UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the quarterly period ended March 31, 2016, or
¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the transition period from           to

 

Commission File Number: 333-201029

 

AMERICAN EDUCATION CENTER INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada (State of Other Jurisdiction of Incorporation or Organization)		38-3941544 (I.R.S. Employer Identification No.)
2 Wall St., Fl. 8, New York, NY (Address of Principal Executive Offices)		10005 (ZIP Code)

 

(212) 825-0437

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 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 past 90 days.

 

Yes x

No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes x

No o

 

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

 

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

 

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. 30,000,000 shares of common stock at par value of $0.001 as of May 13, 2016.

 

 

TABLE OF CONTENTS

 

	Page
PART I—FINANCIAL INFORMATION	2
Item 1.	2
Item 2.	17
Item 3.	25
Item 4.	25
PART II—OTHER INFORMATION	26
Item 1	26

 

Throughout this Quarterly Report on Form 10-Q, the “Company”, “we,” “us,” and “our,” refer to (i) American Education Center Inc., a Nevada corporation (“AEC Nevada”), and (ii) American Education Center, Inc., a New York corporation ("AEC New York"), unless otherwise indicated or the context otherwise requires.

 

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains certain forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).  The statements herein which are not historical reflect our current expectations and projections about the Company’s future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and our interpretation of what we believe to be significant factors affecting our business, including many assumptions about future events.  Such forward-looking statements include statements regarding, among other things:

 

●

our ability to produce, market and generate sales of our products and services;

 

●

our ability to develop and/or introduce new products and services;

 

●

our projected future sales, 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 these or similar words.  Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue the Company’s operations.  These statements may be found under Part I, Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as elsewhere in this Quarterly Report on Form 10-Q generally.  Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, matters described in this Quarterly Report on Form 10-Q.

 

In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Quarterly Report on Form 10-Q will in fact occur.

 

Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

 

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q.  Such statements are presented only as a guide about future possibilities and do not represent assured events, and we anticipate that subsequent events and developments will cause our views to change.  You should, therefore, not rely on these forward-looking statements as representing our views as of any date after the date of this Quarterly Report on Form 10-Q.

 

This Quarterly Report on Form 10-Q also contains estimates and other statistical data prepared by independent parties and by us relating to market size and growth and other data about our industry. These estimates and data involve a number of assumptions and limitations, and potential investors are cautioned not to give undue weight to these estimates and data. We have not independently verified the statistical and other industry data generated by independent parties and contained in this Quarterly Report on Form 10-Q. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk.

 

Potential investors should not make an investment decision based solely on our projections, estimates or expectations.

 

 

PART I.

 

FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

AMERICAN EDUCATION CENTER INC. AND SUBSIDIARY

 

CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF MARCH 31, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE MONTHS PERIOD ENDED MARCH 31, 2016 AND 2015

 

(STATED IN US DOLLARS)

 

AMERICAN EDUCATION CENTER INC. AND SUBSIDIARY

 

 

AMERICAN EDUCATION CENTER INC. AND SUBSIDIARY

 

CONSOLIDATED BALANCE SHEETS

 

		March 31,				December 31,
		2016				2015
		(Unaudited)
ASSETS
Current assets:
Cash (Note 2)		$	420,298			$	1,093,755
Accounts receivable (Note 2)			1,176,321				1,114,280
Prepaid expenses			72,000				96,000
Total current assets			1,668,619				2,304,035
Noncurrent assets:
Security deposits (Note 4)			266,021				266,021
TOTAL ASSETS		$	1,934,640			$	2,570,056
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	522,638			$	994,291
Corporate tax payable			298,645				216,812
Deferred revenue (Note 5)			72,795				553,624
Advances from clients (Note 6)			176,019				63,679
Loan from stockholder (Note 7)			88,551				88,551
Total current liabilities			1,158,648				1,916,957
Noncurrent liabilities:
Deferred rent (Note 9)			117,719				104,195
Long-term loan (Note 8)			295,579				295,579
Total liabilities			1,571,946				2,316,731
Commitments and contingencies (Note 9)
Stockholders’ equity (deficit):
Preferred stock, $0.001 par value; 20,000,000 shares authorized; none issued			-				-
Common stock, $0.001 par value; 180,000,000 shares authorized; 30,000,000 shares  issued and outstanding, at March 31, 2016 and December 31, 2015			30,000				30,000
Additional paid-in capital			214,176				214,176
Retained earnings			118,518				9,149
Total stockholders' equity			362,694				253,325
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,934,640			$	2,570,056

 

See accompanying notes to consolidated financial statements.

 

 

AMERICAN EDUCATION CENTER INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

		Three Months Ended March 31,
		2016				2015
Revenues (Note 2)		$	2,683,804			$	674,043
Costs and expenses:
Consulting services			1,973,517				330,990
Application fees			44,772				10,185
General and administrative			467,480				477,398
Total costs and expenses			2,485,769				818,573
Income (loss) from operations			198,035				(144,530	)
Other income			4,392				360
Income (loss) before provision for income taxes			202,427				(144,170	)
Provision for income taxes			93,058				131,672
Net income (loss)		$	109,369			$	(275,842	)
Earnings (loss) per share - basic and diluted		$	0.00			$	(0.01	)
Weighted average shares outstanding, basic and diluted			30,000,000				21,000,000

 

See accompanying notes to consolidated financial statements.

 

 

AMERICAN EDUCATION CENTER INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2016

 

										Additional
		Common Stock								paid-in				Retained
		Shares				Amount				capital				earnings				Total
Balance-December 31, 2015			30,000,000			$	30,000			$	214,176			$	9,149			$	253,325
Net Income			-				-				-				109,369				109,369
Balance-March 31, 2016-unaudited			30,000,000			$	30,000			$	214,176			$	118,518			$	362,694

 

See accompanying notes to consolidated financial statements.

 

 

AMERICAN EDUCATION CENTER INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

		Three Months Ended March 31,
		2016				2015
Cash flows from operating activities:
Net income (loss)		$	109,369			$	(275,842	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Deferred income taxes			-				131,672
Deferred rent expense			13,524				(3,152	)
Bad debt expense			-				41,855
Change in operating assets and liabilities:
(Increase) in accounts receivable			(62,041	)			(418,545	)
Decrease in prepaid expense			24,000				-
(Decrease) increase in accounts payable and accrued expenses			(471,653	)			320,334
Increase in corporate tax payable			81,833				-
(Decrease) increase in deferred revenue			(480,829	)			189,356
Increase in advances from clients			112,340				260,660
Net cash (used in) provided by operating activities			(673,457	)			246,338
Net change in cash			(673,457	)			246,338
Cash, beginning of period			1,093,755				82,572
Cash, end of period		$	420,298			$	328,910
Supplemental disclosure of cash flow information
Cash paid for income taxes		$	11,225			$	-
Cash paid for interest		$	-			$	248

 

See accompanying notes to consolidated financial statements.

 

 

AMERICAN EDUCATION CENTER Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOr the THREE MONTHS ended MARCH 31, 2016 and 2015

 

1.

ORGANIZATION AND BUSINESS

 

American Education Center, Inc. (“AEC New York”) is a New York Corporation organized on November 8, 1999 and is licensed by the Education Department of the State of New York to engage in education related consulting services between the United States and China.

 

On May 7, 2014, the President/sole shareholder of AEC New York formed a new company (“AEC Nevada”) in the State of Nevada with the name, American Education Center Inc. On May 31, 2014, the President/sole shareholder of AEC New York exchanged his 200 shares for 10,563,000 shares of AEC Nevada. This exchange made AEC New York a wholly owned subsidiary of AEC Nevada, collectively the “Company.”

 

The Company’s primary goal is to build upon the concept of “one-stop comprehensive services” for international students, educators, and institutions. The Company has been devoted to international education exchanges, by providing educational and career enrichment opportunities for students, teachers, and educational institutions between China and the United States. The Company currently provides admission, visa, housing and other consulting services to Chinese students wishing to study in the United States. The Company also provides exchange and placement services for qualified United States educators to teach in China. The Company also provides localization consulting services which are for employees coming to the United States to work for multi-national companies with operations here.

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting and Presentation

 

The unaudited interim financial statements of the Company as of March 31, 2016 and for the three months ended March 31, 2016 and 2015, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) which apply to interim financial statements.  Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2016.

 

 

AMERICAN EDUCATION CENTER Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOr the THREE MONTHS ended MARCH 31, 2016 and 2015

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Basis of Accounting and Presentation (continued)

 

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements are comprised of AEC Nevada and its wholly owned subsidiary, AEC New York. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Cash and Cash Equivalents

 

The Company considers all liquid investments with an original maturity of three months or less to be cash equivalents.

 

Accounts Receivable

 

The Company carries its accounts receivable at cost less an allowance for doubtful accounts if required. On a periodic basis, management evaluates accounts receivable balances and establishes an allowance for doubtful accounts, based on history of past write-offs and collections, when necessary. As of March 31, 2016, the Company considers all accounts receivable to be fully collectible and, therefore, did not provide for an allowance for doubtful accounts.

 

Revenue Recognition

 

Revenue is recorded pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition, when persuasive evidence of an arrangement exists, delivery of the services has occurred, the fee is fixed or determinable and collectability is reasonably assured.

 

The Company offers a limited refund policy to students who have received consulting services regarding their H1B visas. Services for H1B consulting are prepaid. The Company prepares the filing for the visas for $2,000, which is non-refundable. If the visa application is accepted, the remaining prepayment will be recognized as revenue, if not, the remaining prepayment is refunded. The unearned prepaid advances are shown as “advances from clients” in the consolidated balance sheets.

 

 

AMERICAN EDUCATION CENTER Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOr the THREE MONTHS ended MARCH 31, 2016 and 2015

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Concentration of Credit and Business Risk

 

The Company maintains its cash accounts at 3 commercial banks. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 per bank for the total of all depository accounts. At March 31, 2016, the Company had no cash balances in excess of Federally insured limits. The Company performs ongoing evaluation of the financial institution to limit its concentration of risk exposure. Management believes this risk is not significant due to the financial strength of the institution utilized by the Company.

 

The following table represents certain information about the Company’s major customers which individually accounted for more than 10% of the Company’s gross revenue for the three months ended March 31:

 

		2016
		Gross Revenue				Percentage				Accounts Receivable				Percentage
Customer 1		$	526,220				19.6	%		$	376,220				32.0	%
Customer 2			317,000				11.8	%			105,000				8.9	%
Customer 3			600,000				22.4	%			100,000				8.5	%
		2015
		Gross Revenue				Percentage				Accounts Receivable				Percentage
Customer 1		$	100,000				14.8	%		$	100,000				26.5	%
Customer 2			300,000				44.5	%			265,245				70.4	%

 

 

AMERICAN EDUCATION CENTER Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOr the THREE MONTHS ended MARCH 31, 2016 and 2015

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Income Taxes

 

The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes (“ASC 740”), which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets and liabilities represent the future tax consequences for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

ASC 740 also addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is “more likely than not” that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of March 31, 2016 and December 31, 2015, the Company does not have a liability for any unrecognized tax benefits.

 

 

AMERICAN EDUCATION CENTER Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOr the THREE MONTHS ended MARCH 31, 2016 and 2015

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Fair Value of Financial 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, loan from stockholder and advances from clients. As of March 31, 2016 and December 31, 2015, the carrying values of these financial instruments approximated their fair values due to their short term nature.

 

Use of Estimates

 

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

 

 

AMERICAN EDUCATION CENTER Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOr the THREE MONTHS ended MARCH 31, 2016 and 2015

 

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. Basic and diluted shares outstanding are the same for the three months ended March 31, 2016 and 2015, because the Company had no common stock equivalents.

 

3.

RECENTLY ISSUED ACCOUNTING STANDARDS

 

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. We are currently evaluating the impact of our pending adoption of the new standard on our financial statements.

 

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 provides guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. The amendments in ASU 2014-15 are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This accounting standard update is not expected to have a material impact on the Company’s financial statements.

 

 

AMERICAN EDUCATION CENTER Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOr the THREE MONTHS ended MARCH 31, 2016 and 2015

 

3.

RECENTLY ISSUED ACCOUNTING STANDARDS (continued)

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The core principle of this updated guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new rule also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This guidance, after amendment is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Companies are permitted to adopt this new rule following either a full or modified retrospective approach. Early adoption is not permitted. This accounting standard update is not expected to have a material impact on the Company’s financial statements.

 

4.

SECURITY DEPOSITS

 

The Company has security deposits with the landlords of $266,021 as of March 31, 2016 and December 31, 2015.

 

5.

DEFERRED REVENUE

 

The Company receives advance payments for services to be performed and recognizes deferred revenue when the services have be rendered. The deferred revenue at March 31, 2016 and December 31, 2015 was $72,795 and $553,624, respectively.

 

6.

ADVANCES FROM CLIENTS

 

The services for H1B visas require prepayment to the Company which has been shown as advances from clients on the balance sheets. When the application for the visa is submitted, the Company recognizes $2,000 of the advance as revenue which is non-refundable. The balance of the advance received will be recognized as revenue when the visa application is accepted. If the visa application is not accepted, the remaining advance will be refunded. The advances from clients at March 31, 2016 and December 31, 2015 were $176,019 and $63,679, respectively. Advances from clients represent 2016 H1B visa applications and are still subject to refund if not selected. The Company believes that the results of these applications should be known within six months.

 

 

AMERICAN EDUCATION CENTER Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOr the THREE MONTHS ended MARCH 31, 2016 and 2015

 

7.

RELATED-PARTY TRANSACTIONS

 

The loan from stockholder represents an unsecured non-interest bearing loan, arising from expenses paid on behalf of the Company. The loan is due on demand.

 

The Company has no receivable or payable with Harvard Management Associates, Inc. (“HMA”), an affiliate wholly owned by the Company’s President/Chairman/Chief Financial Officer/Secretary, as of March 31, 2016 and December 31, 2015. The Company received revenue from HMA of $0 and $150,000 for the three months ended March 31, 2016 and 2015, respectively.

 

The Company’s President/Chairman/Chief Financial Officer/Secretary has a 34% interest in Columbia International College, Inc. (“CIC”). The Company has accounts receivable from CIC of $21,500 as of March 31, 2016 and December 31, 2015. The Company paid $175,000 for consulting services to CIC for the three months ended March 31, 2016. The Company paid $5,000 of tuition fees to CIC for the three months ended March 31, 2015.

 

8.

LONG-TERM LOAN

 

On December 1, 2014, a third party, who is also a client, loaned the Company $295,579, with interest at 10%. The loan is to be repaid on December 13, 2019. Interest will be paid on the last day of each quarter from 2015 to 2019, except for the last payment on December 12, 2019. The Company did not pay the interest for the three months ended March 31, 2015 which caused the loan to be in default. An amendment to the loan agreement was issued on June 22, 2015 which changed the commencement date for the first payment to July 1, 2015 and waived the default. The Company paid the interest for the first, second, and third quarter at the end of December, 2015. The Company paid the interest for the fourth quarter of 2015 in January 2016, which created a technical default for late payment. A waiver was issued on March 23, 2016 to waive this default. Interest expense for the three months ended March 31, 2016 and 2015 was $7,389 and $8,621, respectively.

 

 

AMERICAN EDUCATION CENTER Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOr the THREE MONTHS ended MARCH 31, 2016 and 2015

 

9.

LEASE COMMITMENTS

 

In March 2014, the Company entered into to a lease for office space with an unrelated third party. This lease agreement requires a monthly rental of $13,554 and expires on May 31, 2016. The Company early terminated this lease on December 31, 2015, and is not entitled to the security deposit refund of $40,662. In December 2014, the Company entered into another lease for office space with an unrelated party, expiring on July 31, 2025. The lease was to commence on December 11, 2014, however, due to renovation issues, the lease was changed and commenced on March 1, 2015 and the Company received two months of free rent. Due to escalating monthly rental, utilities, real estate taxes, insurance and other operating expenses, the lease has been straight-lined for financial statement purposes which created deferred rent as shown on the balance sheets. In November 2015, the Company entered into a sublease agreement to lease space to an unrelated third party for a monthly rental of $3,000 for the first three months and $1,500 for the remainder of the lease term. The sublease commenced on December 1, 2015 and expires on November 30, 2016. In November 2015, the Company entered into an additional sublease agreement to lease space to an unrelated third party for a monthly rental of $20,000. The sublease commences on April 1, 2016 and expires on March 31, 2017. The sublease income will be netted against the Company’s rent expense. The future rent income to be received in 2016 and 2017 will be $60,000 and $199,500, respectively. Rent expense, net of sublease income, was approximately $95,938 and $72,000 for the three months ended March 31, 2016 and 2015, respectively.

 

Future minimum lease commitments are as follows:

 

Year Ending December 31,		Amount
2016		$	360,606
2017			369,621
2018			378,862
2019			388,333
2020			418,604
Thereafter			2,105,734
Total		$	4,021,760

 

 

AMERICAN EDUCATION CENTER Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOr the THREE MONTHS ended MARCH 31, 2016 and 2015

 

10.

Income taxes

 

The provision for income taxes for the three months ended March 31 consists of the following:

 

		2016				2015
Current		$	93,058			$	-
Deferred			-				131,672
Total		$	93,058			$	131,672

 

The Company’s tax returns are subject to examination by the federal, state and city taxing authorities. The 2013, 2014 and 2015 tax years are open and subject to examination by the taxing authorities. The Company is not currently under examination nor have they been notified by the authorities.

 

A reconciliation of the provision for income taxes, with the amount computed by applying the statutory Federal income tax rate for the three months ended March 31 is as follows:

 

		2016				2015
Tax at federal statutory rate			34.0	%			(34.0	)%
State and local taxes, net of federal benefit			10.8				(10.8	)
Valuation allowance			0.0				136.1
Other			1.2				0.0
Total			46.0	%			91.3	%

 

The Company provided a valuation allowance of $131,672 for its deferred tax asset as of March 31, 2015.

 

11.

SUBSEQUENT EVENTS

 

The Company’s management has performed subsequent events procedures through May 13, 2016, which is the date the consolidated financial statements were available to be issued. There were no subsequent events requiring adjustment to or disclosure in the consolidated financial statements.

  

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the unaudited condensed consolidated financial statements of the Company for the three months ended March 31, 2016 and 2015, and should be read in conjunction with such financial statements and related notes included in this report. Except for the historical information contained herein, the following discussion, as well as other information in this report, contain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the “safe harbor” created by those sections.  Actual results and the timing of the events may differ materially from those contained in these forward looking statements due to a number of factors, including those discussed in the “Forward-Looking Statements” set forth elsewhere in this Quarterly Report on Form 10-Q.

 

Description of Business

 

American Education Center Inc. was incorporated in Nevada (“AEC Nevada”) in May 2014 as a holding company, and operates through its wholly owned subsidiary, American Education Center, Inc., incorporated in the state of New York in 1999 (“AEC New York”). AEC Nevada, together with its wholly owned subsidiary AEC New York, is referred to as the “Company.” For over fifteen years the Company has been devoted to international education exchange and provides education-related consulting services such as educational and career enrichment opportunities to students, educators and educational institutions in both the PRC and the United States. 

 

AEC New York was approved and licensed by the Education Department of the state of New York in 2003 to engage in education consulting service between the U.S. and China.

 

Our mission is to provide “one-stop comprehensive services” to international students, educators, educational institutions and corporate entities. Our services include admission applications, visa applications, accommodations and other consulting services to Chinese students who wish to study in the United States, placement services to qualified American educators to teach and live in China, as well as U.S. relocation services to employees of multi-national companies with U.S. operations. 

 

Currently, we primarily provide five types of services: Students Services, Institution Services, Student Exchange Program, Executive Services, as well as Educator Placements. Services to our clients are provided through the Company’s principal executive office in New York, NY. For marketing, we engage local agents in Nanjing of Jiangsu Province, Chengdu of Sichuan Province, Hangzhou of Zhejiang Province, and Shanghai in China to promote our services to potential clients, and we plan to engage more agents in China in the future. We also have entered into cooperation contracts with business partners in Jiangxi, Shanghai and Shenzhen for May and June of 2014, allowing our business partners to set up representative offices bearing the name of America Education Center in each of these locations. As of the date of this quarterly report, we have not yet set up representative offices in Jiangxi, nor have we registered with local authorities to operate our businesses in these locations.

 

 

Our Student Services provide guidance and consulting services to help our customers throughout their application and admission process, their studying and living needs during the schooling leading to their degree, and also help them secure suitable internships and other career opportunities in the United States. The Company categorizes this service into three parts: academic, life and career. Our academic part focuses on providing admission services for Chinese students to study in the U.S., English as a Second Language (ESL) training program, and the Elite 100 program. Our life program offers consulting services, including personalized VIP service, to assist our Chinese customers to settle down in the U.S. so they can focus effectively on their studies, as well as VIP services for the parents of our students to visit and/or settle in the U.S. The Company refers its customers to the Company’s business partners in the U.S. to assist the customers with purchasing real estate properties, understanding financial management and investment, buying insurance and starting businesses. Our Career Program focuses on assisting clients to improve their career development by identifying internship and work opportunities that are suitable to their educational background and experience level.

 

Our Institution Services Program mainly focuses on providing recruiting and consulting services to educational institutions in the U.S. such as middle schools, high schools, and universities and colleges, to enroll students from China. As part of our Institution Services, the University Pathway Program (UPP), established in 2008, offers consulting services to various U.S. universities to enroll qualified international students in these universities and explore possible collaborations with select universities in China.

 

Pursuant to our Student Exchange Programs, we recruit and enroll Chinese students in U.S. educational institutions for Exchange Programs (students will finish the remainder of their education in China and receive their diploma in China). As part of these programs, we have engaged St. Peter’s University to serve as an education consultant as they are more experienced in such Exchange programs.

 

Pursuant to our Executive Services program, we also provide services to our corporate clients whose executives are moving to the U.S. for work. We assist them in all aspects of relocation as well as their preparation for visa applications.

 

Our Educator Placement Program is designed to meet the increasing demands for foreign teachers in both the U.S. and China. Our program helps teachers in the U.S. or China who plan to gain experience in another country find the most suitable positions. We also recruit and place native English speaking teachers for our clients and business partners in China, and recruit and place Chinese-speaking teachers in U.S. educational institutions. 

 

We have consulting agreements and recognize deferred revenue based on completion of the service. The Company offers a limited refund policy to students who have received consulting services regarding their H1B visas. Consulting services for H1B visas are prepaid. A portion of such prepayment will become non-refundable once the Company completes preparation and files the visa applications on behalf of the clients. If the visa application is accepted, the remaining prepayment will be recognized as revenue, if not, the remaining prepayment will be refunded.

 

 

Growth Strategy 

 

We intend to expand our business as follows, although there is no guarantee that we will carry out our growth strategy as expected:

 

*

Organic Growth

 

We plan to organize our sales efforts to create organic growth from existing clients. From our existing client base, we will provide the highest level of individual services to help our clients in any way to have a smooth transition to the U.S., including visa consulting services, travel guides, life advice, investment consulting and other services.

 

*

Build Relationships

 

Through over 15 years of continuous growth, we have built significant industry credibility and a solid reputation, which enables us to partner with quality third-party businesses in providing services to our clients when needed, which provides quality services efficiently and at a competitive cost.

 

*

Online Service Development

 

The Internet allows people to gain access to online resources and services without the limitation of location and time, and providing services over the Internet often increases the revenue for many companies. We are developing our own web-based products to better reach and serve additional customers who would otherwise not benefit from our services, while we continue to expand our business network through our institutional clients.  

 

Results of Operations

 

Below we have included a discussion of our operating results and material changes in our operating results during the three months ended March 31, 2016 compared to the three months ended March 31, 2015. Our revenue and operating results normally fluctuate as a result of seasonal or other variations in our enrollments and the extent of expenses required in using consulting services from third-parties. Our student population varies as a result of new enrollments and other reasons that we cannot always anticipate. We expect quarterly fluctuations in operating results to continue as a result of various enrollment patterns and services as well as changes in expenses.

 

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 period ended December 31, 2015.

 

 

The following table sets forth information from our statements of operations for the three months period ended March 31, 2016 and 2015:

 

		Three Months Ended March 31,
		2016				2015
Revenues		$	2,683,804			$	674,043
Costs and expenses:
Consulting services			1,973,517				330,990
Application fees			44,772				10,185
General and administrative			467,480				477,398
Total costs and expenses			2,485,769				818,573
Income (loss) from operations			198,035				-144,530
Other income			4,392				360
Income (loss) before provision for income taxes			202,427				-144,170
Provision for income taxes			93,058				131,672
Net income (loss)		$	109,369			$	(275,842	)
Earnings (loss) per share - basic and diluted		$	0.00			$	(0.01	)
Weighted average shares outstanding, basic and diluted			30,000,000				21,000,000

 

 

Revenue

 

Revenues from education-related services and consulting services for institutions and parents, for the three months period ended March 31, 2016 were $2.68 million, representing an increase of $2.01 million from $0.67 million for the three months period ended March 31, 2015. The growth was mainly driven by the increase in the number of clients participating in our student services and institutional services from China, the increase was principally from the increase in our consulting services.

 

Total Cost and Expenses

 

Our overall cost and expenses increased by $1.67 million or 203%, to $2,485,769 for the three months period ended March 31, 2016 from $818,573 for the same period in the prior year.

 

Cost and expenses for providing our services to our clients are comprised of the cost of third-party consulting services, application fees, and general and administrative expenses.

 

Consulting Services

 

Cost of consulting services for the three months period ended March 31, 2016 was $1.97 million, an increase of $1.63 million or 494% from $0.33 million for the three months period ended March 31, 2015, which is primarily attributable to the rapid expansion of our business operations that warranted an increase in accordance with the increased need for third-party consulting services. We expect our consulting services to increase further in accordance with further expansion of our business operations.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of compensation and related costs for personnel and facilities, and include costs related to human resources, information technology and legal organizations, as well as fees for professional services. Our general and administrative expenses were $0.47 million for the three months ended March 31, 2016, and $0.48 million for the three months ended March 31, 2015, a decrease of $0.01 million or 2.1%. This was mainly due to decreases in commission fees, professional fees and bad debt expense, offset by increases in marketing/advertising and promotion, miscellaneous expenses, meals and entertainment, and utilities, etc. These increases were due to the expansion of our business, which required an increase in personnel, expansion of our office space, and marketing.

  

Income taxes

 

The provision for taxes for the three months ended March 31, 2016 principally relates to federal, state and local income taxes. Income taxes for the three months ended March 31, 2015 relate principally to the creation of a valuation allowance for deferred tax assets principally related to the net operating loss carry forwards and the allowance for doubtful accounts due to the uncertainty of their realization.

 

 

Net Income

 

The net income was $0.11 million or $0.00 per share basic and diluted, for the three months ended March 31, 2016, compared to a net loss of $0.28 million or loss of $0.01 per share basic and diluted for the three months ended March 31, 2015, an increase of $0.39 million of 139%.

 

Liquidity and Capital Resources

 

As of March 31, 2016, we had cash and cash equivalents of $0.42 million, a decrease of $0.67 million from $1.09 million as of December 31, 2015, primarily due to our total cash activities, including our payment of accounts payable and accrued expenses, and the decrease in deferred revenue.

 

We have financed our operations primarily through cash flow from operating activities, shareholder contributions and the public offering of securities, as well as long-term loans from a stockholder.

 

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.

 

As of March 31, 2016, we had working capital of $ 509,971, an increase of $1.143 million from a deficit of $387,078 as of December 31, 2015. The positive working capital is principally attributable to the decrease in accounts payable and accrued expenses, deferred revenue, partially offset by a decrease in cash and increase in advances from clients.

 

 

The following tables sets forth selected cash flow information for the periods indicated:

 

		Three Months Ended March 31,
		2016				2015
Cash flows from operating activities:
Net income (loss)		$	109,369			$	(275,842	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Deferred income taxes			-				131,672
Deferred rent expense			13,524				(3,152	)
Bad debt expense			-				41,855
Change in operating assets and liabilities:
(Increase) in accounts receivable			(62,041	)			(418,545	)
Decrease in prepaid expense			24,000				-
(Decrease) increase in accounts payable and accrued expenses			(471,653	)			320,334
Increase in corporate tax payable			81,833				-
(Decrease) increase in deferred revenue			(480,829	)			189,356
Increase in advances from clients			112,340				260,660
Net cash (used in) provided by operating activities			(673,457	)			246,338
Net change in cash			(673,457	)			246,338
Cash, beginning of period			1,093,755				82,572
Cash, end of period		$	420,298			$	328,910
Supplemental disclosure of cash flow information
Cash paid for income taxes		$	11,225			$	-
Cash paid for interest		$	-			$	248

 

 

Cash Flow from Operating Activities

 

Net cash used in operating activities for the three months ended March 31, 2016 was $0.67 million, compared to net cash provided by operating activities of $0.25 million for the three months ended March 31, 2015, a decrease in net cash provided by operating activities of $0.92 million. We had net income of $0.11 million for the three months ended March 31, 2016, an increase of $0.39 million from the net loss of $0.28 million for the three months ended March 31, 2015. At the same time, the decrease in accounts payable and accrued expenses, decrease in deferred revenue, and a comparatively much smaller increase in accounts receivable, more than offset the increase in corporate tax payable and decrease in prepaid expenses. The changes are primarily attributable to the combination of the following: seasonality where a significant portion of our clients engage our services in the fourth quarter of the fiscal year, we now pay our service providers faster, and reduction of deferred revenue reflecting the increased efficiency in providing our services where services are delivered faster and in a shorter time frame.

  

Cash Flow from Investing Activities

 

We had no cash flows from investing activities during the three months periods ended March 31, 2016 and 2015.

 

Cash Flow in Financing Activities

  

We had no cash flows from financing activities during the three months periods ended March 31, 2016 and 2015.

 

We believe that our working capital will be sufficient to enable us to meet our cash requirements for the next 12 months. However, we may incur additional expenses as we seek to expand our operations by establishing additional representative offices in our major market, the PRC, increasing our marketing efforts and hiring more personnel to support our growing operations. We believe we have adequate working capital to fund future growth activities. We cannot assure you that sufficient funding will be available if and when we require such funding.

 

Recent Accounting Pronouncements 

 

The Company has assessed all newly issued accounting pronouncements released during the three months ended March 31, 2016 and through the date of this filing, and has found none of them will have a material impact on the Company’s financial statements when or if adopted.

 

Off-Balance Sheet Arrangements

 

We did not have, during the periods presented, and we are currently not party to, any off-balance sheet arrangements.

 

Seasonality

 

We now experience seasonality in our business. 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 Event

 

The Company has evaluated subsequent events through the issuance of the consolidated financial statements and no subsequent event is identified.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company maintains disclosure controls and procedures as required under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

As of March 31, 2016, the Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2016.  The Company does not have a Chief Financial Officer that is familiar with the accounting and reporting requirements of a U.S. publicly listed company. In addition, the Company does not believe it has sufficient documentation concerning its existing financial processes, risk assessment and internal controls. There are also certain deficiencies in the design or operation of the Company’s internal control over financial reporting that has adversely affected its disclosure controls that may be considered to be “material weaknesses.”

 

We plan to designate individuals responsible for identifying reportable developments and to implement procedures designed to remediate the material weakness by focusing additional attention and resources on our internal accounting functions. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

 

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.

 

 

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

 

There were no material changes to the risk factors previously disclosed in the “Risk Factors” Section in our Annual Report on Form 10-K for the period ended December 31, 2015, filed on April 12, 2016.

 

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS.

  

We have not offered or sold any unregistered securities in the three-month period ended March 31, 2016.

  

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURE.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS

 

The following exhibits are filed herewith:

 

Exhibit No.		Description
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
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

 

 

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.

 

May 13, 2016
	AMERICAN EDUCATION CENTER INC.
	By:	/s/ Hinman Au
		Hinman Au
		Chief Executive Officer
		(Co-Principal Executive Officer)
	By:	/s/ Max Chen
		Max Chen
		President, Chairman, Chief Financial Officer and Secretary
		(Co-Principal Executive Officer, Principal Financial
		Officer and Principal Accounting Officer)

 

 

EXHIBIT INDEX

 

Exhibit No.		Description
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
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