UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 2017 2020
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:file number 333-201029
AMERICAN EDUCATION CENTER INC.
(Exact Name of Registrant as Specified in Its Charter)
AMERICAN EDUCATION CENTER, INC. |
( |
Nevada | 38-3941544
| |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 10020 | |
(Address of |
( |
(212) 825-0437(646) 722-2931
(Registrant’s Telephone Number, Including Area Code)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:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
None | None | None |
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by SectionsSection 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 pastlast 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | Smaller reporting company | x | |
Emerging growth company |
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 ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date 41,350,000date: 57,497,113 shares of common stock, at$0.001 par value, of $0.001 as of November 9, 2017.August 14, 2020.
TABLE OF CONTENTS
Index to Form 10-Q
Throughout this Quarterly Report on Form 10-Q, the “Company”, “we,” “us,” and “our,” refer to (i) American Education Center, Inc., a Nevada corporation (“AEC Nevada”); (ii) American Education Center, Inc., a New York corporation ("AEC New York"); and (iii) AEC Southern Management Co., Ltd, a company formed pursuant to the laws of England and Wales (the “AEC Southern UK”) and the subsidiaries of AEC Southern UK unless otherwise indicated or the context otherwise requires.
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:
● | our ability to deliver, market, and generate sales of our advisory services; | |
● | our ability to develop and/or introduce new advisory services; | |
● | our projected revenues, profitability, and other financial metrics; | |
● | our future financing plans; | |
● | our anticipated needs for working capital; | |
● | the anticipated trends in our industry; | |
● | our ability to expand our sales and marketing capability; | |
● | acquisitions of other companies or assets that we might undertake in the future; | |
● | competition existing today or that will likely arise in the future; | |
● | the impact of the COVID-19 pandemic on our operations and revenue; and | |
● | other factors discussed elsewhere herein. |
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 becauseas 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 “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 somea 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.
FINANCIAL INFORMATION
AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, | December 31, | |||||||
ASSETS | 2020 | 2019 | ||||||
Current assets: | ||||||||
Cash | $ | 922,567 | $ | 1,035,395 | ||||
Accounts receivable, net of allowance for doubtful accounts of $3,068,759 and 2,605,348 at June 30, 2020 and 2019, respectively | 1,733,435 | 2,874,125 | ||||||
Prepaid expenses | 225,459 | 253,530 | ||||||
Total current assets | 2,881,461 | 4,163,050 | ||||||
Noncurrent assets: | ||||||||
Fixed Asset, net | 5,037 | 6,226 | ||||||
Deferred income taxes | 861,307 | 557,615 | ||||||
Intangible asset, net | 198,136 | 272,226 | ||||||
Operating lease right-of-use asset | 1,983,406 | 2,149,710 | ||||||
Security deposits | 282,215 | 285,041 | ||||||
Total noncurrent assets | 3,330,101 | 3,270,818 | ||||||
Total assets of continuing operations | 6,211,562 | 7,433,868 | ||||||
Assets of discontinued operations, net | - | - | ||||||
TOTAL ASSETS | $ | 6,211,562 | $ | 7,433,868 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 2,586,596 | $ | 2,867,133 | ||||
Taxes payable | - | 60,511 | ||||||
Deferred revenue | 95,059 | 215,500 | ||||||
Advances from clients | - | 60 | ||||||
Short-term loan from related party | 849,245 | 574,564 | ||||||
Short-term loan due within a year | - | 98,433 | ||||||
Operating lease liability - current portion | 363,035 | 331,670 | ||||||
Total current liabilities | 3,893,935 | 4,147,871 | ||||||
Noncurrent liabilities: | ||||||||
Operating lease liability | 1,876,381 | 2,067,504 | ||||||
Long-term loan | 236,588 | - | ||||||
Total liabilities of continuing operations | 6,006,904 | 6,215,375 | ||||||
Liabilities of discontinued operations | - | - | ||||||
Total liabilities | 6,006,904 | 6,215,375 | ||||||
Stockholders’ equity: | ||||||||
Series A Convertible Preferred stock, $0.001 par value; 20,000,000 shares authorized 0 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | - | - | ||||||
Series B Convertible Preferred stock, $0.001 par value; 25,000,000 shares authorized 25,000,000 and 0 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | 25,000 | 25,000 | ||||||
Common stock, $0.001 par value; | ||||||||
450,000,000 shares authorized; 56,497,113 shares and 55,797,113 shares outstanding at June 30, 2020 and December 31, 2019 respectively | 57,497 | 56,797 | ||||||
Additional paid-in capital | 8,274,230 | 8,267,930 | ||||||
Treasury stock at cost, 1,000,000 shares at 0.66 per share | (660,000 | ) | (660,000 | ) | ||||
Subscription receivables | (592,305 | ) | (592,305 | ) | ||||
Retained earnings | (6,947,911 | ) | (5,924,231 | ) | ||||
Accumulated other comprehensive income | 1,120 | (4,678 | ) | |||||
Total controlling interest | 157,631 | 1,168,513 | ||||||
Noncontrolling Interest | 47,027 | 49,980 | ||||||
Total stockholders' equity | 204,658 | 1,218,493 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 6,211,562 | $ | 7,433,868 |
See accompanying notes to consolidated financial statements.
AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues | $ | 161,984 | $ | 1,169,044 | $ | 276,182 | $ | 3,139,791 | ||||||||
Cost of revenues | 55,717 | 686,290 | 166,054 | 1,768,687 | ||||||||||||
Gross profit | 106,267 | 482,754 | 110,128 | 1,371,104 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling and marketing | 60,754 | 61,960 | 74,115 | 201,249 | ||||||||||||
General and administrative | 777,991 | 1,059,041 | 1,425,116 | 1,451,878 | ||||||||||||
Total operating expenses | 838,745 | 1,121,001 | 1,499,231 | 1,653,127 | ||||||||||||
(Loss) from operations | (732,478 | ) | (638,247 | ) | (1,389,103 | ) | (282,023 | ) | ||||||||
Other income | 3 | 95 | 317 | 1,297 | ||||||||||||
(Loss) before provision for income taxes | (732,475 | ) | (638,152 | ) | (1,388,786 | ) | (280,726 | ) | ||||||||
Provision for income taxes (benefit) | (199,530 | ) | 366,076 | (362,153 | ) | 366,076 | ||||||||||
Net (loss) from continuing operations including noncontrolling interest | $ | (532,945 | ) | $ | (1,004,228 | ) | $ | (1,026,633 | ) | $ | (646,802 | ) | ||||
Net income (loss) from discontinued operations, net of income taxes benefit | - | 836,807 | - | 561,807 | ||||||||||||
Net (loss) including noncontrolling interest | (532,945 | ) | (167,421 | ) | (1,026,633 | ) | (84,995 | ) | ||||||||
Less: Net (loss) attributable to noncontrolling interest | (1,470 | ) | (1,470 | ) | (2,953 | ) | (2,940 | ) | ||||||||
Net(loss) attributable to American Education Center | $ | (531,475 | ) | $ | (165,951 | ) | $ | (1,026,680 | ) | $ | (82,055 | ) | ||||
Net (loss) including noncontrolling interest | $ | (532,945 | ) | $ | (167,421 | ) | $ | (1,026,633 | ) | $ | (84,995) | |||||
Other comprehensive (loss) | ||||||||||||||||
Foreign currency translation income (loss) | (1,434 | ) | 6 | 5,798 | 1,171 | |||||||||||
Comprehensive (loss) including noncontrolling interest | $ | (534,379 | ) | (167,415 | ) | $ | (1,026,835 | ) | (83,824 | ) | ||||||
Less: Comprehensive (loss) attributable to noncontrolling interest | (1,470 | ) | (1,470 | ) | (2,953 | ) | (2,940 | ) | ||||||||
Comprehensive (loss) attributable to American Education Center | $ | (532,909 | ) | $ | (165,945 | ) | $ | (1,017,882 | ) | $ | (80,884 | ) | ||||
Income (loss) earnings per common share - basic and diluted | ||||||||||||||||
Income (loss) from continuing operations | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.01 | ) | ||||
(Loss) from discontinued operations | $ | - | $ | 0.01 | $ | - | $ | 0.02 | ||||||||
Net income (loss) earnings per common share - basic and diluted | (0.01 | ) | (0.01 | ) | (0.02 | ) | 0.01 | |||||||||
Weighted average shares | ||||||||||||||||
Outstanding, basic and diluted | 55,957,769 | 56,058,483 | 55,957,769 | 56,058,483 |
See accompanying notes to consolidated financial statements.
AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net (loss) | $ | (1,026,633 | ) | $ | (84,995) | |||
Loss from discontinued operation, net of income taxes | - | - | ||||||
Adjustments to reconcile net (loss) including noncontrolling interest to net cash | ||||||||
(Used in) operating activities: | ||||||||
Deferred tax provision (benefit) | (303,692 | ) | 285,608 | |||||
Stock-based compensation expense | 7,000 | 62,000 | ||||||
Provision for doubtful accounts | 463,411 | 395,566 | ||||||
Depreciation expense for fixed assets | 1,103 | - | ||||||
Gain from disposal of the discontinued operation, net of income taxes | (561,807 | ) | ||||||
Amortization expense for learning platform | 6,000 | 6,000 | ||||||
Amortization expense | 68,090 | 68,090 | ||||||
Change in operating assets and liabilities: | ||||||||
in other assets and liabilities | 6,657 | 13,625 | ||||||
in accounts receivable | 676,860 | (728,785 | ) | |||||
in prepaid expenses | 26,517 | (124,186 | ) | |||||
in security deposits | 2,548 | (18,249 | ) | |||||
in accounts payable and accrued expenses | (278,483 | ) | (192,277 | ) | ||||
in taxes payable | (62,368 | ) | 62,482 | |||||
in deferred revenue | (120,500 | ) | 42,425 | |||||
in advances from clients | - | (23,526 | ) | |||||
Net cash (used in) continuing operating activities | (533,490 | ) | (798,029 | ) | ||||
Net cash (used in) discontinued operating activities | - | - | ||||||
Net cash (used in) operating activities | (533,490 | ) | (798,029 | ) | ||||
Cash flows from financing activities: | ||||||||
(Repayment) of short-term loan | (98,434 | ) | - | |||||
Proceeds from SBA Loan | 236,588 | - | ||||||
Loan from stockholder | 283,082 | 580,867 | ||||||
Net cash provided by continuing financing activities | 421,236 | 580,867 | ||||||
Net cash provided by discontinued financing activities | - | - | ||||||
Net cash provided by financing activities | 421,236 | 580,867 | ||||||
Effect of exchange rates changes on cash | (574 | ) | 1,171 | |||||
Net change in cash | (112,828 | ) | (215,991 | ) | ||||
Cash at beginning of period | 1,035,395 | 1,985,133 | ||||||
Cash at end of period | $ | 922,567 | $ | 1,769,142 | ||||
Less cash of discontinued operations - end of period | - | - | ||||||
Cash of continuing operations - end of period | 922,567 | 1,769,142 | ||||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for income taxes | $ | 12,696 | $ | 30,162 | ||||
Cash paid for interest | $ | 1,566 | $ | 10,918 |
See accompanying notes to consolidated financial statements.
AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||
Additional | other | |||||||||||||||||||||||||||||||||||||||||||||||
Common stock | Series B Preferred Stock | paid-in | Treasury Stock | Subscription | Retained | comprehensive | Noncontrolling | |||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | capital | Shares | Amount | Receivables | earnings | income | Interest | Total | |||||||||||||||||||||||||||||||||||||
January 1, 2020 | 55,797,113 | $ | 56,797 | 25,000,000 | $ | 25,000 | $ | 8,267,930 | 1,000,000 | $ | (660,000 | ) | $ | (592,305 | ) | $ | (5,924,231 | ) | $ | (4,678 | ) | $ | 49,980 | $ | 1,218,493 | |||||||||||||||||||||||
Net loss | (492,205 | ) | (1,483 | ) | (493,688 | ) | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for services | 700,000 | 700 | 6,300 | 7,000 | ||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation income | 7,232 | 7,232 | ||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2020 | 56,497,113 | $ | 57,497 | 25,000,000 | $ | 25,000 | $ | 8,274,230 | 1,000,000 | $ | (660,000 | ) | $ | (592,305 | ) | $ | (6,416,436 | ) | $ | 2,554 | $ | 48,497 | $ | 739,037 | ||||||||||||||||||||||||
Net loss | (531,475 | ) | (1,470 | ) | (532,945 | ) | ||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation income | (1,434 | ) | (1,434 | ) | ||||||||||||||||||||||||||||||||||||||||||||
June 30, 2020 | 56,497,113 | $ | 57,497 | 25,000,000 | $ | 25,000 | $ | 8,274,230 | 1,000,000 | $ | (660,000 | ) | $ | (592,305 | ) | $ | (6,947,911 | ) | $ | 1,120 | $ | 47027 | $ | 204,658 |
See accompanying notes to consolidated financial statements.
AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||
Additional | other | |||||||||||||||||||||||||||||||||||||||||||||||
Common stock | Series B Preferred Stock | paid-in | Treasury Stock | Subscription | Retained | comprehensive | Noncontrolling | |||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | capital | Shares | Amount | Receivables | earnings | income | Interest | Total | |||||||||||||||||||||||||||||||||||||
January 1, 2019 | 56,597,113 | $ | 56,597 | 25,000,000 | $ | 25,000 | $ | 8,206,130 | $ | - | $ | (719,911 | ) | $ | (5,714,688 | ) | $ | (13,865 | ) | $ | 55,860 | $ | 1,895,123 | |||||||||||||||||||||||||
Net income | 83,896 | (1,470 | ) | 82,426 | ||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation income | 1165 | 1165 | ||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2019 | 56,597,113 | 56,597 | 25,000,000 | 25,000 | 8,206,130 | - | - | (719,911 | ) | (5,633,732 | ) | (12,700 | ) | 54,390 | 1,978,714 | |||||||||||||||||||||||||||||||||
Realization upon disposal of subsidiary by reacquiring stock | (1,000,000 | ) | 1,000,000 | (660,000 | ) | 1,062,541 | 402,541 | |||||||||||||||||||||||||||||||||||||||||
Net income | (165,951 | ) | (1,470 | ) | (167,421 | ) | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for services | 200,000 | 200 | 61,800 | 62,000 | ||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for cash | 143,982 | 143,982 | ||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation income | 6 | 6 | ||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2019 | 55,797,113 | 56,797 | 25,000,000 | $ | 25,000 | $ | 8,267,930 | 1,000,000 | $ | (660,000 | ) | $ | (575,929 | ) | $ | (4,734,202 | ) | $ | (12,694 | ) | $ | 52,920 | $ | 2,419,822 |
See accompanying notes to consolidated financial statements.
AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||
ASSETS | 2017 | 2016 | ||||||
(Unaudited) | ||||||||
Current assets: | ||||||||
Cash | $ | 1,609,945 | $ | 2,290,429 | ||||
Accounts receivable, net of allowance for doubtful accounts of $108,300 and $63,000 | 6,604,059 | 2,887,837 | ||||||
at September 30, 2017 and December 31, 2016, respectively | ||||||||
Prepaid expenses | 92,787 | 61,600 | ||||||
Total current assets | 8,306,791 | 5,239,866 | ||||||
Noncurrent assets: | ||||||||
Deferred compensation | 2,437,501 | 3,315,001 | ||||||
Deferred income taxes | 33,436 | 97,936 | ||||||
Intangible asset, net | 476,633 | 578,769 | ||||||
Security deposits | 266,021 | 266,021 | ||||||
Total noncurrent assets | 3,213,591 | 4,257,727 | ||||||
TOTAL ASSETS | $ | 11,520,382 | $ | 9,497,593 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 4,067,358 | $ | 3,452,231 | ||||
Taxes payable | 826,370 | 511,355 | ||||||
Deferred revenue | 100,000 | 177,132 | ||||||
Loan from stockholders | 113,906 | 113,906 | ||||||
Total current liabilities | 5,107,634 | 4,254,624 | ||||||
Noncurrent liabilities: | ||||||||
Deferred rent | 182,510 | 155,707 | ||||||
Long-term loan | 295,579 | 295,579 | ||||||
Total liabilities | 5,585,723 | 4,705,910 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.001 par value; | ||||||||
20,000,000 shares authorized; none issued | - | - | ||||||
Common stock, $0.001 par value; | ||||||||
180,000,000 shares authorized; 41,350,000 shares issued and outstanding | ||||||||
at September 30, 2017 and December 31, 2016 | 41,350 | 41,350 | ||||||
Additional paid-in capital | 4,021,626 | 4,021,626 | ||||||
Retained earnings | 1,867,080 | 728,707 | ||||||
Accumulated other comprehensive income | 4,603 | - | ||||||
Total stockholders' equity | 5,934,659 | 4,791,683 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 11,520,382 | $ | 9,497,593 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues | $ | 5,215,743 | $ | 969,959 | $ | 20,379,142 | $ | 4,880,614 | ||||||||
Cost of revenues | 3,890,800 | 794,273 | 13,670,929 | 3,899,032 | ||||||||||||
Gross profit | 1,324,943 | 175,686 | 6,708,213 | 981,582 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling and marketing | 750,565 | 48,465 | 3,320,568 | 180,612 | ||||||||||||
General and administrative | 656,317 | 257,606 | 1,862,901 | 985,373 | ||||||||||||
Total operating expenses | 1,406,882 | 306,071 | 5,183,469 | 1,165,985 | ||||||||||||
Income (loss) from operations | (81,939 | ) | (130,385 | ) | 1,524,744 | (184,403 | ) | |||||||||
Other income | 82 | 2,409 | 84 | 7,602 | ||||||||||||
Income (loss) before provision for income taxes | (81,857 | ) | (127,976 | ) | 1,524,828 | (176,801 | ) | |||||||||
Provision for (benefit from) income taxes | (78,803 | ) | (76,028 | ) | 386,455 | (92,770 | ) | |||||||||
Net income (loss) | $ | (3,054 | ) | $ | (51,948 | ) | $ | 1,138,373 | $ | (84,031 | ) | |||||
Other comprehensive income | ||||||||||||||||
Foreign currency translation gain | 4,603 | - | 4,603 | - | ||||||||||||
Comprehensive income | $ | 1,549 | $ | (51,948 | ) | $ | 1,142,976 | (84,031 | ) | |||||||
Earnings per share - basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | 0.03 | $ | (0.00 | ) | |||||
Weighted average shares | ||||||||||||||||
outstanding, basic and diluted | 41,350,000 | 31,558,889 | 41,350,000 | 30,584,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 1,138,373 | $ | (84,031 | ) | |||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Deferred tax provision (benefit) | 64,500 | (73,719 | ) | |||||
Deferred rent expense | 26,803 | 36,877 | ||||||
Deferred compensation | 877,500 | - | ||||||
Provision for doubtful accounts | 45,300 | - | ||||||
Stock issued for services | - | 95,500 | ||||||
Amortization expense | 102,136 | - | ||||||
Change in operating assets and liabilities: | ||||||||
(Increase) decrease in accounts receivable | (3,761,522 | ) | 317,242 | |||||
(Increase) decrease in prepaid expenses | (31,187 | ) | 79,830 | |||||
Increase (decrease) in accounts payable and accrued expenses | 615,127 | (692,502 | ) | |||||
Increase (decrease) in taxes payable | 315,015 | (31,574 | ) | |||||
Decrease in deferred revenue | (77,132 | ) | (553,624 | ) | ||||
Increase in advances from clients | - | 93,790 | ||||||
Net cash used in operating activities | (685,087 | ) | (812,211 | ) | ||||
Effect of exchange rates changes on cash | 4,603 | - | ||||||
Net change in cash | (680,484 | ) | (812,211 | ) | ||||
Cash at beginning of period | 2,290,429 | 1,093,755 | ||||||
Cash at end of period | $ | 1,609,945 | $ | 281,544 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for income taxes | $ | 6,940 | $ | - | ||||
Cash paid for interest | $ | 14,778 | $ | 22,167 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
Accumulated | ||||||||||||||||||||||||
Additional | other | |||||||||||||||||||||||
Common stock | paid-in | Retained | comprehensive | |||||||||||||||||||||
Shares | Amount | capital | earnings | income | Total | |||||||||||||||||||
Balance as of December 31, 2016 | 41,350,000 | $ | 41,350 | $ | 4,021,626 | $ | 728,707 | $ | - | $ | 4,791,683 | |||||||||||||
Net income | - | - | - | 1,138,373 | - | 1,138,373 | ||||||||||||||||||
Foreign currency translation gain | - | - | - | - | 4,603 | 4,603 | ||||||||||||||||||
Balance as of September 30, 2017 | 41,350,000 | $ | 41,350 | $ | 4,021,626 | $ | 1,867,080 | $ | 4,603 | $ | 5,934,659 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
1. | ORGANIZATION AND BUSINESS |
American Education Center, Inc. (“AEC New York”) is a New York Corporation organizedcorporation incorporated on November 8, 1999 and is licensed by the Education 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, (“AEC Nevada”)American Education Center, Inc. in the State of Nevada with the same name.(“AEC Nevada”). On May 31, 2014, the President and thenthe sole shareholder of AEC New York exchanged his 200 shares for 10,563,000 shares of AEC Nevada. The share exchange resulted in AEC New York becoming a wholly owned subsidiary of AEC Nevada (hereinafter the “Company”).
On October 31, 2016, the Company completed an acquisition transaction through a share exchange with two stockholders, Rongxia Wang and Ye Tian, of AEC Southern Management Co., Ltd. (“AEC Southern UK”), a company incorporatedformed in December 2015 with a registered capital of 10,000 British Pounds pursuant to the laws of England and Wales. The Company acquired 100% of the outstanding shares of AEC Southern UK in exchange for 1,500,000 shares of its common stock valued at $210,000. Prior to October 31, 2016, Ye Tian and Rongxia Wang held 51% and 49%, respectively, ownership interest in AEC$210,000 (the “AEC Southern UK.UK Share Exchange”). As a result of the acquisition,AEC Southern UK Share Exchange, AEC Southern UK became a wholly owned subsidiary of the Company.
AEC Southern UK holdsheld 100% of the equity interestinterests in AEC Southern Management Limited, a Hong Kong company (“AEC Southern HK”) incorporatedformed on December 29, 2015, with a registered capital of HK$10,000.2015. AEC Southern HK owns 100% equity interest inthen formed Qianhai Meijiao Education Consulting Management Co., Ltd., a foreign wholly owned subsidiary incorporated pursuant to the PRC laws (“AEC Southern Shenzhen”) on March 29, 2016 pursuant to PRC laws, with a registered capital of RMB 5,000,000.
Therefore, under PRC laws, AEC Southern Shenzhen was a foreign wholly owned subsidiary of AEC Southern UK.
The Company’s corporate structureOn 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 follows:of the date of this report, does not have significant business activities.
On April 22, 2019, AEC Southern UK sold 100% of the equity interests of AEC Southern HK to AEC BVI and AEC Southern HK and its subsidiary became wholly-owned subsidiaries of AEC BVI.
On May 1, 2019, the Company sold 100% of the equity interest in AEC Southern UK to three individuals who were Ye Tian, Rongxia Wang and Weishou Li, and received a consideration of 1,000,000 shares of outstanding shares of AEC Nevada.
On May 22, 2020, AEC Southern HK formed Yiqilai (Shenzhen) Consulting Management Co., Ltd. (“AEC YQL”) in Shenzhen, China on May 22, 2020 pursuant to PRC laws. AEC YQL is a wholly owned subsidiary of AEC Southern HK, and as of the date of this report, does not have significant business activities.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
1. | ORGANIZATION AND BUSINESS (continued) |
As of June 30, 2020, the Company’s corporate structure is as follows:
Headquartered in New York with operations in the PRC (People’sPeople’s Republic of China)China (“PRC”), the Company covers two market segments:segments through two subsidiaries:
(1) | AEC New York capitalizes on the rising demand |
(2) | AEC AEC Southern is all generated from AEC Southern Shenzhen. |
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Consolidation and Presentation
The accompanying unaudited condensed 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 unaudited condensed 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.
Interim results are not necessarily indicative of full-year results. Certain prior year balances have been reclassified to conform to the current year'syear’s presentation; none of these reclassifications had an impact on reported financial position or cash flows for any of the periods presented. The information in this Form 10-Q should be read in conjunction with information included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 20162019 filed with the SEC on April 17, 2017.SEC.
Cash
Cash consists of all cash balances and liquid investments with an original maturity of three months or less to beare considered as cash equivalents.
Accounts Receivable
Accounts receivable are carried at net realizable value. The Company maintains an allowance for doubtful account,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. At September 30, 2017 and December 31, 2016, the allowance for doubtful accounts was $108,300 and $63,000, respectively.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016
2019
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Foreign Currency Translation
The Company’s functional currency is US dollars. The companyCompany has onethree bank accountaccounts located in the PRC.PRC and one located in Hong Kong. Translation adjustments arising from the use of different exchange rates, in the circumstance any subsidiary’s functional currency is not US dollars, from period to period are included as a separate component of accumulated other comprehensive income included in statements of changes in stockholders’ equity. Gain and losses from foreign currency transactions are included in the condensed consolidated statements of operations and comprehensive income.
Revenue Recognition
RevenueThe 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 recorded pursuantprobable that a significant future reversal will not occur, (iv) allocate the transaction price to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, “Revenue Recognition,”the respective performance obligations in the contract, and (v) recognize revenue when persuasive evidence of an arrangement exists, delivery of(or as) the services has occurred,Company satisfies the fee is fixed or determinable and collectability is reasonably assured.performance obligation.
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.
AEC Southern UK delivers customized compliance trainingFor the six months ended June 30, 2020, approximately $104,000, or more than 38%, of the revenue was realized as accounts receivable and advisory services. It receives monthly non-refundable retainer paymentsapproximately $120,000 of the revenue was realized from services completed.
Property and recognizes revenue when servicesequipment, net
Property and equipment are rendered.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:
Estimated useful lives (years) | ||||
Office furniture | 5 | |||
Electronic equipment | 3 |
Intangible Asset
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 services and compliancecorporate training and advisory services. The asset was recorded at cost on the acquisition date and is amortized on a straight-line basis over its economic useful life.
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.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
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“Equity-Based Payments to Non-Employees”Non-Employees” and FASB ASC 718, “Compensation“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 number of subjective variables. These subjective variables include but are not limited to the Company’s expected stock price volatility over the expected term of the awards, and actual and projected stock option and warrant exercise behaviors and forfeitures.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740, “Income“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.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Income Taxes (continued)
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. At SeptemberJune 30, 20172020 and December 31, 2016,2019, the Company does not have a liability for any unrecognized tax benefits.
The income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:
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 34%21%. Provisions for income taxes infor the United States have been made for taxable income the Company had in the US for the three and ninesix months ended SeptemberJune 30, 2017 and 2016.2020.
United KingdomBritish Virgin Island (“UK”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 Southern UKBVI was incorporated in the United KingdomBVI and is governed by the income tax laws of England and Wales. According to current England and Wales income tax law, the applicable income tax rate for AEC Southern UK is 20%.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.
The People's Republic of China (“PRC”)
AEC Southern Shenzhen was incorporated in the PRC. Pursuant to the income tax laws of China, the Company is not subject to tax on non-China source income. The Company is subject to corporate tax in China at 25% for the net taxable income. AEC Southern Shenzhen has no income tax for the six months ended June 30, 2020 due to the net operating loss for the period.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
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“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.
Level 2 Inputs – Inputs other than the quoted prices in active markets that are observable either directly or indirectly.
Level 3 Inputs – Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements.
Level 1 Inputs – | Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access. | |
Level 2 Inputs – | Inputs other than the quoted prices in active markets that are observable either directly or indirectly. | |
Level 3 Inputs – | Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements. |
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. At SeptemberAs of June 30, 20172020 and December 31, 2016,2019, respectively, the carrying values of these financial instruments approximated their fair values due to their short-term nature.
COVID-19 Outbreak
In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, workforces, customers, and created significant volatility and disruption of financial markets. It has also disrupted the normal operations of many businesses, including ours. This outbreak could decrease spending, adversely affect demand for our services and harm our business and results of operations. It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its effects on our business or results of operations at this time.
Use of Estimates
The preparation of the unaudited condensed 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.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Earnings (Loss) per Share
Earnings (loss) per share is calculated in accordance with FASB ASC 260, “Earnings“Earnings Per Share.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.
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 statements。
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
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.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
The Company adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while accounting for finance leases remained substantially unchanged.
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.
As of adoption of ASC 842 and as of January 1, 2019, the Company was not a party to finance lease arrangements.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the leases do not provide an implicit rate, the Company use the industry incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Under the available practical expedient, the Company account for the lease and non-lease components as a single lease component.
Adoption of the standard resulted in the recognition of $2,016,142 of ROU assets and $2,237,583 of lease liabilities for leases on our consolidated balance sheet at adoption on January 1, 2019 related to office space lease commitment on March 1, 2015. The difference between the ROU assets and lease liabilities was due to prepaid rent. For a new lease commitment on May 1, 2019, the company initially recognized $414,157 (RMB2,899,099) of ROU assets and lease liabilities of $399,048 (RMB2,793,341). The difference between the ROU assets and lease liabilities was due to prepaid rent and initial direct cost.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
3. | RECENTLY ISSUED ACCOUNTING STANDARDS |
In May 2014,January 2017, the FASB issued Accounting Standards Update (the “ASU”) No. 2014-09, "Revenue from Contracts with Customers (Topic 606).'' This guidance supersedes current guidance on revenue recognition in Topic 605, "Revenue Recognition.'' In addition, there are disclosure requirements related toaccounting standard update which simplifies the nature, amount, timing, and uncertainty of revenue recognition. In August 2015, the FASB issued ASU No.2015-14 to defer the effective date of ASU No. 2014-09test for all entities by one year. For public business entities that follow U.S. GAAP, the deferral results in the new revenue standard being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. In March 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers,” with respect to Principal versus Agent Considerations. In April 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers,” with respect to Identifying Performance Obligations and Licensing. In April 2016, the FASB additionally issued ASU No. 2016-12, “Revenue from Contracts with Customers,” with respect to Narrow-Scope Improvements and Practical Expedients. In December 2016, the FASB issued ASU No. 2016-20, “Revenue from Contracts with Customers,” with respect to Technical Corrections and Improvements. The Company does not believe the adoption will have a material impact on its consolidated financial statements.
In April 2016, FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments clarify the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company does not anticipate that this adoption will have a significant impact on its consolidated financial position, results of operations, or cash flows.
In May 2016, the FASB issued ASU No. 2016-11,Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, which is rescinding certain SEC Staff Observer comments that are codified in Topic 605, Revenue Recognition. The Company does not anticipate that this adoption will have a significant impact on its consolidated financial position, results of operations, or cash flows.
In May 2016, FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which is intended to not change the core principle of the guidance in Topic 606, but rather affect only the narrow aspects of Topic 606 by reducing the potential for diversity in practice at initial application and by reducinggoodwill impairment. To address concerns over the cost and complexity of applying Topic 606 both at transitionthe 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 on an ongoing basis.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 Companynew guidance does not anticipate that this adoption will have a significant impact on its consolidated financial position, resultsamend the optional qualitative assessment of operations, or cash flows.
In February 2016, the FASB issued ASU 2016-02, “Leases.” The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of pending adoption of the new standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (ASC 718): Improvements to Employee Share-Based Payment Accounting. The objective is to identity, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The areas for simplification include the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas apply only to nonpublic entities. For public business entities, the ASUgoodwill impairment. This update is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity inor any interim or annual period. If an entity early adopts the amendmentsgoodwill impairment tests in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The adoption of ASU 2016-09 did not impact our consolidated financial statements.
In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09, Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. For all entities, this ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The adoption of this ASU is not expected to have a material effect on its consolidated financial statements.
In August 2016, the FASB has issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Business Combination; (4) Proceeds from the Settlement of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned; (6) Life Insurance Policies; (7) Distributions Received from Equity Method Investees; (8) Beneficial Interests in Securitization Transactions; and Separately Identifiable Cash Flows and Application of the Predominance Principle. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted includingfor 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 an interim period. The amendments shouldtheir entirety. This guidance will be appliedadopted using a retrospective transition method to each period presented. If itapproach and is impracticable to applyeffective for the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable.Company on January 1, 2020. The Company expects thathas evaluated the effect of the adoption of this ASU wouldand the standard did not have a materialan impact on the Company’sits consolidated financial statements.statements and related disclosures from the adoption of the new guidance.
In November 2016,December 2019, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash. The amendments address diversity2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU provides an exception to the general methodology for calculating income taxes in practicean 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 existsis 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 classificationtax basis of goodwill should be considered part of the business combination in which goodwill was originally recognized for accounting purposes and presentationwhen it should be considered a separate transaction, and (3) requires that an entity reflect the effect of changesan enacted change in restricted cash ontax laws or rates in the statement of cash flows.annual effective tax rate computation in the interim period that includes the enactment date. The amendmentstandard is effective for public companiesthe Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.2020, with early adoption permitted. The Company does not anticipate that this adoption will have a significant impact on its consolidated financial position, resultsis currently in the process of operations, or cash flows.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the definition of a business. The amendments in this ASU is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company does not believe the adoption of this ASU would have a material effect on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323). The amendments amended Accounting Changes and Error Corrections (Topic 250) to state that registrants should consider additional qualitative disclosures if the impact of an issued but not yet adopted ASU is unknown or cannot be reasonably estimated and to include a description of the effect of the accounting policies that the registrant expects to apply, if determined. Transition guidance included in certain issued but not yet adopted ASUs was also updated to reflect this amendment. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
4. |
Activity in the allowance for doubtful accounts was as followings:
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
Accounts receivable | $ | 4,802,194 | $ | 5,479,473 | ||||
Allowance for bad debts | (3,068,759 | ) | (2,605,348 | ) | ||||
Accounts receivable, net | $ | 1,733,435 | $ | 2,874,125 | ||||
Balance, beginning of year | $ | 2,605,348 | $ | 1,189,147 | ||||
Provision (net of recover) | 463,411 | 1,557,201 | ||||||
Amounts written off, net of recoveries | - | (141,000 | ) | |||||
Balance, end of year | $ | 3,068,759 | $ | 2,605,348 |
5. | FIXED ASSET, NET |
As of June 30, 2020 and December 31, 2019, fixed asset, net as follows:
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
Electronic equipment | $ | 6,103 | $ | 6194 | ||||
Office furniture | 805 | 817 | ||||||
Less: accumulated depreciation | (1,871 | ) | (785 | ) | ||||
Fixed asset - net | $ | 5,037 | $ | 6,226 |
For the three and six months ended June 30, 2020 and 2019, depreciation expense was $556 and $1,103, $0 and $0 respectively.
6. | INTANGIBLE ASSET, NET |
The gross carrying amount and accumulated amortization of this asset as of June 30, 2020 and December 31, 2019 are as follows:
June 30, | December 31, 2019 | |||||||
Intangible asset: online campus system | $ | 612,814 | $ | 612,814 | ||||
Intangible asset: learning platform | 120,000 | 120,000 | ||||||
Less: accumulated amortization | (534,678 | ) | (460,588 | ) | ||||
Intangible asset - net | $ | 198,136 | $ | 272,226 |
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, 2020 and 2019, amortization expense was $34,045, $74,090 and $37,045, $74,090, respectively.
The following table is the future amortization expense to be recognized:
Year Ending December 31, | ||||
2020 | 74,091 | |||
2021 | 46,045 | |||
2022 | 12,000 | |||
2022 | 66,000 | |||
198,136 |
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
7. | DEFERRED COMPENSATION |
On October 31, 2016, 1,500,000 shares of common stock of the Company were granted and issued to AEC Southern UK’s CEO who would provide service over a three-year period commencing November 1, 2016. The shares were valued using the market price of the Company’s common stock on the grant date of $0.14 per share. On the grant date, $210,000 was recognized as deferred compensation, which was expensed over the three-year period using the straight-line method. On December 31, 2017, the remaining balance of $198,333.33 deferred compensation was expensed due to the resignation of AEC Southern UK’s CEO.
On December 31, 2016, the Company granted and issued 6,000,000 shares of common stock to AEC Southern UK’s Chairman who would provide services over a three-year period commencing November 1, 2016. The shares were valued using the market price of the Company’s common stock on the grant date of $0.55 per share. On the grant date, $3,300,000 was recognized as deferred compensation, which was expensed over a three-year period using the straight-line method. The Company decided not to cancel or retrieve the shares issued to the CEO of AEC Southern UK as compensation and recognized the remaining of the compensation as part of the loss from disposal during 2019.
8. | SECURITY DEPOSITS |
The Company has security deposits with the landlord for its New York office and the office in Shenzhen, China of $282,215 and $285,041 as of June 30, 2020 and December 31, 2019 respectively. As of June 30, 2020, AEC New York has security deposits of $266,021 and AEC Shenzhen has security deposits of $16,194 (translation from RMB114,412).
9. | CONCENTRATION OF CREDIT AND BUSINESS RISK |
The Company maintains its cash accounts at two commercial banks in the US, three commercial banks in the USPRC and one commercial bank in the PRC and Hong Kong, respectively. The Federal Deposit Insurance Corporation covers fundsKong.
Funds held in US banks and it insuresinsured 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. The
Funds held in HK banks are insured by Hong Kong Deposit Protection Board covers funds held in HK banks and it insuresup to HK$500,000 per bank for the total of all depository accounts. Fund held in the PRC bank is covered by Deposit Insurance Ordinance (index: 000014349/2015-00031) that insures CNY¥500,000 for the total of all depository accounts. At September 30, 2017, the Company’s US bank accounts had cash balances in excess of federally insured limits of approximately $409,000.
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.
The following table represents major customers that individually accounted for more than 10% of the Company’s gross revenue for the ninesix months ended SeptemberJune 30, 20172020 and 2016:2019:
2017 | ||||||||||||||||
Gross Revenue | Percentage | Accounts Receivable | Percentage | |||||||||||||
Customer 1 | $ | 12,180,697 | 59.8 | % | $ | 3,376,689 | 51.1 | % | ||||||||
Customer 2 | 2,826,640 | 13.9 | % | 2,244,716 | 34.0 | % | ||||||||||
Customer 3 | 2,376,125 | 11.7 | % | 301,219 | 4.6 | % |
June 30, 2020 | ||||||||||||||||
Gross Revenue | Percentage | Accounts Receivable | Percentage | |||||||||||||
Customer 1 | $ | 103,980 | 37.6 | % | $ | 1,582,433 | 33.6 | % | ||||||||
2016 | ||||||||||||||||
Gross Revenue | Percentage | Accounts Receivable | Percentage | |||||||||||||
Customer 1 | $ | 1,621,590 | 33.2 | % | $ | 468,650 | 58.8 | % | ||||||||
Customer 2 | 814,000 | 16.7 | % | - | - |
June 30, 2019 | ||||||||||||||||
Gross Revenue | Percentage | Accounts Receivable | Percentage | |||||||||||||
Customer 1 | $ | 1,611,820 | 51.3 | % | $ | 1,534,441 | 32.1 | % | ||||||||
Customer 2 | 798,800 | 25.4 | % | 1,193,345 | 25.0 | % |
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
10. |
On 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, and received a consideration of 1,000,000 shares of outstanding shares of AEC Nevada which was valued at $660,000 and the debt owed to AEC Southern UK in the amount of $268,475 was forgiven by AEC Southern UK. The Company has classified the results of AEC Southern UK as discontinued operations in the unaudited consolidated statement of income for all periods presented. The Company decided not to cancel or retrieve the shares issued to the CEO of AEC UK as compensation and recognized the remaining of the compensation as part of the loss from disposal. Additionally, the related assets and liabilities associated with the discontinued operations in the prior year consolidated balance sheet are classified as discontinued operations. The Company recognized a gain of $561,808 from the disposition.
Pursuant to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the results of operations for the year ended December 31, 2019 and year ended December 31, 2018 from discontinued operations have been classified to loss from discontinued operations line on the accompanying consolidated statements of operations and comprehensive loss presented herein. The assets and liabilities also have been classified as discontinued operations in the Company’s consolidated financial statements as of December 31, 2019 and 2018.
The carrying amount of the major classes of assets and liabilities of discontinued operation as of May 1, 2019 and December 31, 2018 consist of the following:
May 1, | December 31, 2018 | |||||||
Assets of discontinued operation: | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 391 | $ | 391 | ||||
Accounts receivable | 4,864,297 | 4,595,823 | ||||||
Allowance for doubtful account | (4,595,823 | ) | (4,595,823 | |||||
Deferred compensation | - | 916,668 | ||||||
Total assets of discontinued operation | $ | 268,865 | $ | 917,059 | ||||
Liabilities of discontinued operation: | $ | - | ||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,881,404 | $ | 1,881,404 | ||||
Other payables | - | - | ||||||
Total liabilities of discontinued operation | $ | 1,881,404 | $ | 1,881,404 |
The summarized operating result of discontinued operation included in the Company’s consolidated statements of operation consist of the following:
From January 1 to May 1, 2019 | From January 1 to December 31, 2018 | |||||||
Revenues | $ | - | $ | - | ||||
Cost of revenues | - | - | ||||||
Gross profit | - | - | ||||||
Operating expenses | (366,667 | ) | (5,587,406 | ) | ||||
Other income (expenses), net | - | 4 | ||||||
Loss before income tax | (366,667 | ) | (5,587,402 | ) | ||||
Income tax expense (benefit) | - | (332,187 | ) | |||||
Loss from discontinued operation | (366,667 | ) | (5,255,215 | ) | ||||
Total loss from discontinued operations, net of income taxes | $ | (366,667 | ) | $ | (5,255,215 | ) |
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
11. | SEGMENT REPORTING |
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 considersevaluates the business from a geographic perspective, and assesses performance and allocates resources on this basis. The reportable segments are as follows:
TheAfter the discontinued operations of AEC Southern UK, the Company has two operating segments: AEC New York and AEC Southern UK.BVI.
· | AEC New York delivers placement, career and |
· | AEC |
Revenues from external customers, gross profit,The following table shows an analysis by segment of the assets and liabilities for each business areof continuing operations as follows:of June 30, 2020 and December 31,2019:
For the nine months ended September 30, 2017 | ||||||||||||
AEC New York | AEC Southern UK | Total | ||||||||||
Segment revenue: | ||||||||||||
Compliance training & advisory | $ | - | $ | 15,007,337 | $ | 15,007,337 | ||||||
Placement advisory | 677,640 | - | 677,640 | |||||||||
Career advisory | 2,438,035 | - | 2,438,035 | |||||||||
Student & Family advisory | 2,256,130 | - | 2,256,130 | |||||||||
Total revenue | $ | 5,371,805 | $ | 15,007,337 | $ | 20,379,142 | ||||||
Gross profit | $ | 1,776,618 | $ | 4,931,595 | $ | 6,708,213 |
June 30, 2020 | ||||||||||||
AEC New York | AEC BVI | Total | ||||||||||
Segment assets and liabilities: | ||||||||||||
Segment assets | ||||||||||||
Segment assets from continuing operations | $ | 5,533,648 | $ | 677,914 | $ | 6,211,562 | ||||||
Segment assets of discontinued operations | - | - | - | |||||||||
Segment assets | $ | 5,533,648 | $ | 677,914 | $ | 6,211,562 | ||||||
Segment liabilities | ||||||||||||
Segment liabilities from continuing operations | $ | 4,799,969 | $ | 1,206,935 | $ | 6,006,904 | ||||||
Segment liabilities of discontinued operations | - | - | - | |||||||||
Segment liabilities | $ | 4,799,969 | $ | 1,206,935 | $ | 6,006,904 |
For the three months ended September 30, 2017 | ||||||||||||
AEC New York | AEC Southern UK | Total | ||||||||||
Segment revenue: | ||||||||||||
Compliance training & advisory | $ | - | $ | 3,738,741 | $ | 3,738,741 | ||||||
Placement advisory | 141,432 | - | 141,432 | |||||||||
Career advisory | 841,290 | - | 841,290 | |||||||||
Student & Family advisory | 494,280 | - | 494,280 | |||||||||
Total revenue | $ | 1,477,002 | $ | 3,738,741 | $ | 5,215,743 | ||||||
Gross profit | $ | 468,135 | $ | 856,808 | $ | 1,324,943 |
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
For the nine months ended September 30, 2016 | ||||||||||||
AEC New York | AEC Southern UK | Total | ||||||||||
Segment revenue: | ||||||||||||
Placement advisory | 958,618 | - | 958,618 | |||||||||
Career advisory | 1,302,074 | - | 1,302,074 | |||||||||
Student & Family advisory | 2,619,922 | $ | - | $ | 2,619,922 | |||||||
Total revenue | $ | 4,880,614 | $ | - | $ | 4,880,614 | ||||||
Gross profit | $ | 981,582 | $ | - | $ | 981,582 |
For the three months ended September 30, 2016 | ||||||||||||
AEC New York | AEC Southern UK | Total | ||||||||||
Segment revenue: | ||||||||||||
Placement advisory | 18,550 | - | 18,550 | |||||||||
Career advisory | 400,000 | - | 400,000 | |||||||||
Student & Family advisory | $ | 551,409 | $ | - | $ | 551,409 | ||||||
Total revenue | 969,959 | 969,959 | ||||||||||
Gross profit | $ | 175,686 | $ | - | $ | 175,686 |
September 30, 2017 | ||||||||||||
AEC New York | AEC Southern UK | Total | ||||||||||
Segment assets and liabilities: | ||||||||||||
Segment assets | $ | 2,449,870 | $ | 9,070,512 | $ | 11,520,382 | ||||||
Segment liabilities | $ | 2,297,525 | $ | 3,288,198 | $ | 5,585,723 |
December 31, 2016 | ||||||||||||
AEC New York | AEC Southern UK | Total | ||||||||||
Segment assets and liabilities: | ||||||||||||
Segment assets | $ | 2,878,133 | $ | 6,619,460 | $ | 9,497,593 | ||||||
Segment liabilities | $ | 2,925,200 | $ | 1,780,710 | $ | 4,705,910 |
The Company had only one segment, AEC New York, during the three and nine months ended September 30, 2016.
December 31, 2019 | ||||||||||||
AEC New York | AEC BVI | Total | ||||||||||
Segment assets and liabilities: | ||||||||||||
Segment assets | ||||||||||||
Segment assets from continuing operations | $ | 6,661,058 | $ | 772,810 | $ | 7,433,868 | ||||||
Segment assets of discontinued operations | - | - | - | |||||||||
Segment assets | $ | 6,661,058 | $ | 772,810 | $ | 7,433,868 | ||||||
Segment liabilities | ||||||||||||
Segment liabilities from continuing operations | $ | 5,249,953 | $ | 965,422 | $ | 6,215,375 | ||||||
Segment liabilities of discontinued operations | - | - | - | |||||||||
Segment liabilities | $ | 5,249,953 | $ | 965,422 | $ | 6,215,375 |
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
11. |
On October 31, 2016, 1,500,000 common shares were granted to AEC Southern UK’s CEO that will vest over a three-year period commencing November 1, 2016. The shares were valued using the market price of the Company’s common stock on the grant date of $0.14 per share. On the grant date, $210,000 was recognized as deferred compensation, which will be expensed over the three-year vesting period using the straight-line method. At September 30, 2017, the remaining deferred compensation was $145,833.
On December 31, 2016, 6,000,000 shares were granted to the AEC Southern UK’s ChairmanRevenues from external customers, and vest over a three-year period commencing November 1, 2016. The shares were valued using the market price of the Company’s common stock on the grant date of $0.55 per share. On December 31, 2016, $3,300,000 was recognized as deferred compensation, which will be expensed over the remaining two year and ten months using the straight-line method. At September 30, 2017, the remaining deferred compensation was $2,291,668.
Future amortization of the deferred compensation isgross profit for each business are as follows:
Year Ending December 31, | ||||
2017 | $ | 292,500 | ||
2018 | 1,170,000 | |||
2019 | 975,001 | |||
Total | $ | 2,437,501 |
For the three months ended June 30, 2020 | ||||||||||||
AEC New York | AEC BVI | Total | ||||||||||
Segment revenue: | ||||||||||||
Placement advisory | $ | - | $ | 41,484 | $ | 41,484 | ||||||
Career advisory | 120,500 | - | 120,500 | |||||||||
Student & Family advisory | - | - | - | |||||||||
Other advisory | - | - | - | |||||||||
Total revenue from continued operations | $ | 120,500 | $ | 41,484 | $ | 161,984 | ||||||
Total revenue from discontinued operations | - | - | - | |||||||||
Gross profit | $ | 66,560 | $ | 39,707 | $ | 106,267 |
Stock compensation expense was $292,500, $877,500, $0, and $0 for the three and nine months ended September 30, 2017 and 2016, respectively.
For the six months ended June 30, 2020 | ||||||||||||
AEC New York | AEC BVI | Total | ||||||||||
Segment revenue: | ||||||||||||
Placement advisory | $ | - | $ | 41,484 | $ | 41,484 | ||||||
Career advisory | 234,191 | - | 234,191 | |||||||||
Student & Family advisory | - | - | - | |||||||||
Other advisory | 507 | - | 507 | |||||||||
Total revenue from continued operations | $ | 234,698 | $ | 41,484 | $ | 276,182.00 | ||||||
Total revenue from discontinued operations | - | - | - | |||||||||
Gross profit | $ | 71,808 | $ | 38,320 | $ | 110,128 |
For the three months ended June 30, 2019 | ||||||||||||
AEC New York | AEC BVI | Total | ||||||||||
Segment revenue: | ||||||||||||
Placement advisory | $ | 305,000 | $ | (931 | ) | $ | 304,069 | |||||
Career advisory | 861,975 | - | 861,975 | |||||||||
Student & Family advisory | - | - | - | |||||||||
Other advisory | 3,000 | - | 3,000 | |||||||||
Total revenue from continued operations | $ | 1,169,975 | $ | (931 | ) | $ | 1,169,044 | |||||
Total revenue from discontinued operations | - | - | - | |||||||||
Gross profit | $ | 483,685 | $ | (931 | ) | $ | 482,754 |
The Company has security deposits with the landlord for its New York office of $266,021 as of September 30, 2017 and December 31, 2016.
For the six months ended June 30, 2019 | ||||||||||||
AEC New York | AEC BVI | Total | ||||||||||
Segment revenue: | ||||||||||||
Placement advisory | $ | 798,800 | $ | 33,716 | $ | 832,516 | ||||||
Career advisory | 1,817,275 | - | 1,817,275 | |||||||||
Student & Family advisory | 487,000 | - | 487,000 | |||||||||
Other advisory | 3,000 | - | 3,000 | |||||||||
Total revenue from continued operations | $ | 3,106,075 | $ | 33,716 | $ | 3,139,791 | ||||||
Total revenue from discontinued operations | - | - | - | |||||||||
Gross profit | $ | 1,337,388 | $ | 33,716 | $ | 1,371,104 |
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
12. |
The Company’s customized online campus system is being amortized on a straight-line basis over four and a half years. The gross carrying amount and accumulated amortization of this asset as of September 30, 2017 and December 31, 2016 are as follows:
September 30, 2017 | December 31, 2016 | |||||||
Intangible asset | $ | 612,814 | $ | 612,814 | ||||
Less: accumulated amortization | (136,181 | ) | (34,045 | ) | ||||
Intangible asset - net | $ | 476,633 | $ | 578,769 |
For the three and nine months ended September 30, 2017 and 2016, amortization expense was $34,045, $102,136, $0, and $0, respectively.
The following table is the future amortization expense to be recognized:
Year Ending December 31, | ||||
2017 | $ | 34,045 | ||
2018 | 136,181 | |||
2019 | 136,181 | |||
2020 | 136,181 | |||
2021 | 34,045 | |||
Total | $ | 476,633 |
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
DEFERRED REVENUE |
The Company receives advance payments for services to be performed and recognizes revenue when services have been rendered. The deferred revenue at Septemberrevenues as of June 30, 20172020 and December 31, 2016 was $100,0002019 were $95,095 and $177,132,$215,500, respectively.
13. | RELATED-PARTY TRANSACTIONS |
The loan from stockholders of $113,906 as of September 30, 2017 and December 31, 2016, represented an unsecured non-interest bearing loan, arising from expenses paid on behalf of the Company. The loan was due on demand and was repaid in full on November 4, 2017.
The Company’s CEO has a 34% interest in Columbia International College, Inc. (“CIC”). In the normal course of business, the Company conducts certain transactions with CIC. Included in accounts receivable is an amount due from CIC of $21,500 as of September 30, 2017 and December 31, 2016. The Company paid $0, $0, $25,000, and $245,000prepaid CIC $48,000 for student consulting services of which is expected to CICbe fully delivered and accounted for the three and nine months ended September 30, 2017 and 2016, respectively.in 2020.
The Company’s CEO has a 40% interest in Wall Street Innovation Center, Inc. (“WSIC”), a companycorporation incorporated in the state of New York that focuses on career and business development activities. AEC New York’s Chief Operating Officer currently serves as the President/CEO of WSIC. In the course of delivering career advisory services, the Company has engaged WSIC to assist in certain career development activities. IncludedThe Company prepaid WSIC $50,000 for business consulting services to be delivered and completed in accounts payable is an amount2020.
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 borrowed $283,082 (translated from RMB2,000,000) from a shareholder of the Company during the period ended June 30, 2020. The amounts due to WSIC of $372this related party were $849,245 and $110,000$574,564 as of SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively. Additionally, the Company had entered into a sublease agreement with WSIC in March 2016, which was subsequently terminatedThe amounts are non-interest bearing, non-secure and due on June 30, 2017.demand.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
14. | LONG-TERM LOAN |
On December 1, 2014, an unrelated party loaned the Company $295,579, with interest at 10%. The loan is to be repaid on December 13, 2019. Interest will be paid on the last day of each quarter from 2015 to 2019, except for the last payment on December 12, 2019. Interest expense for the three and nine months ended September 30, 2017 and 2016 was $7,389, $22,167, $7,389, and $22,167, respectively. The Company repaid $150,000 on November 10, 2017. The loan was fully paid off as of June 30, 2020.
Interest expenses for the three and six months ended June 30, 2020 and 2019 were $0, $776 and $3,639, 10,918 respectively.
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in the United States. On May 4, 2020, Company was informed by its lender, Bank of America, N.A (the “Bank”), that the Bank received approval from the U.S. Small Business Administration (“SBA”) to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the recently enacted CARES Act administered by the SBA. Per the terms of the PPP Loan, Company received total proceeds of $77,588 from the Bank. In accordance with the requirements of the CARES Act, the Company intends to use the proceeds from the PPP Loan primarily for payroll costs. The PPP Loan has a 1.00% interest rate, and is subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act.
The loan forgiveness amount will be reduced for any EIDL advance that the Company receives. The amount of loan forgiveness will be further reduced if the borrower terminates employees or reduces salaries during the eight-week period. Company currently believes that its use of the loan proceeds met the conditions for forgiveness of the loan.
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 approval for a loan under the SBA’s EIDL program from SBA. Per the terms of the EIDL, Company received total proceeds of $150,000. The EIDL Loan has a 3.75% interest rate, and is subject to the terms and conditions applicable to all loans made pursuant to the EIDL Program as administered by the SBA. Company intends to use all the proceeds of this Loan solely as working capital to alleviate economic injury caused by disaster occurring in 2020.
15. | LEASE COMMITMENTS |
The Company currently has two operating leases for offices in different cities. In December 2014, the Company entered into a lease for 10,086 square feet of office space in New York, NY, with an unrelated party, expiring on July 31, 2025. The lease commenced on March 1, 2015 and the Company received two months of free rent. Due to free rent and escalating monthly rental payments, utilities, real estate taxes, insurance and other operating expenses, the lease is being recognized on a straight-line basis of $34,066$34,065 per month for financial statement purposes which creates deferred rent as shownpurposes.
We determined the present value of the future lease payments using a discount rate of 8.05%, our incremental borrowing rate based on SBA loan rate, resulting in an initial right-of-use asset of $2,016,142 and lease liability of $2,237,583 on the balance sheets. adoption date of January 1, 2019, which are being amortized ratably over the term of the lease.
In February 2016,May 2019, the Company entered into a sublease agreement to lease of office space to WSIC forin Shenzhen, Guangdong, PRC with an annual rental of $250,000 (see Note 10).unrelated party, expiring on April 30, 2024. The subleaselease commenced on MarchMay 1, 20162019. 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 terminatedlease 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, 2017. The sublease income2020, the balance of net right-of-use asset was netted against the Company’s rent expense. Rent expense$1,983,406, and lease liability was approximately $102,198, $200,159, $33,000$2,239,416 (including $363,035 for current portion and $168,000$1,876,381 for the three and nine months ended September 30, 2017 and 2016, respectively.noncurrent portion).
Future minimum lease commitments are as follows:
follows on June 30, 2020:
Year Ending December 31, | Gross Lease Payment | Gross Lease Payment | ||||||
2017 | $ | 93,164 | ||||||
2018 | 378,862 | |||||||
2019 | 388,333 | |||||||
2020 | 418,604 | 262,998 | ||||||
2021 | 439,350 | 537,569 | ||||||
2022 and thereafter | 1,666,383 | 1,918,349 | ||||||
$ | 2,718,916 | |||||||
Total | $ | 3,384,696 | ||||||
Less: Present value adjustment | (479,796 | ) | ||||||
Operating lease liability | $ | 2,239,416 |
Payments under operating leases are expensed on a straight-line basis over the periods of their respective leases. The total rent expense was approximately $129,110, $261,137 and $102,195, $225,078 for the three and six months ended June 30, 2020 and 2019, respectively.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016
2019
Income taxes |
The component of deferred tax assets at SeptemberJune 30, 20172020 and December 31, 2016 is2019 are as follows:
September 30, 2017 | December 31, 2016 | |||||||||||||||
June 30, 2020 | December 31, 2019 | |||||||||||||||
Net operating loss carryforwards | - | 162,954 | $ | 667,382 | $ | 471,404 | ||||||||||
Allowance for doubtful accounts | 44,540 | 28,350 | ||||||||||||||
Allowance for bad debt | 724,572 | 558,397 | ||||||||||||||
Accelerated Depreciation | (11,104 | ) | (12,150 | ) | - | - | ||||||||||
Deferred tax asset | 33,436 | 179,154 | ||||||||||||||
Valuation allowance | - | (81,218 | ) | |||||||||||||
Allowance for deferred tax asset | (530,647 | ) | (472,186 | ) | ||||||||||||
Deferred tax asset, net | $ | 33,436 | $ | 97,936 | $ | 861,307 | $ | 557,615 |
The provision for income taxes and deferred income taxes for the three and ninesix months ended SeptemberJune 30, 20172020 and 20162019 are as follows:
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||
Current: | ||||||||||||||||||||||||||||||||
Federal | $ | (28,753 | ) | $ | (24,007 | ) | $ | 85,795 | $ | (24,007 | ) | $ | - | $ | 44,667 | $ | - | $ | 44,667 | |||||||||||||
State | (14,734 | ) | 4,906 | 51,462 | 4,956 | - | 35,536 | - | 35,536 | |||||||||||||||||||||||
Foreign | (38,147 | ) | - | 184,698 | - | - | 265 | - | 265 | |||||||||||||||||||||||
Total current | (81,634 | ) | (19,101 | ) | 321,955 | (19,051 | ) | - | 80,468 | - | 80,468 | |||||||||||||||||||||
Deferred: | ||||||||||||||||||||||||||||||||
Federal | 10,217 | (56,927 | ) | 49,300 | (73,719 | ) | (116,851 | ) | 164,322 | (212,087 | ) | 164,322 | ||||||||||||||||||||
State | (7,386 | ) | - | 15,200 | - | (82,679 | ) | 121,286 | (150,066 | ) | 232,386 | |||||||||||||||||||||
Foreign | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total deferred | (199,530 | ) | 285,608 | (362,153 | ) | 285,608 | ||||||||||||||||||||||||||
- | - | |||||||||||||||||||||||||||||||
Total deferred | 2,831 | (56,927 | ) | 64,500 | (73,719 | ) | ||||||||||||||||||||||||||
Total | $ | (78,803 | ) | $ | (76,028 | ) | $ | 386,455 | $ | (92,770 | ) | $ | (199,530 | ) | $ | 366,076 | $ | (362,153 | ) | $ | 366,076 |
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 and UK.US. The Company is subject to income tax examinations of US federal, state, and city for 2016, 20152019, 2018 and 20142017 tax years and in the UK for 2016.years. The Company, to its knowledge, is not currently under examination nor has it been notified by the authorities.
26
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNADUTED CONDENSE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019
Income taxes(continued) |
A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federaleffective income tax rate for the three and ninesix months ended SeptemberJune 30, 20172020 and 20162019 is as follows:
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Tax at federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||
State and local taxes, net of federal benefit | 11.0 | 11.0 | 11.0 | 11.0 | ||||||||||||
PRC statutory income tax rate | 25.0 | - | 25.0 | - | ||||||||||||
Non-deductible/ non-taxable items | - | - | - | - | ||||||||||||
Total | 57 | % | 32 | % | 57 | % | 32 | % |
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Tax at federal statutory rate | 34.0 | % | 34.0 | % | 34.0 | % | 34.0 | % | ||||||||
State and local taxes, net of federal benefit | (14.8 | ) | 10.8 | 4.3 | 10.8 | |||||||||||
Net operating losses | - | - | (10.7 | ) | - | |||||||||||
Tax impact of foreign operations | (32.6 | ) | - | (8.5 | ) | - | ||||||||||
Reversal valuation allowance | - | - | 5.5 | - | ||||||||||||
Over accrual | 30.5 | - | 0.7 | - | ||||||||||||
Tax adjustment | 79.2 | - | - | - | ||||||||||||
Non-deductible/non-taxable items | - | 14.6 | - | 7.7 | ||||||||||||
Total | 96.3 | % | 59.4 | % | 25.3 | % | 52.5 | % |
17. | FINANCIAL INSTRUments |
Fair values
27 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 Company’s financial instruments from discontinued operations include cash and cash equivalents, net accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities, advance from customers, and income tax payable. The carrying amounts of these financial instruments 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:
June 30, 2020 | December 31, 2019 | |||||||
Cash and cash equivalents of continuing operations | $ | 922,567 | $ | 1,035,395 | ||||
Accounts receivable, prepaid expenses and other current assets | 1,958,894 | 3,127,655 | ||||||
Other assets of discontinued operations | - | - | ||||||
Other financial liabilities(i) | 3,893,935 | 4,147,871 | ||||||
Liabilities of discontinued operations | $ | - | $ | - |
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARiesSUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SeptemberJUNE 30, 20172020 AND 20162019
17. |
Accounts payable, accrued expenses and other current liabilities, advance from customers, and income tax payable. |
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 at June 30, 2020 are as follows:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial Assets | ||||||||||||||||
Cash and cash equivalents of continuing operations | $ | 922,567 | $ | - | $ | - | $ | 922,567 | ||||||||
Cash and cash equivalents of discontinued operations | - | - | - | - | ||||||||||||
Other financial assets of continuing operations | - | - | - | - | ||||||||||||
Other financial assets of discontinued operations | - | - | - | |||||||||||||
Total Financial assets | $ | 922,567 | $ | - | $ | - | $ | 922,567 | ||||||||
Financial Liabilities | ||||||||||||||||
Other liabilities of continuing operations | $ | 3,893,935 | $ | - | $ | - | $ | 3,893,935 | ||||||||
Other liabilities of discontinued operations | - | - | - | - | ||||||||||||
Total Financial Liabilities | $ | 3,893,935 | $ | - | $ | - | $ | 3,893,935 |
The financial assets and liabilities carried at fair value on a recurring basis at December 31, 2019 are as follows:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial Assets | ||||||||||||||||
Cash and cash equivalents of continuing operations | $ | 1,035,395 | $ | - | $ | - | $ | 1,035,395 | ||||||||
Cash and cash equivalents of discontinued operations | - | - | - | - | ||||||||||||
Other financial assets of continuing operations | - | - | - | - | ||||||||||||
Other financial assets of discontinued operations | - | - | - | - | ||||||||||||
Total Financial Assets | $ | 1,035,395 | $ | - | $ | - | $ | 1,035,395 | ||||||||
Financial Liabilities | ||||||||||||||||
Other liabilities of continuing operations | $ | 4,147,871 | $ | - | $ | - | $ | 4,147,871 | ||||||||
Other liabilities of discontinued operations | - | - | - | - | ||||||||||||
Total Financial Liabilities | $ | 4,147,871 | $ | - | $ | - | $ | 4,147,871 |
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.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
17. | FINANCIAL INSTRUments(Continued) |
Financial assets past due
The following table provides information regarding the aging of financial assets that are past due, but which are not impaired at June 30, 2020:
Less than 90 days | 90 days to 1 year | Over 1 year | Carrying Value | |||||||||||||
Accounts receivable, net | $ | - | $ | 1,641,433 | $ | - | $ | 1,641,433 | ||||||||
Other receivable | $ | 65,552 | $ | 26,450 | $ | - | $ | 92,002 | ||||||||
Total accounts receivable, net | $ | 65,552 | $ | 1,667,883 | $ | - | $ | 1,733,435 |
The Company didn'tdetermines past due amounts by reference to terms agreed with individual clients. None of the net amounts outstanding have been challenged by the respective clients and the Company continues to conduct business with them on an ongoing basis and does not consider its current accounts receivable to be past due.
18. | STOCK OPTIONS |
The Company did not grant any stock options during the three and ninesix months ended SeptemberJune 30, 2017.
2020.
The following is a summary of stock option activity:activities:
Shares | Weighted Average Exercise Price | Weighted- Average Remaining Contractual Life | Aggregate Value | Shares | Weighted Average Exercise | Weighted- Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||||||||||||||
Outstanding at December 31, 2016 | 3,200,000 | $ | 2.45 | 6.87 years | $ | - | ||||||||||||||||||||||||||
Outstanding at December 31, 2019 | 3,200,000 | $ | 0.89 | 1.44 years | $ | - | ||||||||||||||||||||||||||
Granted | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Exercised | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Cancelled and expired | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Forfeited | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Outstanding at September 30, 2017 | 3,200,000 | $ | 2.45 | 6.12 years | $ | - | ||||||||||||||||||||||||||
Outstanding at June 30, 2020 | 3,200,000 | $ | 2.45 | 3.37 years | $ | - | ||||||||||||||||||||||||||
Vested and expected to vest at September 30, 2017 | 870,000 | $ | 1.42 | 4.65 years | $ | - | ||||||||||||||||||||||||||
Vested and expected to vest at June 30, 2020 | 3,200,000 | $ | 0.89 | 1.20 years | $ | - | ||||||||||||||||||||||||||
Exercisable at September 30, 2017 | 870,000 | $ | 1.42 | 4.65 years | $ | - | ||||||||||||||||||||||||||
Exercisable at June 30, 2020 | 3,200,000 | $ | 0.89 | 1.20 years | $ | - |
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 no options exercised during the three and nine months ended SeptemberJune 30, 20172020 and 2016.2019.
ThereThe estimated fair value of these options was $0, therefore no compensation expense related to allwas booked for the above options because the value ascribed to these options was not material.periods ended June 30, 2020 and December 31, 2019.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SeptemberJUNE 30, 20172020 AND 20162019
19. |
Certificate of Amendment to Increase Authorized Stock
On November 6, 2018, the board of directors of the Company, with the written consent of a majority of the holders of the shares of the Company’s Common Stock issued and outstanding and the Company’s preferred stock issued and outstanding, voting together as a single class, authorized the Company to (i) increase the number of authorized shares of Common Stock from 180,000,000 to 450,000,000 and the number of authorized shares of preferred stock from 20,000,000 to 50,000,000 (the “Authorized Stock Increase”), and (ii) file a Certificate of Amendment with the Secretary of State of the State of Nevada to effect the Authorized Stock Increase.
On November 8, 2018, the Company filed a Certificate of Amendment with the Secretary of State of the State of Nevada to affect the Authorized Stock Increase, which became effective upon filing.
Stocks issued for business acquisition
On July 10, 2018, the Company issued 100,000 shares of the Company’s common stock (the “Consideration Shares”) to FIFPAC, Inc, the 100% equity owner of AIFI, at a purchase price of $0.48 per share, in exchange for 51% equity ownership of the AIFI pursuant to the Purchase Agreement. Refer to Footnote 21 Business Acquisition.
Stocks issued to employees and for services
In July and August 2018, the Company entered into agreements pursuant to which it issued an aggregate of 448,000 shares of the Company’s common stock to 18 individuals who are either employees of the Company or have been service providers to the Company, for employment-based compensation or services provided, respectively. Subsequently, pursuant to such agreements, the Company issued an aggregate of 433,000 shares of the Company’s common stock to 10 out of the 18 individuals in the amount of $199,840 and 15,000 shares of the Company’s common stock for services rendered in the amount of $7,000, prior to December 31, 2018.
In May 2019, the Company entered into agreements pursuant to which it issued an aggregate of 200,000 shares of the Company’s common stock in the amount of $62,000 to 4 individuals who have been service providers to the Company for services provided, prior to December 31, 2019.
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 cash investment
On November 26, 2018, the Company, entered into a Share Issuance Agreement (the “Share Issuance Agreement”) with China Cultural Finance Holdings Company Limited, a British Virgin Islands company and a shareholder of the Company (the “Holder”), whereby the Company agreed to issue 7,199,113 of shares of the Company’s common stock at $0.10 per share, to the Holder in exchange for an RMB5,000,000 investment (the “CCFH Investment”) in the Company’s subsidiary, AEC Southern Shenzhen. The transactions underlying the Share Issuance Agreement were closed on the same day and the shares of common stock were issued to the Holder (the “CCFH Share Issuance”). The Company received $127,606 (HKD 1,000,000) as of December 31, 2019.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
20. | SERIES B PREFERRED STOCK |
Designation of Series B Convertible Preferred Stock
On November 13, 2018, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation of Series B Convertible Preferred Stock (the “Certificate of Designation”), which became effective upon filing. The Certificate of Designation established and designated the Series B Convertible Preferred Stock (“Series B Preferred Stock”) and the rights, preferences, privileges, and limitations thereof, summarized in the following:
The Company designated 25,000,000 shares as Series B Preferred Stock out of the 50,000,000 unissued shares of preferred stock of the Company, par value $0.001 per share. Series B Preferred Stock is senior in rights of payment, including dividend rights and liquidation preference, to the Company’s common stock but junior to Series A Preferred Stock with respect to liquidation preference.
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.
Manager Share Issuance
On November 26, 2018, the Company entered into a Manager Share Issuance Agreement (the “Manager Share Issuance Agreement”) with Mr. Max P. Chen, the Chief Executive Officer, President, and Chairman of the Board of the Company (“Mr. Chen”), whereby the Company agreed to reward Mr. Chen for his dedicated services to the Company by issuing 12,500,000 shares of Series B Preferred Stock to him with resale restrictions. The transactions underlying the Manager Share Issuance Agreement closed on the same day and 12,500,000 shares of Series B Preferred Stock were issued to Mr. Chen. The Company recognized stock compensation expense of $1,250,000 for the year ended December 31, 2018.
Stocks issued for exchange agreement
On November 26, 2018, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with the Holder, whereby the Company agreed to issue 12,500,000 shares of Series B Convertible Preferred Stock of the Company (“Series B Preferred Stock”), par value $0.001 per share, and 7,500,000 shares of common stock with resale restrictions to the Holder in exchange for 500,000 shares of Series A Convertible Preferred Stock of the Company, par value $0.001 per share (the “Series A Preferred Stock”), held by the Holder. The transactions underlying the Exchange Agreement closed on the same day and 12,500,000 shares of Series B Preferred Stock and 7,500,000 shares of Common Stock were issued to the Holder. The Series A Preferred Stock were returned to the Company and cancelled.
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
21. | BUSINESS ACQUISITION |
On July 10, 2018, the Company entered into the Purchase Agreement with the 100% owner of AIFI which closed on the same date.
Pursuant to the Purchase Agreement, on July 10, 2018, the Company issued the Consideration Shares to the Seller, for a purchase price of $0.48 per share, in exchange for 51% equity ownership of AIFI. Pursuant to ASC 805, the Company recognized a gain of $13,200 on the effective date of July 10, 2018.
According to the Purchase Agreement, the contingent consideration consisted of compensatory arrangement for services to be performed by the owner 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.
The following table summarizes the consideration paid and the amounts of net assets acquired as of the date of acquisition:
Fair value of net asset acquired (AIFI’s net identified assets) | $ | 120,000 | ||
Less: | ||||
Fair value of consideration transferred (FMV of AEC’s 100k shares issued) | (48,000 | ) | ||
Fair value of noncontrolling interest (120k x 49%) | (58,800 | ) | ||
$ | (106,800 | ) | ||
Gain on bargain purchase | $ | 13,200 |
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
22. | COMMITMENTS & CONTINGENCY |
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.
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.
23. | GOING CONCERN |
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 Company’s ability to continue as a going concern. We believe that the new education platforms acquired may mitigate the substantial doubt raised by our current operating results and with additional funding from a shareholder of the Company will be sufficient to meet its anticipated needs for working capital and satisfying our estimated liquidity needs 12 months from the date of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to generate liquidity, including the availability of additional debt financing, or whether such actions would generate the expected liquidity as currently planned.
24. | SUBSEQUENT EVENT |
The Company’s management has performed subsequent events procedures through November 14, 2017, which is the date the consolidated financial statements were available to be issued. There were no subsequent events requiring adjustment to or disclosure in the consolidated financial statements except for the following.
Appointment of Certain Officers
On August 29, 2017, Mr. Jonathan F. McKeage left his position as the Chief Executive Officer (“CEO”) of the Company because Mr. McKeage’s employment agreement with the Company ended on August 28, 2017. Mr. McKeage will remain as a senior advisor of the Company, assisting Mr. Max P. Chen, Chairman and Sole Director of the Company in the implementation of the its strategic and business plan. On August 28, 2017, Mr. Max P. Chen was appointed by the Board of Directors of the Company (the “Board”) to serve as the Company’s CEO, effective on August 29, 2017. The Company entered into an Employment Agreement with Mr. Chen on August 29, 2017 for a term of three-year period that renews annually unless terminated by either party.
On September 28, 2017, Mr. Anthony S. Chan, CPA was appointed by the Board to replace Mr. Max P. Chen as the Company’s CFO, effective on October 1, 2017. The Company entered into an Employment Agreement with Mr. Chan on September 28, 2017 (the “Employment Agreement”) for a term of three-year period unless terminated according to the Employment Agreement.
Series A Convertible Preferred Stock Issuance
On October 30, 2017, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with China Cultural Finance Holdings Company Limited, a British Virgin Islands corporation (the “Purchaser”) pursuant to which the Company will issue 500,000 shares (the “Shares”) of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), at price of $4 per Share (the “Purchase Price Per Share”) to the Purchaser, with the rights, privileges and preferences set forth in the Certificate of Designation of Series A Convertible Preferred Stock (the “Certificate of Designation”), for the aggregate price of Two Million Dollars ($2,000,000) (the “Purchase Price”).
On November 3, 2017, the Company designated and issued to the Purchaser, 500,000 shares as Series A Convertible Preferred Stock (the “Preferred Stock”) out of the 20,000,000 authorized number of preferred shares of the Company, par value $0.001 per share.
Pursuant to the Share Purchase Agreement, the Company will use its commercially reasonable efforts to apply to be listed on the NASDAQ Capital Market or such other national securities exchange as is reasonably acceptable to the Purchaser (the “National Exchanges”), so that the Company’s common stock (the “Common Stock”) will commence trading on one of the National Exchanges (the “Uplisting”) within 365 days after the Closing Date (the “Uplisting Deadline”). Each and every outstanding shares of Preferred Stock will automatically convert, without the payment of additional consideration by the holder thereof (the “Mandatory Conversion”) if and when Uplisting occurs (the “Mandatory Conversion Commencement”), into fully paid and non-assessable shares of Common Stock, at a conversion price which shall be the lesser of (i) $4.00 or (ii) 90% of the offering price in the occurrence of a secondary public offering of the Company’s Common Stock pursuant to a registration statement on Form S-1 (the “Conversion Price”). The Conversion Price will be subject to adjustment in the event of reorganization, reclassification, consolidation or merger.
statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussionOverview
American Education Center, Inc. was incorporated in Nevada (“AEC Nevada”) in May 2014 as a holding company, and analysisoperates through its wholly owned subsidiaries, American Education Center, Inc., incorporated in the State of financial conditionNew York in 1999 (“AEC New York”), AEC Management Ltd., incorporated in the British Virgin Islands on October 23, 2018 (“AEC BVI”) and resultsthe subsidiaries of operations relatesAEC BVI.
AEC New York was approved and licensed by the Education Department of the State of New York in 1999 to engage in education consulting service between the U.S. and China. For approximately 20 years, AEC New York has devoted itself to international education exchange between China and the U.S., by providing education and career enrichment opportunities for students, teachers, and educational institutions from both countries.
AEC Nevada acquired AEC Southern UK and its subsidiaries in 2016 pursuant to the operationsShare Exchange Agreement (as defined below). AEC Southern UK holds 100% of the equity interests in AEC Southern Management Limited, a Hong Kong company (“AEC Southern HK”) incorporated on December 29, 2015, with a registered capital of HK$10,000. AEC Southern UK owns 100% of the equity interests in Qianhai Meijiao Education Consulting Management Co., Ltd. (“AEC Southern Shenzhen”), a foreign wholly owned subsidiary incorporated pursuant to PRC law on March 29, 2016, with a registered capital of RMB5,000,000.
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 financial condition reportedits 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 unaudited condensed consolidated financial statementsPRC, 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 Company thereto, which appear elsewhere indate of this Quarterly Report on Form 10-Q, does not have significant business activities.
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 should be readproviding total solutions for technology in conjunction with such financial statements and related notes included in this report. Except for the historical information contained herein, the following discussion,education field, as well as other information in this report, contain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the “safe harbor” created by those sections. Actual results and the timing of the events may differ materially from those contained in these forward looking statements due to many factors, including those discussed in the “Forward-Looking Statements” set forth elsewhere in this Quarterly Report on Form 10-Q.providing corporation advisory management services.
OverviewCurrently, through AEC New York and AEC Southern Shenzhen we provide four types of consulting services:
● | Placement Advisory Services; | |
● | Career Advisory Services; | |
● | Student & Family Services; and | |
● | Other Advisory Services. |
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 educationeducational system and environment in the United States (US)U.S. and our understanding of the Chinese markets,market demand for education services in the PRC and its changing business economy, we are a full-service advisory firm specializingspecialize in the delivery of customized high school and college placement andadvisory services as well as career advisory services to Chinese students wishing to study and gain post-graduate work experience in the US.U.S. Our advisory services are specifically designed to address the educational needs of the rising middle-class families in China. The demand for our advisory services is primarily the result of China’s decades-long one-child policy, society’s priorityfocus and emphasis on children’s education, and families’ desire to gain access to USU.S. colleges and universities as well as work experience in the US.
Having delivered customized ESL (English as a second language) training, college and business consulting, and career advisory services to Chinese students and families since 1999, we are one of most experienced and recognizable holistic solutions provider of education advisory services in the US. With the acquisition of AEC Southern UK in October 2016, we also deliver customized compliance training and advisory services to corporate clients in China in the food industry to help them meet the related regulatory standards. The demand for such compliance training and advisory services in China has escalated in recent years and it is driven mainly by changes in the regulatory environment as food safety standards in China are being standardized.U.S.
Headquartered in New York with operations in the PRC, (People’s Republic of China), our key advisory services include:the Company, during the quarter ended June 30, 2020 operated, and currently operates in two market segments:
Placement Advisory Services
Our Placement Advisory Services include Language Training, Placement Advisory and Elite College Advisory services.
Since 1999, we have been delivering customizedLanguage Training & Placement Advisory services to Chinese students. Our one-stop advisory service encompassesservices encompass ESL training and assistance throughout the high school/school and college application and admission process.
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 in the third quarter of 2020.
Targeting the needs of Chinese families in getting admissionsobtaining admission to Ivy League colleges,and other prestigious universities in the U.S., ourElite College Advisory service is designed to assist qualified Chinese students gain access and applyin applying to prestigious colleges and universities in the US.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-upfollow up on their applications.
Once studentsour student customers are admitted into their target universities, our advisoryPlacement Advisory services include,further extend to academic and cultural related experiences including, among other things, providing assistance in connection with their applicationapplying for a second major transfers,or minor, transferring to a different university, housing accommodations, and applying for accelerated degree application.degrees. To help students optimize their on-campus experience and enhancetrain their leadership and social skills, we would enroll them intoalso organize seminars and social events that wewith our partner with scholars and universities, non-profit and for-profit business and non-profit organizations. ToAdditionally, to help enrich their cultural experience,experiences, we would arrangeorganize extracurricular activities such as organizedand artistic endeavorsactivities including dance, music, painting, photography, and other performance events.
For college application, we have designed the Key School Admissions Program, giving student customers closely guided application consulting services to gain admission to top U.S. universities.
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 businesses to AEC Southern Shenzhen when clients in the PRC need local support.
Career Advisory Services
Our Career Advisory Services include our Internship Advisory program and our Start-up Advisory program.
Our Internship Advisory program focuses on student’sstudents’ 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.
OurStart-up Advisory program is designedprovides advisory services to provide incubator services toindividual students and/or their families who desirewant to start or make an investment in a business in the US. OurU.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
Through our business partners, weOur Student & Family Advisory Services are designed to assist our students and/or their families in addressingthe 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 investments,properties, organizing their personal financial planning and management and other personalinvestment needs, such as getting insurance coverage and starting businesses.
Our American Dream Program helps students’ families find investment projects in the U.S. We also advise Chinese and corporate clients whose executives are moving to the USU.S. for work. The scope of our services includes assistance with business consulting, relocation and other aspects of family support services. Services provided under this program are customized and thorough, and tailored towards each family’s unique needs in the U.S.
Other Recruitment & PlacementAdvisory Services
Through ourForeign Student Recruitment services, we assist universities in China to recruit students from the US.U.S. We customize this service based on our strategic relationship with college and universities in the USU.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 USU.S. and the needs by the Chinese universities to expand and diversify their student body.
OurForeign Educator Placement services are designed to meet the increasing demand for experienced educators and teachers from the USU.S. to teach in China. Such demand covers the need to recruit qualified US educators from Pre K-12 to teach in China.
Compliance Training & Advisory ServicesImpact of the COVID-19 Pandemic
OurCompliance Training & Advisory serviceIn December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is being delivered by our wholly owned subsidiary, AEC Southern UK. Our servicescontinuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern,” and on March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic”. The pandemic has forced governments around the world to take drastic measures to halt the outbreak, resulting in quarantines, stay-at-home requirements, travel restrictions, temporary change of immigration policies and temporary closure of businesses and facilities in China, the U.S., and throughout the world. A substantial part of the Company’s revenue and workforce are designed to help companiesconcentrated in China and in the food industry meetU.S. Additionally, all of our four lines of business rely upon the ability to travel and comply with the related training on regulatory compliance, human resources management, organization management,level of interest of our customers and prospective customers to study, work and reside overseas, which has been significantly affected by the pandemic. Consequently, we saw a significant decrease in requests for our services, which has materially adversely affected the Company’s business model development,operations and government relations. We work with local third-party vendorsits financial condition and operating results for the six months ended June 30, 2020, and these negative impacts will likely continue through the rest of the fiscal year 2020.
In order to design one- or two-week training programs that are tailoredrespond to the COVID-19 outbreak, our Company has taken certain measures to our clients' specifications; organizeoperations to ensure the safety of our staff, as well as to adjust to the reopening but potential surge of new cases. We have made work-from-home possible for our staff, so as to reduce congregation and arrangepossibility of transmission of the training sessions while the instructors are provided by our vendors.
Pursuantdisease. We have been devoting time and effort to Accounting Standard Codification 280 “Segment Reporting” (“ASC 280”),research and develop new services and products. Additionally, we have identified two reporting segments: AEC New Yorkan online platform related to education to diversify our means in generating revenue and AEC Southern UK. These two segments engage two setsare in the process of negotiating a partnership or acquisition. We expect to close this transaction in September 2020.
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 third and fourth quarters of 2020. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our employees, suppliers, student customers and vendorsother customers, and the impact on the Company’s ability to generate revenueobtain debt and incur expenses; they generate separateequity financing to fund business activities, all of which are uncertain and cannot be predicted. Given these uncertainties, at present, we cannot reasonably estimate the related impact to our business, operating results and financial information; and based on their financial reports and other segment specific information, our chief operating decision maker determinescondition for the resources to be allocated and evaluates the performance, of each segment.
year ending December 31, 2020.
Significant Accounting Policies
The discussion and analysis of our consolidated financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP)(“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 Southern UK.BVI. All significant intercompany accounts and transactions have been eliminated in consolidation.
As part of the process of preparing our unaudited condensed 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 SeptemberJune 30, 2017,2020, the Company does not have a liability for any unrecognized tax benefits.
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 condensed 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. AdvisoryAEC New York delivers customized high school and college placement, career advisory as well as student and family services. Fees related to such advisory services feesthat are collected from individuals are generally paid to the Company in advance will be reflectedand they are recorded as deferred revenue, and theyrevenue. Revenues are recognized proportionally as services are completed.rendered or upon completion. Fees related to compliance training andour 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.
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 upon completionas 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 such services.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 May 2014,January 2017, the FASB issued Accounting Standards Update (the “ASU”) No. 2014-09, "Revenue from Contracts with Customers (Topic 606).'' This guidance supersedes current guidance on revenue recognition in Topic 605, "Revenue Recognition.'' In addition, there are disclosure requirements related toaccounting standard update which simplifies the nature, amount, timing, and uncertainty of revenue recognition. In August 2015, the FASB issued ASU No.2015-14 to defer the effective date of ASU No. 2014-09test for all entities by one year. For public business entities that follow U.S. GAAP, the deferral results in the new revenue standard being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. In March 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers,” with respect to Principal versus Agent Considerations. In April 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers,” with respect to Identifying Performance Obligations and Licensing. In April 2016, the FASB additionally issued ASU No. 2016-12, “Revenue from Contracts with Customers,” with respect to Narrow-Scope Improvements and Practical Expedients. In December 2016, the FASB issued ASU No. 2016-20, “Revenue from Contracts with Customers,” with respect to Technical Corrections and Improvements. The Company does not believe the adoption will have a material impact on its consolidated financial statements.
In April 2016, FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments clarify the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company does not anticipate that this adoption will have a significant impact on its financial position, results of operations, or cash flows.
In May 2016, the FASB issued ASU No. 2016-11,Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, which is rescinding certain SEC Staff Observer comments that are codified in Topic 605, Revenue Recognition. The Company does not anticipate that this adoption will have a significant impact on its consolidated financial position, results of operations, or cash flows.
In May 2016, FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which is intended to not change the core principle of the guidance in Topic 606, but rather affect only the narrow aspects of Topic 606 by reducing the potential for diversity in practice at initial application and by reducinggoodwill impairment. To address concerns over the cost and complexity of applying Topic 606 both at transitionthe 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 on an ongoing basis.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 Companynew guidance does not anticipate that this adoption will have a significant impact on its consolidated financial position, resultsamend the optional qualitative assessment of operations, or cash flows.
In February 2016, the FASB issued ASU 2016-02, “Leases.” The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of pending adoption of the new standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (ASC 718): Improvements to Employee Share-Based Payment Accounting. The objective is to identity, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The areas for simplification include the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas apply only to nonpublic entities. For public business entities, the ASUgoodwill impairment. This update is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity inor any interim or annual period. If an entity early adopts the amendmentsgoodwill impairment tests in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The adoption of ASU 2016-09 did not impact our consolidated financial statements.
In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09, Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. For all entities, this ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The adoption of this ASU is not expected to have a material effect on the its consolidated financial statements.
In August 2016, the FASB has issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Business Combination; (4) Proceeds from the Settlement of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned; (6) Life Insurance Policies; (7) Distributions Received from Equity Method Investees; (8) Beneficial Interests in Securitization Transactions; and Separately Identifiable Cash Flows and Application of the Predominance Principle. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted includingfor 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 an interim period. The amendments shouldtheir entirety. This guidance will be appliedadopted using a retrospective transition method to each period presented. If itapproach and is impracticable to applyeffective for the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable.Company on January 1, 2020. The Company expects thathas evaluated the effect of the adoption of this ASU wouldand 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 materialyear-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 standard is effective for the Company for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash. The amendments address diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendment is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not anticipate that this adoption will have a significant impact on its consolidated financial position, results of operations, or cash flows.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the definition of a business. The amendments in this ASU is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company does not believe the adoption of this ASU would have a material effect on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323). The amendments amended Accounting Changes and Error Corrections (Topic 250) to state that registrants should consider additional qualitative disclosures if the impact of an issued but not yet adopted ASU is unknown or cannot be reasonably estimated and to include a description of the effect of the accounting policies that the registrant expects to apply, if determined. Transition guidance included in certain issued but not yet adopted ASUs was also updated to reflect this amendment. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.
The Company has assessed all newly issued accounting pronouncements released during the nine months ended September 30, 2017 and through the date of this filing, and believes none of them will have a material impact on the Company’s financial statements when or if adopted.
33
Third Quarter Highlights
For three months ended September 30, 2017,
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 periodic report.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, 2016.2019, as filed on May 29, 2020. Our financial statements have been prepared assuming that we will continue as a going concern. 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.
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 as of 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.
The Three Months Ended SeptemberJune 30, 20172020, as Compared to the Three Months Ended SeptemberJune 30, 20162019
For the three months ended September 30, | For the three months ended June 30, | |||||||||||||||||||||||||||||||
2017 | 2016 | Variance | % | 2020 | 2019 | Variance | % | |||||||||||||||||||||||||
Key revenue streams: | ||||||||||||||||||||||||||||||||
Compliance Training & Advisory Services | $ | 3,738,741 | $ | - | $ | 3,738,741 | NM% | |||||||||||||||||||||||||
Placement Advisory Services | 141,432 | 18,550 | 122,882 | 662 | $ | 41,484 | $ | 304,069 | $ | (262,585 | ) | (86 | )% | |||||||||||||||||||
Career Advisory Services | 841,290 | 400,000 | 441,290 | 110 | 120,500 | 861,975 | (741,475 | ) | (86 | ) | ||||||||||||||||||||||
Student & Family Advisory | 494,280 | 551,409 | (57,129 | ) | (10 | ) | - | - | - | NM | ||||||||||||||||||||||
Other Advisory | - | 3,000 | (3,000 | ) | (100 | )% | ||||||||||||||||||||||||||
Total revenues | $ | 5,215,743 | $ | 969,959 | $ 4, 245,784 | 438 | % | $ | 161,984 | $ | 1,169,044 | $ | (1,007,060 | ) | (86 | )% | ||||||||||||||||
Gross Profit | $ | 1,324,943 | $ | 175,686 | $ | 1,149,257 | 654 | % | $ | 106,267 | $ | 482,754 | $ | (376,487 | ) | (78 | )% | |||||||||||||||
Gross Margin | 25 | % | 18 | % | 66 | % | 41 | % |
RevenuesRevenue
Total revenues for the three months ended |
Total revenues | ||
● | Revenues for the three months ended June 30, 2020, from our placement advisory services We expect the impact of COVID-19 on our business, especially on school application and career advisory services, will last for at least the coming two fiscal quarters, 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, 2020 was $106,267, representing a decrease of $376,487 from $ 482,754 for the three months ended June 30, 2019. The decrease can be attributed mainly to a decline in service request as the travel restrictions imposed as a result of COVID-19 had led to fewer student customers requesting our services. | |
● | Our gross margin was approximately 66% for the three months ended June 30, 2020, compared to approximately 41% for the same period in 2019. |
The following table summarizes changes in operating expenses and provision for income taxes for the periods presented:
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 $282,257 or 25% as compared to the three months ended June 30, 2019. The decrease mainly represents the net effect of the decrease of the marketing expense and professional fee, and the increase of the uncollectable account receivables. |
Income Tax Benefit
● | Income tax benefit of $199,530 for the three months ended June 30, 2020 represents the net effect of the tax payable and net losses for the periods presented. |
Net Loss
● | Net loss from continuing operations including non-controlling interest was $532,945 for the three months ended June 30, 2020, as compared to the net loss of $1,004,228 for the three months ended June 30, 2019, which representing the net effect of the decreased operation expenses and revenue. |
The Six Months Ended June 30, 2020, as Compared to the Six Months Ended June 30, 2019
For the six months ended June 30, | ||||||||||||||||
2020 | 2019 | Variance | % | |||||||||||||
Key revenue streams: | ||||||||||||||||
Placement Advisory Services | $ | 41,484 | $ | 832,516 | $ | (791,032 | ) | (95 | )% | |||||||
Career Advisory Services | 234,191 | 1,817,275 | (1,583,084 | ) | (87 | ) | ||||||||||
Student & Family Advisory | - | 487,000 | (487,000 | ) | (100 | ) | ||||||||||
Other Advisory | 507 | 3,000 | (2,493) | (83 | )% | |||||||||||
Total revenues | $ | 276,182 | $ | 3,139,791 | $ | (2,863,608 | ) | (91 | )% | |||||||
Gross Profit | $ | 110,128 | $ | 1,371,104 | $ | (1,260,976 | ) | (92 | )% | |||||||
Gross Margin | 40 | % | 44 | % |
Revenue
● | Total revenues for the six months ended June 30, 2020, were $276,182, representing a decrease of $2,863,608, or 91% from $3,139,791 for the same period in 2019. The decrease was mainly due to the recent outbreak of the COVID-19 pandemic around the globe, which negatively impacted our services to current customers who were getting ready to study or work in the U.S., besides the seasonality factors related to the high school/college admission process. The outbreak of COVID-19 in China since January 2020, coupled with travels bans from China to the US prevented students from China from entering the U.S. and paused applications from prospective students from China to U.S. educational institutions. These factors adversely impacted the financial performance of the Company. Total revenues for the six months ended June 30, 2020 were all generated by the operations of AEC New York, which deliver customized high school and college placement and career advisory services | |
● | Revenues for the six months ended June 30, 2020, from our placement advisory services decreased by $791,032 from $832,516 for the same period in 2019. The decrease in our placement advisory services was We expect the impact of COVID-19 on our business, especially on school application and career advisory services, | |
● | 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 accelerating our mergers and acquisitions efforts. |
Gross Profit & Gross Margin
Our gross profit |
● | 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 | % | |||||||||||||
Operating expenses | ||||||||||||||||
Selling and marketing | $ | 74,115 | $ | 201,249 | $ | (127,134 | ) | (63 | )% | |||||||
General and administrative | 1,425,116 | 1,451,878 | (26,763) | (2 | ) | |||||||||||
Total operating expenses | $ | 1,499,231 | $ | 1,653,127 | $ | (153,897) | (9 | )% | ||||||||
Income tax benefit | $ | (362,153 | ) | $ | 366,076 | $ | (528,699 | ) | NM | % | ||||||
Net (loss) from continuing operations including noncontrolling interest | $ | (1,026,633 | ) | $ | (646,802) | $ | (379,831 | ) | NM | % |
Operating Expenses
Total operating expenses |
Income Tax Benefits
Income Tax Benefit
● | Income tax benefit of $362,153 for the six months ended June 30, 2020 represents the net effect of the tax payable |
Net Loss
Nine Months Ended September 30, 2017 as Compared to Nine Months Ended September 30, 2016
For the nine months ended September 30, | ||||||||||||||||
2017 | 2016 | Variance | Percentage | |||||||||||||
Key revenue streams | ||||||||||||||||
Compliance training & advisory services | $ | 15,007,337 | $ | - | $ | 15,007,337 | NM % | |||||||||
Placement advisory services | 677,640 | 958,618 | (280,978 | ) | (29 | ) | ||||||||||
Career advisory services | 2,438,035 | 1,302,074 | 1,135,961 | 87 | ||||||||||||
Student & family advisory | 2,256,130 | 2,619,922 | (363,792 | ) | (14 | ) | ||||||||||
Total revenues | $ | 20,379,142 | $ | 4,880,614 | $ | 15,498,528 | 318 | % | ||||||||
Gross profit | $ | 6,708,213 | $ | 981,582 | $ | 5,726,631 | 583 | % | ||||||||
Gross margin | 33 | % | 20 | % |
Revenues
Gross Profit & Gross Margin
Operating Expenses
Income Taxes
Net Income
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 Septemberof June 30, 2017,2020, we had cash of $1,609,945,$922,567, a decrease of $680,484$112,828 from $2,290,429 at$1,035,395 as of December 31, 2016.30, 2019 for continuing operations. 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.
Nine months ended September 30, | ||||||||||||||||
2017 | 2016 | Variance | % | |||||||||||||
Net cash used in operating activities | $ | (685,087 | ) | $ | (812,211 | ) | $ | 127,124 | (16 | )% | ||||||
Effect of exchange rates changes on cash | 4,603 | - | 4,603 | NM | ||||||||||||
Net change in cash | $ | (680,484 | ) | $ | (812,211 | ) | $ | 131,727 | (16 | )% |
36
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 | % |
Cash Flow from Operating Activities
Net cash used in continuing operating activities for the |
Cash Flow from Investing Activities
Cash Flow in Financing Activities
Cash Flow from Financing Activities
● | Net cash provided by financing activities for the six months ended June 30, 2020, was $421,236, a decrease of $159,631, for the six months ended June 30, 2019. The decrease in net cash flow used in financing activities was primarily attributable to repayment of short-term loan. | |
● | The Company borrowed two loans in the aggregate of $282,454 from a shareholder of the Company, with $141,227 (translated from RMB1,000,000) borrowed on April 1, 2020, and with $141,227 (translated from RMB1,000,000) borrowed on May 26, 2020. The loan amounts are non-interest bearing, unsecured and due on demand. | |
● | The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in the United States. On May 4, 2020, Company was informed by its lender, Bank of America, N.A (the “Bank”), that the Bank received approval from the U.S. Small Business Administration (“SBA”) to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the recently enacted CARES Act administered by the SBA. Per the terms of the PPP Loan, Company received total proceeds of $77,588 from the Bank. In accordance with the requirements of the CARES Act, the Company intends to use the proceeds from the PPP Loan primarily for payroll costs. The PPP Loan has a 1.00% interest rate, and is subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act. The PPP Loan forgiveness amount will be reduced for any EIDL advance that the Company receives. The amount of loan forgiveness will be further reduced if the borrower terminates employees or reduces salaries during the eight-week period following the loan’s origination. The Company currently believes that its use of the loan proceeds met the conditions for forgiveness of the loan. 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 approval for a loan under the SBA’s EIDL program from SBA. Per the terms of the EIDL, the Company received total proceeds of $150,000. The EIDL Loan has a 3.75% interest rate, and is subject to the terms and conditions applicable to all loans made pursuant to the EIDL Program as administered by the SBA. Company will use all the proceeds of this loan solely as working capital to alleviate economic injury caused by disaster occurring in 2020. |
Working Capital
The following table sets forth our working capital.capital from continuing operations:
September 30, | December 31, | June 30, | December 31, | |||||||||||||||||||||||||||||
2017 | 2016 | Variance | % | 2020 | 2019 | Variance | % | |||||||||||||||||||||||||
Total current assets | $ | 8,306,791 | $ | 5,239,866 | $ | 3,066,925 | 59 | |||||||||||||||||||||||||
Total current liabilities | 5,107,634 | 4,254,624 | 853,010 | 20 | ||||||||||||||||||||||||||||
Total current assets from continuing operations | $ | 2,881,461 | $ | 4,163,050 | $ | (1,281,589) | (31) | % | ||||||||||||||||||||||||
Total current liabilities from continuing operations | 3,893,935 | 4,147,871 | (253,936) | (6) | ||||||||||||||||||||||||||||
Working capital | $ | 3,199,157 | $ | 985,242 | $ | 2,213,915 | 225 | % | $ | (1,012,474 | ) | $ | 15,179 | $ | (1,027,653) | NM | % | |||||||||||||||
Current ratio | 1.6 | 1.2 | 0.74 | 1.00 |
● | We believe that our working capital will be sufficient to enable us to meet our cash requirements for the next 12 months. |
Going Concern
The independent auditors' report accompanying our June 30, 2020 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 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 will continue to have material and adverse impacts on our cash flow for the three months ending September 30, 2020 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
During the periods presented, weWe 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.
37
Subsequent Events
The following are a series ofManagement has evaluated subsequent events that occurred afterfor recognition and disclosure through the three months ended September 30, 2017.
Appointment of Certain Officers
On August 29, 2017, Mr. Jonathan F. McKeage left his position as the Chief Executive Officer (“CEO”) of the Company because Mr. McKeage’s employment agreementdate these financial statements were filed with the Company ended on August 28, 2017. Mr. McKeage will remain as a senior advisor of the Company, assisting Mr. Max P. Chen, ChairmanUnited States Securities and Sole Director of the CompanyExchange Commission and concluded that no other subsequent event or transactions have occurred that required recognition or disclosure in the implementation of the its strategic and business plan. On August 28, 2017, Mr. Max P. Chen was appointed by the Board of Directors of the Company (the “Board”) to serve as the Company’s CEO, effective on August 29, 2017. The Company entered into an Employment Agreement with Mr. Chen on August 29, 2017 for a term of three-year period that renews annually unless terminated by either party.
On September 28, 2017, Mr. Anthony S. Chan, CPA was appointed by the Board to replace Mr. Max P. Chen as the Company’s CFO, effective on October 1, 2017. The Company entered into an Employment Agreement with Mr. Chan on September 28, 2017 (the “Employment Agreement”) for a term of three-year period unless terminated according to the Employment Agreement.
Series A Convertible Preferred Stock Issuance
On October 30, 2017, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with China Cultural Finance Holdings Company Limited, a British Virgin Islands corporation (the “Purchaser”) pursuant to which the Company will issue 500,000 shares (the “Shares”) of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), at price of $4 per Share (the “Purchase Price Per Share”) to the Purchaser, with the rights, privileges and preferences set forth in the Certificate of Designation of Series A Convertible Preferred Stock (the “Certificate of Designation”),our consolidated financial statements except for the aggregate price of Two Million Dollars ($2,000,000) (the “Purchase Price”).following.
On November 3, 2017, the Company designated and issued to the Purchaser, 500,000 shares as Series A Convertible Preferred Stock (the “Preferred Stock”) out of the 20,000,000 authorized number of preferred shares of the Company, par value $0.001 per share.
Pursuant to the Share Purchase Agreement, the Company will use its commercially reasonable efforts to apply to be listed on the NASDAQ Capital Market or such other national securities exchange as is reasonably acceptable to the Purchaser (the “National Exchanges”), so that the Company’s common stock (the “Common Stock”) will commence trading on one of the National Exchanges (the “Uplisting”) within 365 days after the Closing Date (the “Uplisting Deadline”). Each and every outstanding shares of Preferred Stock will automatically convert, without the payment of additional consideration by the holder thereof (the “Mandatory Conversion”) if and when Uplisting occurs (the “Mandatory Conversion Commencement”), into fully paid and non-assessable shares of Common Stock, at a conversion price which shall be the lesser of (i) $4.00 or (ii) 90% of the offering price in the occurrence of a secondary public offering of the Company’s Common Stock pursuant to a registration statement on Form S-1 (the “Conversion Price”). The Conversion Price will be subject to adjustment in the event of reorganization, reclassification, consolidation or merger.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.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) and Chief Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure.
During the quarterthree months ended SeptemberJune 30, 2017,2020, we have established procedures have been establishedrequiring 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 must be evaluated by our CEO and CFO for disclosures in our consolidated financial statements and public filings.are properly disclosed.
We performed an evaluation, under the supervision and with the participation of our management, including our CEO, and CFO, 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 and CFO havehas concluded that, as of SeptemberJune 30, 2017,2020, 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, and CFO, as appropriate, to allow timely decisions regarding required disclosure. Such conclusion was based solely on the fact that the Company’s did not have effectiveCompany identified deficiencies in its internal control over financial reporting as of SeptemberJune 30, 2017.
Changes In Internal Control Over Financial Reporting2020. 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.
In August 2017,We have identified the Company engagedfollowing 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 seasoned finance executive with over 25 yearsresult of professional experience in auditingour limited size and SEC reporting as well as internalaccounting 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 risk management as its senior financial advisor to assist senior managementdocumentation in the assessment of its finance and accounting functions, and development of an actionable plan to strengthen the Company’splace by December 31, 2020.
Changes in internal control over financial reporting as well as its ability to comply with rules and regulations. In light of the structure and discipline that has been established during the quarter ended September 30, 2017, the Company appointed the senior financial advisor as its chief financial officer effective October 1, 2017.
There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this reportQuarterly 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
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.
DuringSmaller reporting companies are not required to provide the three months ended September 30, 2017, there were no material changes to the risk factors previously disclosed in the “Risk Factors” Section in our annual report on Form 10-K for the period ended December 31, 2016, filed on April 17, 2017.information required by this item.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS.
There werehas been no issuanceunregistered sale of options or shares, registered or notequity securities during the three months ended SeptemberJune 30, 2017.2020.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
Not applicable.None.
ITEM 4. MINE SAFETY DISCLOSURE.DISCLOSURES.
Not applicable.
None.
The following exhibits are filed herewith:
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EXHIBIT INDEX
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ** | |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ** | |
101.INS | XBRL Instance Document * | |
101.SCH | XBRL Taxonomy Extension Schema Document * | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document * | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document * | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document * | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document * |
* | 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. |
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 14, 2020 | Title: | President, Sole Director, Chief Executive Officer, Interim Chief Financial Officer, and Secretary |