UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10-Q/A~~

~~Amendment No. 2~~

10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2019

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number 333-201029

AMERICAN EDUCATION CENTER, INC.

(Exact name of registrant as specified in its charter)


Nevada		~~38-3941544~~87-0627910
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~2 Wall Street, 8~~^th ~~Floor~~

~~New York, NY 10005~~

~~(Address of principal executive offices, including zip code)~~

2 Wall Street, 8^th Floor New York, NY		10005
(Address of principal executive offices)		(Zip Code)

(212) 825-0437

(Telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
None		None		None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	x
		Emerging growth company	x

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: ~~55,797,113~~56,797,113 shares of common stock, $0.001 par value, as of ~~August 19,~~November 8, 2019.

TABLE OF CONTENTS

Index to Form 10-Q

~~Explanatory Note~~FORWARD-LOOKING STATEMENTS

~~The sole purpose of this Amendment No. 2 to the~~This Quarterly Report on Form 10-Q ~~(the “Form 10-Q”)~~contains certain forward-looking statements (as such term is defined in Section 27A of ~~American Education Center Inc. for the quarterly period ended June 30, 2019, filed with~~ the Securities Act of 1933 and Section 21E of the Securities Exchange ~~Commission~~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; 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 ~~August 20, 2019, is~~these or similar words. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including the ability to ~~revise~~raise sufficient capital to continue the ~~disclosure~~Company’s operations. These statements may be found under ~~“Revenue Recognition”~~Part I, Item 2— “Management’s Discussion and Analysis of ~~“Note 2 – Summary~~Financial Condition and Results of ~~Significant Accounting Policies” to “Item 1. Financial Statements”.~~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.

~~Except for~~In light of these risks and uncertainties, there can be no assurance that the ~~item described above, no other changes have been made to the Form 10-Q. This Amendment No. 2 to the~~forward-looking statements contained in this Quarterly Report on Form 10-Q ~~speaks~~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 ~~original filing~~ date of this Quarterly Report on Form 10-Q. Such statements are presented only as a guide about future possibilities and do not represent assured events, and we anticipate that subsequent events and developments will cause our views to change. You should, therefore, not rely on these forward-looking statements as representing our views as of any date after the date of this Quarterly Report on Form 10-Q.

This Quarterly Report on Form 10-Q ~~dated August 19, 2019, amended~~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 ~~August 20, 2019,~~Form 10-Q. In addition, projections, assumptions and ~~does~~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 ~~reflect events that may have occurred subsequent to the previous filing dates.~~make an investment decision based solely on our projections, estimates or expectations.

PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

~~AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies~~

~~CONSOLIDATED BALANCE SHEETS~~

June 30, December 31,
2019 2018
(Unaudited) (Audited)
ASSETS

Current assets:
Cash $ 1,769,142 $ 1,985,133
Accounts receivable, net of allowance for doubtful accounts of $1,584,713 and $1,189,147 at June 30, 2019 and December 31, 2018, respectively 3,239,450 2,906,231
Prepaid expenses 424,901 300,715

Total current assets 5,433,493 5,192,079

Noncurrent assets:
Deferred compensation - -
Deferred income taxes 142,598 428,206
Intangible asset, net 346,317 420,407
Operating lease right-of-use asset 2,310,795 -
Security deposits 284,270 266,021

Total noncurrent assets 3,083,980 1,114,634

Total assets of continuing operations 8,517,473 6,306,713

Assets of discontinued operations, net - 917,059

TOTAL ASSETS $ 8,517,473 $ 7,223,772

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses $ 2,600,111 $ 2,792,388
Taxes payable 62,482 -
Deferred revenue 295,350 252,925
Advances from clients 11,366 34,892
Short-term loan from related party 436,885 -
Long-term loan due within a year 145,579 145,579
Operating lease liability - current portion 296,624 -

Total current liabilities 3,848,397 3,225,784

Noncurrent liabilities:
Deferred rent - 221,461
Operating lease liability 2,249,254 -
Long-term loan - -

Total liabilities of continuing operations 6,097,651 3,447,245

Liabilities of discontinued operations - 1,881,404

Total liabilities 6,097,651 5,328,649

Stockholders’ equity:
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, 2019 and December 31, 2018, respectively 25,000 25,000
Common stock, $0.001 par value; 450,000,000 shares authorized; 56,797,113 shares issued and 55,797,113 outstanding at June 30, 2019 and December 31, 2018 respectively 56,797 56,597
Shareholder's Equity -
Additional paid-in capital 8,267,930 8,206,130
Treasury stock at cost, 1,000,000 shares at $0.66 per share (660,000 ) -
Subscription receivables (575,929 ) (719,911 )
Retained earnings (4,734,202 ) (5,714,688 )
Accumulated other comprehensive income (12,693 ) (13,865 )
Total controlling interest 2,366,902 1,839,263
Noncontrolling Interest 52,920 55,860

Total stockholders' equity 2,419,822 1,895,123

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 8,517,473 $ 7,223,772
~~See accompanying notes to consolidated financial statements.~~
AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES
2
CONSOLIDATED BALANCE SHEETS
~~AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES~~
~~CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)~~

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018

Revenues $ 1,169,044 $ 1,768,500 $ 3,139,791 $ 3,098,801
Cost of revenues 686,290 970,161 1,768,687 2,016,300
Gross profit 482,754 798,339 1,371,104 1,082,501

Operating expenses:
Selling and marketing 61,960 49,415 201,249 63,415
General and administrative 1,059,041 461,487 1,451,878 922,072
Total operating expenses 1,121,001 510,902 1,653,127 985,487

Loss (income) from operations (638,247 ) 287,437 (282,023 ) 97,014
Other income 95 144 1,297 668

Loss (income) before provision for income taxes (638,152 ) 287,581 (280,726 ) 97,682
Provision for income taxes 366,076 43,792 366,076 43,812

Net (loss) income from continuing operations including noncontrolling interest $ (1,004,228 ) $ 243,789 $ (646,802 ) $ 53,870

Net income (loss) from discontinued operations, net of income taxes benefit 653,474 (1,854,531 ) 928,475 (3,488,541 )

Net income (loss) including noncontrolling interest (350,754 ) (1,610,742 ) 281,673 (3,434,671 )
Less: Net (loss) attributable to noncontrolling interest (1,470 ) - (2,940 ) -
Net (loss) attributable to American Education Center $ (349,284 ) $ (1,610,742 ) $ 284,613 $ (3,434,671 )

Net income (loss) including noncontrolling interest $ (350,754 ) $ (1,610,742 ) $ 281,673 $ (3,434,671 )
Other comprehensive (loss) income
Foreign currency translation gain (loss) 6 (16,394 ) 1,171 (4,910 )
Comprehensive (loss) including noncontrolling interest $ (350,748 ) (1,627,136 ) $ 282,844 (3,439,581 )
Less: Comprehensive (loss) attributable to noncontrolling interest (1,470 ) - (2,940 ) -
Comprehensive income (loss) attributable to American Education Center $ (349,278 ) $ (1,627,136 ) $ 285,784 $ (3,439,581 )

Loss (income) earnings per common share - basic and diluted
Income (loss) from continuing operations $ (0.02 ) $ 0.01 $ (0.01 ) $ 0.00
Income (loss) from discontinued operations $ 0.01 $ (0.04 ) $ 0.02 $ (0.08 )
Net income (loss) earnings per common share - basic and diluted (0.01 ) (0.04 ) 0.01 (0.08 )

Weighted average shares
Outstanding, basic and diluted 56,058,483 41,350,000 56,058,483 41,350,000
~~See accompanying notes to consolidated financial statements.~~
3
September 30, December 31,
2019 2018
ASSETS (Unaudited) (Audited)
Current assets:
Cash $ 990,073 $ 1,985,133
Accounts receivable, net of allowance for doubtful accounts of $1,952,458 and $1,189,147 at September 30, 2019 and December 31, 2018, respectively 3,837,963 2,906,231
Prepaid expenses 395,934 300,715

Total current assets 5,223,970 5,192,079

Noncurrent assets:
Fixed Asset, net 5,099 -
Deferred income taxes 251,928 428,206
Intangible asset, net 309,272 420,407
Operating lease right-of-use asset 2,218,061 -
Security deposits 284,544 266,021

Total noncurrent assets 3,068,904 1,114,634

Total assets of continuing operations 8,292,874 6,306,713

Assets of discontinued operations, net - 917,059

TOTAL ASSETS $ 8,292,874 $ 7,223,772

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses $ 2,745,893 $ 2,792,388
Taxes payable 56,754 -
Deferred revenue 335,600 252,925
Advances from clients 59 34,892
Short-term loan from related party 419,680 -
Long-term loan due within a year 145,579 145,579
Operating lease liability - current portion 311,883 -

Total current liabilities 4,015,448 3,225,784

Noncurrent liabilities:
Deferred rent - 221,461
Operating lease liability 2,148,317 -
Long-term loan - -

Total liabilities of continuing operations 6,163,765 3,447,245

Liabilities of discontinued operations - 1,881,404

Total liabilities 6,163,765 5,328,649

Stockholders’ equity:
Series B Convertible Preferred stock, $0.001 par value; 25,000,000 shares authorized 25,000,000 and 0 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively 25,000 25,000
Common stock, $0.001 par value; 450,000,000 shares authorized; 56,597,113 shares issued and 55,597,113 outstanding at September 30, 2019 and December 31, 2018 respectively 56,797 56,597
Shareholder's Equity -
Additional paid-in capital 8,267,930 8,206,130
Treasury stock at cost, 1,000,000 shares at 0.66 per share (660,000 ) -
Subscription receivables (592,305 ) (719,911 )
Retained earnings (5,012,657 ) (5,714,688 )
Accumulated other comprehensive income (7,106 ) (13,865 )
Total controlling interest 2,077,659 1,839,263
Noncontrolling Interest 51,450 55,860

Total stockholders' equity 2,129,109 1,895,123

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 8,292,874 $ 7,223,772
~~AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES~~
~~CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)~~
Six Months Ended June 30,
2019 2018

Cash flows from operating activities:
Net income (loss) $ 281,673 $ (3,434,671 )
(Loss) income from discontinued operation, net of income taxes - 3,488,541
Adjustments to reconcile net income including noncontrolling interest to net cash (Used in) operating activities:
Deferred tax (benefit) provision 285,608 (18,384 )
Deferred rent expense (20 ) 16,512
Amortization of right-of-use asset 127,538 -
Initial payment of lease (15,399 ) -
Stock-based compensation expense 62,000 -
Provision for doubtful accounts 395,566 -
Amortization expense for learning platform 6,000 -
Gain from disposal of the discontinued operation, net of income taxes (928,475 ) -
Amortization expense 68,090 68,090
Change in operating assets and liabilities:
(Increase) in Security Deposit (18,249 ) -
(Increase) in accounts receivable (728,785 ) (1,809,243 )
(Increase) in prepaid expenses (124,186 ) (55,898 )
(Decrease) increase in accounts payable and accrued expenses (192,277 ) 897,312
Increase in taxes payable 62,482 11,267
Increase in deferred revenue 42,425 279,924
(Decrease) in lease liabilities (98,494 ) -
(Decrease) in advances from clients (23,526 ) (14,918 )
Net cash (used in) continuing operating activities (798,029 ) (571,468 )
Net cash (used in) discontinued operating activities - (483,606 )
Net cash (used in) operating activities (798,029 ) (1,055,074 )

Cash flows from financing activities:
Loan from stockholder 580,867 -
Net cash provided by continuing financing activities 580,867 -
Net cash provided by discontinued financing activities - -
Net cash provided by financing activities 580,867 -

Effect of exchange rates changes on cash 1,171 (4,910 )

Net change in cash (215,991 ) (1,059,984 )
Cash at beginning of period 1,985,133 2,720,985

Cash at end of period $ 1,769,142 $ 1,661,001
Less cash of discontinued operations - end of period - 50,391
Cash of continuing operations - end of period 1,769,142 1,610,610

Supplemental disclosure of cash flow information

Cash paid for income taxes $ 30,162 $ 25,764

Cash paid for interest $ 10,918 $ 7,279

NON-CASH TRANSACTIONS
Disposal of subsidiary by reacquiring stock and debt forgiven $ 928,475 $ -
Initial recognition of operating lease right-of-use asset $ 2,438,332 $ -
Operating lease liabilities $ 2,644,373 $ -

See accompanying notes to consolidated financial statements.

4

~~AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES~~
AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)~~
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Revenues $ 1,564,681 $ 1,903,310 $ 4,704,472 $ 5,002,111
Cost of revenues 880,389 1,361,461 2,649,076 3,377,761
Gross profit 684,292 541,849 2,055,396 1,624,350

Operating expenses:
Selling and marketing 116,008 371,096 317,257 434,511
General and administrative 953,872 919,335 2,405,750 1,841,407
Total operating expenses 1,069,880 1,290,431 2,723,007 2,275,918

(Loss) from operations (385,588 ) (748,582 ) (667,611 ) (651,568 )
Other income 7 12,823 1,304 13,491

(Loss) before provision for income taxes (385,581 ) (735,759 ) (666,307 ) (638,077 )
(Benefit) provision for income taxes (105,656 ) (43,812 ) 260,420 -

Net loss from continuing operations including noncontrolling interest $ (279,925 ) $ (691,947 ) $ (926,727 ) $ (638,077 )

Net income (loss) from discontinued operations, net of income taxes benefit - (1,823,861 ) 928,475 (5,312,402 )

Net income (loss) including noncontrolling interest (279,925 ) (2,515,808 ) 1,748 (5,950,479 )
Less: Net (loss) attributable to noncontrolling interest (1,470 ) (1,470 ) (4,410 ) (1,470 )
Net income (loss) attributable to American Education Center $ (278,455 ) $ (2,514,338 ) $ 6,158 $ (5,949,009 )

Net income (loss) including noncontrolling interest $ (279,925 ) $ (2,515,808 ) $ 1,748 $ (5,950,479 )
Other comprehensive income (loss)
Foreign currency translation gain (loss) 5,588 (14,427 ) 6,759 (19,337 )
Comprehensive income (loss) including noncontrolling interest $ (274,337 ) (2,530,235 ) $ 8,507 (5,969,816 )
Less: Comprehensive income (loss) attributable to noncontrolling interest (1,470 ) (1,470 ) (4,410 ) (1,470 )
Comprehensive income (loss) attributable to American Education Center $ (272,867 ) $ (2,528,765 ) $ 12,917 $ (5,968,346 )

(Loss) earnings per common share - basic and diluted
Income (loss) from continuing operations $ (0.00 ) $ (0.02 ) $ (0.02 ) $ (0.02 )
(Loss) from discontinued operations $ - $ (0.04 ) $ 0.02 $ (0.13 )
Net (loss) earnings per common share - basic and diluted (0.00 ) (0.06 ) (0.00 ) (0.14 )

Weighted average shares
Outstanding, basic and diluted 56,058,483 41,883,000 56,058,483 41,883,000
~~FOR THE SIX MONTHS ENDED JUNE 30, 2019~~
Additional Treasury Accumulated
other
Common stock Series B Preferred Stock paid-in Stock Subscription Retained comprehensive Noncontrolling
Shares Amount Shares Amount capital Shares Amount Receivables earnings income Interest Total

Balance as of December 31, 2018 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

Realization upon disposal of subsidiary by reacquiring stock (1,000,000 ) 1,000,000 (660,000 ) 695,873 35,873
Net income 284,613 (2,940 ) 281,673
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 1,171 1,171

Balance as of 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.

5

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months ended September 30,
2019 2018
Cash flows from operating activities:
Net (loss) $ 1,748 $ (5,950,479 )
(Income) loss from discontinued operation, net of income taxes - 5,312,402
Adjustments to reconcile net income including noncontrolling interest to net cash (Used in) operating activities:
Deferred tax provision (benefit) 176,278 (50,762 )
Deferred rent expense (20 ) 25,450
Amortization of right-of-use asset 203,647 -
Initial payment of lease for Qianhai (15,399 ) -
Gain from disposal of the discontinued operation, net of income taxes (928,475 ) -
Gain from bargain purchase of business - (13,200 )
Stock-based compensation expense 62,000 199,840
Provision for doubtful accounts 763,311 289,370
Depreciation expense for fixed assets 262 -
Amortization expense for learning platform 9,000 3,000
Amortization expense 102,135 102,136
Change in operating assets and liabilities:
(Increase) in security deposit (18,523 ) -
(Increase) in accounts receivable (1,695,043 ) (1,905,888 )
(Increase) in prepaid expenses (95,219 ) 104,582
(Decrease) increase in accounts payable and accrued expenses (46,495 ) 1,182,852
Increase in taxes payable 56,754 332,021
Increase in deferred revenue 82,675 301,999
(Decrease) in lease liabilities (167,547 ) -
(Decrease) in advances from clients (34,833 ) 18,386
Net cash (used in) continuing operating activities (1,543,744 ) (48,291 )
Net cash (used in) discontinued operating activities - (865,793 )
Net cash (used in) operating activities (1,543,744 ) (914,084 )

Cash flows from investing activities:
Fixed assets purchased by Qianhai (5,361 ) -

Net cash used for by investing activities (5,361 ) -

Cash flows from financing activities:
Loan from related party 547,286 -
Net cash provided by continuing financing activities 547,286 -
Net cash provided by discontinued financing activities - -
Net cash provided by financing activities 547,286 -

Effect of exchange rates changes on cash 6,759 (19,337 )

Net change in cash (995,060 ) (933,421 )
Cash at beginning of period 1,985,133 2,720,985

Cash at end of period $ 990,073 $ 1,787,564
Less cash of discontinued operations - end of period - 391
Cash of continuing operations - end of period 990,073 1,787,713

Supplemental disclosure of cash flow information

Cash paid for income taxes $ 39,829 $ 25,764

Cash paid for interest $ 14,558 $ 7,279

NON-CASH TRANSACTIONS
Disposal of subsidiary by reacquiring stock and debt forgiven $ 928,475
Initial recognition of operating lease right-of-use asset $ 2,438,332 $ -
Operating lease liabilities $ 2,644,373
See accompanying notes to consolidated financial statements.
6
AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2019
Accumulated
Series B Additional other
Common stock 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 80,956 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 ) 57,330 1,978,714
Realization upon disposal of subsidiary by reacquiring stock (1,000,000 ) 1,000,000 (660,000 ) 695,873 35,873
Net income 203,657 (4,410 ) 199,247
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
Net income (278,455 ) (1,470 ) (279,925 )
Issuance of common stock for cash (16,376 ) (16,376 )
Foreign currency translation income 5,588 5,588
September 30, 2019 55,797,113 $ 56,797 25,000,000 $ 25,000 $ 8,267,930 1,000,000 $ (660,000 ) $ (592,305 ) $ (5,012,657 ) $ (7,106 ) $ 51,450 $ 2,129,109
NINE MONTHS ENDED SEPTEMBER 30, 2018
Accumulated
Series A Additional other
Common stock Preferred Stock paid-in Treasury Stock Subscription Retained comprehensive Noncontrolling
Shares Amount Shares Amount capital Shares Amount Receivables earnings income Interest Total

January 1, 2018 41,350,000 $ 41,350 500,000 $ 500 $ 6,021,126 $ - $ - $ 973,764 $ 6,753 $ - $ 7,043,493
Net loss (1,823,929 ) (1,823,929 )
Foreign currency translation income 11484 11484
March 31, 2018 41,350,000 41,350 500,000 500 6,021,126 - - - (850,165 ) 18,237 - 5,231,048
Net loss (1,610,742 ) (1,610,742 )
Foreign currency translation loss (16,394 ) (16,394 )
June 30, 2018 41,350,000 41,350 500,000 500 6,021,126 - - - (2,460,907 ) 1,843 - 3,603,912
Net loss (2,514,338 ) (1,470 ) (2,515,808 )
Issuance of common stock for purchasing business 100,000 100 47,900 58,800 106,800
Issuance of common stock for service and to employees 433,000 433 199,407 199,840
Foreign currency translation loss (14,427 ) (14,427 )
September 30, 2018 41,883,000 $ 41,883 500,000 $ 500 $ 6,268,433 - $ - $ - $ (4,975,245 ) $ (12,584 ) $ 57,330 $ 1,380,317
See accompanying notes to consolidated financial statements.
7
AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

1. ORGANIZATION AND BUSINESS

American Education Center, Inc. (“AEC New York”) is a New York ~~Corporation organized~~corporation 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 the 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 then stockholders, Rongxia Wang and Ye Tian, of AEC Southern Management Co., Ltd. (“AEC Southern UK”), a company ~~incorporated~~formed 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 (the “AEC Southern UK Share Exchange”). As a result of the AEC Southern UK Share Exchange, AEC Southern UK became a wholly owned subsidiary of the Company.

AEC Southern UK held 100% of the equity ~~interest~~interests in AEC Southern Management Limited, a Hong Kong company (“AEC Southern HK”) ~~incorporated~~formed on December 29, ~~2015, with a registered capital of HK$10,000.~~2015. AEC Southern ~~UK owned 100% equity interest in~~HK then formed Qianhai Meijiao Education Consulting Management Co., Ltd.~~, a foreign wholly owned subsidiary incorporated pursuant to PRC laws~~ (“AEC Southern Shenzhen”) on March 29, 2016 pursuant to PRC laws, with a registered capital of RMB 5,000,000.
~~On May 1, 2019, the Company sold 100% of the equity interest in~~ Therefore, under PRC laws, AEC Southern ~~UK to three individuals who were Ye Tian, Rongxia Wang and Weishou Li, for~~Shenzhen was a ~~consideration of 1,000,000 shares of outstanding shares~~foreign wholly owned subsidiary of AEC ~~Nevada.~~Southern UK.

On July 13, 2018, pursuant to a Business Purchase Agreement (the “Purchase Agreement”), the Company acquired 51% of the issued and outstanding equity ~~interest~~interests of American Institute of Financial Intelligence LLC (“AIFI”), a New Jersey ~~corporation incorporated~~limited liability company formed on May 10, 2017, in exchange offor 100,000 shares of the Company common stock issued to the then sole shareholder of AIFI. As a result, AIFI became a 51% majority owned subsidiary of the Company.

On October 23, 2018, AEC Nevada incorporated a subsidiary, AEC Management Ltd. (“AEC BVI”) in the British Virgin Islands, pursuant to the laws of British Virgin Islands. AEC BVI is a wholly owned subsidiary of AEC Nevada, and as of the date of this report, does not have significant business activities.

On April 22, 2019, AEC Southern UK sold 100% of the equity ~~interest~~interests of AEC Southern HK to AEC ~~Management Ltd. Upon the execution~~BVI and ~~delivery of the Share Transfer Agreement,~~ 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.
68

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

1. ORGANIZATION AND BUSINESS (continued)

The Company’s corporate structure is as follows:

Headquartered in New York with operations in ~~PRC (People’s~~the People’s Republic of ~~China)~~China (“PRC”), the Company covers two market segments through two subsidiaries:

(1) AEC New York capitalizes on the rising demand of middle-class families in China for quality education and work experiences in the United States (“US”) and delivers customized high school and college placement and career advisory services to Chinese students wishing to study in the US. Its advisory services include language training, college admission advisory, on-campus advisory, internship and start-up advisory as well as student and family services.

(2) AEC BVI delivers customized high school and college placement and career advisory services to Chinese students wishing to study in the U.S. Currently, the revenue of AEC Southern isall generated from AEC Southern Shenzhen.
79

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation and Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments considered necessary to give a fair presentation have been included. Interim results are not necessarily indicative of full-year results. Certain prior year balances have been reclassified to conform to the current year’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, 2018 filed with the SEC on April 16, 2019.

Cash

Cash consists of all cash balances and liquid investments with an original maturity of three months or less are considered as cash equivalents.

Accounts Receivable

Accounts receivable are carried at net realizable value. The Company maintains an allowance for doubtful accounts, periodically evaluates its accounts receivable balances and makes general and/or specific allowances when there is doubt as to their collectability. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balances, customers’ historical payment history, their current credit-worthiness and current economic trends. Accounts receivable are written off against the allowance only after exhaustive collection efforts. As of ~~June~~September 30, 2019 and December 31, 2018, the allowance for doubtful accounts was ~~$1,142,088~~$1,952,458 and $1,189,147 for AEC NY, $0 and $0 for AEC ~~BVI, and $4,595,823 and $4,595,823 for AEC UK, which is now discontinued operating, respectively.~~BVI.

810

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign Currency Translation

The Company’s functional currency is US dollars. The company has two bank accounts located in the PRC. Translation adjustments arising from the use of different exchange rates 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 consolidated statements of operations and comprehensive income.

Revenue Recognition

The Company adopted ASU No. 2014-09, Topic 606 on January 1, 2018, using the modified retrospective method. ASC 606 requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.

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.

Prior the disposal of AEC Southern UK on May 1, 2019, AEC Southern UK ~~delivers~~delivered customized corporate training and advisory services. It received monthly non-refundable retainer payments and ~~recognizes~~recognized revenue ~~when~~as services ~~are~~were rendered.

AEC Shenzhen delivers customized high school and college placement and career advisory services. Fees related to such advisory services are generally paid to the Company in advance and they are recorded as deferred revenue. Revenues are recognized proportionally as services are rendered or upon completion.

For the three months ended ~~June~~September 30, 2019, approximately ~~1.1~~1.4 million, or more than ~~90%~~80%, of the revenue ~~was from corporate customers which~~ was recorded as accounts receivable and approximately ~~$80,000~~$120,000 of the revenue was realized from deferred revenue.

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 corporate 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.

911

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

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 Payments to Non-Employees” and FASB ASC 718, “Compensation – Stock Based Compensation,” respectively.

The options are valued using the Black-Scholes valuation model. This model is affected by the Company’s stock price as well as assumptions regarding a 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 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.

1012

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

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 ~~March 31,~~September 30, 2019 and December 31, 2018, 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 21%. ~~No provisions~~Provisions for income taxes for the United States have been made for the ~~six~~nine months ended ~~June~~September 30, ~~2019 due to the taxable income offset by net operating loss in prior year.~~2019.

United Kingdom (“UK”)

According to current England and Wales income tax law, resident companies are taxable in the United Kingdom on their worldwide profits and subject to an opt-out for non-UK permanent establishments (PEs), while non-resident companies are subject to UK corporation tax only on the trading profits attributable to a UK PE, or the trading profits attributable to a trading of dealing in or developing UK land, plus UK income tax on any other UK source income.

AEC Southern UK was ~~incorporated~~formed in the United Kingdom and is governed by the income tax laws of England and Wales.

On May 1, 2019, the Company sold 100% of the equity interests in AEC Southern UK to three individuals and AEC Southern UK is no longer a subsidiary of the Company. Since AEC Southern UK had no PEPEs in the UK as of May 1, 2019 and had no ~~UK-Source~~UK-source income during 2018, the Company is not subject to tax on non-UK source income. ~~The Company took full allowance of deferred tax assets which the Company does not expect to utilize in the near future.~~

British Virgin Island (“BVI”)

According to BVI corporate taxation, ~~for basis companies,~~ there is a zero-rated income tax regime for all BVI-domiciled corporate entities, and there is no concept of residence applicable to BVI corporate taxation.

AEC BVI was incorporated in the BVI and is governed by the ~~taxation~~laws of the BVI.

Hong Kong

AEC Southern HK was formed in Hong Kong. Pursuant to the income tax laws of Hong Kong, the Company is not subject to tax on non-Hong Kong source income.

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 nine months ended September 30, 2019 due to the net operating loss for the period.

1113

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

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 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.

FASB ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis. Non-derivative financial instruments include cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses, taxes payable, and loan from stockholders. As of ~~June~~September 30, 2019 and December 31, 2018, the carrying values of these financial instruments approximated their fair values due to their short-term nature.

Use of Estimates

The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

1214

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Earnings (Loss) per Share

Earnings (loss) per share is calculated in accordance with FASB ASC 260, “Earnings Per Share.” Basic earnings (loss) per share is based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock options are converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Options and warrants are only dilutive when the average market price of the underlying common stock exceeds the exercise price of the options or warrants because it is unlikely 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) Statement No. 141 (revised 2007), 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.

1315

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

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 initial recognition of $2,016,142 of ROU assets and $2,237,583 of lease liabilities on our consolidated balance sheet at adoption on January 1, 2019 related to office space lease commitment on March 1, 2015. The difference of $221,441 represented deferred rent for leases that existed as of the date of adoption, which was an offset to the opening balance of right-of-use assets. The adoption of the standard on January 1, 2019 did not have a material impact on our consolidated statements of income, stockholders’ equity and cash flows.

1416

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

3. RECENTLY ISSUED ACCOUNTING STANDARDS

In August 2014, the FASB issued an accounting standard update which requires management to assess whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued. If substantial doubt exists, additional disclosures are required. This update was effective for the Company's annual period ended January 28, 2017. The adoption of the new standard did not have a material impact on the Company’s consolidated financial position, results of operations, cash flows or disclosures.

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 has adopted the requirements of ASU 2016-02 on January 1, 2019, the first day of fiscal year 2019, and using the modified retrospective approach, electing the package of practical expedients, and the practical expedient to not separate lease and non-lease components for operating leases. We also elected the modified retrospective approach that permits adoption of the new standard prospectively, as of the effective date, without adjusting comparative periods presented. The current adjustment has been disclosed and presented on the Company’s balance sheet.

In January 2017, the FASB issued accounting standard update which simplifies the test for goodwill impairment. To address concerns over the cost and complexity of the two-step goodwill impairment test, the amendments in this update remove the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This update is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted the update in the fourth quarter of 2018. The adoption of the new standard did not have an impact on our consolidated financial statements.

In 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~~has no material ~~effect~~impact on the Company’s consolidated financial statements.

In February 2018, the FASB ~~issue~~issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220). The amendments in this update affect any entity that is required to apply the provisions of Topic 220, Income Statement—Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

In March 2018, the FASB ~~issue~~issued ASU 2018-05: Income Taxes (Topic 740) that addresses the recognition of provisional amounts in the event that the accounting is not complete and a reasonable estimate can be made. The guidance allows for a measurement period of up to one year from the enactment date to finalize the accounting related to the TCJA.

1517

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

4. CONCENTRATION OF CREDIT AND BUSINESS RISK

The Company maintains its cash accounts at two commercial banks in the US, two commercial banks in the PRC and one commercial bank in Hong Kong. The Federal Deposit Insurance Corporation covers funds held in US banks and insures $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 Hong Kong Deposit Protection Board covers funds held in HK banks and it insures HK$500,000 per bank for the total of all depository accounts. As of ~~June~~September 30, 2019, the Company’s US bank accounts had cash balances in excess of federally insured limits of approximately ~~$1,105,860.~~$261,103. 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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018:

2019

Gross
Revenue
Percentage Accounts
Receivable Percentage 2019

Gross
Revenue
Percentage Accounts
Receivable Percentage
Customer 1 $ 1,611,820 51.3 % $ 1,534,441 32.1 % $ 2,223,080 47.3 % $ 1,976,639 34.3 %
Customer 2 $ 798,800 25.4 % 1,193,345 25.0 % $ 1,141,900 24.3 % 1,723,520 29.9 %

2018

Gross
Revenue Percentage Accounts
Receivable Percentage 2018
Gross
Revenue Percentage Accounts
Receivable Percentage
Customer 1 $ 777,400 25.1 % $ 1,075,240 21.4 % $ 1,490,120 29.8 % $ 626,812 17.4 %
Customer 2 541,500 17.5 % 647,368 12.9 % 1,067,300 21.3 % 1,215,140 33.6 %
Customer 3 412,000 13.3 % 143,600 2.9 % 535,200 10.7 % 84,700 2.3 %
Customer 4 311,700 10.1 % 389,540 7.8 %

1618

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

5. DISCONTINUED OPERATIONS

On May 1, 2019, AEC Nevada sold 100% of the equity interest in AEC Southern UK to three individuals, ~~who were~~ Ye Tian, Rongxia Wang and Weishou Li, ~~for~~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. 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 $928,475 from the disposition.

Pursuant to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the results of operations for the ~~years~~nine months ended ~~June~~September 30, 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 ~~June~~September 30, 2019 and December 31, 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,
2019
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 550,001 916,668
Total assets of discontinued operation $ 818,866 $ 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
Revenues $ -
Cost of revenues -
Gross profit -
Operating expenses (366,667 )
Other income (expenses), net -
Loss before income tax (366,667 )
Income tax expense -
Loss from discontinued operation (366,667 )
Total loss from discontinued operations, net of income taxes $ (366,667 )

1719

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

6. 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 evaluates the business from a geographic perspective, assesses performance and allocates resources on this basis. The reportable segments are as follows:

~~Prior~~After the discontinued operations of AEC Southern UK, the Company has two operating segments: AEC New York and AEC BVI.

· AEC New York delivers placement, career and other advisory services Its advisory services include language training, admission advisory, on-campus advisory, internship and start-up advisory as well as other advisory services.

· AEC BVI delivers customized high school and college placement and career advisory services to Chinese students wishing to study in the U.S. Currently, the revenue of AEC BVI all generated from AEC Southern Shenzhen.

The following table shows an analysis by segment of the assets and liabilities of continuing and discontinued operations as of ~~June~~September 30, 2019 and December 31, 2018:
June 30, 2019
AEC New
York AEC BVI AEC
Southern Total
Segment assets and liabilities:
Segment assets
Segment assets from continuing operations $ 7,570,967 $ 946,505 $ - $ 8,517,473
Segment assets of discontinued operations - - - -
Segment assets $ 7,570,967 $ 946,505 $ - $ 8,517,473
Segment liabilities
Segment liabilities from continuing operations $ 5,226,035 $ 871,616 $ - $ 6,097,651
Segment liabilities of discontinued operations - - - -
Segment liabilities $ 5,226,035 $ 871,616 $ - $ 6,097,651
September 30, 2019
AEC New
York AEC BVI AEC
Southern Total
Segment assets and liabilities:
Segment assets
Segment assets from continuing operations $ 7,518,712 $ 774,162 $              - $ 8,292,874
Segment assets of discontinued operations - - - -
Segment assets $ 7,518,712 $ 774,162 $ - $ 8,292,874
Segment liabilities
Segment liabilities from continuing operations $ 5,357,205 $ 806,560 $ - $ 6,163,765
Segment liabilities of discontinued operations - - - -
Segment liabilities $ 5,357,205 $ 806,560 $ - $ 6,163,765

December 31, 2018
AEC New
York AEC BVI AEC
Southern Total
Segment assets and liabilities:
Segment assets
Segment assets from continuing operations $ 6,206,780 $ 99,933 $ - $ 6,306,713
Segment assets of discontinued operations - - 917,059 917,059
Segment assets $ 6,206,780 $ 99,993 $ 917,059 $ 7,223,772
Segment liabilities
Segment liabilities from continuing operations $ 3,394,637 $ 52,608 $ - $ 3,447,245
Segment liabilities of discontinued operations - - 1,881,404 1,881,404
Segment liabilities $ 3,394,637 $ 52,608 $ 1,881,404 $ 5328,649

The Company recorded a total gain of $928,475 from disposal of discontinued operation, including current period of operation loss of $366,667 before disposal. ~~The investment in subsidiary account in AEC NY was adjusted to $0 in 2018 due to the operation loss of discontinued operation.~~
1820
AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
6. SEGMENT REPORTING (Continued)
Revenues from external customers, and gross profit for each business are as follows:
For the nine months ended September 30, 2019
AEC New York AEC BVI Total
Segment revenue:
Placement advisory $ 1,141,900 $ 122,987 $ 1,264,887
Career advisory 2,548,885 - 2,548,885
Student & Family advisory 887,700 - 887,700
Other advisory 3,000 - 3,000
Total revenue from continued operations $ 4,581,485 $ 122,987 $ 4,704,472
Total revenue from discontinued operations - - -
Gross profit $ 1,945,284 $ 110,112 $ 2,055,396
For the three months ended September 30, 2019
AEC New York AEC BVI Total
Segment revenue:
Placement advisory $ 343,100 $ 89,271 $ 432,371
Career advisory 731,610 - 731,610
Student & Family advisory 400,700 - 400,700
Other advisory - - -
Total revenue from continued operations $ 1,475,410 $ 89,271 $ 1,564,681
Total revenue from discontinued operations - - -
Gross profit $ 607,896 $ 76,396 $ 684,292
For the nine months ended September 30, 2018
AEC New
York AEC
BVI Total
Segment revenue:
Corporate training & advisory $ - $ - $ -
Placement advisory 515,701 - 515,701
Career advisory 1,074,325 1465 1,075,790
Student & Family advisory 3,410,620 - 3,410,620
Total revenue $ 5,000,646 $ 1465 $ 5,002,111
Gross profit $ 1,622,885 $ 1465 $ 1,624,350
For three months ended September 30, 2018
AEC
New York AEC
BVI Total
Segment revenue:
Corporate training & advisory $ - $ - $ -
Placement advisory 472,825 - 472,825
Career advisory 252,600 1465 254,065
Student & Family advisory 1,176,420 - 1,176,420
Total revenue $ 1,901,845 $ 1465 $ 1,903,310
Gross profit $ 540,384 $ 1465 $ 541,849
21

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

6. ~~SEGMENT REPORTING (Continued)~~
~~Revenues from external customers, and gross profit for each business are as follows:~~
For the six months ended June 30, 2019
AEC New York AEC BVI Total
Segment revenue:
Placement advisory $ 798,800 $ 33,716 $ 528,447
Career advisory 1,817,275 - 955,300
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
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
For the six months ended June 30, 2018
AEC New
York AEC
BVI Total
Segment revenue:
Corporate training & advisory $ - $ - $ -
Placement advisory 263,101 - 263,101
Career advisory 601,500 - 601,500
Student & Family advisory 2,234,200 - 2,234,200
Total revenue $ 3,098,801 $ - $ 3,098,801
Gross profit $ 1,082,501 $ - $ 1,082,501
For three months ended June 30, 2018
AEC
New York AEC
BVI Total
Segment revenue:
Corporate training & advisory $ - $ - $ -
Placement advisory 207,100 - 207,100
Career advisory 440,500 - 440,500
Student & Family advisory 1,120,900 - 1,120,900
Total revenue $ 1,768,500 $ - $ 1,768,500
Gross profit $ 798,339 $ - $ 798,339
19
~~AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018~~
7. DEFERRED COMPENSATION

On October 31, 2016 (the “Grant Date”), 1,500,000 shares of common stock of the Company were granted to AEC Southern UK’s CEO ~~that are~~which were expected to 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 was expensed over the three-year vesting period using the straight-line method. On December 31, 2017, the remaining deferred compensation was expensed due to the resignation of AEC Southern UK’s CEO.

On December 31, 2016, 6,000,000 shares of common stock of the Company were granted to ~~the~~ AEC Southern UK’s Chairman ~~and are~~which were expected to 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 was expensed over the remaining two year and ten months using the straight-line method. Before the disposal, the remaining deferred compensation was $550,001.

Stock compensation expense was $366,664 for the four months before the disposal of AEC Southern UK.

8. SECURITY DEPOSITS

The Company has security deposits with the landlord for its New York office and the office in Shenzhen, China of ~~$284,270~~$284,544 and $266,021 as of ~~June~~September 30, 2019 and 2018. As of September 30, 2019, AEC New York has security deposits of $266,021 and AEC Shenzhen has security deposits of $18,523.

2022

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

9. INVESTMENTS

Investment Valuation

The Company continually reviews its investments to determine whether a decline in fair value below the carrying value is other than temporary. The primary factors the Company considers in its determination are the length of time that the fair value of the investment is below the Company’s carrying value; the financial condition, operating performance and the prospects of the equity investee; and other company specific information such as industry data, general economic conditions, cash flows forecasts or any recent financing rounds. If the decline in fair value is deemed to be other than temporary, the carrying value of the equity investee is written down to fair value.

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 (the “Seller”), at a purchase price of $0.48 per share, in exchange for a 51% equity ownership ~~of the~~in AIFI pursuant to the Purchase Agreement. ~~Refer~~Please refer to Footnote 16 Business Acquisition.

10. ~~10.~~FIXED ASSET, NET
As of September 30, 2019 and December 31, 2018, fixed asset, net as follows:
September 30, December 31,
2019 2018
Electronic equipment $ 4,565 $          -
Office furniture 796 -
Less: accumulated depreciation (262 ) -

Fixed asset - net $ 5,099 $ -
For the three and nine months ended September 30, 2019, amortization expense was $262, and $262 respectively.
11. INTANGIBLE ASSET, NET

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 ~~June~~September 30, 2019 and December 31, 2018 are as follows:

June 30, December
31,
2019 2018 September 30, December 31,
2019 2018
Intangible asset: online campus system $ 612,814 $ 612,814 $ 612,814 $ 612,814
Intangible asset: learning platform 120,000 120,000 120,000 120,000
Less: accumulated amortization (386,497 ) (312,407 ) (423,542 ) (312,407 )

Intangible asset - net $ 346,317 $ 420,407 $ 309,272 $ 420,407

For the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, amortization expense was $37,045, ~~$74,090~~$111,135 and ~~$34,045, $68,090,~~$37,035, $105,135, respectively.

The following table is the future amortization expense to be recognized:

Year Ending December 31,

2019 74,091 37,046
2020 148,181 148,181
2021 46,045 46,045
2022 12,000 12,000
2022 66,000 66,000

Total $ 346,317 $ 309,272

2123

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

~~11.~~12. DEFERRED REVENUE

The Company receives advance payments for services to be performed and recognizes revenue when services have been rendered. The deferred revenues as of ~~June~~September 30, 2019 and December 31, 2018 were ~~$295,350~~$335,600 and ~~$299,924,~~$252,925, respectively.

~~12.~~13. RELATED-PARTY TRANSACTIONS

The Company’s CEO has a 34% interest in Columbia International College, Inc. (“CIC”). The Company prepaid CIC $96,000 for 2019 student consulting services which isare expected to be fully delivered and accounted for in 2019.

The Company’s CEO has a 40% interest in Wall Street Innovation Center, Inc. (“WSIC”), a corporation incorporated in the state of New York that focuses on career and business development activities. AEC New York’s Chief Operating Officer currently serves as the President and CEO of WSIC. In the course of delivering career advisory services, the Company has engaged WSIC to assist in certain career development activities. The Company prepaid WSIC $99,628 for business consulting services to be delivered in 2019, which isare expected to be completed in 2019.

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 ~~for~~as a reward offor his dedicated services to the ~~Corporation~~Company on November 26, 2018.

The Company borrowed ~~$436,885~~$419,680 (translated from ¥3,000,000) from a shareholder of the ~~shareholder~~Company during the ~~six~~nine months ended ~~June~~September 30, 2019. The amounts due to this related party were ~~$436,885 and $0~~$419,680 as of ~~June~~September 30, ~~2019 and December 31, 2018, respectively.~~2019. The amounts are non-interest bearing, non-secure and due on demand.
2224

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

~~13.~~14. LONG-TERM LOAN

On December 1, 2014, an unrelated party loaned the Company $295,579, with interest at 10%. The Company repaid $150,000 on November 10, 2017. The remaining is to be repaid on December 13, 2019. Interests are ~~expected~~ to be paid on the last day of each quarter from 2015 to 2019, except for the last payment which shall be made on December 12, 2019. The outstanding balance of the principal was $145,579as of ~~June~~September 30, 2019.

Interest expenses for the three months ended ~~June~~September 30, 2019 and 2018 were ~~$10,918~~$14,558 and ~~$7,279,~~$10,918, respectively.

~~14.~~15. OPERATING LEASE RIGHT-OF-USE ASSET / OPERATING LEASE LIABILITY

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 $34,065 per month for financial statement purposes.

We determined the present value of the future lease payments using a discount rate of 8.5%, our incremental borrowing rate based on current SBA loan rate, resulting in an initial right-of-use asset of $2,016,142 and lease liability of $2,237,583, which are being amortized ratably over the term of the lease.

In May 2019, the Company entered into a lease of office space in Shenzhen, Guangdong, PRC with an unrelated party, expiring on April 30, 2024. The lease commenced on May 1, 2019. We determined the present value of the future lease payment using a discount rate of 8.5%, our incremental borrowing rate based on current SBA loan rate, resulting in an initial right-of-use asset of $414,157 (RMB2,899,099) and lease liability of $399,048 (RMB2,793,341), which are being amortized ratably over the term of the lease. As September 30, 2019, the amount updated due to foreign currency translation as initial right-of-use asset of $405,565 (RMB2,899,099) and lease liability of $390,770 (RMB2,793,341).

As of ~~June~~September 30, 2019, the balance of the right-of-use asset was ~~$2,310,795,~~$2,218,061, and lease liability was ~~$2,545,878~~$2,460,200 (including ~~$296,624~~$311,883 for current portion and ~~$2,249,254~~$2,148,317 for noncurrent portion).

Rent expense was approximately ~~$102,195, $225,078,~~$133,155, $358,232, and ~~$88,081, $204,390~~$95,492, $283,370 for the three months and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, respectively.

Future minimum lease commitments are as follows on ~~June~~September 30, 2019:

Year Ending December 31, Gross Lease
Payment

2019 240,720
2020 512,125
2021 538,483
2022 and thereafter 1,920,603
$ 3,211,931
Less: Present value adjustment (666,053 )
Operating lease liability $ 2,545,878
Year Ending December 31, Gross Lease
Payment
2019 119,894
2020 510,185
2021 536,426
2022 and thereafter 1,915,327
$ 3,081,832
Less: Present value adjustment (621,632 )
Operating lease liability $ 2,460,200

2325

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

~~15.~~16. Income taxes

The component of deferred tax assets at ~~June~~September 30, 2019 and December 31, 2018 are as follows:

June 30,
2019

December 31,
2018

Net operating loss carryforwards 244,378 727,000
Allowance for bad debt 574,330 432,202
Accelerated Depreciation (27,990 ) (38,895 )
Allowance for deferred tax asset (648,120 ) (692,101 )
Deferred tax asset, net $ 142,598 $ 428,206

September 30,
2019

December 31,
2018

Net operating loss carryforwards 496,336 727,000
Allowance for bad debt 442,460 432,202
Accelerated Depreciation (38,748 ) (38,895 )
Allowance for deferred tax asset (648,120 ) (692,101 )
Deferred tax asset, net $ 251,928 $ 428,206

The provision for income taxes and deferred income taxes for the three months and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 are as follows:

For the three months
ended June 30, For the six months
ended June 30,
2019 2018 2019 2018

Current:
Federal $ 44,667 $ 24,969 $ 44,667 $ 24,969
State 35,536 18,843 35,536 18,843
Foreign 265 40,639 265 (313,803 )
Total current 80,468 84,451 80,468 (269,991 )

Deferred:
Federal 164,322 6,294 164,322 20,432
State 121,286 12,090 232,386 20,393
Foreign - 17,273 - (59,209 )
Total deferred 285,608 35,657 285,608 (18,384 )

Total $ 366,076 $ 120,108 $ 366,076 $ (288,375 )
For the three months
ended September 30, For the nine months
ended September 30,
2019 2018 2019 2018
Current:
Federal $ (1,013 ) $ (24,969 ) $ 43,654 $ -
State 4,952 (18,843 ) 40,488 -
Foreign (265 ) - - 50,762
Total current 3,674 (43,812 ) 84,142 50,762

Deferred:
Federal (61,092 ) 24,938 103,230 31,232
State (48,238 ) 11,924 73,048 24,014
Foreign - (36,862 ) - (106,008 )
Total deferred (109,330 ) - 176,278 (50,762 )

Total $ (105,656 ) $ (43,812 ) $ 260,420 $ -

The Company conducts business globally and, as a result, files income tax returns in the US federal jurisdiction, state and city, and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including jurisdictions in the US. The Company is subject to income tax examinations of US federal, state, and city for 2018, 2017 and 2016 tax years. The Company, to its knowledge, is not currently under examination nor has it been notified by the authorities.

2426

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

~~15.~~16. Income taxes(continued)

A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate for the three months and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 is as follows:

For the three months
ended June 30, For the six months
ended June 30,
2019 2018 2019 2018 For the three months
ended September 30, For the nine months
ended September 30,
2019 2018 2019 2018
Tax at federal statutory rate 21.0 % (21.0 )% 21.0 % (21.0 )% 21.0 % 21.0 % 21.0 % 21.0 %
State and local taxes, net of federal benefit 11.0 (11.0 ) 11.0 (11.0 ) 11.0 11.0 11.0 (11.0 )
Tax impact of foreign operations - 3.9 - (10.0 ) - 13.3 - (0.9 )
Non-deductible/ non-taxable items - 36.2 - 34.3 - (10.4 ) - (9.1 )

Total 32 % 8.1 % 32 % (7.7 )% 32 % 12.9 % 32 % - %

~~16.~~17. FINANCIAL INSTRUments

Fair values

The Company’s financial instruments from continuing operations approximate include cash and cash equivalents and prepaid expenses and other current assets which approximate to fair value due to their short-term nature and include cash accounts. The Company’s borrowings approximate fair value as the rates of interest are similar to what they would receive from other financial institutions. The carrying amounts of these financial assets and liabilities are a reasonable estimate of their fair values because of their current nature.

The 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,
2019 December 31,
2018
Cash and cash equivalents of continuing operations $ 1,769,142 $ 1,985,133
Accounts receivable, prepaid expenses and other current assets 3,239,450 3,206,946
Other assets of discontinued operations - 917,059
Other financial liabilities⁽ⁱ⁾ 3,848,397 3,225,784
liabilities of discontinued operations $ - $ 1,881,404
September 30,
2019 December 31,
2018
Cash and cash equivalents of continuing operations $ 990,073 $ 1,985,133
Accounts receivable, prepaid expenses and other current assets 4,233,897 3,206,946
Other assets of discontinued operations - 917,059
Other financial liabilities⁽ⁱ⁾ 4,015,448 3,225,784
liabilities of discontinued operations $ - $ 1,881,404

2527

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

~~16.~~17. FINANCIAL INSTRUments(Continued)

(i) 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~~September 30, 2019 are as follows:

Level 1 Level 2 Level 3 Total
Financial Assets
Cash and cash equivalents of continuing operations $ 1,769,142 $ - $ - $ 1,769,142
Cash and cash equivalents of discontinued operations - - - -
Other financial assets of continuing operations - - - -
Other financial assets of discontinued operations - - -
Total Financial assets $ 1,769,142 $ - $ - $ 1,769,142
Financial Liabilities
Other liabilities of continuing operations $ 3,848,397 $ - $ - $ 3,848,397
Other liabilities of discontinued operations - - - -
Total Financial Liabilities $ 3,848,397 $ - $ - $ 3,848,397
Level 1 Level 2 Level 3 Total
Financial Assets
Cash and cash equivalents of continuing operations $ 990,073 $ - $ - $ 990,073
Cash and cash equivalents of discontinued operations - - - -
Other financial assets of continuing operations - - - -
Other financial assets of discontinued operations - - -
Total Financial assets $ 990,073 $ - $ - $ 990,073
Financial Liabilities
Other liabilities of continuing operations $ 4,015,448 $ - $ - $ 4,015,448
Other liabilities of discontinued operations - - - -
Total Financial Liabilities $ 4,015,448 $ - $ - $ 4,015,448

The financial assets and liabilities carried at fair value on a recurring basis at ~~June~~September 30, 2018 are as follows:

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Financial Assets
Cash and cash equivalents of continuing operations $ 1,985,133 $ - $ - $ 1,985,133 $ 1,787,564 $ - $ - $ 1,787,564
Cash and cash equivalents of discontinued operations - - - - - - - -
Other financial assets of continuing operations - - - - - - - -
Other financial assets of discontinued operations - - - - - - - -
Total Financial Assets $ 1,985,133 $ - $ - $ 1,985,133 $ 1,787,564 $ - $ - $ 1,787,564
Financial Liabilities
Other liabilities of continuing operations $ 3,225,784 $ - $ - $ 3,225,784 $ 3,968,925 $ - $ - $ 3,968,925
Other liabilities of discontinued operations 1,881,404 - - 1,881,404 1,881,404 - - 1,881,404
Total Financial Liabilities $ 5,328,649 $ - $ - $ 5,328,649 $ 5,850,329 $ - $ - $ 5,850,329

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.

2628

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

~~16.~~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~~September 30, 2019:

Less than
90 days 90 days to
1 year Over
1 year Carrying
Value
Accounts receivable, net $ 1,086,900 $ 2,152,550 $ - $ 3,239,450
Less than
90 days 90 days to
1 year Over
1 year Carrying
Value
Accounts receivable, net $ 1,355,060 $ 2,451,365 $ - $ 3,806,425
Other receivable $ - $ 31,539 $ - $ 31,539
Total accounts receivable, net $ 1,355,060 $ 2,482,904 $ - $ 3,837,963

The Company determines 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.

~~17.~~18. STOCK OPTIONS

The Company did not grant any stock options during the ~~six~~nine months ended ~~June~~September 30, 2019.

The following is a summary of stock option activities:

Shares
Weighted
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value

Shares
Weighted
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value

Outstanding at December 31, 2018 3,200,000 $ 2.45 6.87 years $ - 3,200,000 $ 2.45 6.87 years $ -
Granted - - - - - - - -
Exercised - - - - - - - -
Cancelled and expired - - - - - - - -
Forfeited - - - - - - - -

Outstanding at June 30, 2019 3,200,000 $ 2.45 4.37 years $ -
Outstanding at September 30, 2019 3,200,000 $ 2.45 4.12 years $ -

Vested and expected to vest at June 30, 2019 2,266,666 $ 1.57 2.95 years $ -
Vested and expected to vest at September 30, 2019 2,266,666 $ 3.18 5.14 years $ -

Exercisable at June 30, 2019 2,266,666 $ 1.57 2.95 years $ -
Exercisable at September 30, 2019 2,266,666 $ 3.18 5.14 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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018.

There was no compensation expense related to any of the options above because the value ascribed to these options was not material.

2729

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

~~18.~~19. COMMON STOCK

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 a majority~~ 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 effect 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.~~Inc, the 100% equity owner of AIFI, ~~(the “Seller”),~~ 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 16 Business Acquisition.

Stocks issued to employees and for services

In July and August 2018, the Company entered into agreements ~~that~~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 ~~to exchange the service~~for services rendered in the amount of $7,000, prior to December 31, 2018.

In May 2019, the Company entered into agreements ~~that~~pursuant to which it issued an aggregate of 200,000 shares of the Company’s common stock to 4 individuals who have been service providers to the Company for services provided.

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 ~~CCFH Investment has not been~~Company received $127,606 (HKD 1,000,000) as of ~~December 31, 2018.~~September 30, 2019.

2830

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

~~19.~~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 ~~the~~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, with an original issue price of $0.10 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 ~~restrictions and pursuant Rule 144.~~resale restrictions. The transactions underlying the Manager Share Issuance Agreement ~~were~~ 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 ~~and pursuant Rule 144~~ 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 ~~were~~ 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 of registration.~~cancelled.

2931

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 AND 2018

~~20.~~21. BUSINESS ACQUISITION

On July 10, 2018, the Company entered into the Purchase Agreement with ~~the Seller,~~ 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 barging purchase $ 13,200

3032

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 ~~and~~AND 2018

~~21.~~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.

~~22.~~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 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.

~~23.~~24. SUBSEQUENT EVENT

The Company’s management has performed subsequent events procedures through the date the financial statements were available to be issued. There were no subsequent events requiring adjustment to or disclosure in the consolidated financial ~~statements.~~statements except for the following.

On November 11, 2019, the Company borrowed $142,110 (translated from RMB 1,000,000) from a related party for working capital purpose. The aggregate amount due to this related party was $561,790 as of November 11, 2019. The amounts are non-interest bearing, non-secure and due on demand.
3133

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
American Education Center, Inc. was incorporated in Nevada (“AEC Nevada”) in May 2014 as a holding company, and operates through its wholly owned subsidiaries, American Education Center, Inc., incorporated in the State of New York in 1999 (“AEC New York”), AEC Management Ltd., incorporated in the British Virgin Islands on October 23, 2018 (“AEC BVI”) and the subsidiaries of AEC BVI.
AEC 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 Management Co., Ltd., a company formed pursuant to the laws of England and Wales (“AEC Southern UK”) and its subsidiaries in 2016 pursuant to a share exchange agreement. AEC Southern UK held 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 HK owned 100% of the equity interests in Qianhai Meijiao Education Consulting Management Co., Ltd., a foreign wholly owned subsidiary incorporated pursuant to the laws of the People’s Republic of China (the “PRC”) on March 29, 2016, with a registered capital of RMB5,000,000 (“AEC Southern Shenzhen”). AEC Nevada, AEC New York, AEC BVI and its subsidiaries are referred to as the “Company” hereinafter. AEC Southern UK, via its operating entity in the PRC, AEC Southern Shenzhen, served as a local platform for expanding the Company’s business in mainland China. Shenzhen, in the province of Guangdong, is designated by the PRC as a Special Economic Zone (“SEZ”) City. SEZs are granted a more free-market oriented economic and regulatory environment, with business and tax policies designed to attract foreign investment and technology.
AEC New York acquired a 51% equity ownership in American Institute of Financial Intelligence LLC, a New Jersey limited liability company (“AIFI”) on July 10, 2018 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.
Corporate Reorganization
AEC BVI acquired AEC Southern HK and its subsidiary, AEC Southern Shenzhen, on April 22, 2019 pursuant to a share transfer agreement by and between the related parties, AEC BVI and AEC Southern UK, for a nominal consideration (the “AEC Southern HK Transfer”).
AEC Nevada sold 100% of the equity interest in AEC Southern UK, on May 1, 2019, to three individuals, Ye Tian, Rongxia Wang and Weishou Li pursuant to a share exchange agreement on May 1, 2019 (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.
34
As of September 30, 2019, the corporate structure of the Company is illustrated as follows:
Our mission is to become a leading provider for international education services, and providing total solutions for technology in education field, as well as providing corporation advisory management services.
Currently, through AEC New York 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. For marketing, we engage local agents in Shenzhen in Guangdong province, Nanjing in Jiangsu Province, Chengdu in Sichuan Province, and Shanghai in China to promote our services to potential clients, and we plan to engage more agents in China in the future.
Leveraging our knowledge of the educational system and environment in the U.S. and our understanding of the market demand for education services in the PRC and its changing business economy, we specialize in the delivery of customized high school and college placement advisory services as well as career advisory services to Chinese students wishing to study and gain post-graduate work experience in the 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 focus and emphasis on children’s education, and families’ desire to gain access to U.S. colleges and universities as well as work experience in the U.S.
Additionally, recognizing the needs for enterprise training in China, from October 2016 to late 2018, we also delivered customized corporate training and advisory services to customers in China in the food industry to help them meet the related regulatory standards. The demand for such corporate training and advisory services in China has escalated in recent years and is driven mainly by China’s growing economy and desire to improve its competitiveness by meeting or setting international standards.
Headquartered in New York with operations in the PRC, the Company, during the quarter ended September 30, 2019 operated, and currently operates in two market segments:
(1) AEC New York capitalizes on the rising demand from the middle-class families in China for quality education in the U.S. It delivers customized high school and college placement and career advisory services to Chinese students wishing to study in the U.S. Its advisory services include language training, college admission advisory, on-campus advisory, internship and start-up advisory as well as student and family services.
(2) AEC BVI delivers customized high school and college placement and career advisory services to Chinese students wishing to study in the U.S. through business referred by AEC New York. Currently, the revenue of AEC BVI is all generated from AEC Southern Shenzhen.
35
Placement Advisory Services
Our Placement Advisory Services include Language Training, Placement Advisory and Elite College Advisory services.
Since 1999, we have been delivering customized Language Training & Placement Advisory services to Chinese students. Our one-stop advisory services encompass ESL training and assistance throughout the high 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 in the second half of 2020.
Targeting the needs of Chinese families in obtaining admission to Ivy League and other prestigious universities in the U.S., our Elite College Advisory service is designed to assist qualified Chinese students in applying to prestigious colleges and universities in the U.S. Specifically, we arrange campus tours, assist our student customers with their university applications, provide tailored language training, offer guidance on interview and communication techniques, and follow up on their applications.
Once our student customers are admitted into their target universities, our Placement Advisory services further extend to academic and cultural related experiences including, among other things, providing assistance with applying for a second major or minor, transferring to a different university, housing accommodations, and applying for accelerated degrees. To help students optimize their on-campus experience and train their leadership and social skills, we also organize seminars and social events with our partner scholars and universities, non-profit and for-profit business organizations. Additionally, to help enrich their cultural experiences, we organize extracurricular and artistic activities 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 students’ career development by helping them identify and secure suitable internship and part-time or full-time work opportunities that are appropriate for their educational background and experience level. Through this program, we strive to help students map and navigate their career path and counsel them on matters including academic improvement to career assistance. Through this program, our student customers are given opportunities to communicate with professionals in their field of study and to participate in real-world case studies.
Our Start-up Advisory program provides advisory services to individual students and/or their families who want to start or make an investment in a business in the U.S. Collaborating with our strategic partners, our services include (i) recommending alternative business development opportunities; (ii) assistance with business plan development; (iii) assistance with accounting and financial management, marketing, product and project design; and (iv) assistance in project financing.
Student & Family Advisory Services
Our Student & Family Advisory Services are designed to assist our students and/or their families in the process of settling down in the U.S., so they can effectively focus on their studies.
Through our business partners, we assist the students’ families with purchasing real estate properties, organizing their personal financial management and investment needs, getting insurance and starting businesses. Our American Dream Program helps students’ families find investment projects in the U.S. We also advise corporate clients whose executives are moving to the U.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.
36
Other Advisory Services
Through our Foreign Student Recruitment services, we assist universities in China to recruit students from the U.S. We customize this service based on our strategic relationship with college and universities in the U.S. and the specific recruitment goals of these universities in China. The demand for our recruitment services is driven mainly by the lack of an established channel to attract students from the U.S. and the needs by the Chinese universities to expand and diversify their student body.
Our Foreign Educator Placement services are designed to meet the increasing demand for experienced educators and teachers from the U.S. to teach in China. Such demand covers the need to recruit qualified US educators from Pre K-12 to teach in China.
Significant Accounting Policies
The discussion and analysis of our consolidated financial condition and results of operations is based upon our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities. On an on-going basis, we evaluate our estimates including the allowance for doubtful accounts, income taxes and contingencies. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The consolidated financial statements are comprised of AEC Nevada and its wholly owned subsidiaries, AEC New York, AEC BVI, and AEC Southern UK (until the disposition of AEC Southern UK on May 1, 2019). All significant intercompany accounts and transactions have been eliminated in consolidation. On May 1, 2019, AEC Nevada sold 100% of the equity interest in AEC Southern UK. We have classified the operating results of AEC Southern UK as discontinued operations in the unaudited consolidated statement for all periods presented in this quarterly report on Form 10-Q.
As part of the process of preparing our unaudited consolidated financial statements, we are required to estimate our income taxes. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. As of September 30, 2019, 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 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. Advisory services fees paid in advance will be reflected as deferred revenue, and they are recognized proportionally as services are completed. Fees related to compliance training and advisory services are recognized upon completion of such services.
We adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02 “Leases (Topic 842)” for the three months and nine months ended September 30, 2019. We first evaluate our leases to determine whether they are classified as a finance lease or as an operating lease. A lease is a finance lease if any of the following criteria are met: (a) ownership transfers, (b) the lease includes an option to purchase the underlying asset, (c) the lease term is for the major part of the remaining economic life of the underlying asset, (d) the present value of the lease payments equals or exceeds the fair value of the underlying asset, or (e) the underlying asset is of a specialized nature that is expected to have no alternative use to the lessor at the end of the lease term. As such, all of our leases are classified as operating leases. We then determine whether the short-term exemption applies. The short-term exemption applies if the lease term 12 months or less and does not include a purchase option whose exercise is reasonably certain. If the short-term exemption applies then lease payments are recognized as expense and no asset or liability is recorded. If the short-term exemption does not apply, then we record an operating lease right-of-use asset and a corresponding operating lease liability equal to the present value of the lease payments. The ten-year commercial real estate lease we entered into in December 2014 did not meet the short-term exemption and, accordingly, we recorded the present value of the lease payments as a right-of-use asset and a lease liability in the unaudited consolidated balance sheet. We recognize expense on a straight-line basis over the life of the lease.
37
Recent Accounting Pronouncements
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to the Related Party Guidance for Variable Interest Entities. ASU 2018-17 changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportional basis, rather than in their entirety. This guidance will be adopted using a retrospective approach and is effective for the Company on January 1, 2020. The Group is in the process of evaluating the impact of the adoption of this pronouncement on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value”. ASU 2018-13 removes and modifies existing disclosure requirements on fair value measurement, namely regarding transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements. Additionally, ASU 2018-13 adds further disclosure requirements for Level 3 fair value measurements, specifically changes in unrealized gains and losses and other quantitative information. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Group is in the process of evaluating the impact of the adoption of this pronouncement on its consolidated financial statements.
In August 2014, the Financial Accounting Standards Board (“FASB”) issued accounting standard update which requires management to assess whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued. If substantial doubt exists, additional disclosures are required. This update was effective for the Company's annual period ended January 28, 2017. The adoption of the new standard did not have a material impact on the Company’s consolidated financial position, results of operations, cash flows or disclosures.
In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 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 has adopted the requirements of ASU 2016-02 on January 1, 2019, the first day of fiscal year 2019, and using the modified retrospective approach, electing the package of practical expedients, and the practical expedient to not separate lease and non-lease components for operating leases. We also elected the modified retrospective approach that permits adoption of the new standard prospectively, as of the effective date, without adjusting comparative periods presented. The current adjustment has been disclosed and presented on balance sheet.
In January 2017, the FASB issued an accounting standard update which simplifies the test for goodwill impairment. To address concerns over the cost and complexity of the two-step goodwill impairment test, the amendments in this update remove the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This update is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted the update in the fourth quarter of 2018. The adoption of the new standard did not have an impact on our consolidated financial statements.
In May 2017, FASB issued 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 has no material effect on the Company’s consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220). The amendments in this update affect any entity that is required to apply the provisions of Topic 220, Income Statement—Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.
In March 2018, the FASB issued ASU 2018-05: Income Taxes (Topic 740) that addresses the recognition of provisional amounts in the event that the accounting is not complete and a reasonable estimate can be made. The guidance allows for a measurement period of up to one year from the enactment date to finalize the accounting related to the TCJA. The adoption of this ASU has no material effect on the Company’s consolidated financial statements.
The Company has assessed all newly issued accounting pronouncements released during the three months and nine months ended September 30, 2019, and through the date of this filing, and believes that none of them will have a material impact on the Company’s financial statements when or if adopted.
Results of Operations
Below we have included a discussion of our operating results and material changes in the periods covered by this Quarterly Report on Form 10-Q. For additional information on the potential risks associated with these initiatives and our operations, please refer to the Risk Factors sections in our annual report on Form 10-K for the year ended December 31, 2018, as filed on April 16, 2019.
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 three months ended September 30, 2018 and December 31, 2018, respectively, are classified as discontinued operations. See "Note 5 - Discontinued Operations" to our unaudited consolidated financial statements included in this report.
38
The Three Months Ended September 30, 2019, as Compared to the Three Months Ended September 30, 2018
For the three months ended September 30,
2019 2018 Variance %
Key revenue streams:
Placement Advisory Services $ 432,371 $ 472,825 $ (40,454 ) (9 )%
Career Advisory Services 731,610 254,065 477,545 188
Student & Family Advisory 400,700 1,176,420 (775,720 ) (66 )
Other Advisory - - - NM
Total revenues $ 1,564,681 $ 1,903,310 $ (338,629 ) (18 )%
Gross Profit $ 684,292 $ 541,849 $ 142,443 26 %
Gross Margin 44 % 28 %
Revenue
● Total revenues for the three months ended September 30, 2019, were $1,564,681, representing a decrease of $338,629, or 18% from $1,903,310 for the same period in 2018. The decrease was attributed mainly to a decrease in service requests. Total revenues for the three months ended September 30, 2019 were generated by the operations of AEC New York and AEC Southern Shenzhen which deliver customized high school and college placement and career advisory services to Chinese students seeking to study in the U.S.
● Our revenues from placement advisory services typically fluctuate as a result of seasonal or other factors related to the high school/college admission process. Revenues for the three months ended September 30, 2019, from our placement advisory services decreased by $40,454, or approximately 9% from $472,825 for the same period in 2018. The decrease in our placement advisory services was due to a decrease in service requests. Revenues for our career advisory services increased by $477,545, or 188% from $254,065 for the same period in 2018, primarily due to an increase in service requests of Chinese students planning to return to the PRC and reclassification of the revenue line from under the student & family advisory services to placement advisory services. For the third quarter in 2019, revenue from student & family advisory services decreased by $775,720 from $1,176,420 for the same period in 2018, mainly because of a decrease in service requests and because we reclassified revenues that would have been previously classified as student & family advisory services to Placement Advisory Services and Career Advisory Services. This reclassification is to ensure revenues from different segments of our business accurately reflect the nature of such revenue, and to better assist our Company in strategizing our business plan going forward.
● Due to the incentives and benefits of Talents Policy that Chinese government offers to the overseas Chinese students who wish to return to, live and work in China, our clients who recently graduated or are about to graduate have expressed interest in going back to China instead of staying in the U.S., which results in less service requests for placement advisory and student & family advisory services than before. 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 for the three months ended September 30, 2019, was $684,292, representing an increase of $142,443, or 26% from $541,849 for the three months ended September 30, 2018. The increase can be attributed mainly to a decline in outsourcing services, which has been an intentional effort since 2017 for the purpose of improving efficiency, and efficient work from our vendors.
● Our gross margin was approximately 44% for the three months ended September 30, 2019, compared to approximately 28% for the same period in 2018.
The following table summarizes changes in operating expenses and provision for income taxes for the periods presented:
For the three months ended September 30,
2019 2018 Variance %
Operating expenses
Selling and marketing $ 116,008 $ 371,096 $ (255,088 ) (69 )%
General and administrative 953,872 919,335 35,302 4 %
Total operating expenses $ 1,069,880 $ 1,290,431 $ (219,786 ) (17 )%
Income tax benefit $ (105,656 ) $ (43,812 ) $ 322,284 - %
Net (loss) from continuing operations including noncontrolling interest $ (279,925 ) $ (691,947 ) $ 412,022 - %
39
Operating Expenses
● Total operating expenses decreased by $219,786 or 17% as compared to the three months ended September 30, 2018. The decrease was mainly due to the decrease in marketing expenses.
Income Tax Benefit
● Income tax benefit of $105,656 for the three months ended September 30, 2019 represents the net effect of the tax payable and net losses for the periods presented.
Net Loss
● Net loss from continuing operations including noncontrolling interest was $279,925 for the three months ended September 30, 2019, as compared to the net loss of $691,947 for the three months ended September 30, 2018, mainly due to the decreased marketing expense for the three months ended September 30, 2019.
The Nine Months Ended September 30, 2019, as Compared to the Nine Months Ended September 30, 2018
For the nine months ended September 30,
2019 2018 Variance %
Key revenue streams:
Placement Advisory Services $ 1,264,887 $ 515,701 $ 749,186 145 %
Career Advisory Services 2,548,885 1,075,790 1,473,095 137
Student & Family Advisory 887,800 3,410,620 (2,522,920 ) (74 )
Other Advisory 3,000 - 3,000 100
Total revenues $ 4,704,472 $ 5,002,111 $ (300,639 ) (6 )%
Gross Profit $ 2,055,396 $ 1,624,350 $ 431,046 27 %
Gross Margin 44 % 32 %
Revenue
● Total revenues for the nine months ended September 30, 2019, were $4,704,472, representing a decrease of $300,639, or 6% from $5,002,111 for the same period in 2018. The decrease was attributed mainly to a decrease in service requests. Total revenues for the nine months ended September 30, 2019 were generated by the operations of AEC New York and AEC Southern Shenzhen which deliver customized high school and college placement and career advisory services to Chinese students seeking to study in the U.S.
● Our revenues from placement advisory services typically fluctuate as a result of seasonal or other factors related to the high school/college admission process. Revenues for the nine months ended September 30, 2019, from our placement advisory services increased by $749,186, or approximately 145% from $515,701 for the same period in 2018. The increase in our placement advisory services was due to an increase in service requests from our corporate customers and reclassification of the revenue line from student & family advisory services to placement advisory services.  Revenues from our career advisory services increased by $1,473,095, or 137% from $1,075,790 for the same period in 2018, primarily due to the reclassification of the revenue line from student & family advisory services. Revenues from student & family advisory services decreased by $2,522,920 for the same period in 2018, mainly due to the decrease in service requests and the fact that we reclassified revenues that would have been previously classified as student & family advisory services, to Placement Advisory Services and Career Advisory Services. Revenues from the other advisory services increased by $3,000 from the revenue for the nine months ended September 30, 2018, mainly due to an increase in service requests.
● Due to the incentives and benefits of Talents Policy that Chinese government offers to the overseas Chinese students who wish to return to, live and work in China, and the changing policy of the U.S. governments, our clients who recently graduated or are about to graduate have expressed interest in going back to China instead of staying in the U.S., which results in less service requests for placement advisory and student & family advisory services than before. 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.
40
Gross Profit & Gross Margin
● Our gross profit for the nine months ended September 30, 2019, was $2,055,396, representing an increase of $431,046, or 27% from $1,624,350 for the nine months ended September 30, 2018. The increase was attributed mainly to a decline in outsourcing services, which has been an intentional effort since 2017 for the purpose of improving efficiency, and efficient work from our vendors.
● Our gross margin was approximately 44% for the nine months ended September 30, 2019, compared to approximately 32% for the same period in 2018.
The following table summarizes changes in operating expenses and provision for income taxes for the periods presented:
For the nine months ended September 30,
2019 2018 Variance %
Operating expenses
Selling and marketing $ 317,257 $ 434,511 $ (117,254 ) (27 )%
General and administrative 2,405,750 1,841,407 564,343 31 %
Total operating expenses $ 2,723,007 $ 2,275,918 $ 447,089 20 %
Provision for income taxes $ 260,420 $ - $ 260,420 100 %
Net (loss) from continuing operations including noncontrolling interest $ (926,727 ) $ (638,077 ) $ (288,650 ) - %
Operating Expenses
● Total operating expenses increased by $447,854 or 20% as compared to the nine months ended September 30, 2018. The increase was mainly due to the increase in general and administrative expense from professional fee for approximately $190,000, payroll expense for approximately $20,000, and bad debt expense from uncollected accounts receivable for approximately $10,000.
Income Tax Expense
● Income tax expense of $260,420 for the nine months ended September 30, 2019 represents the net effect of the tax benefit and net income for the periods presented.
Net Loss
● Net loss from continuing operations including noncontrolling interest was $926,727 for the nine months ended September 30, 2019, as compared to the net loss of $638,077 for the nine months ended September 30, 2018, mainly due to the increased office expense and professional services expense for the nine months ended September 30, 2019.
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 three months ended September 30, 2018 and December 31, 2018, respectively, are classified as discontinued operations. See "Note 5 - Discontinued Operations" to our unaudited consolidated financial statements included in this report.
Cash Flows and Working Capital
As of September 30, 2019, we had cash of $990,073, a decrease of $995,060 from $1,985,133 as of December 30, 2018 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.
41
Nine Months ended September 30,
2019 2018 Variance %
Net cash used in operating activities
Net cash used in continuing operating activities $ (1,543,744 ) $ (48,291 ) $ (1,495,453 ) NM
Net cash used in by discontinued operating activities - (865,793 ) 865,793 NM
Net cash used in operating activities $ (1,543,744 ) $ (914,084 ) $ (629,660 ) (46 )%

Net cash used in investing activities
Net cash used in continuing financing activities $ (5,361 ) $ - $ (5,361 ) (100 )%
Net cash used in discontinued financing activities - - - NM
Net cash used in investing activities $ (5,361 ) $ - $ (5,361 ) (100 )%

Net cash provided by financing activities
Net cash provided by continuing financing activities $ 547,286 $ - $ 547,286 100 %
Net cash provided by discontinued financing activities - - - NM
Net cash provided by financing activities $ 547,286 - 547,286 100 %

Effect of exchange rates changes on cash 6,759 (19,337 ) 26,096 NM
Net change in cash $ (995,060 ) $ (933,421 ) $ (61,639 ) (7 )%
Cash Flow from Operating Activities
● Net cash used in continuing operating activities for the nine months ended September 30, 2019 was $1,543,744, increased by $1,495,453 for the nine months ended September 30, 2018. The increase in net cash used in operations in 2019 was primarily attributable to faster payment to our service providers and increased advanced payments for the services provided for our current clients. Discontinued segment was sold during the nine months ended September 30, 2019.
Cash Flow from Investing Activities
● Net cash used in investing activities for nine months ended September 30, 2019 was $5,361 and no cash flow from the same period in 2018.
Cash Flow in Financing Activities
● Net cash provided by financing activities for the nine months ended September 30, 2019, was $547,286, an increase of $547,286, for the nine months ended September 30, 2018. The increase was due to the receipts of two non-interest bearing short-term loans, one for $148,987 (translated from RMB1,000,000) on January 18, 2019, and the other $287,898 (translated from RMB2,000,000) on April 15, 2019, from Guangdong Jianianhua Entertainment Co., Ltd. (“Guangdong Jianianhua”), a related party of China Cultural Finance Holding Company (“CCHFC”). Additionally, this increase also accounts for $127,606 (translated from HKD1,000,000) of subscription receivable from CCHFC.
These two loans and investment payment are part of a share purchase transaction between our Company and CCHFC pursuant to a share purchase agreement (the “SPA”). Pursuant to the SPA, CCFHC was to wire the purchase price in the amount of RMB 5,000,000 to AEC Southern Shenzhen, our subsidiary, in exchange for shares of our common stock. However, due to foreign currency restrictions imposed by the PRC government, both parties agreed that instead CCFHC would make a loan to AEC Southern Shenzhen, our subsidiary in the PRC, in several installments for the aggregate amount of RMB 4,000,000 through its related party in China, Guangdong Jianianhua, and one investment payment as contribution in the amount of HKD 1,000,000 to AEC Southern HK, AEC Southern Shenzhen’s holding company.
Consequently, CCFHC, through Guangdong Jianianhua, advanced to AEC Southern Shenzhen RMB 1,000,000, RMB 2,000,000 and another RMB 1,000,000 on January 18, 2019, April 15, 2019 and November 11, 2019, respectively, and directly made a contribution to AEC Southern HK in the amount of HKD 1,000,000 (approximately $127,606) on April 10, 2019.
The Company has taken steps to resolve this issue of bank account restriction and a bank account capable of accepting foreign investment is expected to be set up by the end of this year. Once such account is set up, the Company will repay any outstanding loans owed to CCFHC’s related party, while CCFHC will make a one-time payment for the remaining balance of investment to AEC Southern Shenzhen’s investment account in full. The shares of common stock were issued to CCFHC at the closing of the purchase agreement. We had no cash flow from financing activities during the nine months ended September 30, 2018.
Working Capital
The following table sets forth our working capital from continuing operations:
September 30, December 31,
2019 2018 Variance %
Total current assets from continuing operations $ 5,223,970 $ 5,192,079 $ 31,891 1 %
Total current liabilities from continuing operations 4,015,448 3,225,784 789,664 24
Working capital $ 1,208,522 $ 1,966,295 $ (757,773 ) (39 )%
Current ratio 1.30 1.61
● As of September 30, 2019, we had a working capital surplus of $1,208,522, a decrease of $757,773 from a working capital surplus of $1,966,295 as of December 31, 2018. The decrease in working capital surplus represents the net effect of uncollected accounts receivable, payment to vendors and the latest borrowed short-term loans as detailed in the above Section “Cash Flow in Financing Activities”.
● We believe that our working capital will be sufficient to enable us to meet our cash requirements for the next 12 months. We believe we have adequate working capital to fund future growth activities.
42
Off-Balance Sheet Arrangements
We did not have, during the period presented, and we are currently not party to, any off-balance sheet arrangements.
Seasonality
We experience seasonality in business with students as customers, specifically our placement advisory, career advisory and student and family services, all related to the business of AEC New York. The seasonality reflects the general trend of the industry of admissions and education related services, corresponding to the predominantly fall semester start dates of educational institutions admissions. Our services are higher in the fourth and first quarters of our fiscal year than the other two quarters, reflecting the engagement for services of educational institutions admissions predominantly occurring in the fourth quarter and first quarter of a calendar year, and other consulting services corresponding to the beginning of academic year, i.e. the fall semester.
Subsequent Events
Management has evaluated subsequent events for recognition and disclosure through the date these financial statements were filed with the United States Securities and Exchange Commission and concluded that no other subsequent event or transactions have occurred that required recognition or disclosure in our consolidated financial statements except for the following.
On November 11, 2019, the Company borrowed $142,110 (translated from RMB 1,000,000) from a related party for working capital purpose. The aggregate amount due to this related party were $561,790 as of November 11, 2019. The amounts are non-interest bearing, non-secure and due on demand.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Smaller reporting companies are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Control and Procedures.
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Form 10-Q, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer (CEO), as appropriate to allow timely decisions regarding required disclosure.
During the nine months ended September 30, 2019, procedures have been established to ensure that all significant, non-routine events and pending transactions must be evaluated by our CEO for disclosures in our consolidated financial statements and public filings.
We performed an evaluation, under the supervision and with the participation of our management, including our CEO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on this evaluation, our CEO has concluded that, as of September 30, 2019, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and reported properly within the time periods specified by the SEC, and did not provide reasonable assurance that information required to be disclosed by the Company in such reports would be accumulated and communicated to the Company’s management, including its CEO, as appropriate, to allow timely decisions regarding required disclosure. Such conclusion was based solely on the fact that the Company identified deficiencies in its internal control over financial reporting as of September 30, 2019. Although we have determined that the existing controls and procedures are not effective, the deficiencies identified have not been deemed material to our reporting disclosures.
We have identified the following deficiencies, we have limited administrative and accounting resources, outdated accounting software and generally weak accounting processes and internal control procedures. Additionally, we have inadequate segregation of duties in certain accounting processes, including the payroll, cash receipts and disbursements processes in our accounting system, partly as a result of our limited size and accounting staff. We have taken steps to remediate these issues, including (1) hiring one more accounting personnel, (2) updating our operations manual to clarify and limit the power of our management team and our employees, and (3) periodical inspections by major shareholders to supervise both of our financial condition and decision making process. We expect that we will have improved controls and documentation in place by December 31, 2019.
Changes in internal control over financial reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
43
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
ITEM 1A. RISK FACTORS
Smaller reporting companies are not required to provide the information required by this item.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS.
There have been no unregistered sale of equity securities during the three months ended September 30, 2019.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.

ITEM 6. EXHIBITS

Exhibit
No. Description
3.1 Certificate of Amendment filed with the Secretary of State of the State of Nevada dated November 8, 2018 (incorporated by reference to our Form 8-K, Exhibit 3.1, filed with the Securities and Exchange Commission on November 19, 2018)**
3.2 Bylaws (incorporated by reference to our Form S-1 Registration Statement, Exhibit 3.2, filed with the Securities and Exchange Commission on December 18, 2014)**
3.3 Certificate of Designation of Series A Convertible Preferred Stock, (incorporated by reference to our Form 8-K, Exhibit 3.1, filed with the Securities and Exchange Commission on November 3, 2017)**
3.4 Certificate of Designation of Series B Convertible Preferred Stock (incorporated by reference to our Form 8-K, Exhibit 3.2, filed with the Securities and Exchange Commission on November 19, 2018)**
4.1 Specimen stock certificate (incorporated by reference to our Form S-1 Registration Statement, Exhibit 4.1, filed with the Securities and Exchange Commission on December 18, 2014)**
31.1 Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
31.2 Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
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.
**
~~Previously filed.~~
~~***~~ 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 Form 10-Q ~~Amendment No. 2~~ 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.

3244

SIGNATURES

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.

American Education Center, Inc.

By: /s/ Max P. Chen
Name: Max P. Chen
Dated: November 1,14, 2019
Title: President, Sole Director, Chief Executive Officer, Interim Chief Financial Officer, and Secretary

3345

		Page
Part I FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Consolidated Statements of Balance Sheets	4

	Consolidated Statements of Operations and Comprehensive Income	5

	Consolidated Statements of Cash Flows	6

	Consolidated Statements of Stockholders’ Equity	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	43

Part II OTHER INFORMATION

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	44

Item 4.	Mine Safety Disclosures	44

Item 5.	Other Information	44

Item 6.	Exhibits	44

SIGNATURE		45

	June 30,			December 31,
	2019			2018
	(Unaudited)			(Audited)
ASSETS

Current assets:
Cash	$	1,769,142		$	1,985,133
Accounts receivable, net of allowance for doubtful accounts of $1,584,713 and $1,189,147 at June 30, 2019 and December 31, 2018, respectively		3,239,450			2,906,231
Prepaid expenses		424,901			300,715

Total current assets		5,433,493			5,192,079

Noncurrent assets:
Deferred compensation		-			-
Deferred income taxes		142,598			428,206
Intangible asset, net		346,317			420,407
Operating lease right-of-use asset		2,310,795			-
Security deposits		284,270			266,021

Total noncurrent assets		3,083,980			1,114,634

Total assets of continuing operations		8,517,473			6,306,713

Assets of discontinued operations, net		-			917,059

TOTAL ASSETS	$	8,517,473		$	7,223,772

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	2,600,111		$	2,792,388
Taxes payable		62,482			-
Deferred revenue		295,350			252,925
Advances from clients		11,366			34,892
Short-term loan from related party		436,885			-
Long-term loan due within a year		145,579			145,579
Operating lease liability - current portion		296,624			-

Total current liabilities		3,848,397			3,225,784

Noncurrent liabilities:
Deferred rent		-			221,461
Operating lease liability		2,249,254			-
Long-term loan		-			-

Total liabilities of continuing operations		6,097,651			3,447,245

Liabilities of discontinued operations		-			1,881,404

Total liabilities		6,097,651			5,328,649

Stockholders’ equity:
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, 2019 and December 31, 2018, respectively		25,000			25,000
Common stock, $0.001 par value; 450,000,000 shares authorized; 56,797,113 shares issued and 55,797,113 outstanding at June 30, 2019 and December 31, 2018 respectively		56,797			56,597
Shareholder's Equity		-
Additional paid-in capital		8,267,930			8,206,130
Treasury stock at cost, 1,000,000 shares at $0.66 per share		(660,000	)		-
Subscription receivables		(575,929	)		(719,911	)
Retained earnings		(4,734,202	)		(5,714,688	)
Accumulated other comprehensive income		(12,693	)		(13,865	)
Total controlling interest		2,366,902			1,839,263
Noncontrolling Interest		52,920			55,860

Total stockholders' equity		2,419,822			1,895,123

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	8,517,473		$	7,223,772

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES
	2
CONSOLIDATED BALANCE SHEETS

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018

Revenues	$	1,169,044		$	1,768,500		$	3,139,791		$	3,098,801
Cost of revenues		686,290			970,161			1,768,687			2,016,300
Gross profit		482,754			798,339			1,371,104			1,082,501

Operating expenses:
Selling and marketing		61,960			49,415			201,249			63,415
General and administrative		1,059,041			461,487			1,451,878			922,072
Total operating expenses		1,121,001			510,902			1,653,127			985,487

Loss (income) from operations		(638,247	)		287,437			(282,023	)		97,014
Other income		95			144			1,297			668

Loss (income) before provision for income taxes		(638,152	)		287,581			(280,726	)		97,682
Provision for income taxes		366,076			43,792			366,076			43,812

Net (loss) income from continuing operations including noncontrolling interest	$	(1,004,228	)	$	243,789		$	(646,802	)	$	53,870

Net income (loss) from discontinued operations, net of income taxes benefit		653,474			(1,854,531	)		928,475			(3,488,541	)

Net income (loss) including noncontrolling interest		(350,754	)		(1,610,742	)		281,673			(3,434,671	)
Less: Net (loss) attributable to noncontrolling interest		(1,470	)		-			(2,940	)		-
Net (loss) attributable to American Education Center	$	(349,284	)	$	(1,610,742	)	$	284,613		$	(3,434,671	)

Net income (loss) including noncontrolling interest	$	(350,754	)	$	(1,610,742	)	$	281,673		$	(3,434,671	)
Other comprehensive (loss) income
Foreign currency translation gain (loss)		6			(16,394	)		1,171			(4,910	)
Comprehensive (loss) including noncontrolling interest	$	(350,748	)		(1,627,136	)	$	282,844			(3,439,581	)
Less: Comprehensive (loss) attributable to noncontrolling interest		(1,470	)		-			(2,940	)		-
Comprehensive income (loss) attributable to American Education Center	$	(349,278	)	$	(1,627,136	)	$	285,784		$	(3,439,581	)

Loss (income) earnings per common share - basic and diluted
Income (loss) from continuing operations	$	(0.02	)	$	0.01		$	(0.01	)	$	0.00
Income (loss) from discontinued operations	$	0.01		$	(0.04	)	$	0.02		$	(0.08	)
Net income (loss) earnings per common share - basic and diluted		(0.01	)		(0.04	)		0.01			(0.08	)

Weighted average shares
Outstanding, basic and diluted		56,058,483			41,350,000			56,058,483			41,350,000

	September 30,			December 31,
	2019			2018
ASSETS	(Unaudited)			(Audited)
Current assets:
Cash	$	990,073		$	1,985,133
Accounts receivable, net of allowance for doubtful accounts of $1,952,458 and $1,189,147 at September 30, 2019 and December 31, 2018, respectively		3,837,963			2,906,231
Prepaid expenses		395,934			300,715

Total current assets		5,223,970			5,192,079

Noncurrent assets:
Fixed Asset, net		5,099			-
Deferred income taxes		251,928			428,206
Intangible asset, net		309,272			420,407
Operating lease right-of-use asset		2,218,061			-
Security deposits		284,544			266,021

Total noncurrent assets		3,068,904			1,114,634

Total assets of continuing operations		8,292,874			6,306,713

Assets of discontinued operations, net		-			917,059

TOTAL ASSETS	$	8,292,874		$	7,223,772

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	2,745,893		$	2,792,388
Taxes payable		56,754			-
Deferred revenue		335,600			252,925
Advances from clients		59			34,892
Short-term loan from related party		419,680			-
Long-term loan due within a year		145,579			145,579
Operating lease liability - current portion		311,883			-

Total current liabilities		4,015,448			3,225,784

Noncurrent liabilities:
Deferred rent		-			221,461
Operating lease liability		2,148,317			-
Long-term loan		-			-

Total liabilities of continuing operations		6,163,765			3,447,245

Liabilities of discontinued operations		-			1,881,404

Total liabilities		6,163,765			5,328,649

Stockholders’ equity:
Series B Convertible Preferred stock, $0.001 par value; 25,000,000 shares authorized 25,000,000 and 0 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		25,000			25,000
Common stock, $0.001 par value; 450,000,000 shares authorized; 56,597,113 shares issued and 55,597,113 outstanding at September 30, 2019 and December 31, 2018 respectively		56,797			56,597
Shareholder's Equity		-
Additional paid-in capital		8,267,930			8,206,130
Treasury stock at cost, 1,000,000 shares at 0.66 per share		(660,000	)		-
Subscription receivables		(592,305	)		(719,911	)
Retained earnings		(5,012,657	)		(5,714,688	)
Accumulated other comprehensive income		(7,106	)		(13,865	)
Total controlling interest		2,077,659			1,839,263
Noncontrolling Interest		51,450			55,860

Total stockholders' equity		2,129,109			1,895,123

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	8,292,874		$	7,223,772

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenues	$	1,564,681		$	1,903,310		$	4,704,472		$	5,002,111
Cost of revenues		880,389			1,361,461			2,649,076			3,377,761
Gross profit		684,292			541,849			2,055,396			1,624,350

Operating expenses:
Selling and marketing		116,008			371,096			317,257			434,511
General and administrative		953,872			919,335			2,405,750			1,841,407
Total operating expenses		1,069,880			1,290,431			2,723,007			2,275,918

(Loss) from operations		(385,588	)		(748,582	)		(667,611	)		(651,568	)
Other income		7			12,823			1,304			13,491

(Loss) before provision for income taxes		(385,581	)		(735,759	)		(666,307	)		(638,077	)
(Benefit) provision for income taxes		(105,656	)		(43,812	)		260,420			-

Net loss from continuing operations including noncontrolling interest	$	(279,925	)	$	(691,947	)	$	(926,727	)	$	(638,077	)

Net income (loss) from discontinued operations, net of income taxes benefit		-			(1,823,861	)		928,475			(5,312,402	)

Net income (loss) including noncontrolling interest		(279,925	)		(2,515,808	)		1,748			(5,950,479	)
Less: Net (loss) attributable to noncontrolling interest		(1,470	)		(1,470	)		(4,410	)		(1,470	)
Net income (loss) attributable to American Education Center	$	(278,455	)	$	(2,514,338	)	$	6,158		$	(5,949,009	)

Net income (loss) including noncontrolling interest	$	(279,925	)	$	(2,515,808	)	$	1,748		$	(5,950,479	)
Other comprehensive income (loss)
Foreign currency translation gain (loss)		5,588			(14,427	)		6,759			(19,337	)
Comprehensive income (loss) including noncontrolling interest	$	(274,337	)		(2,530,235	)	$	8,507			(5,969,816	)
Less: Comprehensive income (loss) attributable to noncontrolling interest		(1,470	)		(1,470	)		(4,410	)		(1,470	)
Comprehensive income (loss) attributable to American Education Center	$	(272,867	)	$	(2,528,765	)	$	12,917		$	(5,968,346	)

(Loss) earnings per common share - basic and diluted
Income (loss) from continuing operations	$	(0.00	)	$	(0.02	)	$	(0.02	)	$	(0.02	)
(Loss) from discontinued operations	$	-		$	(0.04	)	$	0.02		$	(0.13	)
Net (loss) earnings per common share - basic and diluted		(0.00	)		(0.06	)		(0.00	)		(0.14	)

Weighted average shares
Outstanding, basic and diluted		56,058,483			41,883,000			56,058,483			41,883,000

										Additional		Treasury										Accumulated other
	Common stock					Series B Preferred Stock				paid-in		Stock				Subscription			Retained			comprehensive			Noncontrolling
	Shares			Amount		Shares		Amount		capital		Shares	Amount			Receivables			earnings			income			Interest			Total

Balance as of December 31, 2018		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

Realization upon disposal of subsidiary by reacquiring stock		(1,000,000	)									1,000,000		(660,000	)					695,873									35,873
Net income																				284,613						(2,940	)		281,673
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																							1,171						1,171

Balance as of 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

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

																							Accumulated
						Series B				Additional													other
	Common stock					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																					80,956						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	)		57,330			1,978,714
Realization upon disposal of subsidiary by reacquiring stock		(1,000,000	)										1,000,000		(660,000	)					695,873									35,873
Net income																					203,657						(4,410	)		199,247
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
Net income																					(278,455	)					(1,470	)		(279,925	)
Issuance of common stock for cash																		(16,376	)											(16,376	)
Foreign currency translation income																								5,588						5,588
September 30, 2019		55,797,113		$	56,797		25,000,000	$	25,000	$	8,267,930		1,000,000	$	(660,000	)	$	(592,305	)	$	(5,012,657	)	$	(7,106	)	$	51,450		$	2,129,109

																				Accumulated
					Series A				Additional											other
	Common stock				Preferred Stock				paid-in		Treasury Stock				Subscription		Retained			comprehensive			Noncontrolling
	Shares		Amount		Shares		Amount		capital		Shares		Amount		Receivables		earnings			income			Interest			Total

January 1, 2018		41,350,000	$	41,350		500,000	$	500	$	6,021,126			$	-	$	-	$	973,764		$	6,753		$	-		$	7,043,493
Net loss																		(1,823,929	)								(1,823,929	)
Foreign currency translation income																					11484						11484
March 31, 2018		41,350,000		41,350		500,000		500		6,021,126		-		-		-		(850,165	)		18,237			-			5,231,048
Net loss																		(1,610,742	)								(1,610,742	)
Foreign currency translation loss																					(16,394	)					(16,394	)
June 30, 2018		41,350,000		41,350		500,000		500		6,021,126		-		-		-		(2,460,907	)		1,843			-			3,603,912
Net loss																		(2,514,338	)					(1,470	)		(2,515,808	)
Issuance of common stock for purchasing business		100,000		100						47,900														58,800			106,800
Issuance of common stock for service and to employees		433,000		433						199,407																	199,840
Foreign currency translation loss																					(14,427	)					(14,427	)
September 30, 2018		41,883,000	$	41,883		500,000	$	500	$	6,268,433		-	$	-	$	-	$	(4,975,245	)	$	(12,584	)	$	57,330		$	1,380,317

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.

	2019
	Gross Revenue		Percentage			Accounts Receivable		Percentage			2019
											Gross Revenue		Percentage			Accounts Receivable		Percentage
Customer 1	$	1,611,820		51.3	%	$	1,534,441		32.1	%	$	2,223,080		47.3	%	$	1,976,639		34.3	%
Customer 2	$	798,800		25.4	%		1,193,345		25.0	%	$	1,141,900		24.3	%		1,723,520		29.9	%

	May 1, 2019			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		550,001			916,668
Total assets of discontinued operation	$	818,866		$	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

	From January 1 to May 1, 2019
Revenues	$	-
Cost of revenues		-
Gross profit		-
Operating expenses		(366,667	)
Other income (expenses), net		-
Loss before income tax		(366,667	)
Income tax expense		-
Loss from discontinued operation		(366,667	)
Total loss from discontinued operations, net of income taxes	$	(366,667	)

			June 30, 2019
	AEC New York		AEC BVI		AEC Southern		Total
Segment assets and liabilities:
Segment assets
Segment assets from continuing operations	$	7,570,967	$	946,505	$	-	$	8,517,473
Segment assets of discontinued operations		-		-		-		-
Segment assets	$	7,570,967	$	946,505	$	-	$	8,517,473
Segment liabilities
Segment liabilities from continuing operations	$	5,226,035	$	871,616	$	-	$	6,097,651
Segment liabilities of discontinued operations		-		-		-		-
Segment liabilities	$	5,226,035	$	871,616	$	-	$	6,097,651

			December 31, 2018
	AEC New York		AEC BVI		AEC Southern		Total
Segment assets and liabilities:
Segment assets
Segment assets from continuing operations	$	6,206,780	$	99,933	$	-	$	6,306,713
Segment assets of discontinued operations		-		-		917,059		917,059
Segment assets	$	6,206,780	$	99,993	$	917,059	$	7,223,772
Segment liabilities
Segment liabilities from continuing operations	$	3,394,637	$	52,608	$	-	$	3,447,245
Segment liabilities of discontinued operations		-		-		1,881,404		1,881,404
Segment liabilities	$	3,394,637	$	52,608	$	1,881,404	$	5328,649

	For the nine months ended September 30, 2019
	AEC New York		AEC BVI		Total
Segment revenue:
Placement advisory	$	1,141,900	$	122,987	$	1,264,887
Career advisory		2,548,885		-		2,548,885
Student & Family advisory		887,700		-		887,700
Other advisory		3,000		-		3,000
Total revenue from continued operations	$	4,581,485	$	122,987	$	4,704,472
Total revenue from discontinued operations		-		-		-
Gross profit	$	1,945,284	$	110,112	$	2,055,396

	For the three months ended September 30, 2019
	AEC New York		AEC BVI		Total
Segment revenue:
Placement advisory	$	343,100	$	89,271	$	432,371
Career advisory		731,610		-		731,610
Student & Family advisory		400,700		-		400,700
Other advisory		-		-		-
Total revenue from continued operations	$	1,475,410	$	89,271	$	1,564,681
Total revenue from discontinued operations		-		-		-
Gross profit	$	607,896	$	76,396	$	684,292

	For the nine months ended September 30, 2018
	AEC New York		AEC BVI		Total
Segment revenue:
Corporate training & advisory	$	-	$	-	$	-
Placement advisory		515,701		-		515,701
Career advisory		1,074,325		1465		1,075,790
Student & Family advisory		3,410,620		-		3,410,620
Total revenue	$	5,000,646	$	1465	$	5,002,111
Gross profit	$	1,622,885	$	1465	$	1,624,350

	For three months ended September 30, 2018
	AEC New York		AEC BVI		Total
Segment revenue:
Corporate training & advisory	$	-	$	-	$	-
Placement advisory		472,825		-		472,825
Career advisory		252,600		1465		254,065
Student & Family advisory		1,176,420		-		1,176,420
Total revenue	$	1,901,845	$	1465	$	1,903,310
Gross profit	$	540,384	$	1465	$	541,849

	For the six months ended June 30, 2019
	AEC New York		AEC BVI		Total
Segment revenue:
Placement advisory	$	798,800	$	33,716	$	528,447
Career advisory		1,817,275		-		955,300
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

	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

	For the six months ended June 30, 2018
	AEC New York		AEC BVI		Total
Segment revenue:
Corporate training & advisory	$	-	$	-	$	-
Placement advisory		263,101		-		263,101
Career advisory		601,500		-		601,500
Student & Family advisory		2,234,200		-		2,234,200
Total revenue	$	3,098,801	$	-	$	3,098,801
Gross profit	$	1,082,501	$	-	$	1,082,501

	For three months ended June 30, 2018
	AEC New York		AEC BVI		Total
Segment revenue:
Corporate training & advisory	$	-	$	-	$	-
Placement advisory		207,100		-		207,100
Career advisory		440,500		-		440,500
Student & Family advisory		1,120,900		-		1,120,900
Total revenue	$	1,768,500	$	-	$	1,768,500
Gross profit	$	798,339	$	-	$	798,339

	June 30,			December 31,
	2019			2018			September 30,			December 31,
							2019			2018
Intangible asset: online campus system	$	612,814		$	612,814		$	612,814		$	612,814
Intangible asset: learning platform		120,000			120,000			120,000			120,000
Less: accumulated amortization		(386,497	)		(312,407	)		(423,542	)		(312,407	)

Intangible asset - net	$	346,317		$	420,407		$	309,272		$	420,407

Year Ending December 31,

2019		74,091		37,046
2020		148,181		148,181
2021		46,045		46,045
2022		12,000		12,000
2022		66,000		66,000

Total	$	346,317	$	309,272

Year Ending December 31,	Gross Lease Payment

2019		240,720
2020		512,125
2021		538,483
2022 and thereafter		1,920,603
	$	3,211,931
Less: Present value adjustment		(666,053	)
Operating lease liability	$	2,545,878

	June 30, 2019			December 31, 2018

Net operating loss carryforwards		244,378			727,000
Allowance for bad debt		574,330			432,202
Accelerated Depreciation		(27,990	)		(38,895	)
Allowance for deferred tax asset		(648,120	)		(692,101	)
Deferred tax asset, net	$	142,598		$	428,206

	September 30, 2019			December 31, 2018
Net operating loss carryforwards		496,336			727,000
Allowance for bad debt		442,460			432,202
Accelerated Depreciation		(38,748	)		(38,895	)
Allowance for deferred tax asset		(648,120	)		(692,101	)
Deferred tax asset, net	$	251,928		$	428,206

	For the three months ended June 30,				For the six months ended June 30,
	2019		2018		2019		2018

Current:
Federal	$	44,667	$	24,969	$	44,667	$	24,969
State		35,536		18,843		35,536		18,843
Foreign		265		40,639		265		(313,803	)
Total current		80,468		84,451		80,468		(269,991	)

Deferred:
Federal		164,322		6,294		164,322		20,432
State		121,286		12,090		232,386		20,393
Foreign		-		17,273		-		(59,209	)
Total deferred		285,608		35,657		285,608		(18,384	)

Total	$	366,076	$	120,108	$	366,076	$	(288,375	)