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 September 30, 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 Street, 8th Floor, 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 ¨

 

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. 32,350,000  as of November 11, 2016.

 

 

TABLE OF CONTENTS

 

	Page
PART I—FINANCIAL INFORMATION	4
Item 1.	4
Item 2.	23
Item 3.	29
Item 4.	30
PART II—OTHER INFORMATION	31
Item 1	31

 

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 BALANCE SHEETS

 

		September 30,				December 31,
ASSETS		2016				2015
		(Unaudited)
Current assets:
Cash (Note2)		$	281,544			$	1,093,755
Accounts receivable (Note 2)			797,038				1,114,280
Prepaid expenses			16,170				96,000
Total current assets			1,094,752				2,304,035
Noncurrent assets:
Deferred income taxes (Notes 2 and 10)			73,719				-
Security deposits (Note 4)			266,021				266,021
Total noncurrent assets			339,740				266,021
TOTAL ASSETS		$	1,434,492			$	2,570,056
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	301,789			$	994,291
Income taxes payable			185,238				216,812
Deferred revenue (Note 5)			-				553,624
Advances from clients (Note 6)			157,469				63,679
Loan from stockholder (Note 7)			88,551				88,551
Total current liabilities			733,047				1,916,957
Noncurrent liabilities:
Deferred rent			141,072				104,195
Long-term loan (Note 8)			295,579				295,579
Total liabilities			1,169,698				2,316,731
Stockholders’ equity:
Preferred stock, $0.001 par value; 20,000,000 shares authorized; none issued			-				-
Common stock, $0.001 par value; 180,000,000 shares authorized; 32,350,000 and 30,000,000 shares issued and outstanding, at September 30, 2016 and December 31, 2015 (Note 12)			32,350				30,000
Additional paid-in capital			307,326				214,176
(Deficit) retained earnings			(74,882	)			9,149
Total stockholders' equity			264,794				253,325
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,434,492			$	2,570,056

 

See accompanying notes to consolidated financial statements.

 

  

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2016				2015				2016				2015
Revenues (Note 2)		$	969,959			$	1,650,061			$	4,880,614			$	4,583,541
Costs and expenses:
Consulting services			788,573				1,918,936				3,845,760				2,823,930
Application fees			5,700				4,898				53,272				28,558
General and administrative			306,071				634,141				1,165,985				1,803,619
Total costs and expenses			1,100,344				2,557,975				5,065,017				4,656,107
(Loss) income from operations			(130,385	)			(298,538	)			(184,403	)			(72,566	)
Other income (loss)			2,409				(361	)			7,602				945
(Loss) income before (benefit from) provision for income taxes			(127,976	)			(298,899	)			(176,801	)			(71,621	)
(Benefit from) provision for income taxes			(76,028	)			(47,952	)			(92,770	)			77,251
Net (loss) income		$	(51,948	)		$	(250,947	)		$	(84,031	)		$	(148,872	)
(Loss) earnings per share - basic and diluted		$	(0.00	)		$	(0.01	)		$	(0.00	)		$	(0.01	)
Weighted average shares outstanding, basic and diluted			31,558,889				21,000,000				30,584,000				21,000,000

 

See accompanying notes to consolidated financial statements.

 

  

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2016

 

										Additional				Retained
		Common stock								paid-in				earnings
		Shares				Amount				Capital				(Deficit)				Total
Balance-December 31, 2015			30,000,000			$	30,000			$	214,176			$	9,149			$	253,325
Issuance of common stock for services			2,350,000				2,350				93,150				-				95,500
Net (loss)			-				-				-				(84,031	)			(84,031	)
Balance-September 30, 2016-unaudited			32,350,000			$	32,350			$	307,326			$	(74,882	)		$	264,794

 

See accompanying notes to consolidated financial statements.

 

  

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

		For the Nine Months Ended September 30,
		2016				2015
Cash flows from operating activities:
Net (loss) income		$	(84,031	)		$	(148,872	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Deferred income taxes			(73,719	)			91,064
Deferred rent expense			36,877				76,315
Stock issuance for services			95,500				-
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable			317,242				(796,667	)
Decrease in prepaid expenses			79,830				-
(Decrease) increase in accounts payable			(692,502	)			445,944
(Decrease) in corporate taxes payable			(31,574	)			-
(Decrease) increase in deferred revenue			(553,624	)			349,119
Increase in advances from clients			93,790				9,050
Net cash (used in) provided by operating activities			(812,211	)			25,953
Cash flows from financing activities:
Proceeds from prepaid stock subscriptions			-				51,836
Net cash (used in) provided by financing activities			-				51,836
Net change in cash			(812,211	)			77,789
Cash, beginning of period			1,093,755				82,572
Cash, end of period		$	281,544			$	160,361
Supplemental disclosure of cash flow information
Cash paid for income taxes		$	-			$	-
Cash paid for interest		$	22,167			$	24,519

 

See accompanying notes to consolidated financial statements.

 

  

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOr the NINE MONTHS ended SEPTEMBER 30, 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 same name. 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. In addition, the Company 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 September 30, 2016 and for the three and nine months ended September 30, 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 and nine months ended September 30, 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 NINE MONTHS ended September 30, 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 September 30, 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 NINE MONTHS ended September 30, 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”) insures up to $250,000 per bank for the total of all depository accounts. At September 30, 2016, there were no cash balances in excess of the FDIC insured limits.

 

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 nine months ended September 30:

 

		2016
		Gross Revenue				Percentage				Accounts Receivable				Percentage
Customer 1		$	814,000				16.7	%		$	-				-
Customer 2			1,271,590				26.1	%			218,650				27.4	%

 

		2015
		Gross Revenue				Percentage				Accounts Receivable				Percentage
Customer 1		$	825,050				18.0	%		$	210,000				26.3	%

 

  

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Stock-Based Compensation

 

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 method. 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 exercise behaviors.

 

Because the Company’s stock options have characteristics different from those of its traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock.

 

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 September 30, 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 NINE MONTHS ENDED SEPTEMBER 30, 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 September 30, 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 NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Earnings (Loss) per Share

 

The Company computes net income (loss) per common share in accordance with FASB ASC 260, Earnings Per Share (“ASC 260”). Under the provisions of ASC 260, basic net income (loss) per common share is computed by dividing the amount available to common stockholders by the weighted average number of shares of common stock 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. The Company’s common stock equivalents were excluded in the computation of diluted net (loss) per share since their inclusion would be anti-dilutive. Basic and diluted shares outstanding are the same for the three and nine months ended September 30, 2015 and 2016. Total shares issuable upon the exercise of all outstanding stock options for the nine months ended September 30, 2016 and 2015 were as follows:

 

		2016				2015
Common stock equivalents – stock options			2,200,000				-

 

3.

RECENTLY ISSUED ACCOUNTING STANDARDS

 

In February 2016, the FASB issued Accounting Standards Updates (“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.

 

  

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 

3.

RECENTLY ISSUED ACCOUNTING STANDARDS (continued)

 

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.

 

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 September 30, 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 been rendered. The deferred revenue at September 30, 2016 and December 31, 2015 was $0 and $553,624, respectively.

 

  

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 

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.

 

The advances from clients at September 30, 2016 and December 31, 2015 were $157,469 and $63,679, respectively. The Company has received all the results on the 2016 H1B applications as of September 30, 2016, revenue was recognized for the cases selected, all remaining advances will be refunded by the end of 2016.

 

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’s President/Chairman/Chief Financial Officer/Secretary has a 34% interest in Columbia International College, Inc. (“CIC”). In the normal course of business, the Company conducts certain transactions with CIC. Included in accounts receivable is an amount due from CIC of $21,500 as of September 30, 2016 and December 31, 2015. The Company paid $25,000 and $245,000 for consulting services to CIC for the three and nine months ended September 30, 2016, respectively.

 

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 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. The Company paid the interest for each of the three months periods ended March 31, 2016, June 30, 2016 and September 30, 2016. Interest expense for the three and nine months ended September 30, 2016 and 2015 was $7,398, $22,167, $7,949, and $24,519, respectively.

 

  

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 

9.

LEASE COMMITMENTS

 

In December 2014, the Company entered into a 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 free rent and 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 another sublease agreement to lease space to an unrelated third party for a monthly rental of $20,000. The sublease commenced 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 $60,120 and $60,120, respectively. Rent expense, net of sublease income, was approximately $33,000, $168,000, $153,000 and $381,000 for the three and nine months ended September 30, 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 NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 

10.

Income taxes

 

The component of deferred tax assets at September 30, 2016 and December 31, 2015 is as follows:

 

		September 30, 2016				December 31, 2015
Net operating loss carry forwards		$	73,719			$	-

 

The (benefit) provision for income taxes for the three and nine months ended September 30 consist of the following:

 

		Three Months Ended, September 30,								Nine Months Ended, September 30,
		2016				2015				2016				2015
Current		$	(19,101	)		$	(44,365	)		$	(19,051	)		$	(13,813	)
Deferred			(56,927	)			(3,587	)			(73,719	)			91,064
Total		$	(76,028	)		$	(47,952	)		$	(92,770	)		$	77,251

 

The Company’s tax returns are subject to examination by the federal, state and city taxing authorities. The 2012, 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.

 

  

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 

10.

Income taxes (continued)

 

A reconciliation of the (benefit) provision for income taxes, with the amount computed by applying the statutory Federal income tax rate for the three and nine months ended September 30 is as follows:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2016				2015				2016				2015
Tax at federal statutory rate			34.0	%			(34.0	)%			34.0	%			(34.0	)%
State and local taxes, net of federal benefit			10.8				(10.8	)			10.8				(10.8	)
Valuation allowance			-				44.8				-				44.8
Changes in tax reserves			14.6				0.0				7.7				0.0
Total			59.4	%			0	%			52.5	%			0	%

 

  

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 

11.

STOCK OPTIONS

 

On November 2015, the Board of Directors (the “Board”) adopted an Equity Incentive Plan (“Plan”). The purpose of the Plan is to attract, retain and motivate employees, directors and persons affiliated with the Company and to provide such participants with additional incentive and reward opportunities. The awards may be in the form of incentive stock options and non-qualified stock options. The accumulated number of shares of stock reserved for issuance as of September 30, 2016 and December 31, 2015 are 2,200,000 and 400,000, respectively.

 

On November 27, 2015, the Company granted to two third party consultants, options to purchase 100,000 and 300,000 shares of common stock, respectively. For the 100,000 stock options, 40,000 options vest on July 1, 2016 and expire on June 30, 2021 with an exercise price of $1.00 per share; 30,000 options vest on July 1, 2017 and expire on June 30, 2022 with an exercise price of $2.00 per share; and 30,000 options vest on July 1, 2018 and expire on June 30, 2023 with an exercise price of $3.00 per share. For the 300,000 stock options, 100,000 options vest on July 1, 2016 and expire on June 30, 2021 with an exercise price of $1.00 per share; 100,000 options vest on July 1, 2017 and expire on June 30, 2022 with an exercise price of $2.00 per share; 100,000 options vest on July 1, 2018 and expire on June 30, 2023 with an exercise price of $3.00 per share.

 

Weighted average assumptions used to estimate the fair value of stock options on the date of grant are as follows:

 

		November 17, 2015
Expected dividend yield		$	-
Expected stock price volatility			0.01	%
Risk free interest rate			0.32	%
Expected life (years)			5 years

 

On June 30, 2016, the Company approved the issuance of non-qualified stock options for the purchase of an aggregate of 1,500,000 shares of common stock to certain employee and persons affiliated with the Company. 500,000 options vest on July 1, 2017 and expire on June 30, 2022 with an exercise price of $1.00 per share; 500,000 options vest on July 1, 2018 and expire on June 30, 2023 with an exercise price of $2.00 per share; 500,000 options vest on July 1, 2019 and expire on June 30, 2024 with an exercise price of $3.00 per share.

 

  

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 

11.

STOCK OPTIONS (continued)

 

Weighted average assumptions used to estimate the fair value of stock options on the date of grant are as follows:

 

		June 30, 2016
Expected dividend yield		$	-
Expected stock price volatility			0.01	%
Risk free interest rate			0.32	%
Expected life (years)			5 years

 

On August 29, 2016, the Company approved the issuance of non-qualified stock options for the purchase of an aggregate of 300,000 shares of common stock to an employee of the Company. 100,000 options vest on August 29, 2017 and expire on August 28, 2022 with an exercise price of $2.00 per share; 100,000 options vest on August 29, 2018 and expire on August 28, 2023 with an exercise price of $3.00 per share; 100,000 options vest on August 25, 2019 and expire on August 28, 2024 with an exercise price of $4.00 per share.

 

Weighted average assumptions used to estimate the fair value of stock options on the date of grant are as follows:

 

		August 29, 2016
Expected dividend yield		$	-
Expected stock price volatility			0.01	%
Risk free interest rate			0.32	%
Expected life (years)			5 years

 

  

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 

11.

STOCK OPTIONS (continued)

 

The Company will issue new shares of common stock upon the exercise of outstanding stock options. The following is a summary of stock option activity:

 

		Shares				Weighted Average Exercise Price				Weighted- Average Remaining Contractual Life				Aggregate Intrinsic Value
Outstanding at December 31, 2015			400,000			$	2.32				6.82 years			$	-
Granted			1,800,000				2.54				7.10 years				-
Exercised			-				-				-				-
Cancelled and expired			-				-				-				-
Forfeited			-				-				-				-
Outstanding at September 30, 2016			2,200,000			$	2.50				6.92 years			$	-
Vested and expected to vest at September 30, 2016			-				-				-			$	-
Exercisable at September 30, 2016			140,000			$	1.00				5.50 years			$	-

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock. There were no options exercised during the three and nine months ended September 30, 2016.

 

The estimated fair value of these options was $0 for the three and nine months ended September 30, 2016 and 2015, respectively.

 

  

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 

12.

ISSUANCE OF COMMON STOCK

 

During the nine months ended September 30, 2016, the Company issued 1,550,000 shares of common stock at $0.01 per share and 800,000 shares of common stock at $0.1 per share, respectively, for the exchange of consulting services from unrelated third parties. 

 

13.

SUBSEQUENT EVENTS

 

The Company’s management has performed subsequent events procedures through November 14, 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 of the results of our operations and financial condition should be read in conjunction with our consolidated financial statements and the related notes thereto, which appear elsewhere in this Quarterly Report on Form 10-Q. 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. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events. 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.” The Company is 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. For fifteen years, AEC New York has devoted itself to international education exchange between China and the United States, by providing education and career enrichment opportunities for students, teachers, and educational institutions from both countries.

 

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 four types of services: Students Services, Educator Placements, Institution Services, as well as Executive Services. Services to our clients are provided through the Company’s principal executive office in New York, NY, and the three local representative offices in China - Nanjing and Chengdu, as well as a recently opened one in Hangzhou. We plan to open more representative offices in China in the future. Our representative offices are registered with their respective local administrations of industry and commerce effective from August 12, 2014 to August 12, 2019, from February 17, 2014 to February 26, 2019, and from June 1, 2015 to February 12, 2018 respectively. The Company entered into cooperation contracts with business partners in Jiangxi, Shanghai and Shenzhen on May 29, 2014, June 10, 2014 and May 7, 2014, respectively, allowing our business partners to set up representative offices bearing the name of America Education Center in each of these locations. However, as of the date of this quarterly report, we have not yet set up representative offices in Jiangxi, Shanghai or Shenzhen, 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 and during their study and also help them find internship and other career opportunities in the United States. The Company categorizes this service into three programs: academic, life and career. Our academic program focuses on providing admission services, English as a Second Language (ESL) training program, the Elite 100 program, and University Placement Services (UPS) for Chinese students to study in the U.S. 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. The Company will refer 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 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.

 

Our Institution Services Program is mainly focused on providing recruiting and consulting services to U.S. schools, colleges and universities to enroll students from China.

 

Our University Pathway Program (UPP) was established in 2008 and has been offering consulting services to various U.S. universities to enroll qualified international students to such universities and explore possible collaborations with selected universities in China. For our Student Exchange Programs, we recruit and enroll Chinese students in U.S. educational institutions for Exchange Programs (students still finish their diploma in China). As part of these programs, we have engaged St. Peter’s University to serve as a Chinese education consultant since they are more experienced in Student Exchange Programs.

 

Pursuant to our Executive Services program, we also provide services to our 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.

 

Prior to December 31, 2013, in certain cases, we collected our service fees in advance from clients. If we were not successful in all of the promised services, these fees were refundable. Accordingly, until all the promised work was completed successfully, these fees were shown as deferred revenue. Commencing in 2014, in order to better manage our company financially, we changed our policy. We now have discontinued utilizing the refund provisions in our 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 are prepaid. A portion (in the amount of $2,000) of such prepayment will become non-refundable once the Company completes preparation and files 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.

 

Opportunities

 

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.

 

·

Relationships

 

Through 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. These relationships enable us to operate at a competitive cost, while keeping our core business competitive.

 

·

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 Operation

 

Below we have included a discussion of our operating results and material changes in the periods covered by this Form 10-Q periodic report. 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 changes in expenses. The Company is working on expanding its businesses and stabilizing the sources of its revenues, as well as controlling its overhead cost.

 

  

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, filed as of April 12, 2016

 

The following table sets forth information from our statements of operations for the three months and nine months period ended September 30, 2016 and 2015:

 

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2016				2015				2016				2015
Revenues (Note 2)		$	969,959			$	1,650,061			$	4,880,614			$	4,583,541
Costs and expenses:
Consulting services			788,573				1,918,936				3,845,760				2,823,930
Application fees			5,700				4,898				53,272				28,558
General and administrative			306,071				634,141				1,165,985				1,803,619
Total costs and expenses			1,100,344				2,557,975				5,065,017				4,656,107
(Loss) income from operations			(130,385	)			(298,538	)			(184,403	)			(72,566	)
Other income (loss)			2,409				(361	)			7,602				945
(Loss) income before (benefit from) provision for income taxes			(127,976	)			(298,899	)			(176,801	)			(71,621	)
(Benefit from) provision for income taxes			(76,028	)			(47,952	)			(92,770	)			77,251
Net (loss) income		$	(51,948	)		$	(250,947	)		$	(84,031	)		$	(148,872	)
(Loss) earnings per share - basic and diluted		$	(0.00	)		$	(0.01	)		$	(0.00	)		$	(0.01	)
Weighted average shares outstanding, basic and diluted			31,558,889				21,000,000				30,584,000				21,000,000

 

  

Comparison of the Three Months Ended September 30, 2016 and 2015

 

Revenue

 

Revenues from educational programs, executive services, and consulting services for the three month period ended September 30, 2016 were $.97 million, representing a decrease of $.68 million or 41% from $1.65 million in the three months period ended September 30, 2015. The decrease of revenue was mainly due to the Company’s decision to apply more strict standards on screening its clients. Our revenue of $.97 million for the three months ended September 30, 2016 consisted of student VIP-services refund of $.01 million, and consulting revenue to Company of $.98 million.

 

Consulting Services

 

Consulting services were part of our costs and expenses. We retain unrelated third parties to provide us with consulting services. For the three-month period ended September 30, 2016, this item was $.79 million, representing an decrease of $1.13 million or 59% from $1.92 million in the three months period ended September 30, 2015.

 

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, bad debt expense, interest expense, marketing, advertising and promotion, as well as fees for professional services and commission fees. Our general and administrative expenses were $.31 million for the three months ended September 30, 2016, and $.63 million for the three months ended September 30, 2015, a decrease of $.33 million or 52%. The decrease in general and administrative expenses is primarily attributable to the fact that the company’s decision to apply more strict standards on screening its clients. It led to a decrease of commission fees of $.36 million in the third quarter of 2016.

 

Income taxes

 

Income taxes for the three months ended September 30, 2016 relate principally to the adjusted estimation of 2016 state and city minimal tax liability, deferred tax assets based on current year profit and loss trend  and changes in tax reserves. Income taxes for the three months ended September 30, 2015 relate principally to the creation of a 50% valuation allowance for deferred tax assets principally for operating losses, due to the uncertainty in realizing the full tax benefits.  

 

Net Loss

 

As a result of the foregoing, we had net loss attributable to the Company and its subsidiaries of $.05 million, or loss of $0.00 per share basic and diluted, for the three months ended September 30, 2016, as compared to net loss of $.25 million, or a loss per share of $0.01 per share basic and diluted for the three months ended September 30, 2015. Our net loss was primarily attributable to the company’s decision to apply more strict standards on screening its clients.

 

Comparison of the Nine Months Ended September 30, 2016 and 2015

 

Revenue

 

Revenues from educational programs, executive service, and consulting services for the nine months ended September 30, 2016 were $4.88 million, an increase of .30 million or 6% from $4.58 million for the nine months ended September 30, 2015. The growth was mainly driven by an increase in the number of clients engaging our student VIP services and an increase in demand for our institutional services from China due to the expansion of our business, offset by a decrease in parent services. Our revenue for the nine months ended September 30, 2016 of $4.88 million consisted of parent service of .05 million, student VIP-service of $.92 million, and consulting revenue to the Company service of $3.91 million.

 

  

Consulting Services

 

Consulting services were part of our costs and expenses. We retain unrelated third parties to provide us with consulting services. For the nine-month period ended September 30, 2016, this item was $3.85 million, representing an increase of $1.02 million or 36% from $2.82 million in the nine months period ended September 30, 2015. The increase in consulting services is primarily attributable to the increase in the demand of our services, which in turn increase the need for consulting services.

 

For nine month ended September 30, 2016, growth of revenue falls behind of consulting service because ever since the end of 2015, some clients took advantage of the open-ended nature of AEC’s agreement with its vender and kept engage the venders, therefore generating consulting service charges to AEC, after their contract with AEC has closed. This mismatch of non-revenue and cost prompted AEC to develop and apply more strict standards in screening its clients.

 

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, bad debt expense, interest expense, marketing, advertising and promotion, as well as fees for professional services and commission fees. Our general and administrative expenses were $1.17 million for the nine months ended September 30, 2016, and $1.80 million for the nine months ended September 30, 2015, a decrease of $.64 million or 35%. The decrease in general and administrative expenses is primarily attributable to decrease of $.84 million of commission fees, $.21 million in rent expense, offset by increase of $.14 million in marketing and advertising expense, $.05 million in professional fees.

 

Income taxes

 

Income taxes for the nine months ended September 30, 2016 relate principally to reconciliation between 2015 tax liability based on estimation and based on filing, the estimation of 2016 state and city minimal tax liability and deferred tax assets based on current year profit and loss trend  and changes in tax reserves. Income taxes for the nine months ended September 30, 2015 relate principally to the creation of a valuation allowance for deferred tax assets principally for operating losses, due to the uncertainty in realizing the full tax benefits. 

 

Net Loss

 

As a result of the foregoing, we had net loss attributable to the Company and its subsidiaries of $.08 million, or a loss of $0.00 per share basic and diluted, for the nine months ended September 30, 2016, as compared to net loss of $.15 million, or loss of $.01 per share basic and diluted for the nine months ended September 30, 2015.

 

Liquidity and Capital Resources

 

Our current assets primarily consist of cash and cash equivalents and accounts receivable. We have financed our operations through our cash from operations, and loans from our major stockholder. We believe that our sources of funding will be sufficient to satisfy our currently anticipated cash requirements through at least the next 12 months.

 

As of September 30, 2016, we had a working capital of $.36 million, a decrease of $.03 million or 7% from a working capital of $.39 million as of December 31, 2015. The decrease in working capital is the net effect of a decreasing cash, accounts receivable, prepaid expense and decreasing accounts payable and accrued expense, income tax payable, deferred revenue and advance from clients. The decrease in accounts receivable and decrease in accounts payable reflect the management’s efforts on timely collection and payment. 

 

As of September 30, 2016, we had accounts receivable of $.80 million, a decrease of $.32 million from  accounts receivable $1.12 million as of December 31, 2015, mainly due to the mainly due to our establishing a new and more effective collection program.

 

As of September 30, 2016, we had cash and cash equivalent of $.28million, a decrease of $.81 million or 74% from $1.10 million as of December 31, 2015.

 

As of September 30, 2016, we do not have any deferred revenue, a decrease of $.55 million from December 31, 2015. The decrease was mainly due to the management’s decision to discontinue providing H1B visa-related services that generate deferred revenue and the recognition of existing deferred revenue services during 2016. See Note 2 “Revenue Recognition” and Note 5 of Financial Statement for more information.

 

  

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

 

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

		For the Nine Months Ended September 30,
		2016				2015
Cash flows from operating activities:
Net (loss) income		$	(84,031	)		$	(148,872	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Deferred income taxes			(73,719	)			91,064
Deferred rent expense			36,877				76,315
Stock issuance for services			95,500				-
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable			317,242				(796,667	)
Decrease in prepaid expenses			79,830				-
(Decrease) increase in accounts payable			(692,502	)			445,944
(Decrease) in corporate taxes payable			(31,574	)			-
(Decrease) increase in deferred revenue			(553,624	)			349,119
Increase in advances from clients			93,790				9,050
Net cash (used in) provided by operating activities			(812,211	)			25,953
Cash flows from financing activities:
Proceeds from prepaid stock subscriptions			-				51,836
Net cash (used in) provided by financing activities			-				51,836
Net change in cash			(812,211	)			77,789
Cash, beginning of period			1,093,755				82,572
Cash, end of period		$	281,544			$	160,361
Supplemental disclosure of cash flow information
Cash paid for income taxes		$	-			$	-
Cash paid for interest		$	22,167			$	24,519

 

Cash flow in Operating Activities

 

Net change in cash for the nine months ended September 30, 2016 was $-.81 million, compared to net cash used in operating activities of $.81 million for the nine months ended September 30, 2015. We had a net loss of $.08 million for the nine months ended September 30, 2016, minus effect of accounts payable settlement $.69 million, deferred revenue recognition $.55 million, offset by collection of accounts receivable of $.32 million, equity based payment of $.10 million. The net effect of change in cash was a decrease of $.81 million.

 

  

Critical Accounting Policies

 

Our consolidated interim financial statements and condensed notes thereto have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our condensed financial statement and other disclosures included in this report. We believe that the following accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates.

 

The Company has assessed all newly issued accounting pronouncements released during the three months ended September 30, 2016 and through the date of this filing, and believes none of them will have a material impact on the Company’s financial statements when or if adopted.

 

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 

 

Other than our H1B consulting service, we do not have a seasonal business cycle. Because the great majority of H1B applications are filed under the annual H1B quota cap system, the majority of our H1B related consulting services is provided to clients prior to April 1, and until the time when the quota cap for such year is fulfilled, typically sometime in April or the near future. Otherwise, our operating results from other business segments are generally derived evenly throughout the fiscal year.

 

Subsequent Events 

 

The Company’s management has performed subsequent events procedures through November 14, 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 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.

 

Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies face additional limitations. Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties. Often, one or two individuals control every aspect of the Company's operation and are in a position to override any system of internal control. Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls. 

 

As of September 30, 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 September 30, 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 identified 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

 

During the three and nine months ended September 30, 2016, 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 as of April 12, 2016.

 

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

 

On September 30, 2016, the Company issued an aggregate of 800,000 shares of common stock to three consultants in exchange for services provided. The Company recorded a fair value of $80,000 for these shares,

 

All of these shares were issued pursuant to exemptions from registration provided by Section 4(2) of the Securities Act and Regulation D promulgated there under and/or Regulation S.

 

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 section 302 of The Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer 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

 

 

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.

 

November 14, 2016
	AMERICAN EDUCATION CENTER, INC.
	By:	/s/ Jay McKeage
		Jay McKeage
		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)