AMERICAN EDUCATION CENTER, INC. - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - AMERICAN EDUCATION CENTER, INC.	tv506957_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - AMERICAN EDUCATION CENTER, INC.	tv506957_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - AMERICAN EDUCATION CENTER, INC.	tv506957_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - AMERICAN EDUCATION CENTER, INC.	tv506957_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2018

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

For the transition period from ______ to ______

Commission File Number: 333-201029

AMERICAN EDUCATION CENTER, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	38-3941544
(State of Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

2 Wall Street, 8^th Floor, New York, NY	10005
(Address of Principal Executive Offices)	(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 every Interactive Data File required to be submitted 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 such files).

Yes x No ¨

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standard provided pursuant to Section 13(a) of the Exchanger Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

As of November 19, 2018, the registrant had 41,898,000 shares of common stock issued and outstanding.

TABLE OF CONTENTS

Index to Form 10-Q

		Page
Part I
FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Consolidated Statements of Balance Sheets	4

	Consolidated Statements of Operations and Comprehensive Income	5

	Consolidated Statements of Cash Flows	6

	Consolidated Statements of Stockholders’ Equity	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	37

Part II
OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	39

SIGNATURE		40

Throughout this Quarterly Report on Form 10-Q, the “Company”, “we,” “us,” and “our,” refer to (i) American Education Center, Inc., a Nevada corporation (“AEC Nevada”); (ii) American Education Center, Inc., a New York corporation ("AEC New York"); and (iii) AEC Southern Management Co., LTD, a company formed pursuant to the laws of England and Wales (“AEC Southern UK”) and the subsidiaries of AEC Southern UK unless otherwise indicated or the context otherwise requires.

FORWARD-LOOKING STATEMENTS

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

	·	our ability to 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 anticipated trends in the education and business environment in the U.S. and China;
	·	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 SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2018			2017
	(Unaudited)			(Audited)
ASSETS

Current assets:
Cash	$	1,787,564		$	2,720,985
Accounts receivable, net of allowance for doubtful accounts of $5,026,192 and $249,527 at September 30, 2018 and December 31, 2017, respectively		3,611,511			6,482,289
Prepaid expenses		202,598			307,014

Total current assets		5,601,673			9,510,288

Noncurrent assets:
Deferred compensation		1,191,668			2,016,668
Deferred income taxes		76,403			25,641
Intangible asset, net		457,452			442,588
Security deposits		266,021			266,021

Total noncurrent assets		1,991,544			2,750,918

TOTAL ASSETS	$	7,593,217		$	12,261,206

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	4,719,353		$	4,070,001
Taxes payable		775,220			775,220
Deferred revenue		321,999			20,000
Advances from clients		33,757			15,371
Loan from stockholders		-			-

Total current liabilities		5,850,329			4,880,592

Noncurrent liabilities:
Deferred rent		216,992			191,542
Long-term loan		145,579			145,579

Total liabilities		6,212,900			5,217,713

Stockholders’ equity:
Preferred stock, $0.001 par value; 20,000,000 shares authorized; none issued		500			500
Common stock, $0.001 par value; 180,000,000 shares authorized; 41,883,000 and 41,350,000 shares issued and outstanding at September 30, 2018 and December 31, 2017		41,883			41,350
Additional paid-in capital		6,268,433			6,021,126
Retained earnings		(4,975,245	)		973,764
Accumulated other comprehensive income		(12,584	)		6,753
Total American Education Center, Inc.’s stockholders’ equity		1,322,987			7,043,493
Noncontrolling interest		57,330			-

Total stockholders' equity		1,380,317			7,043,493

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	7,593,217		$	12,261,206

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017

Revenues	$	1,903,310		$	5,215,743		$	5,002,111		$	20,379,142
Cost of revenues		1,361,461			3,890,800			3,377,761			13,670,929
Gross profit		541,849			1,324,943			1,624,350			6,708,213

Operating expenses:
Selling and marketing		371,096			750,565			434,511			3,320,568
General and administrative		2,411,009			656,317			7,153,813			1,862,901
Total operating expenses		2,782,105			1,406,882			7,588,324			5,183,469

(Loss) income from operations		(2,240,256	)		(81,939	)		(5,963,974	)		1,524,744
Other income		12,823			82			13,495			84

Loss (income) before provision for income taxes		(2,227,433	)		(81,857	)		(5,950,479	)		1,524,828
Provision (Benefit) for income taxes		288,375			(78,803	)		-			386,455

Net (loss) income including noncontrolling interests		(2,515,808	)		(3,054	)		(5,950,479	)		1,138,373
Less: Net loss (income) applicable to noncontrolling interests		(1,470	)		-			(1,470	)		-
Net loss (income) applicable to controlling interests		(2,514,338	)		(3,054	)		(5,949,009	)		1,138,373

Other comprehensive income
Foreign currency translation loss		(14,427	)		4,603			(19,337	)		4,603
Comprehensive (loss) income including noncontrolling interest	$	(2,528,765	)		1,549		$	(5,968,346	)		1,142,976
Comprehensive income (loss) attributable to noncontrolling interest		-			-			-			-
Comprehensive loss (income) attributable to controlling interest		(2,528,765	)		1,549			(5,968,346	)		1,142,976

(Loss) earnings per share - basic and diluted	$	(0.06	)	$	0.00		$	(0.14	)	$	0.03

Weighted average shares outstanding, basic and diluted		41,883,000			41,350,000			41,883,000			41,350,000

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended September 30,
	2018			2017

Cash flows from operating activities:
Net (loss) income	$	(5,950,479	)	$	1,138,373
Adjustments to reconcile net income to net cash
(Used in) operating activities:
Deferred tax (benefit) provision		(50,762	)		64,500
Deferred rent expense		25,450			26,803
Deferred compensation		825,000			877,500
Gain from bargain purchase of business		(13,200	)		-
Stock issued for services/to employees		199,840			-
Provision for doubtful accounts		4,776,666			45,300
Amortization expense		105,136			102,136
Change in operating assets and liabilities:
(Increase) in accounts receivable		(1,905,888	)		(3,761,522	)
Decrease (increase) in prepaid expenses		104,416			(31,187	)
Increase in accounts payable and accrued expenses		649,352			615,127
(Decrease) increase in taxes payable		-			315,015
Increase (decrease) in deferred revenue		301,999			(77,132	)
Increase in advances from clients		18,386			-

Net cash (used in) operating activities		(914,084	)		(685,087	)

Effect of exchange rates changes on cash		(19,337	)		4,603

Net change in cash		(933,421	)		(680,484	)
Cash at beginning of period		2,720,985			2,290,429

Cash at end of period	$	1,787,564		$	1,609,945

Supplemental disclosure of cash flow information

Cash paid for income taxes	$	25,764		$	6,940

Cash paid for interest	$	7,279		$	14,778

Non-cash investing activities

Business acquisition with common shares issuance	$	48,000			$48,000

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018

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

Balance as of December 31, 2017		41,350,000	$	41,350		500,000	$	500	$	6,021,126	$	973,764		$	6,753		$		$	7,043,493
Net loss												(5,949,009	)							(5,949,009	)
Issuance of common stock for purchasing business		100,000		100						47,900								57,330		105,330
Issuance of common stock for service and to employees		433,000		433						199,407										199,840
Foreign currency translation loss															(19,337	)				(19,337	)

Balance as of September 30, 2018		41,883,000	$	41,883		500,000	$	500	$	6,268,433	$	(4,975,245	)	$	(12,584	)	$	57,330	$	1,380,317

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND nine MONTHS ENDED september 30, 2018 AND 2017

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.

On May 7, 2014, the President and then 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 and the sole shareholder of AEC New York exchanged his 200 shares for 10,563,000 shares of AEC Nevada. The share exchange resulted in AEC New York becoming a wholly owned subsidiary of AEC Nevada (hereinafter the “Company”).

On October 31, 2016, the Company completed an acquisition transaction through a share exchange with two stockholders of AEC Southern Management Co., Ltd. (“AEC Southern UK”), a company incorporated in December 2015 with a registered capital of 10,000 British Pounds pursuant to the laws of England and Wales. The Company acquired 100% of the outstanding shares of AEC Southern UK in exchange for 1,500,000 shares of its common stock valued at $210,000 (the “AEC Southern UK Share Exchange”). Prior to the consummation of AEC Southern UK Share Exchange, Ye Tian and Rongxia Wang held 51% and 49%, respectively, of ownership interest in AEC Southern UK. As a result of the AEC Southern UK Share Exchange, AEC Southern UK became a wholly owned subsidiary of the Company.

AEC Southern UK holds 100% equity interest in AEC Southern Management Limited, a Hong Kong company (“AEC Southern HK”) incorporated on December 29, 2015, with a registered capital of HK$10,000. AEC Southern UK owns 100% equity interest in Qianhai Meijiao Education Consulting Management Co., Ltd., a foreign wholly owned subsidiary incorporated pursuant to PRC laws (“AEC Southern Shenzhen”) on March 29, 2016, with a registered capital of RMB 5,000,000.

On July 13, 2018, the Company completed an acquisition transaction through the issuance of 100,000 shares of the Company common stock with the owner of American Institute of Financial Intelligence LLC (“AIFI”), a New Jersey corporation incorporated on May 10, 2017. As a result, AIFI became a 51% majority owned subsidiary of the Company.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINEMONTHS ENDED SEPTEMBER 30, 2018 AND 2017

ORGANIZATION AND BUSINESS (continued)

The Company’s corporate structure is as follows:

Headquartered in New York with operations in People’s Republic of China (“PRC”) through its PRC operating entity, the Company operates two business segments:

(1)

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

(2)

AEC Southern UK delivers customized corporate training and advisory services to corporate clients in China in the food industry on subjects such as human resource management, organizational management, and information on local food safety regulations.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINEMONTHS ENDED SEPTEMBER 30, 2018 AND 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation and Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments considered necessary to give a fair presentation have been included. Interim results are not necessarily indicative of full-year results. Certain prior year balances have been reclassified to conform to the current year’s presentation; none of these reclassifications had an impact on reported financial position or cash flows for any of the periods presented. The information in this Form 10-Q should be read in conjunction with information included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2017 filed with the SEC on April 17, 2018.

Cash

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

Accounts Receivable

Accounts receivable are carried at net realizable value. The Company maintains an allowance for doubtful accounts, periodically evaluates its accounts receivable balances and makes general and/or specific allowances when there is doubt as to their collectability. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balances, customers’ historical payment history, their current credit-worthiness and current economic trends. Accounts receivable are written off against the allowance only after exhaustive collection efforts. As of September 30, 2018 and December 31, 2017, the allowance for doubtful accounts was $5,026,192 and $249,527, respectively.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign Currency Translation

The Company’s functional currency is US dollars. The company has two bank accounts located in the PRC. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income included in statements of changes in stockholders’ equity. Gain and losses from foreign currency transactions are included in the consolidated statements of operations and comprehensive income.

Revenue Recognition

Revenues are recognized when the following four criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the service has been rendered, (iii) the fees are fixed or determinable, and (iv) collectability is reasonably assured. Revenue is stated net of discounts and sales related tax.

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

AEC Southern UK delivers customized corporate training and advisory services. It receives monthly non-refundable retainer payments and recognizes revenue when services are rendered. AEC Southern UK’s business operations in the PRC has been suffering high cost and operating expense, uncollectable accounts receivable and high net loss. Currently, AEC Southern UK is seeking solutions, namely optimization of training model, expanding advisory services, and may restructure business model if needed.

Intangible Asset

The Company’s finite-lived intangible asset consists of a customized online campus system that was acquired from a third party. The system is used to provide online training for career advisory services and corporate training and advisory services. The asset was recorded at cost on the acquisition date and is amortized on a straight-line basis over its economic useful life.

The Company reviews its finite-lived intangible asset for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset to be held and used is measured by a comparison of the carrying amount of an asset to its undiscounted future net cash flows expected to be generated by the asset. If such asset is not recoverable, a potential impairment loss is recognized to the extent the carrying amount of the asset exceeds its fair value. Fair value is generally determined using a discounted cash flow approach.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock-Based Compensation

The Company uses the fair value-based method for stock issued for services rendered and therefore all awards to employees and non-employees will be recorded at the market price on the date of the grant and expensed over the required period of services to be rendered.

The fair value of stock options issued to third party consultants and to employees, officers and directors are recorded in accordance with the measurement and recognition criteria of FASB ASC 505-50, “Equity-Based Payments to Non-Employees” and FASB ASC 718, “Compensation – Stock Based Compensation,” respectively.

The options are valued using the Black-Scholes valuation model. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include but are not limited to the Company’s expected stock price volatility over the expected term of the awards, and actual and projected stock option and warrant exercise behaviors and forfeitures.

Income Taxes

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes (continued)

ASC 740 also addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is “more likely than not” that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. At September 30, 2018 and December 31, 2017, the Company does not have a liability for any unrecognized tax benefits.

The income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:

United States (“US”)

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (TCJA) was signed into law. The TCJA results in significant revisions to the U.S. corporate income tax system, including a reduction in the U.S. corporate income tax rate, implementation of a territorial system and a one-time deemed repatriation tax on untaxed foreign earnings. Generally, the impacts of the new legislation would be required to be recorded in the period of enactment.

The Company is subject to corporate income tax in the US at 34% and 21%, respectively, for the year 2017 and 2018. Provisions for income taxes in the United States have been made for taxable income the Company had in the US for the three and nine months ended September 30, 2018.

United Kingdom (“UK”)

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

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

Since AEC Southern UK had no PE in UK as December 31, 2017 and had no UK-Source income during 2017, the Company is not subject to tax on non-UK source income. The Company took full allowance of deferred tax assets which the Company does not expect to utilize in the near future.

Hong Kong

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

The People’s Republic of China (“PRC”)

AEC Southern Shenzhen was incorporated in the PRC. Pursuant to the income tax laws of China, the Company is not subject to tax on non-China source income.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINEMONTHS ENDED SEPTEMBER 30, 2018 AND 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This ASC also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures.

Fair Value Measurements

FASB ASC 820, “Fair Value Measurement,” specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:

Level 1 Inputs –	Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.

Level 2 Inputs –	Inputs other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3 Inputs –	Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements.

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

The Company did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis. Non-derivative financial instruments include cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses, taxes payable, and loan from stockholders. As of September 30, 2018 and December 31, 2017, the carrying values of these financial instruments approximated their fair values due to their short-term nature.

Use of Estimates

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR The THREE AND NINE MONTHS ENDED SEPTEMBER 30, , 2018 AND 2017

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Earnings (Loss) per Share

Earnings (loss) per share is calculated in accordance with FASB ASC 260, “Earnings Per Share.” Basic earnings (loss) per share is based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock options are converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Options and warrants are only dilutive when the average market price of the underlying common stock exceeds the exercise price of the options or warrants because it is unlikely they would be exercised if the exercise price were higher than the market price.

Noncontrolling interest

According to Financial Accounting Standards Board (FASB) Statement No. 160, the noncontrolling interest shall be reported in the consolidated statement of financial position within equity, separately from the parent’s equity. That amount shall be clearly identified and labeled, for example, as noncontrolling interest in subsidiaries. An entity with noncontrolling interests in more than one subsidiary may present those interests in aggregate in the consolidated financial statements。

Bargain Purchase

According to Financial Accounting Standards Board (FASB) Statement No. 141 (revised 2007), a barging purchase is defined as a business combination in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree, and it requires the acquirer to recognize that excess in earnings as a gain attributable to the acquire.

Contingent Consideration

The Company recognizes the fair value of any contingent consideration that is transferred to the seller in a business combination on the date at which control of the acquiree is obtained. This value is generally determined through a probability-weighted analysis of the expected cash flows.

Contingent consideration is classified as a liability or as equity on the basis of the definitions of an equity instrument and a financial liability. The contingent consideration is payable in cash and, accordingly, the Company classified its contingent consideration as a liability. It is not remeasured, and any gain or loss on settlement at an amount different from its carrying value will be recognized in net income in the period during which it is settled.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINEMONTHS ENDED SEPTEMBER 30, 2018 AND 2017

RECENTLY ISSUED ACCOUNTING STANDARDS

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

In February 2016, the FASB issued ASU 2016-02, “Leases.” The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of pending adoption of the new standard on its consolidated financial statements.

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

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09, Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. For all entities, this ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The adoption of this ASU is not expected to have a material effect on the Company’s consolidated financial statements.

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

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

The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within the reporting period and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has adopted ASU 2014-09 under the modified retrospective method in the first quarter of 2018. The Company has substantially completed a review of the new standard to its existing customer contracts. The Company does not believe the adoption of ASU 2014-09 would have a material effect on the Company’s consolidated financial statements.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

CONCENTRATION OF CREDIT AND BUSINESS RISK

The Company maintains its cash accounts at two commercial banks in the US and two commercial banks in the PRC, respectively. The Federal Deposit Insurance Corporation covers funds held in US banks and it insures $250,000 per bank for the total of all depository accounts. Fund held in the PRC bank is covered by Deposit Insurance Ordinance (index: 000014349/2015-00031) that insures RMB500,000 for the total of all depository accounts. As of September 30, 2018, the Company’s US bank accounts had cash balances in excess of federally insured limits of approximately $1,187,590. The Company performs ongoing evaluation of its financial institutions to limit its concentration of risk exposure. Management believes this risk is not significant due to the financial strength of the financial institutions utilized by the Company.

The following table represents major customers that individually accounted for more than 10% of the Company’s gross revenue for the nine months ended September 30, 2018 and 2017:

	2018
	Gross Revenue		Percentage			Accounts Receivable		Percentage

Customer 1	$	1,490,120		29.8	%	$	626,812		17.4	%
Customer 2		1,067,300		21.3	%		1,215,140		33.6	%
Customer 3		535,200		10.7	%		84,700		2.3	%

	2017
	Gross Revenue		Percentage			Accounts Receivable		Percentage

Customer 1	$	12,180,697		59.8	%	$	3,376,689		51.1	%
Customer 2		2,826,640		13.9	%		2,244,716		34.0	%
Customer 3		2,376,125		11.7	%		301,219		4.6	%

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

SEGMENT REPORTING

Operating segments have been determined on the basis of reports reviewed by Chief Executive Officer (CEO) who is the chief operating decision maker of the Company. The CEO considers the business from a geographic perspective and assesses performance and allocates resources on this basis. The reportable segments are as follows:

The Company has two operating segments: AEC New York and AEC Southern UK.

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

AEC Southern UK delivers customized corporate training and advisory services to corporate clients in China in the food industry to help them comply with local food safety regulations and standards.

For three months ended September 30, 2018, American Institute of Financial Intelligence LLC had no operating activities and had intangible asset, net of $117,000.

Revenues from external customers, gross profit, segment assets and liabilities for each business are as follows:

	For the nine months ended September 30, 2018
	AEC New York		AEC Southern UK		Total
Segment revenue:
Corporate training & advisory	$	-	$	1,465	$	1,465
Placement advisory		515,701		-		515,701
Career advisory		1,074,325		-		1,074,325
Student & Family advisory		3,410,620		-		3,410,620
Total revenue	$	5,000,646	$	1,465	$	5,002,111
Gross profit	$	1,622,885	$	1,465	$	1,624,350

	For three months ended September 30, 2018
	AEC New York		AEC Southern UK		Total
Segment revenue:
Corporate training & advisory	$	-	$	1,465	$	1,465
Placement advisory		472,825		-		472,825
Career advisory		252,600		-		252,600
Student & Family advisory		1,176,420		-		1,176,420
Total revenue	$	1,901,845	$	1,465	$	1,903,310
Gross profit	$	540,384	$	1,465	$	541,849

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINEMONTHS ENDED SEPTEMBER 30, 2018 AND 2017

SEGMENT REPORTING (continued)

	For the nine months ended September 30, 2017
	AEC New York		AEC Southern UK		Total
Segment revenue:
Corporate training & advisory	$		$	15,007,337	$	15,007,337
Placement advisory		677,640		-		677,640
Career advisory		2,438,035		-		2,438,035
Student & Family advisory	$	2,256,130	$	-	$	2,256,130
Total revenue	$	5,371,805	$	15,007,337	$	20,379,142
Gross profit	$	1,776,618	$	4,931,595	$	6,708,213

	For the three months ended September, 2017
	AEC New York		AEC Southern UK		Total
Segment revenue:
Corporate training & advisory	$		$	3,738,741	$	3,738,741
Placement advisory		141,432		-		141,432
Career advisory		841,290		-		841,290
Student & Family advisory	$	494,280	$	-	$	494,280
Total revenue	$	1,477,002	$	3,738,741	$	5,215,743
Gross profit	$	468,135		856,808	$	1,324,943

	September, 2018
	AEC New York		AEC Southern UK		Total
Segment assets and liabilities:
Segment assets	$	6,256,792	$	1,336,425	$	7,593,217
Segment liabilities	$	3,950,507	$	2,262,393	$	6,212,900

	December 31, 2017
	AEC New York		AEC Southern UK		Total
Segment assets and liabilities:
Segment assets	$	5,008,678	$	7,252,528	$	12,261,206
Segment liabilities	$	2,483,434	$	2,734,279	$	5,217,713

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINEMONTHS ENDED SEPTEMBER 30, 2018 AND 2017

DEFERRED COMPENSATION

On October 31, 2016, 1,500,000 common stock of the Company were granted to AEC Southern UK’s CEO that are expected to vest over a three-year period commencing November 1, 2016. The shares were valued using the market price of the Company’s common stock on the grant date of $0.14 per share. On the grant date, $210,000 was recognized as deferred compensation, which will be expensed over the three-year vesting period using the straight-line method. On December 31, 2017, the remaining deferred compensation was expensed due to the resignation of AEC Southern UK’s CEO.

On December 31, 2016, 6,000,000 stock of the Company were granted to the AEC Southern UK’s Chairman and are expected to vest over a three-year period commencing November 1, 2016. The shares were valued using the market price of the Company’s common stock on the grant date of $0.55 per share. On December 31, 2016, $3,300,000 was recognized as deferred compensation, which will be expensed over the remaining two year and ten months using the straight-line method. As of September 30, 2018, the remaining deferred compensation was $1,191,668.

Future amortization of the deferred compensation is as follows:

Year Ending December 31,

2018		275,000
2019		916,668

Total	$	1,191,668

Stock compensation expense was $275,000, $825,000, $292,500 and $877,500 for the three and nine months ended September 30, 2018 and 2017, respectively.

SECURITY DEPOSITS

The Company has security deposits with the landlord for its New York office of $266,021 as of September 30, 2018 and December 31, 2017.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

INTANGIBLE ASSET, NET

The Company’s customized online campus system is being amortized on a straight-line basis over four and a half years and the recent acquired learning platform is being amortized on a straight-line basis over 10 years. The gross carrying amount and accumulated amortization of this asset as of September 30, 2018 and December 31, 2017 are as follows:

	September 30, 2018			December 31, 2017

Intangible asset: online campus system	$	612,814		$	612,814
Intangible asset: learning platform		120,000			-
Less: accumulated amortization		(275,362	)		(170,226	)

Intangible asset - net	$	457,452		$	442,588

For the three and nine months ended September 30, 2018 and 2017, amortization expenses were $37,035, $105,135, $34,045, and $102,136, respectively.

The following table sets forth the future amortization expense to be recognized:

Year Ending December 31,

2018	$	37,045
2019		148,181
2020		148,181
2021		46,045
2022		12,000
Thereafter		66,000

Total	$	457,452

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINEMONTHS ENDED SEPTEMBER 30, 2018 AND 2017

DEFERRED REVENUE

The Company receives advance payments for services to be performed and recognizes revenue when services have been rendered. The deferred revenue at September 30, 2018 and December 31, 2017 was $321,999 and $20,000, respectively.

10.

RELATED-PARTY TRANSACTIONS

The Company’s CEO has a 34% interest in Columbia International College, Inc. (“CIC”). The Company conducts no transaction with CIC between December 31, 2017 and September 30, 2018.

The Company’s CEO has a 40% interest in Wall Street Innovation Center, Inc. (“WSIC”), a company incorporated in the state of New York that focuses on career and business development activities. AEC New York’s Chief Operating Officer currently serves as the President/CEO of WSIC. In the course of delivering career advisory services, the Company has engaged WSIC to assist in certain career development activities. Included in accounts payable is an amount due to WSIC of $372 and $372 as of September 30, 2018 and December 31, 2017. Additionally, the Company had entered into a sublease agreement with WSIC in March 2016, which was subsequently terminated on June 30, 2017.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

11.

LONG-TERM LOAN

On December 1, 2014, an unrelated party loaned the Company $295,579, with interest at 10%. The Company repaid $150,000 on November 10, 2017. The remaining is to be repaid on December 13, 2019. Interest are to be paid on the last day of each quarter from 2015 to 2019, except for the last payment on December 12, 2019.

Interest expense for the three and nine months ended September 30, 2018 and 2017 was $3,639, $10,918 and $7,389, $22,167 respectively.

12.

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 commenced on March 1, 2015 and the Company received two months of free rent. Due to free rent and escalating monthly rental payments, utilities, real estate taxes, insurance and other operating expenses, the lease is being recognized on a straight-line basis of $34,065 per month for financial statement purposes which creates deferred rent as shown on the balance sheets. In February 2016, the Company entered into a sublease agreement to lease space to WSIC for an annual rental of $250,000. The sublease income was netted against the Company’s rent expense. The sublease commenced on March 1, 2016 and terminated on June 30, 2017(see Note 10).

Rent expense was approximately $95,492, $283,370 for the three and nine months ended September 30, 2018.

Future minimum lease commitments are as follows:

Year Ending December 31,	Gross Lease Payment

2018		95,492
2019		388,333
2020		418,604
2021		439,350
2022 and thereafter		1,666,383

Total	$	3,008,162

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

13.

Income taxes

The component of deferred tax assets at September30, 2018 and December 31, 2017 is as follows:

	September 30, 2018		December 31, 2017

Net operating loss carryforwards	$	-	$	-
Allowance for doubtful accounts		-		63,441
Accelerated Depreciation		30,898		(37,800	)
Tax impact of foreign operations, net		-		-
Deferred tax asset, net	$	30,898	$	25,641

The Company’s subsidiary incorporated in the UK has unused net operating losses (“NOLs”) of $412,125 available for carry forward to future years for UK income tax reporting purposes.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.

Based on the assessment, the Company has established a full valuation allowance against all of the deferred tax asset relating to UK NOLs because the Company is more likely than not to realize the benefit from the utilization of such NOL carry forwards.

The provision for income taxes for the three and nine months ended September 30, 2018 and 2017 are as follows:

	For the three months ended September 30,						For the nine months ended September 30,
	2018			2017			2018			2017

Current:
Federal	$	(24,969	)	$	(28,753	)	$	-		$	85,795
State		(18,843	)		(14,734	)		-			51,462
Foreign		418,606			(38,147	)		50,762			184,698
Total current		374,794			(81,634	)		50,762			321,955

Deferred:
Federal		24,938			10,217			31,232			49,300
State		11,924			(7,386	)		24,014			15,200
Foreign		(123,281	)		-			(106,008	)		-
Total deferred		(86,419	)		2,831			(50,762	)		64,500

Total	$	288,375		$	(78,803	)	$	-		$	386,455

The Company conducts business globally and, as a result, files income tax returns in the US (federal, state and city), and other foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including jurisdictions in the US and UK. The Company is subject to income tax examinations of US federal, state, and city for 2017, 2016, and 2015 tax years and in the UK for 2017 and 2016. The Company is not currently under examination nor has it been notified by the authorities.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

13.

Income taxes (continued)

A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate for the nine months ended September 30, 2018 and 2017 is as follows:

	For the three months ended September 30,						For the nine months ended September 30,
	2018			2017			2018			2017

Tax at federal statutory rate		21.0	%		34.0	%		21.0	%		34.0	%
State and local taxes, net of federal benefit		(11.0	)		(14.8	)		(11.0	)		4.3
Tax impact of foreign operations		13.3			(32.6	)		(0.9	)		(10.7	)
Reversal valuation allowance		-			-			-			(8.5	)
Over accrual		-			30.5			-			5.5
Tax adjustment		-			79.2			-			0.7
Non-deductible/ non-taxable items		(10.4	)		-			(9.1	)		-

Total		12.9	%		96.3	%		-	%		25.3	%

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINEMONTHS ENDED SEPTEMBER 30, 2018 AND 2017

14.

STOCK OPTIONS

The Company didn’t grant any options during the three and nine months ended September 30, 2018.

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, 2017		3,200,000	$			5.87 years	$	-
Granted		-				-		-
Exercised		-				-		-
Cancelled and expired		-				-		-
Forfeited		-				-		-

Outstanding at September 30, 2018		3,200,000	$	2.45		5.12 years	$	-

Vested and expected to vest at September 30, 2018		1,933,333	$	1.91		4.33 years	$	-

Exercisable at September 30, 2018		1,933,333	$	1.91		4.33 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, 2018.

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

15.

ISSUANCE OF COMMON STOCK

Stock issued for business acquisition

On July 10, 2018, the Company issued 100,000 shares of the Company’s common stock (the “Consideration Shares”) to FIFPAC, Inc., (the “Seller”), of which par value is $0.001 per share, at market price of $0.48 per share, in exchange for 51% equity ownership of the AIFI pursuant to Business Purchase Agreement. Refer to Footnote 16 Business Acquisition.

Stock issued to employees and for services

In July and August 2018, the Company signed the agreements to issue an aggregate of 449,900 shares of the Company’s common stock to 18 individuals who are either employees of the Company or have been service providers to the Company, for employment-based compensation or service provided, respectively. The Company has issued an aggregate of 433,000 shares of the Company’s common stock to 10 individuals in the amount of $199,840 before September 30, 2018.

16.

BUSINESS ACQUISITION

On July 10, 2018, the Company entered into a Business Purchase Agreement (the “Purchase Agreement”) with FIFPAC, Inc., a New Jersey corporation (the “Seller”), a 100% owner of American Institute of Financial Intelligence LLC, a New Jersey corporation (“AIFI” or the “Target”) which closed on the same date.

Pursuant to the Purchase Agreement, on July 10, 2018, the Company issued 100,000 shares of the Company’s common stock (the “Consideration Shares”) to the Seller, of which par value is $0.001 per share at price of $0.48 per share, in exchange for 51% equity ownership of the AIFI. Pursuant to ASC 805, the Company recognized a gain of $13,200 on the effective date of July 10, 2018.

According to the Purchase Agreement, the contingent consideration consisted of compensatory arrangement for services to be performed by the owner of the acquiree, and such amounts are to be determined in the future by both parties; therefore, the fair value cannot be determined at the acquisition date. The Company as an acquirer did not recognize a liability at the acquisition date.

The following table summarizes the consideration paid and the amounts of net assets acquired as of the date of acquisition:

Fair value of net asset acquired (AIFI’s net identified assets)	$	120,000
Less:
Fair value of consideration transferred (FMV of AEC’s 100k shares issued)		(48,000	)
Fair value of noncontrolling interest (120k x 49%)		(58,800	)
	$	(106,800	)

Gain on barging purchase	$	13,200

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINEMONTHS ENDED SEPTEMBER 30, 2018 AND 2017

17.

COMMITMENTS & CONTINGENCY

A contingency should be recognized at its acquisition date fair value if that value can be determined. (The guidance in Topic 820 is used to determine fair value). If the acquisition-date fair value of contingency cannot be determined, then an asset or liability is recognized for the contingency if it’s probable at the acquisition date that such asset or liability exists and if its amount is reasonable estimable.

A contingency is not recognized for a contingency in the accounting for a business combination if: a) its fair value cannot be determined and b) the probable and reasonably estimate criteria are not met. Instead, the contingency is disclosed and accounted for subsequent to the acquisition date in accordance with Topic 450.

Pursuant to the Company’s Business Purchase Agreement, the contingent consideration consisted of compensatory arrangement for services to be performed by the officers of the acquiree, and such amounts are to be determined in the future by both parties; therefore the fair value cannot be determined at the acquisition date. The Company as an acquirer did not recognize a liability at the acquisition date.

18.

GOING CONCERN

Substantial doubt about the Company’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. Our current operating results indicate substantial doubt exists related to the Company's ability to continue as a going concern. We believe that the new education platforms acquired are probable of occurring and mitigating the substantial doubt raised by our current operating results and satisfying our estimated liquidity needs 12 months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to generate liquidity, including the availability of additional debt financing, or whether such actions would generate the expected liquidity as currently planned.

19.

SUBSEQUENT EVENT

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

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

On July 23, 2018, the company entered into a Consulting Agreement (“Consulting Agreement”) with Leisure Time Holdings Limited (“Leisure Time”). Pursuant to the Consulting Agreement, the Company agreed to issue in the aggregate, 30,000 fully paid up shares (the “Shares”) of common stock of the Company (the “Common Stock”), including 10,000 shares of Common Stock issuable upon Effective Date, and 5,000 shares of Common Stock per installment for four monthly installments, and an additional fee equal to 10% of the value of any transactions introduced to the Company by Leisure Time payable in cash or shares as remuneration for the Services. The Company issued 15,000 shares to Leisure Time on November 13, 2018. No services were provided during the three months ending in September 30, 2018.

On November 6, 2018, the Company’s Board of Directors, with the written consent of the holders of a majority of the shares of Common Stock and Preferred Stock issued and outstanding, voting together as a single class, approved an increase of the number of shares of the authorized Common Stock from 180,000,000 to 450,000,000 and Preferred Stock from 20,000,000 to 50,000,000, effective as of November 6, 2018. The par value of Common Stock remains $0.001 per share and the par value of Preferred Stock remains $0.001 per share.

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 consolidated financial statements of the Company for the three months and nine months ended September 30, 2018 and 2017, 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.

Overview

Leveraging our knowledge of the educational system and environment in the United States and our understanding of the market demands for education services in the PRC and its changing business economy, we specialize in the delivery of customized high school and college placement advisory services as well as career advisory services to Chinese students wishing to study and gain post-graduate work experiences in the United States. Our advisory services are specifically designed to address the educational needs of the rising middle-class families in China. The demand for our advisory services is primarily the result of China’s decades-long one-child policy, society’s focus and emphasis on children’s education, and families’ desire to gain access to U.S. colleges and universities as well as work experience in the U.S.

Additionally, recognizing the needs for enterprise training in China, since October 2016, we also deliver customized corporate training and advisory services to customers in China in the food industry to help them meet the related regulatory standards. The demand for such corporate training and advisory services in China has escalated in recent years and is driven mainly by China’s growing economy and desire to improve its competitiveness by meeting or setting international standards.

Headquartered in New York with operations in the PRC (People’s Republic of China), our key advisory services include:

	·	Placement Advisory Services;
	·	Career Advisory Services;
	·	Student & Family Services;
	·	Other Advisory Services; and
	·	Corporate Training & Advisory Services.

Placement Advisory Services

Since 1999, we have been delivering customized Language Training & Placement Advisory services to Chinese students. Our one-stop advisory service encompasses ESL training and assistance throughout the high school/college application and admission process.

Targeting the needs of Chinese families in getting admissions to Ivy League colleges, our Elite College Advisory service is designed to assist qualified Chinese students gain access and apply to prestigious colleges and universities in the US. Specifically, we arrange campus tours, provide tailored language training, offer guidance on interview and communication techniques, and follow-up on their applications.

Once students are admitted into their target universities, our advisory services include, among other things, assistance in connection with their application for a second major, transfers, housing accommodations, and accelerated degree application. To help students optimize their on-campus experience and enhance their leadership and social skills, we would enroll them into seminars and social events that we partner with scholars and universities, business and non-profit organizations. To help enrich their cultural experience, we would arrange extracurricular activities such as organized artistic endeavors including dance, music, painting, photography and other performance events.

Career Advisory Services

Our Internship Advisory program focuses on student’s career development by helping them identify and secure suitable internship and part-time or full-time work opportunities that are appropriate for their educational background and experience level. Through this program, we strive to help students map and navigate their career path and counsel them on matters including academic improvement to career assistance. Our student customers have chances to communicate with professionals in the field and participate in real-world case studies.

Our Start-up Advisory program is designed to provide incubator services to students and/or their families who desire to start or make an investment in a business in the US. Our services include (i) recommending alternative business development opportunities; (ii) assistance with business plan development; (iii) assistance with accounting and financial management, marketing, product and project design; and (iv) assistance in project financing.

Student & Family Advisory Services

Our Student & Family Advisory Services are designed to assist our students and/or their families in the process of settling down in the U.S., so they can effectively focus on their studies.

Through our business partners, we assist the students’ families with purchasing real estate properties, organizing their personal financial management and investment needs, getting insurance and starting businesses. Our American Dream Program helps students’ families find good investment projects in the U.S. We also advise Chinese and corporate clients whose executives are moving to the U.S. for work. The scope of our services includes assistance with business consulting, relocation and other aspects of family support services.

Other Advisory Services

Through our Foreign Student Recruitment services, we assist universities in China to recruit students from the US. We customize this service based on our strategic relationship with college and universities in the U.S. and the specific recruitment goals of these universities in China. The demand for our recruitment services is driven mainly by the lack of an established channel to attract students from the U.S. and the needs by the Chinese universities to expand and diversify their student body.

Our Foreign Educator Placement services are designed to meet the increasing demand for experienced educators and teachers from the U.S. to teach in China. Such demand covers the need to recruit qualified U.S. educators from Pre K-12 to teach in China.

Corporate Training & Advisory Services

Our Corporate Training & Advisory service is delivered by our wholly owned subsidiary, AEC Southern UK. We currently focus on corporate training in human resources management and organizational management for the general corporate market, as well as information sessions on local food industry regulations and the International Organization for Standardization (“ISO”). We advise on relevant training guidelines designed to further clients’ understanding of the pertinent compliance requirements, best practices, and/or relevant certification requirements. AEC Southern UK’s business operations in the PRC has been suffering high cost and operating expense, uncollectable accounts receivable and high net loss. Currently, AEC Southern UK is seeking solutions, namely optimization of training model, expanding advisory services, and may restructure business model if needed.

Pursuant to Accounting Standard Codification 280 “Segment Reporting” (“ASC 280”), we have identified two reporting segments: AEC New York and AEC Southern UK. These two segments engage two sets of customers and vendors to generate revenue and incur expenses; they generate separate financial information; and based on their financial reports and other segment specific information, our chief operating decision maker determines the resources to be allocated and evaluates the performance, of each segment.

AEC New York capitalizes on the rising demand from the middle-class families in China for quality education and working experience in the United States. It delivers customized high school and college placement and career advisory services to Chinese students wishing to study in the U.S. Its advisory services include language training, admission advisory, on-campus advisory, internship and start-up advisory as well as student and family services.

AEC Southern UK delivers customized corporate training services on subjects such as human resource management, organizational management, as well as information on local food safety regulations and the ISO.

Recent Developments

On July 10, 2018, we entered into a Business Purchase Agreement (the “Purchase Agreement”) with FIFPAC, Inc., a New Jersey corporation (the “Seller”), the 100% owner of American Institute of Financial Intelligence LLC, a New Jersey corporation (“AIFI” or the “Target”). Pursuant to the Purchase Agreement, on July 10, 2018, we issued 100,000 shares of the Company’s common stock (the “Consideration Shares”) to the Seller, in exchange for a 51% equity ownership in AIFI on July 10, 2018, of which par value was $0.001 per share at price of $0.48 per share. The Seller has agreed to hold the Consideration Shares for 180 days following July 10, 2018 before selling any or all portion of the Consideration Shares.

Significant Accounting Policies

The discussion and analysis of our consolidated financial condition and results of operations is based upon our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities. On an on-going basis, we evaluate our estimates including the allowance for doubtful accounts, income taxes and contingencies. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The consolidated financial statements are comprised of AEC Nevada and its wholly owned subsidiaries, AEC New York and AEC Southern UK. All significant intercompany accounts and transactions have been eliminated in consolidation.

As part of the process of preparing our unaudited consolidated financial statements, we are required to estimate our income taxes. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. As of June 30, 2018, the Company does not have a liability for any unrecognized tax benefits.

We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our unaudited consolidated financial statements when we deem it necessary.

We have determined significant accounting principles with policies that involve the most complex and subjective decisions or assessments. While our significant accounting policies are more fully described in Note 2 to our financial statements, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Both operating groups are reported under the same accounting policies/estimations.

Revenue is recognized when the following criteria are met: (1) when persuasive evidence of an arrangement exists; (2) delivery of the services has occurred; (3) the fee is fixed or determinable; and (4) collectability of the resulting receivable is reasonably assured. Advisory services fees paid in advance will be reflected as deferred revenue, and they are recognized proportionally as services are completed. Fees related to compliance training and advisory services are recognized upon completion of such services.

Recent Accounting Pronouncements

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

The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within the reporting period and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company is currently evaluating the effect that this ASU will have on its condensed consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

The Company has assessed all newly issued accounting pronouncements released during the three months ended September 30, 2018 and through the date of this filing, and believes that none of them will have a material impact on the Company’s financial statements when or if adopted.

Results of Operations

Below we have included a discussion of our operating results and material changes in the periods covered by this Quarterly Report on Form 10-Q. For additional information on the potential risks associated with these initiatives and our operations, please refer to the Risk Factors sections in our annual report on Form 10-K for the year ended December 31, 2017 as filed on April 17, 2018.

Three Months Ended September 30, 2018 as Compared to Three Months Ended September 30, 2017

	For the three months ended September 30,
	2018			2017			Variance			%
Key revenue streams:
Corporate Training & Advisory Services	$	1,465		$	3,738,741		$	(3,737,276	)		(100	)%
Placement Advisory Services		252,600			141,432			111,168			79
Career Advisory Services		472,825			841,290			(368,465	)		(44	)
Student & Family Advisory		1,176,420			494,280			682,140			138
Total revenues	$	1,903,310		$	5,215,743		$	(3,312,433	)		(64	)%
Gross Profit	$	541,849		$	1,324,943		$	(783,094	)		(59	)%
Gross Margin		28	%		25	%

Revenue

Total revenues for the three months ended September 30, 2018 were $1,903,310, representing a decrease of $3,312,433, or 64% from 5,215,743 for the same period in 2017. The decrease was attributed mainly to the decrease in revenues from our corporate training and advisory services delivered by AEC Southern UK. Majority of total revenues for the three months ended September 30, 2018 were generated by the operations of AEC New York.

The decline in revenues from our corporate training & advisory services was primarily due to the restrictions over inbound and outbound capital flow into and out of the PRC, and the rising costs of doing business in the PRC. Additionally, one of the agreements with one of the two clients of AEC Southern UK expired, resulting in less revenue. As a result, AEC Southern UK has experienced higher operating expense and higher cost of providing training services payable to third parties, non-collectable accounts receivable and high net loss. Currently, AEC Southern UK is still seeking solutions, such as adapting its corporate training services to be delivered via an online platform and planning to expand its corporate training offerings from the food industry to general management advisory services that may appeal to a wider range of businesses. AEC Southern UK is also open to restructuring its business model if needed and accelerating mergers and acquisitions.

Our revenues from placement advisory services typically fluctuate as a result of seasonal or other factors related to the high school/college admission process. Revenues for the three months ended September 30, 2018 from our placement advisory services increased by $111,168, or approximately 79% from $141,432 for the same period in 2017. The increase in our placement advisory services was due to the allocation of our resources to elite college advisory services brought higher income per student. Revenues for our career advisory services decreased by $368,465, or 44% from $841,290 for the same period in 2017, primarily due to decreased services requests from students recently graduated and in the graduating class, who intend to return to the PRC instead of staying in the U.S. due to the benefits policy for talents in China. Revenues from student & family advisory services increased by $682,140 from $494,280 for the same period in 2017, mainly due to timing of services being requested.

The recent sharp decrease in the value of China’s currency and the relatively restrictive U.S. policy on international students is increasingly driving Chinese students to choose to apply to universities and colleges in other countries or choose to return home after graduation, rather than staying in the U.S. Hence, we are expanding our current local services, concentrating on new services promotion and accelerating mergers and acquisitions.

Gross Profit & Gross Margin

Our gross profit for the three months ended September 30, 2018 was $541,849, representing a decrease of $783,094, or 59% from $1,324,943 for the three months ended September 30, 2017. The decrease was attributed mainly to the temporary suspension of the delivery of corporate training and advisory services by AEC Southern UK, due to the restricted flow of foreign exchange, the ongoing optimization of the training model to enhance our business, as well as the expiration of the service agreements with the two clients of AEC Southern UK.

Our gross margin was approximately 28% for the three months ended September 30, 2018, as compared to approximately 25% for the same period in 2017.

Operating Expenses

Total operating expenses increased by $1,375,223 or 98% as compared to the three months ended September 30, 2017. The increase was attributed to higher general and administrative (G&A) expenses from uncollectible accounts receivable, payroll expense, and compensation expense.

Income Tax Expense

Income tax expense of $288,375 for the three months ended September 30, 2018 represents the net effect of tax payable reversal and net loss for the period for the period.

Net Loss

Net loss of $2,515,808 for the three months ended September 30, 2018 was due to the decrease in revenue due to AEC Southern’s suspension of operation and increased operating expense from AEC New York, and high expenses of AEC Southern from uncollectible accounts receivable.

Nine Months Ended September 30, 2018 as Compared to Nine Months Ended September 30, 2017

	For the Nine Months ended September 30,
	2018			2017			Variance			%
Key revenue streams:
Corporate Training & Advisory Services	$	1,465		$	15,007,337		$	(15,005,872	)		(100	)%
Placement Advisory Services		515,701			677,640			(161,939	)		(24	)
Career Advisory Services		1,074,325			2,438,035			(1,363,710	)		(56	)
Student & Family Advisory		3,410,620			2,256,130			1,154,490			51
Total revenues	$	5,002,111		$	20,379,142		$	(15,377,031	)		(75	)%
Gross Profit	$	1,624,350		$	6,708,213		$	(5,083,863	)		(76	)%
Gross Margin		32	%		33	%

Revenue

Total revenues for the nine months ended September 30, 2018 were $5,002,111, representing a decrease of $15,377,031, or 75% from $20,379,142 for the same period in 2017. The decrease was attributed mainly to revenues from our corporate training and advisory services delivered by AEC Southern UK. Majority of total revenues for the nine months ended September 30, 2018 were generated by the operations of AEC New York.

Our revenues from placement advisory services normally fluctuate as a result of seasonal or other factors related to the high school/college admission process. Revenues from our placement advisory services decreased by $161,939, or approximately 24% from $677,640 for the same period in 2017. The decrease in our placement advisory services was due to the allocation of resources to elite college advisory services. Revenues for our career advisory services decreased by $1,363,710, or 56% from $2,438,035 for the same period in 2017, primarily due to decreased services requests. Revenues from student & family advisory services increased by $1,154,490 from $2,256,130 for the same period in 2017, mainly due to timing of services being requested.

The recent sharp fall in the value of China’s currency and the restrictive U.S. Policy on international students is increasingly driving Chinese students to change target schools in other countries and choose to return home after graduation, rather than staying in the US. Hence, we are expanding our current local services, concentrating on new services promotion and accelerating mergers and acquisitions.

Gross Profit & Gross Margin

Our gross profit for the nine months ended September 30, 2018 was $1,624,350, representing a decrease of $5,083,863, or 76% from $6,708,213 for the nine months ended September 30, 2017. The decrease was attributed mainly to the delivery of corporate training and advisory services from AEC Southern UK. The service delivery was temporarily suspended due to the restricted flow of foreign exchange, the ongoing optimization of the training model to enhance our business, as well as the expiration of a service agreement with one of the two clients of AEC Southern UK.

Our gross margin was approximately 32% for the nine months ended September 30, 2018, as compared to approximately 33% for the same period in 2017.

Operating Expenses

Total operating expenses increased by $2,404,855 or 46%, as compared to the nine months ended September 30, 2017. The increase was attributed to higher general and administrative (G&A) expenses from uncollectible accounts receivable, payroll expense, and compensation fee.

Income Tax Expense

Income tax expense of $0 for the nine months ended September 30, 2018 represent the net effect of tax payable reversal and net loss for the period.

Net Loss

Net loss of $5,950,479 for the nine months ended September 30, 2018 was due to the decrease in revenue and higher operating expense.

Liquidity and Capital Resources

Cash Flows and Working Capital

As of September 30, 2018, we had cash of $1,787,564, a decrease of $933,421 from $2,720,985 as of December 31, 2017. We have financed our operations primarily through cash flow from operating activities. We require cash for working capital, payment of accounts payables and accrued expenses, salaries, commissions and related benefits, and other operating expenses and income taxes. The following table sets forth a summary of our cash flows for the periods indicated.

	Nine Months ended September 30,
	2018			2017			Variance			%
Net cash used in operating activities	$	(914,084	)	$	(685,087	)	$	(228,997	)		33	%
Effect of exchange rates changes on cash		(19,337	)		4,603			(23,940	)		520
Net change in cash	$	(933,421	)	$	(680,484	)	$	(252,937	)		37	%

Cash Flow from Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2018 was $914,084, increased by $228,997, or 33% for the nine months ended September 30, 2017. The increase in net cash used in operations in 2018 was primarily attributable to the combination of the following: increased prepaid expense and revenue decreased from AEC SN.

Cash Flow from Investing Activities

We had no cash flow from investing activities during nine months ended September 30, 2018 and 2017.

Cash Flow in Financing Activities

We had no cash flow from financing activities during the nine months ended September 30, 2018 and 2017.

Working Capital

The following table sets forth our working capital.

	September 30,			December 31,
	2018			2017		Variance			%

Total current assets	$	5,601,673		$	9,510,288	$	(3,908,615	)		(41	)
Total current liabilities		5,850,329			4,880,592		969,737			20
Working capital	$	(248,656	)	$	4,629,696	$	(4,878,352	)		(105	)%
Current ratio		0.96			1.95

As of September 30, 2018, we had working capital deficit of $248,656, a decrease of $4,878,352 from a working capital surplus of $4,629,696 as of December 31, 2017. The decrease in working capital surplus was attributable mainly to uncollectible accounts receivable from AEC Southern UK.

We believe that our working capital will be sufficient to enable us to meet our cash requirements for the next 12 months. We believe we have adequate working capital to fund future growth activities.

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 experience seasonality in business with students as chief customers, particularly AEC New York’s student consulting/college application 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. 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 the academic year, i.e. the fall semester.

There is no noticeable seasonality for consulting services for companies, namely company consulting services in AEC New York’s business and executive/staff training services in AEC Southern UK’s business.

Subsequent Events

Management has evaluated subsequent events for recognition and disclosure through the date these financial statements were filed with the United States Securities and Exchange Commission and concluded that no subsequent event or transactions have occurred that required recognition or disclosure in our consolidated financial statements except for the following.

On November 6, 2018, the Company’s Board of Directors, with the written consent of the holders of a majority of the shares of Common Stock and Preferred Stock issued and outstanding, voting together as a single class, approved an increase of the number of shares of the authorized Common Stock from 180,000,000 to 450,000,000 and Preferred Stock from 20,000,000 to 50,000,000, effective as of November 6, 2018,. The par value of Common Stock remains $0.001 per share and the par value of Preferred Stock remains $0.001 per share.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Control and Procedures.

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Form 10-Q, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer (CEO), as appropriate to allow timely decisions regarding required disclosure.

During the three months ended September 30, 2018, procedures have been established to ensure that all significant, non-routine events and pending transactions must be evaluated by our CEO for disclosures in our consolidated financial statements and public filings.

We performed an evaluation, under the supervision and with the participation of our management, including our CEO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on this evaluation, our CEO has concluded that, as of September 30, 2018, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported properly within the time periods specified by the SEC, and did not provide reasonable assurance that information required to be disclosed by the Company in such reports would be accumulated and communicated to the Company’s management, including its CEO, as appropriate, to allow timely decisions regarding required disclosure. Such conclusion was based solely on the fact that the Company identified deficiencies in its internal control over financial reporting as of September 30, 2018. We have identified the following weaknesses and deficiencies in disclosure control and procedures.

Lack of financial expert - We currently do not have a CFO with significant U.S. publicly reporting company experience, nor do we have a financial expert in our management team.

Lack of segregation of duties - Our CEO has also acted as our interim CFO since February 5, 2018, when our previous CFO resigned from his position. Therefore, all accounting information is currently reviewed only by one person.

Other deficiencies - We have limited administrative and accounting resources, outdated accounting software and generally weak accounting processes and internal control procedures. Additionally, we have inadequate segregation of duties in certain accounting processes, including the payroll, cash receipts and disbursements processes in our accounting system, partly as a result of our limited size and accounting staff. We are taking steps to remediate these issues and plan to have improved controls and documentation in place by December 31, 2018.

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

Not applicable to a smaller reporting company.

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

Except for the following, there have been no other unregistered sale of equity securities during the quarter ended September 30, 2018.

In July and August 2018, the Company issued an aggregate of 449,900 shares of the Company’s common stock to 18 individuals who are either employees of the Company pursuant to employment agreements or have been service providers to the Company, for employment-based compensation or service provided pursuant to service agreements.

On July 23, 2018, the Company entered into a Consulting Agreement (“Consulting Agreement”) with Leisure Time Holdings Limited (“Leisure Time”). Pursuant to the Consulting Agreement, the Company agreed to issue in the aggregate, 30,000 fully paid up shares (the “Shares”) of the Company’s common stock, including 10,000 shares of common stock issuable immediately (the “Initial Shares”), and 5,000 shares of common stock per installment for four monthly installments, and an additional fee equal to 10% of the value of any transactions introduced to the Company by Leisure Time payable in cash or shares as remuneration for the services that Leisure Time may provide to the Company pursuant to the Consulting Agreement. The Company issued 15,000 shares to Leisure Time on November 13, 2018 for the Initial Shares and the first monthly installment. Leisure Times provided no services during the three months ended in September 30, 2018.

All of the securities referenced above were offered and issued in reliance upon the exemption from registration pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Regulation D promulgated thereunder.

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURE.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS

Exhibit No.		Description
3.1		Articles of Incorporation dated May 6, 2014 (incorporated by reference to our Form S-1 Registration Statement, Exhibit 3.1, filed with the Securities and Exchange Commission on December 18, 2014)
3.2		Bylaws (incorporated by reference to our Form S-1 Registration Statement, Exhibit 3.2, filed with the Securities and Exchange Commission on December 18, 2014)
3.3		Certificate of Designation of Series A Convertible Preferred Stock, Exhibit 3.1, filed with the Securities and Exchange Commission on November 3, 2017)
4.1		Specimen stock certificate (incorporated by reference to our Form S-1 Registration Statement, Exhibit 4.1, filed with the Securities and Exchange Commission on December 18, 2014)
10.1		Implementation Agreement by and between American Education Center, Inc. and New Oriental Education & Tech Group GuangZhou Branch (incorporated by reference to Amendment No.2 to our Form S-1 Registration Statement, Exhibit 10.3, filed with the Securities and Exchange Commission on May 7, 2015)
10.2		Loan Agreement by and between American Education Center, Inc. and Hilary Merchant Inc. (incorporated by reference to Form 10-Q, Exhibit 10.1, filed with the Securities and Exchange Commission on September 29, 2015)
10.3		Agreement of Lease by and between American Education Center, Inc. and Fieldstone Capital Inc. (incorporated by reference to our Form 10-Q, Exhibit 10.2, filed with the Securities and Exchange Commission on September 29, 2015)
10.4		Service Agreement by and between American Education Center, Inc. and AEC Southern (Shenzhen) Management Co., Ltd. (incorporated by reference to Form 8-K, Exhibit 10.1, filed with the Securities and Exchange Commission on January 6, 2017)
10.5		Employment Agreement by and between American Education Center, Inc. and Max Pu Chen (incorporated by reference to Form 8-K, Exhibit 10.1, filed with the Securities and Exchange Commission on August 30, 2017)
10.6		Employment Agreement by and between American Education Center, Inc. and Anthony S. Chan (incorporated by reference to Form 8-K, Exhibit 10.1, filed with the Securities and Exchange Commission on October 2, 2017)
10.7		License Agreement by and between American Education Center, Inc. and Max P. Chen (incorporated by reference to Form 8-K, Exhibit 10.1, filed with the Securities and Exchange Commission on October 23, 2017)
10.8		Strategic Partnership Agreement by and between American Education Center, Inc. and Oxbridge International Education Group (incorporated by reference to Form 8-K, Exhibit 99.2, filed with the Securities and Exchange Commission on December 5, 2017)
10.9		Business Purchase Agreement by and between American Education Center, Inc. and FIFPAC, Inc. (incorporate by reference to our Form 8-K (filed No. 333-201029) filed with the Securities and Exchange Commission on July 12, 2018)
31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
99.1		Termination Notice to the Implementation Agreement (incorporated by reference to Amendment No.2 to our Form S-1 Registration Statement, Exhibit 10.5, filed with the Securities and Exchange Commission on May 7 ,2015)
99.2		Non-binding Letter of Intent by and between American Education Center, Inc. and AmeriChina Group (incorporated by reference to our Form 8-K (file No. 333-201029) filed with the Securities and Exchange Commission on May 9, 2018)
99.3		Letter of Intent by and between American Education Center, Inc. and Shanghai Education Service Park (incorporated by reference to our Form 8-K (file No. 333-201029) filed with the Securities and Exchange Commission on May 15, 2018)
99.4		Non-binding Letter of Intent by and between American Education Center, Inc. and Shanghai Open University (incorporated by reference to our Form 8-K (file No. 333-201029) filed with the Securities and Exchange Commission on July 27, 2018)
101.INS		XBRL Instance Document *
101.SCH		XBRL Taxonomy Extension Schema Document *
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB		XBRL Taxonomy Extension Label Linkbase Document *
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document *

*	Filed herewith.
**	Furnished herewith.

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 19, 2018

	AMERICAN EDUCATION CENTER INC.

	By:	/s/ Max P. Chen
		Max P. Chen
		President, Sole Director, Chief Executive Officer, interim Chief Financial Officer and Secretary
		(Principal Executive Officer, Principal Financial
		Officer and Principal Accounting Officer)

AMERICAN EDUCATION CENTER, INC. - FORM 10-Q - November 19, 2018

Attached files

AMERICAN EDUCATION CENTER, INC. Reports