide complete technical support, consulting services and other services during the term of the VIE agreements. Though not explicit in the VIE agreements, the Company may provide financial support to Zhongwei and its subsidiaries to meet its working capital requirements and capitalization purposes. The terms of the VIE Agreements and the Company’s plan of financial support to the VIEs were considered in determining that the Company is the primary beneficiary of the VIEs. Accordingly, the financial statements of the VIEs are consolidated in the Company’s consolidated financial statements. 11 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED) 1. ORGANIZATION AND BUSINESS (continued) Based on the foregoing VIE Agreements, AEC YQL has effective 100% fully control of Zhongwei and its subsidiaries, which enables AEC YQL to receive all of their expected residual returns and absorb the expected losses of the VIE and its subsidiaries. Accordingly, the Company consolidates the accounts of Zhongwei and its subsidiaries for the periods presented herein, in accordance with Accounting Standards Codification, or ASC, 810-10, Consolidation. As of June 30,
Headquartered in New York with operations in the People’s Republic of China (“PRC”), the Company covers
12 AMERICAN EDUCATION CENTER, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, (UNAUDITED) Basis of Consolidation and Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments considered necessary to give a fair presentation have been included.
eliminated upon consolidation. Cash Cash consists of all cash balances and liquid investments with an original maturity of three months or less are considered as cash equivalents. Accounts Receivable Accounts receivable are carried at net realizable value. The Company maintains an allowance for doubtful accounts, periodically evaluates its accounts receivable balances and makes general and/or specific allowances when there is doubt as to their collectability. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balances, customers’ historical payment history, their current credit-worthiness and current economic trends. Accounts receivable are written off against the allowance only after exhaustive collection efforts.
Foreign Currency Translation The Company’s functional currency is US dollars. The Company has Revenue Recognition The Company adopted ASU No. 2014-09, Topic 606 on January 1, 2018, using the modified retrospective method. ASC 606 requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. 13 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition (continued) AEC New York delivers customized high school and college placement, career advisory as well as student and family services. Fees related to such advisory services that are collected from individuals are generally paid to the Company in advance and they are recorded as deferred revenue. Revenues are recognized proportionally as services are rendered or upon completion. Fees related to our advisory services provided by AEC New York to corporate customers (such as staffing agencies and placement agencies) are generally collected after services are provided and are recorded as accounts receivable. AEC Shenzhen delivers customized high school and college placement and career advisory services. Fees related to such advisory services are generally paid to the Company in advance and they are recorded as deferred revenue. Revenues are recognized proportionally as services are rendered or upon completion. For the six months ended June 30, Property and equipment, net Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:
Goodwill and Intangible Asset Goodwill arises from business acquisition and is generally determined as the excess of fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquire, over the fair value of the nets assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized but tested for impairment at least annually or more frequently in events and circumstances exists that indicate that a goodwill impairment test should be performed. The Company adopted (ASU) 2017-04, Intangibles—Goodwill and Other (Topic 350) in 2018, using Simplifying the Test for Goodwill Impairment, which eliminated the calculation of implied goodwill fair value. Instead, companies will record an impairment charge based on the excess of a reporting unit’s carrying amount of goodwill over its fair value. The Company valued the current Goodwill with its license built in is still valuable based on the results of the Company’s annual impairment testing of goodwill, no impairment charges were deemed necessary. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet. The Company’s finite-lived intangible asset consists of a customized online campus system that was acquired from a third party. The system is used to provide online training for career advisory 14 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Goodwill and Intangible Asset (continued) The Company reviews its finite-lived intangible asset for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset to be held and used is measured by a comparison of the carrying amount of an asset to its undiscounted future net cash flows expected to be generated by the asset. If such asset is not recoverable, a potential impairment loss is recognized to the extent the carrying amount of the asset exceeds its fair value. Fair value is generally determined using a discounted cash flow approach.
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and carrying amount. Stock-Based Compensation The Company uses the fair value-based method for stock issued for services rendered and therefore all awards to employees and non-employees will be recorded at the market price on the date of the grant and expensed over the required period of services to be rendered. The fair value of stock options issued to third party consultants and to employees, officers and directors are recorded in accordance with the measurement and recognition criteria of FASB ASC 505-50, “Equity-Based Payments to Non-Employees” and FASB ASC 718, “Compensation – Stock Based Compensation,” respectively. The options are valued using the Black-Scholes valuation model. This model is affected by the Company’s stock price as well as assumptions regarding a 15 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes,” which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets and liabilities represent the future tax consequences for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. A valuation allowance is established when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 also addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is “more likely than not” that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. United States (“US”) On December 22, 2017, the U.S. Tax Cuts and Jobs Act (TCJA) was signed into law. The TCJA results in significant revisions to the U.S. corporate income tax system, including a reduction in the U.S. corporate income tax rate, implementation of a territorial system and a one-time deemed repatriation tax on untaxed foreign earnings. Generally, the impacts of the new legislation would be required to be recorded in the period of enactment. The Company is subject to Federal corporate income tax in the US at 21%. Provisions for income taxes for the United States have been made for the British Virgin Island (“BVI”) According to BVI corporate taxation, there is a zero-rated income tax regime for all BVI-domiciled corporate entities, and there is no concept of residence applicable to BVI corporate taxation. AEC BVI was incorporated in the BVI and is governed by the laws of the BVI. Hong Kong AEC Southern HK was formed in Hong Kong. Pursuant to the income tax laws of Hong Kong, the Company is not subject to tax on non-Hong Kong source income. For the income that is Hong Kong related, the Company is subjected to corporate income tax at 16.5%. 16 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The AEC Southern Shenzhen,
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This ASC also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures. Fair Value Measurements FASB ASC 820, “Fair Value Measurement,” specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy: Level 1 Inputs – Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.
FASB ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The Company did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis. Non-derivative financial instruments include cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses, taxes payable, and loan from stockholders. As of June 30, COVID-19 Outbreak
17 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of Estimates The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect certain 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 periods. Actual results could differ from those estimates.
Earnings (Loss) per Share Earnings (loss) per share is calculated in accordance with FASB ASC 260, “Earnings Per Share.” Basic earnings (loss) per share is based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock options are converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Options and warrants are only dilutive when the average market price of the underlying common stock exceeds the exercise price of the options or warrants because it is unlikely that they would be exercised if the exercise price were higher than the market price. Related Party Transactions A related party is generally defined as (i) any person and or their immediate family hold 10% or more of the company’s securities (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. The Company conducts business with its related parties in the ordinary course of business. Related parties may be individuals or corporate entities. Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their related party nature. Selling and Marketing Selling and marketing costs are related to promoting, advertising, and other marketing activities, and are expensed as incurred. For the periods ended June 30, 2021 and 2020, the marketing and advertising expenses were $0 and $74,115, respectively. Noncontrolling interest According to Financial Accounting Standards Board (FASB) Statement No. 160, the noncontrolling interest shall be reported in the consolidated statement of financial position within equity, separately from the parent’s equity. That amount shall be clearly identified and labeled, for example, as noncontrolling interest in subsidiaries. An entity with noncontrolling interests in more than one subsidiary may present those interests in aggregate in the consolidated financial 18 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Bargain Purchase According to Financial Accounting Standards Board (FASB) Accounting Standards, a barging purchase is defined as a business combination in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree, and it requires the acquirer to recognize that excess in earnings as a gain attributable to the acquire. Contingent Consideration The Company recognizes the fair value of any contingent consideration that is transferred to the seller in a business combination on the date at which control of the acquiree is obtained. This value is generally determined through a probability-weighted analysis of the expected cash flows. Contingent consideration is classified as a liability or as equity on the basis of the definitions of an equity instrument and a financial liability. The contingent consideration is payable in cash and, accordingly, the Company classified its contingent consideration as a liability. It is not remeasured, and any gain or loss on settlement at an amount different from its carrying value will be recognized in net income in the period during which it is settled. Leases
The Company determined if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and short- and long-term lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our consolidated balance sheets.
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to the Related Party Guidance for Variable Interest Entities. ASU 2018-17 changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportional basis, rather than in their entirety. This guidance will be adopted using a retrospective approach and is effective for the Company on January 1, 2020. The Company guidance in Footnote 1 and Footnote 21. In December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU provides an exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. This update also (1) requires an entity to recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (2) requires an entity to evaluate when a step-up in the tax basis of goodwill should be considered part of the business combination in which goodwill was originally recognized for accounting purposes and when it should be considered a separate transaction, and (3) requires that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The The Company 19 AMERICAN EDUCATION CENTER, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, (UNAUDITED) 3. RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS (continued) In March 2021, the FASB issued ASU 2021-03, Intangibles—Goodwill and Other (Topic 350): Accounting Alternative for Evaluating Triggering Events. The amendments in this Update are effective on a prospective basis for fiscal years beginning after December 15, 2019. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance as of March 30, 2021. An entity should not retroactively adopt the amendments in this Update for interim financial statements already issued in the year of adoption. The amendments in this Update also include an unconditional one-time option for entities to adopt the alternative prospectively after its effective date without assessing preferability under Topic 250, Accounting Changes and Error Corrections. In May 2021, the FASB issued ASU 2021-4, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments in this Update in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The FASB is issuing this Update to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. In July 2021, the FASB issued ASU 2021-5, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. The amendments in this Update amend Topic 842, which has different effective dates for public business entities and most entities other than public business entities. The amendments are effective for fiscal years beginning after December 15, 2021, for all entities, and interim periods within those fiscal years for public business entities and interim periods within fiscal years beginning after December 15, 2022, for all other entities. The amendments in this Update address stakeholders’ concerns by amending the lease classification requirements for lessors to align them with practice under Topic 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met: 1)The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in paragraphs 842-10-25-2 through 25-3; 2)The lessor would have otherwise recognized a day-one loss. 4.ACCOUNTS RECEIVABLES Activity in the allowance for doubtful accounts was as followings:
As of June 30,
For the three and six months ended June 30,
The gross carrying amount and accumulated amortization of this asset as of June 30,
The Company’s customized online campus system is being amortized on a straight-line basis over four and a half years. For the three and six months ended June 30, The newly acquired intangible asset of software development in progress of research and development at cost of $26,973 (RMB 176,000) has been evaluated and recorded full impairment charges on December 31, 2020. The following table is the future amortization expense to be recognized:
21 AMERICAN EDUCATION CENTER, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, (UNAUDITED) 7. GOODWILL
The Company performed testing of goodwill impairment, including the identification of reporting units, assigning assets and liabilities to
The Company has security deposits with the landlord for its
The Company maintains its cash accounts at Funds held in US banks and insured by Federal Deposit Insurance Corporation up to $250,000 per depositor, per insured bank, for each account ownership category. Funds held in the PRC banks are covered by Deposit Insurance Ordinance (index: 000014349/2015-00031) that insures RMB500,000 for the total of all depository accounts. Funds held in HK banks are insured by Hong Kong Deposit Protection Board covers up to HK$500,000 per bank for the total of all depository accounts. The Company performs ongoing evaluation of its financial institutions to limit its concentration of risk exposure. Management believes this risk is not significant due to the financial strength of the financial institutions utilized by the Company. 22 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED) 9. CONCENTRATION OF CREDIT AND BUSINESS RISK (continued) The following table represents major customers that individually accounted for more than 10% of the Company’s gross revenue for the six months ended June 30,
Operating segments have been determined on the basis of reports reviewed by the Company’s Chief Executive Officer (CEO) who is the chief operating decision maker of the Company. The CEO evaluates the business from a geographic perspective, assesses performance and allocates resources on this basis. The reportable segments are as follows:
BVI (including all foreign entities).
The following table shows an analysis by segment of the assets and liabilities of
23 AMERICAN EDUCATION CENTER, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, (UNAUDITED) Revenues from external customers, and gross profit for each business are as follows:
The Company receives advance payments for services to be performed and recognizes revenue when services have been rendered. The deferred revenues as of June 30,
The Company’s CEO has a 34% interest in Columbia International College, Inc. (“CIC”). The Company prepaid CIC $48,000 for student consulting services the second quarter of 2021. The Company’s CEO has a 40% interest in Wall Street Innovation Center, Inc. (“WSIC”), a corporation incorporated in the state of New York that focuses on career and business development activities. In the course of delivering career advisory services, the Company has engaged WSIC to assist in certain career development activities. The Company prepaid WSIC $50,000 for business consulting services to be delivered and completed in 2021. The Company’s CEO received 12,500,000 shares of Series B Convertible Preferred Stock of the Company (“Series B Preferred Stock”), par value $0.001 per share as a reward for his dedicated services to the Company on November 26, 2018. The Company repaid loan of $154,880 (translated from RMB1,000,000) to a shareholder of the Company during the year of 2021. The amounts due to this related party were $929,282 and $1,072,797 as of June 30, 2021 and December 31, 2020, respectively. The loan is non-interest bearing and non-secure, and should be paid May 19, 2023. 25 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED) 12. RELATED-PARTY TRANSACTIONS (continued) The Company borrowed
13. LOANS PAYABLE On December 1, 2014, an unrelated party loaned the Company $295,579, with interest at 10%. The Interest expenses for the three and six months ended June 30,
The PPP Loan Forgiveness has been approved on April 12, 2021. On April 24, 2020, AEC New York received an advance in the amount of $9,000 from the U.S. Small Business Administration (“SBA”) under the Economic Injury Disaster Loan (“EIDL”) program administered by the SBA, which program was expanded pursuant to the CARES Act. On June 1, 2020, Company received
The Company
August 2020. In May 2019, the Company entered into a lease of office space in Shenzhen, Guangdong, PRC with an unrelated party, expiring on April 30, 2024. The lease commenced on May 1, 2019. We determined the present value of the future lease payment using a discount rate of 8.16%, our incremental borrowing rate based on SBA loan borrowing rate, resulting in an initial right-of-use asset of $414,157 (RMB2,899,099) and lease liability of $399,048 (RMB2,793,341) on the commenced date of May 1, 2019, which are being amortized ratably over the term of the lease. As of June 30, 26 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED) 14. LEASE COMMITMENTS (continued) Future minimum lease commitments are as follows on June 30,
Payments under operating leases are expensed on a straight-line basis over the periods of their respective leases. The total rent expense was approximately $33,050 and $66,000, and $129,110, $261,137 15. INCOME TAXES The component of deferred tax assets on June 30, 2021 and December 31, 2020 are as follows:
27 AMERICAN EDUCATION CENTER, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, (UNAUDITED)
15. INCOME TAXES (continued) The provision for income taxes and deferred income taxes for the three and six months ended June 30,
The Company conducts business globally and, as a result, files income tax returns in the US federal jurisdiction, state and city, and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including jurisdictions in the US. The Company is subject to income tax
A reconciliation of the provision for income taxes, with the amount computed by applying the statutory effective income tax rate for the three and six months ended June 30,
28 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED) 16. FINANCIAL INSTRUMENTS Fair values The Company’s financial instruments from continuing operations approximate include cash and cash equivalents and prepaid expenses and other current assets which approximate to fair value due to their short-term nature and include cash accounts. The Company’s borrowings approximate fair value as the rates of interest are similar to what they would receive from other financial institutions. The carrying amounts of these financial assets and liabilities are a reasonable estimate of their fair values because of their current nature.
The following table summarizes the carrying values of the Company’s financial assets and liabilities:
(i)
The Company classifies its fair value measurements in accordance with the three-level fair value hierarchy as follows: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices), and Level 3 – Inputs that are not based on observable market data. The financial assets and liabilities carried at fair value on a recurring basis
29 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED) 16. FINANCIAL INSTRUMENTS (continued) The financial assets and liabilities carried at fair value on a recurring basis
Interest rate and credit risk Financial instruments that potentially subject the Company to concentrations of credit risks consist principally of cash and cash equivalents, and net accounts receivable. The Company minimizes the interest rate and credit risk of cash by placing deposits with financial institutions located in the United States and Mainland China. Management believes that there is no significant credit risk arising from the Company’s financial instruments.
Financial assets past due The following table provides information regarding the aging of financial assets that are past due, but which are not impaired
The Company determines past due amounts by reference to terms agreed with individual clients.
The Company did not grant any stock options during the six months ended June 30, 2021. The following is a summary of stock option activities:
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock. There were 2020. The estimated fair value of these options was $0, therefore
18. COMMON STOCK
Stocks issued to employees and for services
In January 2020, the Company entered into agreements pursuant to which it issued an aggregate of 700,000 shares of the Company’s common stock to 2 individuals who are either employees of the Company or have been service providers to the Company, for employment-based compensation or services provided, respectively. Stocks issued for business acquisition On 31 AMERICAN EDUCATION CENTER, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020
19. PREFERRED STOCK Series B Convertible Preferred Stock
The Company Holders of shares of Series B Preferred Stock are entitled to vote with shareholders of the Company’s common stock, voting together as a single class, except on matters that require a separate vote of the holders of Series B Preferred Stock. In any such vote, each share of Series B Preferred Stock is entitled to 20 votes per share. Each share of Series B Preferred Stock shall, upon the approval of the board of directors of the Company and without the payment of additional consideration by such holder thereof, be convertible into one fully paid and non-assessable share of the Company’s common stock at a conversion price of $1 per share.
20. BUSINESS ACQUISITION Acquisition of Shenzhen Zhongwei Technology Co., Ltd. On August 18, 2020, the Company entered into a series of contractual arrangements, including an Equity Pledge Agreement, Exclusive Management Consulting Agreement, Exclusive Option Agreement, and Irrevocable Power of Attorney (collectively, the "VIE Agreements"), with Shenzhen Zhongwei Technology Co., Ltd. ("Zhongwei"), a PRC company, and Ding Xiang (Shenzhen) Investment Co., Ltd., a PRC company ("Pledgor"), the sole shareholder of Zhongwei. Pursuant to the VIE Agreements, the Company entered into a Share Issuance Agreement (the "Share Issuance Agreement") with the Ding Xiang Shareholders, whereby the Company agreed to issue to the Ding Xiang Shareholders an aggregate of 2,640,690 shares at $0.1 per share for total $264,070 of the The Acquisition has been accounted for as a business combination, under the acquisition method of accounting, which results in acquired assets and
32 AMERICAN EDUCATION CENTER, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, (UNAUDITED) 21. VARIABLE INTEREST ENTITY On
Risks of variable interest entity structure In the opinion of management, (i) the corporate structure of the Company However, there are substantial uncertainties regarding the
Although currently substantially all of
A contingency should be recognized at its acquisition date fair value if that value can be determined. (The guidance in Topic 820 is used to determine fair value). If the acquisition-date fair value of contingency cannot be determined, then an asset or liability is recognized for the contingency if it’s probable at the acquisition date that such asset or liability exists and if its amount is reasonable estimable. 33 AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED) 22. COMMITMENTS & CONTINGENCY (continued) A contingency is not recognized for a contingency in the accounting for a business combination if: a) its fair value cannot be determined and b) the probable and reasonably estimate criteria are not met. Instead, the contingency is disclosed and accounted for subsequent to the acquisition date in accordance with Topic 450. Pursuant to the Purchase Agreement, the contingent consideration consisted of compensatory arrangement for services to be performed by the officers of the acquiree, and such amounts are to be determined in the future by both parties; therefore, the fair value cannot be determined at the acquisition date. The Company as an acquirer did not recognize a liability at the acquisition date.
Substantial doubt about the Company’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. Our current operating results indicate that substantial doubt exists related to the
The Company’s management has performed subsequent events procedures through the date the financial statements were available to be issued. There were no subsequent events requiring adjustment to or disclosure in the consolidated 34 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview American Education Center, Inc. was incorporated in Nevada (“AEC Nevada”) in May 2014 as a holding company, and operates through its wholly owned subsidiaries, American Education Center, Inc., incorporated in the State of New York in 1999 (“AEC New York”), AEC Management Ltd., incorporated in the British Virgin Islands on October 23, 2018 (“AEC BVI”) and the subsidiaries of AEC BVI.
AEC Nevada acquired AEC Southern Management Co., Ltd, a company formed pursuant to the laws of England and Wales (“AEC Southern UK”) and its subsidiaries in 2016 pursuant to On July 10, 2018, AEC New York acquired a 51% equity ownership in American Institute of Financial Intelligence LLC, a New Jersey limited liability company (“AIFI”) from FIFPAC Inc. (“FIFPAC”), a New Jersey corporation, the then 100% owner of AIFI, pursuant to a Business Purchase Agreement. AIFI currently does not have any active operating activities. On April 22, 2019, AEC BVI acquired AEC Southern HK and its subsidiary, AEC Southern Shenzhen, pursuant to a share transfer agreement by and among the related parties, AEC BVI and AEC Southern UK, for a nominal consideration (the “AEC Southern HK Transfer”). On May 1, 2019, Pursuant to a certain share exchange agreement dated May 1, 2019, AEC Nevada sold 100% of the equity interest in AEC Southern UK to three individuals, Ye Tian, Rongxia Wang and Weishou Li (the “AEC Southern UK Sale”). Accordingly, following the transactions underlying the AEC Southern HK Transfer and the AEC Southern UK Sale, AEC Southern UK is no longer a subsidiary of ours, and we operate AEC Southern HK and AEC Southern Shenzhen through AEC BVI. AEC BVI, via its operating entity in the PRC, AEC Southern Shenzhen, serves as a local platform for expanding the Company’s business in mainland China. Our PRC operations are based in the city of Shenzhen, Guangdong province, a city designated by the PRC as a Special Economic Zone (“SEZ”). SEZs are granted a more free-market oriented economic and regulatory environment, with business and tax policies designed to attract foreign investment and technology. On May 22, 2020, AEC Southern HK formed Yiqilai (Shenzhen) Consulting Management Co., Ltd. (“AEC YQL”) in Shenzhen, China pursuant to PRC laws. AEC YQL is a wholly owned subsidiary of AEC Southern HK, and as of the date of this Quarterly Report on Form 10-Q, does not have significant business activities. On August 18, 2020, AEC YQL entered into a series of contractual arrangements, including an Equity Pledge Agreement, Exclusive Management Consulting Agreement, Exclusive Option Agreement, and Irrevocable Power of Attorney (collectively, the “VIE Agreements”), with Shenzhen Zhongwei Technology Co., Ltd. (“Zhongwei”), a PRC company, and Ding Xiang (Shenzhen) Investment Co., Ltd., a PRC company (“Pledgor”), the sole shareholder of Zhongwei controlled by Dewei Li and Bin Liu (the “Zhongwei Ultimate Shareholders”). Pursuant to the VIE Agreements, AEC YQL gained control over Zhongwei. Zhongwei is involved in, among other things, e-commerce, and the Company plans to leverage Zhongwei’s current e-commerce platform, and to engage in business such as online education e-commerce. In consideration for entering into the transactions contemplated by the VIE Agreements, on August 18, 2020, the Company entered into a Share Issuance Agreement (the “Share Issuance Agreement”) with the Zhongwei Ultimate Shareholders, whereby the Company agreed to issue to the Zhongwei Ultimate Shareholders an aggregate of 2,640,690 shares of the Company’s common stock, par value $0.001. The transactions underlying the Share Issuance Agreement is closed in August 2020. Although currently substantially all of our revenue comes from our wholly owned subsidiaries, instead of our VIE, our VIE in China and our investors may face uncertainty about future actions by the government of China that could significantly affect the VIE and our subsidiaries’ financial performance and operations, including the enforceability of the VIE Agreements. 35 As of the date of this report, the corporate structure of the Company is illustrated as follows:
Our mission is to become a leading provider for international education services, and providing total solutions for technology in education field, as well as providing corporation advisory management services. Currently, through AEC New York,
Services to our clients are provided through the Company’s principal executive office in New York, NY, and AEC Southern Shenzhen’s office in Shenzhen, China. Leveraging our knowledge of the educational system and environment in the U.S. and our understanding of the market demand for education services in the PRC and its changing business economy, we specialize in the delivery of customized high school and college 36 Headquartered in New York with operations in the PRC, the Company, during the quarter ended June 30,
Placement Advisory Services Our Placement Advisory Services include Language Training, Placement Advisory and Elite College Advisory services. Since 1999, we have been delivering customized Language Training & Placement Advisory Our Language Training service is based on the existing ESL training platform which provides language training for standard test preparation and is designed to help improve student’s English listening, speaking, reading, and writing skills. Student customers will be able to take these training courses online when our ESL online training platform goes live, which we expect to take place 2021. Targeting the needs of Chinese families in obtaining admission to Ivy League and other prestigious universities in the U.S., our Elite College Advisory service is designed to assist qualified Chinese students in applying to prestigious colleges and universities in the U.S. Specifically, we arrange campus tours, assist our student customers with their university applications, provide tailored language training, offer guidance on interview and communication techniques, and follow up on their applications. Once our student customers are admitted into their target universities, our Placement Advisory For college application, we have designed the Key School Admissions For on-campus academic counseling, we offer the Elite100 program that focuses on leadership and communication skills development for our student customers. We provide placement services through both AEC New York and AEC BVI. AEC New York refers Career Advisory Services Our Career Advisory Services include our Internship Advisory program and our Start-up Advisory program. Our Internship Advisory program focuses on students’ career development by helping them identify and secure suitable internship and part-time or full-time work opportunities that are appropriate for their educational background and experience level. Through this program, we strive to help students map and navigate their career path and counsel them on matters including academic improvement to career assistance. Through this program, our student customers are given opportunities to communicate with professionals in their field of study and to participate in real-world case studies. 37 Our Start-up Advisory program provides advisory services to individual students and/or their families who want to start or make an investment in a business in the U.S. Collaborating with our strategic partners, our services include (i) recommending alternative business development opportunities; (ii) assistance with business plan development; (iii) assistance with accounting and financial management, marketing, product and project design; and (iv) assistance in project financing. Student & Family Advisory Services Our Student & Family Advisory Services are designed to assist our students and/or their families in the process of settling down in the U.S., so they can effectively focus on their studies. We provide thorough services tailored to the unique needs of each student family encountered in the U.S. Through our business partners, we assist the students’ families with purchasing real estate properties, organizing their personal financial management and investment needs, getting insurance and starting businesses. Our American Dream Other Advisory Services Through our Foreign Student Recruitment services, we assist universities in China to recruit students from the U.S. We customize this service based on our strategic relationship with college and universities in the U.S. and the specific recruitment goals of these universities in China. The demand for our recruitment services is driven mainly by the lack of an established channel to attract students from the U.S. and the needs by the Chinese universities to expand and diversify their student body. Our Foreign Educator Placement services are designed to meet the increasing demand for experienced educators and teachers from the U.S. to teach in China. Such demand covers the need to recruit qualified US educators from Pre K-12 to teach in China. In order to respond to the adverse impact of the COVID-19 outbreak, we have devoted time and effort to research and develop new services and products. For the period ended June 30, 2021, through AEC Southern HK, we have assisted our existing students, students’ families, and corporate clients to obtain a health product named Rocitin. On December 31, 2020, we entered into a Commission Agreement with Clark Orient Company Limited (“Clark Orient”), pursuant to which Clark Orient agrees to pay us RMB 10.00 on every bottle of Rocitin we sell before March 31, 2021, and HKD 10.00 on every bottle of Rocitin we sell starting from April 1, 2021. The Commission Agreement remains effective until either party gives written notice of termination. As of June 30, 2021, revenue from sales of Rocitin by AEC Southern HK was $8,617, approximately 11% of our total revenue in the period ended June 30, 2021. Impact of the COVID-19 Pandemic In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. 2021. In order to respond to the COVID-19 outbreak, 38 The COVID-19 pandemic is rapidly evolving. The information in this Quarterly Report on Form 10-Q is based on data currently available to us and will likely change as the pandemic progresses. As of the date of this Quarterly Report on Form 10-Q, some countries have slowly re-opened, but with surges of new cases appearing, while the U.S. continues to see increasing new COVID-19 cases in certain states. As COVID-19 persists throughout areas in which we operate and the rest of the world, we believe the outbreak has the potential to continue to have a material negative impact on our operating results and financial condition going into the 2021. Significant Accounting Policies The discussion and analysis of our consolidated financial condition and results of operations is based upon our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities. On an on-going basis, we evaluate our estimates including the allowance for doubtful accounts, income taxes and contingencies. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The consolidated financial statements are comprised of AEC Nevada and its wholly owned subsidiaries, AEC New York, and AEC BVI. All significant intercompany accounts and transactions have been eliminated in consolidation. As part of the process of preparing our unaudited consolidated financial statements, we are required to estimate our income taxes. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. As of June 30, We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our unaudited consolidated financial statements when we deem it necessary. We have determined significant accounting principles with policies that involve the most complex and subjective decisions or assessments. While our significant accounting policies are more fully described in Note 2 to our financial statements, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Both operating groups are reported under the same accounting policies/estimations. Revenue is recognized when the following criteria are met: (1) when persuasive evidence of an arrangement exists; (2) delivery of the services has occurred; (3) the fee is fixed or determinable; and (4) collectability of the resulting receivable is reasonably assured. AEC New York delivers customized high school and college placement, career advisory as well as student and family services. Fees related to such advisory services that are collected from individuals are generally paid to the Company in advance and they are recorded as deferred revenue. Revenues are recognized proportionally as services are rendered or upon completion. Fees related to our advisory services provided by AEC New York to corporate customers (such as staffing agencies and placement agencies) are generally collected after services are provided, and are recorded as accounts receivable. 39 On January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We first evaluate our leases to determine whether they are classified as a finance lease or as an operating lease. A lease is a finance lease if any of the following criteria are met: (a) ownership transfers, (b) the lease includes an option to purchase the underlying asset, (c) the lease term is for the major part of the remaining economic life of the underlying asset, (d) the present value of the lease payments equals or exceeds the fair value of the underlying asset, or (e) the underlying asset is of a specialized nature that is expected to have no alternative use to the lessor at the end of the lease term. As such, all of our leases are classified as operating leases. We then determine whether the short-term exemption applies. The short-term exemption applies if the lease term 12 months or less and does not include a purchase option whose exercise is reasonably certain. If the short-term exemption applies then lease payments are recognized as expense and no asset or liability is recorded. If the short-term exemption does not apply, then we record an operating lease right-of-use asset and a corresponding operating lease liability equal to the present value of the lease payments. The ten-year commercial real estate lease we entered into in December 2014 did not meet the short-term exemption and, accordingly, we recorded the present value of the lease payments as a right-of-use asset and a lease liability in the unaudited consolidated balance sheet. We recognize expense on a straight-line basis over the life of the lease. Recent Accounting Pronouncements In January 2017, the FASB issued accounting standard update which simplifies the test for goodwill impairment. To address concerns over the cost and complexity of the two-step goodwill impairment test, the amendments in this update remove the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This update is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted the update in the fourth quarter of 2018. The adoption of the new standard did not have an impact on our consolidated financial statements. In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to the Related Party Guidance for Variable Interest Entities. ASU 2018-17 changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportional basis, rather than in their entirety. This guidance will be adopted using a retrospective approach and is effective for the Company on January 1, 2020. The Company has evaluated the effect of the adoption of this ASU and the standard did not have an impact on its consolidated financial statements and related disclosures from the adoption of the new guidance. In December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU provides an exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. This update also (1) requires an entity to recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (2) requires an entity to evaluate when a step-up in the tax basis of goodwill should be considered part of the business combination in which goodwill was originally recognized for accounting purposes and when it should be considered a separate transaction, and (3) requires that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The In March 2021, the FASB issued ASU 2021-03, Intangibles—Goodwill and Other (Topic 350): Accounting Alternative for Evaluating Triggering Events. The amendments in this Update are effective 40 In May 2021, the FASB issued ASU 2021-4, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments in this Update in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The FASB is issuing this Update to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. In July 2021, the FASB issued ASU 2021-5, Leases (Topic 842): Lessors—Certain Leases with The Company Results of Operations Below we have included a discussion of our operating results and material changes in the periods covered by this Quarterly Report on Form 10-Q. For additional information on the potential risks associated with these initiatives and our operations, please refer to the Risk Factors sections in our annual report on Form 10-K for the year ended December 31,
The Three Months Ended June 30,
Revenue
41 Total revenues for the three months ended June 30, 2021 were generated by the operations of AEC New York and AEC BVI, which deliver Placement Advisory Services, Career Advisory Services and Other Advisory Services to our clients.
We expect the impact of COVID-19 on our business, especially on school application and Career Advisory Services, will last until the end of this year, due to restrictions on domestic and international travels, delay of the spring semester and cancellation of overseas exams, as well as difficulty to obtain valid visas. We will continually monitor the development of the epidemic as well as the impact on our operations and financial performance and actively adjust our operational strategies and make efforts on cost control and reducing expenditures. We will also strive to expand our target market and provide support of online study to our customers.
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ● | In addition, the Chinese government offers incentives and benefits though its Talents Policy to Chinese students who return to China to work and live there. This Talents Policy has encouraged many of our clients who recently graduated or are about to graduate to go back to China, instead of staying in the U.S., which resulted in less service requests for our placement advisory and student & family advisory services. Additionally, the decrease in the value of China’s currency and the relatively restrictive U.S. policy on international students is increasingly driving Chinese students to choose to apply to universities and colleges in non-U.S. countries or choose to return to the PRC after graduation, rather than staying in the U.S. To mitigate the effect of such recent changes, we are expanding our local services in the PRC, concentrating on new services promotion and increasing our mergers and acquisitions efforts by focusing on researching, identifying prospective targets, negotiating and executing on this strategy. |
Gross Profit & Gross Margin
| ● | Our gross profit for the three months ended June 30, | |
The following table summarizes changes in operating expenses and provision for income taxes for the periods presented:
| | | | | | | | | | | | |
| | For the three months ended June 30, |
| |||||||||
| | 2021 | | 2020 | | Variance | | % |
| |||
Operating expenses |
| |
|
| |
|
| |
|
|
| |
Selling and marketing | | $ | — | | $ | 60,754 | | $ | (60,754) |
| (100) | % |
Research and development expenses | |
| 22 | |
| — | |
| 22 |
| NM | |
General and administrative | |
| 345,406 | |
| 777,991 | |
| (432,585) |
| (56) | % |
Total operating expenses | | $ | 345,428 | | $ | 838,745 | | $ | (493,317) |
| (59) | % |
Income tax benefit | | $ | (38,347) | | $ | (199,530) | | $ | 161,183 |
| (81) | % |
Net (loss) from continuing operations including non-controlling interest | | $ | (176,750) | | $ | (532,945) | | $ | 356,195 |
| (67) | % |
| For the three months ended June 30, | ||||||||||||||||
| 2020 | 2019 | Variance | % | |||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | $ | 60,754 | $ | 61,960 | $ | (1,206 | ) | (2 | )% | |||||||
| General and administrative | 777,991 | 1,059,041 | (281,051 | ) | (27 | )% | ||||||||||
| Total operating expenses | $ | 838,745 | $ | 1,121,001 | $ | (282,257 | ) | (25 | )% | |||||||
| Income tax benefit | $ | (199,530 | ) | $ | 366,076 | $ | (565,606 | ) | 100 | % | ||||||
| Net (loss) from continuing operations including non-controlling interest | $ | (532,945 | ) | $ | (1,004,228 | ) | $ | 471,283 | NM | % | ||||||
Operating Expenses
| ● | Total operating expenses decreased by |
42
Income Tax Benefit
| ● | Income tax benefit of |
Net Loss
| ● | Net loss from |
The Six Months Ended June 30, 2020,2021, as Compared to the Six Months Ended June 30, 20192020
| For the six months ended June 30, | |||||||||||||||||||||||||||||
| 2020 | 2019 | Variance | % | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||||||
|
| For the six months ended June 30, |
| | |||||||||||||||||||||||||
| | 2021 | | 2020 | | Variance | | % | | | |||||||||||||||||||
| Key revenue streams: |
| |
|
| |
|
| |
|
|
| | | ||||||||||||||||
| Placement Advisory Services | $ | 41,484 | $ | 832,516 | $ | (791,032 | ) | (95 | )% | | $ | 62,151 | | $ | 41,484 | | $ | 20,667 |
| 50 | % | | |||||||
| Career Advisory Services | 234,191 | 1,817,275 | (1,583,084 | ) | (87 | ) | |
| 4,240 | |
| 234,191 | |
| (229,951) |
| (98) | % | | ||||||||||
| Student & Family Advisory | - | 487,000 | (487,000 | ) | (100 | ) | |||||||||||||||||||||||
| Other Advisory | 507 | 3,000 | (2,493) | (83 | )% | |
| 1,945 | |
| 507 | |
| 1,438 |
| 284 | % | | |||||||||||
Commission | |
| 8,617 | |
| — | |
| 8,617 |
| NM | | | ||||||||||||||||
| Total revenues | $ | 276,182 | $ | 3,139,791 | $ | (2,863,608 | ) | (91 | )% | | $ | 76,953 | | $ | 276,182 | | $ | (199,229) |
| (72) | % | | |||||||
| Gross Profit | $ | 110,128 | $ | 1,371,104 | $ | (1,260,976 | ) | (92 | )% | | $ | 63,503 | | $ | 110,128 | | $ | (46,625) |
| (42) | % | | |||||||
| Gross Margin | 40 | % | 44 | % | |
| 83 | % |
| 40 | % |
|
|
|
| | | ||||||||||||
Revenue
| ● | Total revenues for the six months ended June 30,
|
Total revenues for the six months ended June 30, 2021 were generated by the operations of AEC New York and AEC BVI, which deliver Placement Advisory Services, Career Advisory Services and Other Advisory Services to our clients.
| ● | Revenues for the six months ended June 30,
|
We expect the impact of COVID-19 on our business, especially on school application and Career Advisory Services, will last until the end of this year, due to restrictions on domestic and international travels, delay of the spring semester and cancellation of overseas exams, as well as difficulty to obtain valid visas. We will continually monitor the development of the epidemic as well as the impact on our operations and financial performance and actively adjust our operational strategies and make efforts on cost control and reducing expenditures. We will also strive to expand our target market and provide support of online study to our customers.
43
| ● | In addition, the Chinese government offers incentives and benefits though its Talents Policy to Chinese students who return to China to work and live there. This Talents Policy has encouraged many of our clients who recently graduated or are about to graduate to go back to China, instead of staying in the U.S., which resulted in less service requests for our placement advisory and student & family advisory services. Additionally, the decrease in the value of China’s currency and the relatively restrictive U.S. policy on international students is increasingly driving Chinese students to choose to apply to universities and colleges in non-U.S. countries or choose to return to the PRC after graduation, rather than staying in the U.S. To mitigate the effect of such recent changes, we are expanding our local services in the PRC, concentrating on new services promotion and |
Gross Profit & Gross Margin
| ● | Our gross profit for the six months ended June 30, |
| ● | Our gross margin was approximately |
The following table summarizes changes in operating expenses and provision for income taxes for the periods presented:
| For the six months ended June 30, | ||||||||||||||||||||||||||||
| 2020 | 2019 | Variance | % | |||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
|
| For the six months ended June 30, |
| |||||||||||||||||||||||||
| | 2021 | | 2020 | | Variance | | % | | |||||||||||||||||||
| Operating expenses |
| |
|
| |
|
| |
|
|
| | ||||||||||||||||
| Selling and marketing | $ | 74,115 | $ | 201,249 | $ | (127,134 | ) | (63 | )% | | $ | — | | $ | 74,115 | | $ | (74,115) |
| (100) | % | |||||||
Research and development expenses | |
| 12,242 | |
| — | |
| 12,242 |
| NM | | ||||||||||||||||
| General and administrative | 1,425,116 | 1,451,878 | (26,763) | (2 | ) | |
| 706,803 | |
| 1,425,116 | |
| (718,313) |
| (50) | % | |||||||||||
| Total operating expenses | $ | 1,499,231 | $ | 1,653,127 | $ | (153,897) | (9 | )% | | $ | 719,405 | | $ | 1,499,231 | | $ | (779,826) |
| (52) | % | ||||||||
| Income tax benefit | $ | (362,153 | ) | $ | 366,076 | $ | (528,699 | ) | NM | % | | $ | (100,399) | | $ | (362,153) | | $ | 261,754 |
| (72) | % | ||||||
| Net (loss) from continuing operations including noncontrolling interest | $ | (1,026,633 | ) | $ | (646,802) | $ | (379,831 | ) | NM | % | | $ | (477,555) | | $ | (1,026,633) | | $ | 549,078 |
| (53) | % | ||||||
Operating Expenses
| ● | Total operating expenses decreased by |
Income Tax Benefit
| ● | Income tax benefit of |
Net Loss
| ● | Net loss from continuing operations including non-controlling interest was $477,555 for the six months ended June 30, 2021, as compared to the net loss of $1,026,633 for the six months ended June 30, 2020, |
44
Liquidity and Capital Resources
Discontinued Operations
On May 1, 2019, the Company sold AEC Southern UK to three individuals, Ye Tian, Rongxia Wang and Weishou Li. As a result, (1) the financial results of AEC Southern UK were reflected in our consolidated statement of income, retrospectively, as discontinued operations beginning in the first quarter of 2019; and (2) the related assets and liabilities associated with AEC Southern UK in the consolidated balance sheet for the years ended December 31, 2019, are classified as discontinued operations. See "Note 10 - Discontinued Operations" to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.
Cash Flows and Working Capital
As of June 30, 2020,2021, we had cash of $922,567,$541,844, a decrease of $112,828$369,814 from $1,035,395$911,658 as of December 30, 2019 for continuing operations.31, 2020. We have financed our operations primarily through cash flow from operating activities. We require cash for working capital, payment of accounts payables and accrued expenses, salaries, commissions and related benefits, and other operating expenses and income taxes. The following table sets forth a summary of our cash flows for the periods indicated.
| Six Months ended June 30, | ||||||||||||||||
| 2020 | 2019 | Variance | % | |||||||||||||
| Net cash used in operating activities | ||||||||||||||||
| Net cash used in continuing operating activities | $ | (533,490 | ) | $ | (798,029 | ) | $ | 264,539 | NM | % | ||||||
| Net cash used in by discontinued operating activities | - | - | - | NM | ||||||||||||
| Net cash used in operating activities | $ | (533,490 | ) | $ | (798,029 | ) | $ | 264,539 | NM | % | ||||||
| Net cash (used in) provided by financing activities | ||||||||||||||||
| Net cash (used in) provided by continuing financing activities | $ | 421,236 | $ | 580,867 | $ | (159,631 | ) | (27 | )% | |||||||
| Net cash (used in) provided by discontinued financing activities | - | - | - | NM | ||||||||||||
| Net cash (used in) provided by financing activities | $ | 421,236 | $ | 580,867 | (159,631 | ) | (27 | )% | ||||||||
| Effect of exchange rates changes on cash | (574 | ) | 1,171 | (1,745 | ) | NM | ||||||||||
| Net change in cash | $ | (112,828 | ) | $ | (215,991 | ) | $ | 103,163 | NM | % | ||||||
| | | | | | | | | | | | |
| | Six Months ended June 30, |
| |||||||||
| | 2021 | | 2020 | | Variance | | % |
| |||
Net cash (used in) operating activities |
| $ | (217,696) |
| $ | (533,490) |
| $ | 315,794 |
| (59) | % |
Net cash (used in) investing activities | |
| (734) | |
| — | |
| (734) |
| NM | |
Net cash (used in) financing activities | | $ | (154,880) | | $ | 421,236 | |
| (576,116) |
| (137) | % |
Effect of exchange rates changes on cash | |
| 3,496 | |
| (574) | |
| 4,070 |
| (709) | |
Net change in cash | | $ | (369,814) | | $ | (112,828) | | $ | (256,986) |
| 228 | % |
Cash Flow from Operating Activities
| ● | Net cash used in |
Cash Flow from Investing Activities
| ● |
Cash Flow from Financing Activities
| ● | Net cash | |
|
Working Capital
The following table sets forth our working capital from continuing operations:
| June 30, | December 31, | |||||||||||||||||||||||||||
| 2020 | 2019 | Variance | % | |||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
|
| June 30, |
| December 31, |
|
| |
|
|
| ||||||||||||||||||
| | 2021 | | 2020 | | Variance | | % | | |||||||||||||||||||
| Total current assets from continuing operations | $ | 2,881,461 | $ | 4,163,050 | $ | (1,281,589) | (31) | % | | $ | 783,327 | | $ | 1,266,151 | | $ | (482,824) |
| (38) | % | ||||||||
| Total current liabilities from continuing operations | 3,893,935 | 4,147,871 | (253,936) | (6) | |
| 2,835,922 | |
| 3,579,624 | |
| (743,702) |
| (21) | | ||||||||||||
| Working capital | $ | (1,012,474 | ) | $ | 15,179 | $ | (1,027,653) | NM | % | | $ | (2,052,595) | | $ | (2,313,473) | | $ | 260,878 |
| (11) | % | |||||||
| Current ratio | 0.74 | 1.00 | |
| 0.28 | |
| 0.35 | |
|
|
|
| | ||||||||||||||
| ● | As of June 30, |
| ● | We believe that our working capital will be sufficient to enable us to meet our cash requirements for the next 12 months. We believe we have adequate working capital to fund future growth activities. |
45
Going Concern
The independent auditors'auditors’ report accompanying our June 30, 20202021 financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming“assuming that we will continue as a going concern,"” which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
Additionally, we expect that the outbreak of COVID-19 pandemic will continue to have material and adverse impacts on our cash flow for the three months ending September 30, 20202021 with potential continuing impacts on subsequent periods. As such, we expect we will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through, among other things, additional funding from a shareholder of the Company, and believe that will be sufficient to meet our anticipated needs for working capital and satisfying our estimated liquidity needs 12 months from the date of the financial statements.
Off-Balance Sheet Arrangements
We did not have, during the period presented, and we are currently not party to, any off-balance sheet arrangements.
Seasonality
We experience seasonality in business with students as customers, specifically our placement advisory, career advisory and student and family services, all related to the business of AEC New York. The seasonality reflects the general trend of the industry of admissions and education related services, corresponding to the predominantly fall semester start dates of educational institutions admissions. Our services are higher in the fourth and first quarters of our fiscal year than the other two quarters, reflecting the engagement for services of educational institutions admissions predominantly occurring in the fourth quarter and first quarter of a calendar year, and other consulting services corresponding to the beginning of academic year, i.e. the fall semester.
Subsequent Events
ManagementThe Company’s management has evaluatedperformed subsequent events for recognition and disclosureprocedures through the date thesethe financial statements were filed with the United States Securities and Exchange Commission and concluded thatavailable to be issued. There were no other subsequent event or transactions have occurred that required recognitionevents requiring adjustment to or disclosure in ourthe consolidated financial statements except for the following.financial.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Smaller reporting companies are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Control and Procedures.
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer (CEO), as appropriate to allow timely decisions regarding required disclosure.
During the threesix months ended June 30, 2020,2021, we have established procedures requiring the CEO to review filing-related files before preparing the consolidated financial statements and to confirm and ensure that all significant, non-routine events and pending transactions are properly disclosed.
46
We performed an evaluation, under the supervision and with the participation of our management, including our CEO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our CEO has concluded that, as of June 30, 2020,2021, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and reported properly within the time periods specified by the SEC, and did not provide reasonable assurance that information required to be disclosed by the Company in such reports would be accumulated and communicated to the Company’s management, including its CEO, as appropriate, to allow timely decisions regarding required disclosure. Such conclusion was based solely on the fact that the Company identified deficiencies in its internal control over financial reporting as of June 30, 2020.2021. Although we have determined that the existing controls and procedures are not effective, the deficiencies identified have not been deemed material to our reporting disclosures.
We have identified the following deficiencies, we have limited administrative and accounting resources, outdated accounting software and generally weak accounting processes and internal control procedures. Additionally, we have inadequate segregation of duties in certain accounting processes, including the payroll, cash receipts and disbursements processes in our accounting system, partly as a result of our limited size and accounting staff. We have taken steps to remediate these issues, including (1) hiring one more accounting personnel, (2) updating our operations manual to clarify and limit the power of our management team and our employees, and (3) periodical inspections by major shareholders to supervise both of our financial condition and decision making process. We expect that we will have improved controls and documentation in place by December 31, 2020.
2021.
Changes in internal control over financial reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
44
47
PART II
OTHER INFORMATION
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
Smaller reporting companies are not required to provide the information required by this item.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS.
There has been no unregistered sale of equity securities during the threesix months ended June 30, 2020.2021.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
None.
48
Exhibit | Description | |
No. | ||
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
4.1 | ||
10.1* | ||
31.1* | ||
31.2* | ||
32.1* | ||
32.2* | ||
101.INS | Inline XBRL Instance Document * | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document * | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document * | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document * | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document * | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document * |
104 | | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit) |
* | Filed herewith. |
** | In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 herewith are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed filed for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act. |
49
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
American Education Center, Inc. | ||
By: | /s/ Max P. Chen | |
Name: | Max P. Chen | |
August | Title: | President, Sole Director, Chief Executive Officer, Interim Chief Financial Officer, and Secretary |
50