Quarterly Report (10-q)

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 June 30, 2020

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 or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1 Rockefeller Plaza, 10^th New York, NY		10020
(Address of principal executive offices)		(Zip Code)

(646) 722-2931

(Telephone number, including area code)

N/A

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

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

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

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

Yes x No ¨

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

Yes x No ¨

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 57,497,113 shares of common stock, $0.001 par value, as of August 14, 2020.

TABLE OF CONTENTS

		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	9

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	44

Part II OTHER INFORMATION

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	45

Item 6.	Exhibits	45

SIGNATURE		46

FORWARD-LOOKING STATEMENTS

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

	●	our ability to deliver, market, and generate sales of our advisory services;
	●	our ability to develop and/or introduce new advisory services;
	●	our projected revenues, profitability, and other financial metrics;
	●	our future financing plans;
	●	our anticipated needs for working capital;
	●	the anticipated trends in our industry;
	●	our ability to expand our sales and marketing capability;
	●	acquisitions of other companies or assets that we might undertake in the future;
	●	competition existing today or that will likely arise in the future;
	●	the impact of the COVID-19 pandemic on our operations and revenue; and
	●	other factors discussed elsewhere herein.

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “will,” “plan,” “could,” “target,” “contemplate,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these or similar words. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements 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 (UNAUDITED)

	June 30,			December 31,
ASSETS	2020			2019
Current assets:
Cash	$	922,567		$	1,035,395
Accounts receivable, net of allowance for doubtful accounts of $3,068,759 and 2,605,348 at June 30, 2020 and 2019, respectively		1,733,435			2,874,125
Prepaid expenses		225,459			253,530

Total current assets		2,881,461			4,163,050

Noncurrent assets:
Fixed Asset, net		5,037			6,226
Deferred income taxes		861,307			557,615
Intangible asset, net		198,136			272,226
Operating lease right-of-use asset		1,983,406			2,149,710
Security deposits		282,215			285,041

Total noncurrent assets		3,330,101			3,270,818

Total assets of continuing operations		6,211,562			7,433,868

Assets of discontinued operations, net		-			-

TOTAL ASSETS	$	6,211,562		$	7,433,868

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	2,586,596		$	2,867,133
Taxes payable		-			60,511
Deferred revenue		95,059			215,500
Advances from clients		-			60
Short-term loan from related party		849,245			574,564
Short-term loan due within a year		-			98,433
Operating lease liability - current portion		363,035			331,670

Total current liabilities		3,893,935			4,147,871

Noncurrent liabilities:
Operating lease liability		1,876,381			2,067,504
Long-term loan		236,588			-

Total liabilities of continuing operations		6,006,904			6,215,375

Liabilities of discontinued operations		-			-

Total liabilities		6,006,904			6,215,375

Stockholders’ equity:
Series A Convertible Preferred stock, $0.001 par value; 20,000,000 shares authorized 0 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively		-			-
Series B Convertible Preferred stock, $0.001 par value; 25,000,000 shares authorized 25,000,000 and 0 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively		25,000			25,000
Common stock, $0.001 par value;
450,000,000 shares authorized; 56,497,113 shares and 55,797,113 shares outstanding at June 30, 2020 and December 31, 2019 respectively		57,497			56,797
Additional paid-in capital		8,274,230			8,267,930
Treasury stock at cost, 1,000,000 shares at 0.66 per share		(660,000	)		(660,000	)
Subscription receivables		(592,305	)		(592,305	)
Retained earnings		(6,947,911	)		(5,924,231	)
Accumulated other comprehensive income		1,120			(4,678	)
Total controlling interest		157,631			1,168,513
Noncontrolling Interest		47,027			49,980

Total stockholders' equity		204,658			1,218,493

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,211,562		$	7,433,868

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues	$	161,984		$	1,169,044		$	276,182		$	3,139,791
Cost of revenues		55,717			686,290			166,054			1,768,687
Gross profit		106,267			482,754			110,128			1,371,104

Operating expenses:
Selling and marketing		60,754			61,960			74,115			201,249
General and administrative		777,991			1,059,041			1,425,116			1,451,878
Total operating expenses		838,745			1,121,001			1,499,231			1,653,127

(Loss) from operations		(732,478	)		(638,247	)		(1,389,103	)		(282,023	)
Other income		3			95			317			1,297

(Loss) before provision for income taxes		(732,475	)		(638,152	)		(1,388,786	)		(280,726	)
Provision for income taxes (benefit)		(199,530	)		366,076			(362,153	)		366,076

Net (loss) from continuing operations including noncontrolling interest	$	(532,945	)	$	(1,004,228	)	$	(1,026,633	)	$	(646,802	)

Net income (loss) from discontinued operations, net of income taxes benefit		-			836,807			-			561,807

Net (loss) including noncontrolling interest		(532,945	)		(167,421	)		(1,026,633	)		(84,995	)
Less: Net (loss) attributable to noncontrolling interest		(1,470	)		(1,470	)		(2,953	)		(2,940	)
Net(loss) attributable to American Education Center	$	(531,475	)	$	(165,951	)	$	(1,026,680	)	$	(82,055	)

Net (loss) including noncontrolling interest	$	(532,945	)	$	(167,421	)	$	(1,026,633	)	$	(84,995)
Other comprehensive (loss)
Foreign currency translation income (loss)		(1,434	)		6			5,798			1,171
Comprehensive (loss) including noncontrolling interest	$	(534,379	)		(167,415	)	$	(1,026,835	)		(83,824	)
Less: Comprehensive (loss) attributable to noncontrolling interest		(1,470	)		(1,470	)		(2,953	)		(2,940	)
Comprehensive (loss) attributable to American Education Center	$	(532,909	)	$	(165,945	)	$	(1,017,882	)	$	(80,884	)

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

Weighted average shares
Outstanding, basic and diluted		55,957,769			56,058,483			55,957,769			56,058,483

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended June 30,
	2020			2019
Cash flows from operating activities:
Net (loss)	$	(1,026,633	)	$	(84,995)
Loss from discontinued operation, net of income taxes		-			-
Adjustments to reconcile net (loss) including noncontrolling interest to net cash
(Used in) operating activities:
Deferred tax provision (benefit)		(303,692	)		285,608
Stock-based compensation expense		7,000			62,000
Provision for doubtful accounts		463,411			395,566
Depreciation expense for fixed assets		1,103			-
Gain from disposal of the discontinued operation, net of income taxes					(561,807	)
Amortization expense for learning platform		6,000			6,000
Amortization expense		68,090			68,090
Change in operating assets and liabilities:
in other assets and liabilities		6,657			13,625
in accounts receivable		676,860			(728,785	)
in prepaid expenses		26,517			(124,186	)
in security deposits		2,548			(18,249	)
in accounts payable and accrued expenses		(278,483	)		(192,277	)
in taxes payable		(62,368	)		62,482
in deferred revenue		(120,500	)		42,425
in advances from clients		-			(23,526	)
Net cash (used in) continuing operating activities		(533,490	)		(798,029	)
Net cash (used in) discontinued operating activities		-			-
Net cash (used in) operating activities		(533,490	)		(798,029	)

Cash flows from financing activities:
(Repayment) of short-term loan		(98,434	)		-
Proceeds from SBA Loan		236,588			-
Loan from stockholder		283,082			580,867
Net cash provided by continuing financing activities		421,236			580,867
Net cash provided by discontinued financing activities		-			-

Net cash provided by financing activities		421,236			580,867

Effect of exchange rates changes on cash		(574	)		1,171

Net change in cash		(112,828	)		(215,991	)
Cash at beginning of period		1,035,395			1,985,133

Cash at end of period	$	922,567		$	1,769,142
Less cash of discontinued operations - end of period		-			-
Cash of continuing operations - end of period		922,567			1,769,142

Supplemental disclosure of cash flow information

Cash paid for income taxes	$	12,696		$	30,162

Cash paid for interest	$	1,566		$	10,918

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

	FOR THE SIX MONTHS ENDED JUNE 30, 2020
																						Accumulated
									Additional													other
	Common stock				Series B Preferred Stock				paid-in		Treasury Stock					Subscription			Retained			comprehensive			Noncontrolling
	Shares		Amount		Shares		Amount		capital		Shares		Amount			Receivables			earnings			income			Interest			Total
January 1, 2020		55,797,113	$	56,797		25,000,000	$	25,000	$	8,267,930		1,000,000	$	(660,000	)	$	(592,305	)	$	(5,924,231	)	$	(4,678	)	$	49,980		$	1,218,493
Net loss																				(492,205	)					(1,483	)		(493,688	)
Issuance of common stock for services		700,000		700						6,300																			7,000
Foreign currency translation income																							7,232						7,232
March 31, 2020		56,497,113	$	57,497		25,000,000	$	25,000	$	8,274,230		1,000,000	$	(660,000	)	$	(592,305	)	$	(6,416,436	)	$	2,554		$	48,497		$	739,037
Net loss																				(531,475	)					(1,470	)		(532,945	)
Foreign currency translation income																							(1,434	)					(1,434	)
June 30, 2020		56,497,113	$	57,497		25,000,000	$	25,000	$	8,274,230		1,000,000	$	(660,000	)	$	(592,305	)	$	(6,947,911	)	$	1,120		$	47027		$	204,658

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

	FOR THE SIX MONTHS ENDED JUNE 30, 2019
																							Accumulated
										Additional													other
	Common stock					Series B Preferred Stock				paid-in		Treasury Stock					Subscription			Retained			comprehensive			Noncontrolling
	Shares			Amount		Shares		Amount		capital		Shares		Amount			Receivables			earnings			income			Interest			Total
January 1, 2019		56,597,113		$	56,597		25,000,000	$	25,000	$	8,206,130			$	-		$	(719,911	)	$	(5,714,688	)	$	(13,865	)	$	55,860		$	1,895,123
Net income																					83,896						(1,470	)		82,426
Foreign currency translation income																								1165						1165
March 31, 2019		56,597,113			56,597		25,000,000		25,000		8,206,130		-		-			(719,911	)		(5,633,732	)		(12,700	)		54,390			1,978,714
Realization upon disposal of subsidiary by reacquiring stock		(1,000,000	)										1,000,000		(660,000	)					1,062,541									402,541
Net income																					(165,951	)					(1,470	)		(167,421	)
Issuance of common stock for services		200,000			200						61,800																			62,000
Issuance of common stock for cash																		143,982												143,982
Foreign currency translation income																								6						6
June 30, 2019		55,797,113			56,797		25,000,000	$	25,000	$	8,267,930		1,000,000	$	(660,000	)	$	(575,929	)	$	(4,734,202	)	$	(12,694	)	$	52,920		$	2,419,822

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

1.	ORGANIZATION AND BUSINESS

American Education Center, Inc. (“AEC New York”) is a New York corporation incorporated on November 8, 1999 and is licensed by the 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, American Education Center, Inc. in the State of Nevada (“AEC Nevada”). On May 31, 2014, the President and the sole shareholder of AEC New York exchanged his 200 shares for 10,563,000 shares of AEC Nevada. The share exchange resulted in AEC New York becoming a wholly owned subsidiary of AEC Nevada (hereinafter the “Company”).

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

AEC Southern UK held 100% of the equity interests in AEC Southern Management Limited, a Hong Kong company (“AEC Southern HK”) formed on December 29, 2015. AEC Southern HK then formed Qianhai Meijiao Education Consulting Management Co., Ltd. (“AEC Southern Shenzhen”) on March 29, 2016 pursuant to PRC laws, with a registered capital of RMB 5,000,000. Therefore, under PRC laws, AEC Southern Shenzhen was a foreign wholly owned subsidiary of AEC Southern UK.

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

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

On April 22, 2019, AEC Southern UK sold 100% of the equity interests of AEC Southern HK to AEC BVI and AEC Southern HK and its subsidiary became wholly-owned subsidiaries of AEC BVI.

On May 1, 2019, the Company sold 100% of the equity interest in AEC Southern UK to three individuals who were Ye Tian, Rongxia Wang and Weishou Li, and received a consideration of 1,000,000 shares of outstanding shares of AEC Nevada.

On May 22, 2020, AEC Southern HK formed Yiqilai (Shenzhen) Consulting Management Co., Ltd. (“AEC YQL”) in Shenzhen, China on May 22, 2020 pursuant to PRC laws. AEC YQL is a wholly owned subsidiary of AEC Southern HK, and as of the date of this report, does not have significant business activities.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

1.	ORGANIZATION AND BUSINESS (continued)

As of June 30, 2020, the Company’s corporate structure is as follows:

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

(1)

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

(2)

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation and Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments considered necessary to give a fair presentation have been included.

Interim results are not necessarily indicative of full-year results. Certain prior year balances have been reclassified to conform to the current year’s presentation; none of these reclassifications had an impact on reported financial position or cash flows for any of the periods presented. The information in this Form 10-Q should be read in conjunction with information included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC.

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.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign Currency Translation

The Company’s functional currency is US dollars. The Company has three bank accounts located in the PRC and one located in Hong Kong. Translation adjustments arising from the use of different exchange rates, in the circumstance any subsidiary’s functional currency is not US dollars, from period to period are included as a separate component of accumulated other comprehensive income included in statements of changes in stockholders’ equity. Gain and losses from foreign currency transactions are included in the consolidated statements of operations and comprehensive income.

Revenue Recognition

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

AEC New York delivers customized high school and college placement, career advisory as well as student and family services. Fees related to such advisory services that are collected from individuals are generally paid to the Company in advance and they are recorded as deferred revenue. Revenues are recognized proportionally as services are rendered or upon completion. Fees related to our advisory services provided by AEC New York to corporate customers (such as staffing agencies and placement agencies) are generally collected after services are provided, and are recorded as accounts receivable.

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

For the six months ended June 30, 2020, approximately $104,000, or more than 38%, of the revenue was realized as accounts receivable and approximately $120,000 of the revenue was realized from services completed.

Property and equipment, net

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:

	Estimated useful lives (years)
Office furniture		5
Electronic equipment		3

Intangible Asset

The Company’s finite-lived intangible asset consists of a customized online campus system that was acquired from a third party. The system is used to provide online training for career advisory services and 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 CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock-Based Compensation

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

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

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

Income Taxes

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes (continued)

ASC 740 also addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is “more likely than not” that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. At June 30, 2020 and December 31, 2019, the Company does not have a liability for any unrecognized tax benefits. The income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:

United States (“US”)

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

The Company is subject to Federal corporate income tax in the US at 21%. Provisions for income taxes for the United States have been made for the six months ended June 30, 2020.

British Virgin Island (“BVI”)

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

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

Hong Kong

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

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

AEC Southern Shenzhen was incorporated in the PRC. Pursuant to the income tax laws of China, the Company is not subject to tax on non-China source income. The Company is subject to corporate tax in China at 25% for the net taxable income. AEC Southern Shenzhen has no income tax for the six months ended June 30, 2020 due to the net operating loss for the period.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

Fair Value Measurements

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

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

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

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

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

The Company did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis. Non-derivative financial instruments include cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses, taxes payable, and loan from stockholders. As of June 30, 2020 and December 31, 2019, respectively, the carrying values of these financial instruments approximated their fair values due to their short-term nature.

COVID-19 Outbreak

In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, workforces, customers, and created significant volatility and disruption of financial markets. It has also disrupted the normal operations of many businesses, including ours. This outbreak could decrease spending, adversely affect demand for our services and harm our business and results of operations. It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its effects on our business or results of operations at this time.

Use of Estimates

The preparation of the 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 CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

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 that they would be exercised if the exercise price were higher than the market price.

Noncontrolling interest

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

one subsidiary may present those interests in aggregate in the consolidated financial statements。

Bargain Purchase

According to Financial Accounting Standards Board (FASB) Accounting Standards, a barging purchase is defined as a business combination in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree, and it requires the acquirer to recognize that excess in earnings as a gain attributable to the acquire.

Contingent Consideration

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

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

Leases

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while accounting for finance leases remained substantially unchanged.

The Company determined if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and short- and long-term lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our consolidated balance sheets.

As of adoption of ASC 842 and as of January 1, 2019, the Company was not a party to finance lease arrangements.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the leases do not provide an implicit rate, the Company use the industry incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Under the available practical expedient, the Company account for the lease and non-lease components as a single lease component.

Adoption of the standard resulted in the recognition of $2,016,142 of ROU assets and $2,237,583 of lease liabilities for leases on our consolidated balance sheet at adoption on January 1, 2019 related to office space lease commitment on March 1, 2015. The difference between the ROU assets and lease liabilities was due to prepaid rent. For a new lease commitment on May 1, 2019, the company initially recognized $414,157 (RMB2,899,099) of ROU assets and lease liabilities of $399,048 (RMB2,793,341). The difference between the ROU assets and lease liabilities was due to prepaid rent and initial direct cost.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

3.	RECENTLY ISSUED ACCOUNTING STANDARDS

In 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 October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to the Related Party Guidance for Variable Interest Entities. ASU 2018-17 changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportional basis, rather than in their entirety. This guidance will be adopted using a retrospective approach and is effective for the Company on January 1, 2020. The Company has evaluated the effect of the adoption of this ASU and the standard did not have an impact on its consolidated financial statements and related disclosures from the adoption of the new guidance.

In December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU provides an exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. This update also (1) requires an entity to recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (2) requires an entity to evaluate when a step-up in the tax basis of goodwill should be considered part of the business combination in which goodwill was originally recognized for accounting purposes and when it should be considered a separate transaction, and (3) requires that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The standard is effective for the Company for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

4.	ACCOUNTS RECEIVABLES

Activity in the allowance for doubtful accounts was as followings:

	June 30,			December 31,
	2020			2019
Accounts receivable	$	4,802,194		$	5,479,473
Allowance for bad debts		(3,068,759	)		(2,605,348	)
Accounts receivable, net	$	1,733,435		$	2,874,125

Balance, beginning of year	$	2,605,348		$	1,189,147
Provision (net of recover)		463,411			1,557,201
Amounts written off, net of recoveries		-			(141,000	)

Balance, end of year	$	3,068,759		$	2,605,348

5.	FIXED ASSET, NET

As of June 30, 2020 and December 31, 2019, fixed asset, net as follows:

	June 30,			December 31,
	2020			2019
Electronic equipment	$	6,103		$	6194
Office furniture		805			817
Less: accumulated depreciation		(1,871	)		(785	)

Fixed asset - net	$	5,037		$	6,226

For the three and six months ended June 30, 2020 and 2019, depreciation expense was $556 and $1,103, $0 and $0 respectively.

6.	INTANGIBLE ASSET, NET

The gross carrying amount and accumulated amortization of this asset as of June 30, 2020 and December 31, 2019 are as follows:

	June 30, 2020			December 31, 2019
Intangible asset: online campus system	$	612,814		$	612,814
Intangible asset: learning platform		120,000			120,000
Less: accumulated amortization		(534,678	)		(460,588	)

Intangible asset - net	$	198,136		$	272,226

The Company’s customized online campus system is being amortized on a straight-line basis over four and a half years. For the three and six months ended June 30, 2020 and 2019, amortization expense was $34,045, $74,090 and $37,045, $74,090, respectively.

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

Year Ending December 31,
2020			74,091
2021			46,045
2022			12,000
2022			66,000
			198,136

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

7.	DEFERRED COMPENSATION

On October 31, 2016, 1,500,000 shares of common stock of the Company were granted and issued to AEC Southern UK’s CEO who would provide service over a three-year period commencing November 1, 2016. The shares were valued using the market price of the Company’s common stock on the grant date of $0.14 per share. On the grant date, $210,000 was recognized as deferred compensation, which was expensed over the three-year period using the straight-line method. On December 31, 2017, the remaining balance of $198,333.33 deferred compensation was expensed due to the resignation of AEC Southern UK’s CEO.

On December 31, 2016, the Company granted and issued 6,000,000 shares of common stock to AEC Southern UK’s Chairman who would provide services over a three-year period commencing November 1, 2016. The shares were valued using the market price of the Company’s common stock on the grant date of $0.55 per share. On the grant date, $3,300,000 was recognized as deferred compensation, which was expensed over a three-year period using the straight-line method. The Company decided not to cancel or retrieve the shares issued to the CEO of AEC Southern UK as compensation and recognized the remaining of the compensation as part of the loss from disposal during 2019.

8.	SECURITY DEPOSITS

The Company has security deposits with the landlord for its New York office and the office in Shenzhen, China of $282,215 and $285,041 as of June 30, 2020 and December 31, 2019 respectively. As of June 30, 2020, AEC New York has security deposits of $266,021 and AEC Shenzhen has security deposits of $16,194 (translation from RMB114,412).

9.	CONCENTRATION OF CREDIT AND BUSINESS RISK

The Company maintains its cash accounts at two commercial banks in the US, three commercial banks in the PRC and one commercial bank in Hong Kong.

Funds held in US banks and insured by Federal Deposit Insurance Corporation up to $250,000 per depositor, per insured bank, for each account ownership category.

Funds held in the PRC banks are covered by Deposit Insurance Ordinance (index: 000014349/2015-00031) that insures RMB500,000 for the total of all depository accounts.

Funds held in HK banks are insured by Hong Kong Deposit Protection Board covers up to HK$500,000 per bank for the total of all depository accounts.

The Company performs ongoing evaluation of its financial institutions to limit its concentration of risk exposure. Management believes this risk is not significant due to the financial strength of the financial institutions utilized by the Company.

The following table represents major customers that individually accounted for more than 10% of the Company’s gross revenue for the six months ended June 30, 2020 and 2019:

	June 30, 2020
	Gross Revenue		Percentage			Accounts Receivable		Percentage
Customer 1	$	103,980		37.6	%	$	1,582,433		33.6	%

	June 30, 2019
	Gross Revenue		Percentage			Accounts Receivable		Percentage
Customer 1	$	1,611,820		51.3	%	$	1,534,441		32.1	%
Customer 2		798,800		25.4	%		1,193,345		25.0	%

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

10.

DISCONTINUED OPERATIONS

On May 1, 2019, AEC Nevada sold 100% of the equity interest in AEC Southern UK to three individuals, Ye Tian, Rongxia Wang and Weishou Li, and received a consideration of 1,000,000 shares of outstanding shares of AEC Nevada which was valued at $660,000 and the debt owed to AEC Southern UK in the amount of $268,475 was forgiven by AEC Southern UK. The Company has classified the results of AEC Southern UK as discontinued operations in the unaudited consolidated statement of income for all periods presented. The Company decided not to cancel or retrieve the shares issued to the CEO of AEC UK as compensation and recognized the remaining of the compensation as part of the loss from disposal. Additionally, the related assets and liabilities associated with the discontinued operations in the prior year consolidated balance sheet are classified as discontinued operations. The Company recognized a gain of $561,808 from the disposition.

Pursuant to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the results of operations for the year ended December 31, 2019 and year ended December 31, 2018 from discontinued operations have been classified to loss from discontinued operations line on the accompanying consolidated statements of operations and comprehensive loss presented herein. The assets and liabilities also have been classified as discontinued operations in the Company’s consolidated financial statements as of December 31, 2019 and 2018.

The carrying amount of the major classes of assets and liabilities of discontinued operation as of May 1, 2019 and December 31, 2018 consist of the following:

	May 1, 2019			December 31, 2018
Assets of discontinued operation:
Current assets:
Cash and cash equivalents	$	391		$	391
Accounts receivable		4,864,297			4,595,823
Allowance for doubtful account		(4,595,823	)		(4,595,823
Deferred compensation		-			916,668
Total assets of discontinued operation	$	268,865		$	917,059

Liabilities of discontinued operation:				$	-
Current liabilities:
Accounts payable	$	1,881,404		$	1,881,404
Other payables		-			-
Total liabilities of discontinued operation	$	1,881,404		$	1,881,404

The summarized operating result of discontinued operation included in the Company’s consolidated statements of operation consist of the following:

	From January 1 to May 1, 2019			From January 1 to December 31, 2018
Revenues	$	-		$	-
Cost of revenues		-			-
Gross profit		-			-
Operating expenses		(366,667	)		(5,587,406	)
Other income (expenses), net		-			4
Loss before income tax		(366,667	)		(5,587,402	)
Income tax expense (benefit)		-			(332,187	)
Loss from discontinued operation		(366,667	)		(5,255,215	)
Total loss from discontinued operations, net of income taxes	$	(366,667	)	$	(5,255,215	)

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

11.

SEGMENT REPORTING

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

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

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

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

The following table shows an analysis by segment of the assets and liabilities of continuing operations as of June 30, 2020 and December 31,2019:

	June 30, 2020
	AEC New York		AEC BVI		Total
Segment assets and liabilities:
Segment assets
Segment assets from continuing operations	$	5,533,648	$	677,914	$	6,211,562
Segment assets of discontinued operations		-		-		-
Segment assets	$	5,533,648	$	677,914	$	6,211,562
Segment liabilities
Segment liabilities from continuing operations	$	4,799,969	$	1,206,935	$	6,006,904
Segment liabilities of discontinued operations		-		-		-
Segment liabilities	$	4,799,969	$	1,206,935	$	6,006,904

	December 31, 2019
	AEC New York		AEC BVI		Total
Segment assets and liabilities:
Segment assets
Segment assets from continuing operations	$	6,661,058	$	772,810	$	7,433,868
Segment assets of discontinued operations		-		-		-
Segment assets	$	6,661,058	$	772,810	$	7,433,868
Segment liabilities
Segment liabilities from continuing operations	$	5,249,953	$	965,422	$	6,215,375
Segment liabilities of discontinued operations		-		-		-
Segment liabilities	$	5,249,953	$	965,422	$	6,215,375

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

11.

SEGMENT REPORTING (Continued)

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

	For the three months ended June 30, 2020
	AEC New York		AEC BVI		Total
Segment revenue:
Placement advisory	$	-	$	41,484	$	41,484
Career advisory		120,500		-		120,500
Student & Family advisory		-		-		-
Other advisory		-		-		-
Total revenue from continued operations	$	120,500	$	41,484	$	161,984
Total revenue from discontinued operations		-		-		-
Gross profit	$	66,560	$	39,707	$	106,267

	For the six months ended June 30, 2020
	AEC New York		AEC BVI		Total
Segment revenue:
Placement advisory	$	-	$	41,484	$	41,484
Career advisory		234,191		-		234,191
Student & Family advisory		-		-		-
Other advisory		507		-		507
Total revenue from continued operations	$	234,698	$	41,484	$	276,182.00
Total revenue from discontinued operations		-		-		-
Gross profit	$	71,808	$	38,320	$	110,128

	For the three months ended June 30, 2019
	AEC New York		AEC BVI			Total
Segment revenue:
Placement advisory	$	305,000	$	(931	)	$	304,069
Career advisory		861,975		-			861,975
Student & Family advisory		-		-			-
Other advisory		3,000		-			3,000
Total revenue from continued operations	$	1,169,975	$	(931	)	$	1,169,044
Total revenue from discontinued operations		-		-			-
Gross profit	$	483,685	$	(931	)	$	482,754

	For the six months ended June 30, 2019
	AEC New York		AEC BVI		Total
Segment revenue:
Placement advisory	$	798,800	$	33,716	$	832,516
Career advisory		1,817,275		-		1,817,275
Student & Family advisory		487,000		-		487,000
Other advisory		3,000		-		3,000
Total revenue from continued operations	$	3,106,075	$	33,716	$	3,139,791
Total revenue from discontinued operations		-		-		-
Gross profit	$	1,337,388	$	33,716	$	1,371,104

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

12.

DEFERRED REVENUE

The Company receives advance payments for services to be performed and recognizes revenue when services have been rendered. The deferred revenues as of June 30, 2020 and December 31, 2019 were $95,095 and $215,500, respectively.

13.

RELATED-PARTY TRANSACTIONS

The Company’s CEO has a 34% interest in Columbia International College, Inc. (“CIC”). The Company prepaid CIC $48,000 for student consulting services of which is expected to be fully delivered and accounted for in 2020.

The Company’s CEO has a 40% interest in Wall Street Innovation Center, Inc. (“WSIC”), a corporation incorporated in the state of New York that focuses on career and business development activities. In the course of delivering career advisory services, the Company has engaged WSIC to assist in certain career development activities. The Company prepaid WSIC $50,000 for business consulting services to be delivered and completed in 2020.

The Company’s CEO received 12,500,000 shares of Series B Convertible Preferred Stock of the Company (“Series B Preferred Stock”), par value $0.001 per share as a reward for his dedicated services to the Company on November 26, 2018.

The Company borrowed $283,082 (translated from RMB2,000,000) from a shareholder of the Company during the period ended June 30, 2020. The amounts due to this related party were $849,245 and $574,564 as of June 30, 2020 and December 31, 2019, respectively. The amounts are non-interest bearing, non-secure and due on demand.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

14.

LONG-TERM LOAN

On December 1, 2014, an unrelated party loaned the Company $295,579, with interest at 10%. The Company repaid $150,000 on November 10, 2017. The loan was fully paid off as of June 30, 2020.

Interest expenses for the three and six months ended June 30, 2020 and 2019 were $0, $776 and $3,639, 10,918 respectively.

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in the United States. On May 4, 2020, Company was informed by its lender, Bank of America, N.A (the “Bank”), that the Bank received approval from the U.S. Small Business Administration (“SBA”) to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the recently enacted CARES Act administered by the SBA. Per the terms of the PPP Loan, Company received total proceeds of $77,588 from the Bank. In accordance with the requirements of the CARES Act, the Company intends to use the proceeds from the PPP Loan primarily for payroll costs. The PPP Loan has a 1.00% interest rate, and is subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act.

The loan forgiveness amount will be reduced for any EIDL advance that the Company receives. The amount of loan forgiveness will be further reduced if the borrower terminates employees or reduces salaries during the eight-week period. Company currently believes that its use of the loan proceeds met the conditions for forgiveness of the loan.

On April 24, 2020, AEC New York received an advance in the amount of $9,000 from the U.S. Small Business Administration (“SBA”) under the Economic Injury Disaster Loan (“EIDL”) program administered by the SBA, which program was expanded pursuant to the CARES Act. On June 1, 2020, Company received approval for a loan under the SBA’s EIDL program from SBA. Per the terms of the EIDL, Company received total proceeds of $150,000. The EIDL Loan has a 3.75% interest rate, and is subject to the terms and conditions applicable to all loans made pursuant to the EIDL Program as administered by the SBA. Company intends to use all the proceeds of this Loan solely as working capital to alleviate economic injury caused by disaster occurring in 2020.

15.

LEASE COMMITMENTS

The Company currently has two operating leases for offices in different cities. In December 2014, the Company entered into a lease for 10,086 square feet of office space in New York, NY, with an unrelated party, expiring on July 31, 2025. The lease commenced on March 1, 2015 and the Company received two months of free rent. Due to free rent and escalating monthly rental payments, utilities, real estate taxes, insurance and other operating expenses, the lease is being recognized on a straight-line basis of $34,065 per month for financial statement purposes.

We determined the present value of the future lease payments using a discount rate of 8.05%, our incremental borrowing rate based on SBA loan rate, resulting in an initial right-of-use asset of $2,016,142 and lease liability of $2,237,583 on the adoption date of January 1, 2019, which are being amortized ratably over the term of the lease.

In May 2019, the Company entered into a lease of office space in Shenzhen, Guangdong, PRC with an unrelated party, expiring on April 30, 2024. The lease commenced on May 1, 2019. We determined the present value of the future lease payment using a discount rate of 8.16%, our incremental borrowing rate based on SBA loan borrowing rate, resulting in an initial right-of-use asset of $414,157 (RMB2,899,099) and lease liability of $399,048 (RMB2,793,341) on the commenced date of May 1, 2019, which are being amortized ratably over the term of the lease.

As of June 30, 2020, the balance of net right-of-use asset was $1,983,406, and lease liability was $2,239,416 (including $363,035 for current portion and $1,876,381 for noncurrent portion).

Future minimum lease commitments are as follows on June 30, 2020:

Year Ending December 31,	Gross Lease Payment
2020		262,998
2021		537,569
2022 and thereafter		1,918,349
	$	2,718,916
Less: Present value adjustment		(479,796	)
Operating lease liability	$	2,239,416

Payments under operating leases are expensed on a straight-line basis over the periods of their respective leases. The total rent expense was approximately $129,110, $261,137 and $102,195, $225,078 for the three and six months ended June 30, 2020 and 2019, respectively.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

16.

Income taxes

The component of deferred tax assets at June 30, 2020 and 2019 are as follows:

	June 30, 2020			December 31, 2019
Net operating loss carryforwards	$	667,382		$	471,404
Allowance for bad debt		724,572			558,397
Accelerated Depreciation		-			-
Allowance for deferred tax asset		(530,647	)		(472,186	)
Deferred tax asset, net	$	861,307		$	557,615

The provision for income taxes and deferred income taxes for three and six months ended June 30, 2020 and 2019 are as follows:

	For the three months ended June 30,					For the six months ended June 30,
	2020			2019		2020			2019
Current:
Federal	$	-		$	44,667	$	-		$	44,667
State		-			35,536		-			35,536
Foreign		-			265		-			265
Total current		-			80,468		-			80,468

Deferred:
Federal		(116,851	)		164,322		(212,087	)		164,322
State		(82,679	)		121,286		(150,066	)		232,386
Foreign		-			-		-			-
Total deferred		(199,530	)		285,608		(362,153	)		285,608
		-					-
Total	$	(199,530	)	$	366,076	$	(362,153	)	$	366,076

The Company conducts business globally and, as a result, files income tax returns in the US federal jurisdiction, state and city, and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including jurisdictions in the US. The Company is subject to income tax examinations of US federal, state, and city for 2019, 2018 and 2017 tax years. The Company, to its knowledge, is not currently under examination nor has it been notified by the authorities.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

16.

Income taxes (continued)

A reconciliation of the provision for income taxes, with the amount computed by applying the statutory effective income tax rate for the three and six months ended June 30, 2020 and 2019 is as follows:

	For the three months ended June 30,						For the six months ended June 30,
	2020			2019			2020			2019
Tax at federal statutory rate		21.0	%		21.0	%		21.0	%		21.0	%
State and local taxes, net of federal benefit		11.0			11.0			11.0			11.0
PRC statutory income tax rate		25.0			-			25.0			-
Non-deductible/ non-taxable items		-			-			-			-

Total		57	%		32	%		57	%		32	%

17.

FINANCIAL INSTRUments

Fair values

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

The Company’s financial instruments from discontinued operations include cash and cash equivalents, net accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities, advance from customers, and income tax payable. The carrying amounts of these financial instruments are a reasonable estimate of their fair values because of their current nature.

The following table summarizes the carrying values of the Company’s financial assets and liabilities:

	June 30, 2020		December 31, 2019
Cash and cash equivalents of continuing operations	$	922,567	$	1,035,395
Accounts receivable, prepaid expenses and other current assets		1,958,894		3,127,655
Other assets of discontinued operations		-		-
Other financial liabilities⁽ⁱ⁾		3,893,935		4,147,871
Liabilities of discontinued operations	$	-	$	-

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

17.

FINANCIAL INSTRUments (Continued)

(i)

Accounts payable, accrued expenses and other current liabilities, advance from customers, and income tax payable.

The Company classifies its fair value measurements in accordance with the three-level fair value hierarchy as follows:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices), and

Level 3 – Inputs that are not based on observable market data.

The financial assets and liabilities carried at fair value on a recurring basis at June 30, 2020 are as follows:

	Level 1		Level 2		Level 3		Total
Financial Assets
Cash and cash equivalents of continuing operations	$	922,567	$	-	$	-	$	922,567
Cash and cash equivalents of discontinued operations		-		-		-		-
Other financial assets of continuing operations		-		-		-		-
Other financial assets of discontinued operations				-		-		-
Total Financial assets	$	922,567	$	-	$	-	$	922,567
Financial Liabilities
Other liabilities of continuing operations	$	3,893,935	$	-	$	-	$	3,893,935
Other liabilities of discontinued operations		-		-		-		-
Total Financial Liabilities	$	3,893,935	$	-	$	-	$	3,893,935

The financial assets and liabilities carried at fair value on a recurring basis at December 31, 2019 are as follows:

	Level 1		Level 2		Level 3		Total
Financial Assets
Cash and cash equivalents of continuing operations	$	1,035,395	$	-	$	-	$	1,035,395
Cash and cash equivalents of discontinued operations		-		-		-		-
Other financial assets of continuing operations		-		-		-		-
Other financial assets of discontinued operations		-		-		-		-
Total Financial Assets	$	1,035,395	$	-	$	-	$	1,035,395
Financial Liabilities
Other liabilities of continuing operations	$	4,147,871	$	-	$	-	$	4,147,871
Other liabilities of discontinued operations		-		-		-		-
Total Financial Liabilities	$	4,147,871	$	-	$	-	$	4,147,871

Interest rate and credit risk

Financial instruments that potentially subject the Company to concentrations of credit risks consist principally of cash and cash equivalents, and net accounts receivable. The Company minimizes the interest rate and credit risk of cash by placing deposits with financial institutions located in the United States and Mainland China. Management believes that there is no significant credit risk arising from the Company’s financial instruments.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

17.

FINANCIAL INSTRUments (Continued)

Financial assets past due

The following table provides information regarding the aging of financial assets that are past due, but which are not impaired at June 30, 2020:

	Less than 90 days		90 days to 1 year		Over 1 year		Carrying Value
Accounts receivable, net	$	-	$	1,641,433	$	-	$	1,641,433
Other receivable	$	65,552	$	26,450	$	-	$	92,002
Total accounts receivable, net	$	65,552	$	1,667,883	$	-	$	1,733,435

The Company determines past due amounts by reference to terms agreed with individual clients. None of the net amounts outstanding have been challenged by the respective clients and the Company continues to conduct business with them on an ongoing basis and does not consider its current accounts receivable to be past due.

18.

STOCK OPTIONS

The Company did not grant any stock options during the six months ended June 30, 2020.

The following is a summary of stock option activities:

	Shares		Weighted Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at December 31, 2019		3,200,000	$	0.89		1.44 years	$	-
Granted		-		-		-		-
Exercised		-		-		-		-
Cancelled and expired		-		-		-		-
Forfeited		-		-		-		-

Outstanding at June 30, 2020		3,200,000	$	2.45		3.37 years	$	-

Vested and expected to vest at June 30, 2020		3,200,000	$	0.89		1.20 years	$	-

Exercisable at June 30, 2020		3,200,000	$	0.89		1.20 years	$	-

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock. There were no options exercised during the three months ended June 30, 2020 and 2019.

The estimated fair value of these options was $0, therefore no compensation expense was booked for the periods ended June 30, 2020 and December 31, 2019.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

19.

COMMON STOCK

Certificate of Amendment to Increase Authorized Stock

On November 6, 2018, the board of directors of the Company, with the written consent of a majority of the holders of the shares of the Company’s Common Stock issued and outstanding and the Company’s preferred stock issued and outstanding, voting together as a single class, authorized the Company to (i) increase the number of authorized shares of Common Stock from 180,000,000 to 450,000,000 and the number of authorized shares of preferred stock from 20,000,000 to 50,000,000 (the “Authorized Stock Increase”), and (ii) file a Certificate of Amendment with the Secretary of State of the State of Nevada to effect the Authorized Stock Increase.

On November 8, 2018, the Company filed a Certificate of Amendment with the Secretary of State of the State of Nevada to affect the Authorized Stock Increase, which became effective upon filing.

Stocks issued for business acquisition

On July 10, 2018, the Company issued 100,000 shares of the Company’s common stock (the “Consideration Shares”) to FIFPAC, Inc, the 100% equity owner of AIFI, at a purchase price of $0.48 per share, in exchange for 51% equity ownership of the AIFI pursuant to the Purchase Agreement. Refer to Footnote 21 Business Acquisition.

Stocks issued to employees and for services

In July and August 2018, the Company entered into agreements pursuant to which it issued an aggregate of 448,000 shares of the Company’s common stock to 18 individuals who are either employees of the Company or have been service providers to the Company, for employment-based compensation or services provided, respectively. Subsequently, pursuant to such agreements, the Company issued an aggregate of 433,000 shares of the Company’s common stock to 10 out of the 18 individuals in the amount of $199,840 and 15,000 shares of the Company’s common stock for services rendered in the amount of $7,000, prior to December 31, 2018.

In May 2019, the Company entered into agreements pursuant to which it issued an aggregate of 200,000 shares of the Company’s common stock in the amount of $62,000 to 4 individuals who have been service providers to the Company for services provided, prior to December 31, 2019.

In January 2020, the Company entered into agreements pursuant to which it issued an aggregate of 700,000 shares of the Company’s common stock to 2 individuals who are either employees of the Company or have been service providers to the Company, for employment-based compensation or services provided, respectively.

Stocks issued for cash investment

On November 26, 2018, the Company, entered into a Share Issuance Agreement (the “Share Issuance Agreement”) with China Cultural Finance Holdings Company Limited, a British Virgin Islands company and a shareholder of the Company (the “Holder”), whereby the Company agreed to issue 7,199,113 of shares of the Company’s common stock at $0.10 per share, to the Holder in exchange for an RMB5,000,000 investment (the “CCFH Investment”) in the Company’s subsidiary, AEC Southern Shenzhen. The transactions underlying the Share Issuance Agreement were closed on the same day and the shares of common stock were issued to the Holder (the “CCFH Share Issuance”). The Company received $127,606 (HKD 1,000,000) as of December 31, 2019.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

20.

SERIES B PREFERRED STOCK

Designation of Series B Convertible Preferred Stock

On November 13, 2018, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation of Series B Convertible Preferred Stock (the “Certificate of Designation”), which became effective upon filing. The Certificate of Designation established and designated the Series B Convertible Preferred Stock (“Series B Preferred Stock”) and the rights, preferences, privileges, and limitations thereof, summarized in the following:

The Company designated 25,000,000 shares as Series B Preferred Stock out of the 50,000,000 unissued shares of preferred stock of the Company, par value $0.001 per share. Series B Preferred Stock is senior in rights of payment, including dividend rights and liquidation preference, to the Company’s common stock but junior to Series A Preferred Stock with respect to liquidation preference.

Holders of shares of Series B Preferred Stock are entitled to vote with shareholders of the Company’s common stock, voting together as a single class, except on matters that require a separate vote of the holders of Series B Preferred Stock. In any such vote, each share of Series B Preferred Stock is entitled to 20 votes per share.

Each share of Series B Preferred Stock shall, upon the approval of the board of directors of the Company and without the payment of additional consideration by such holder thereof, be convertible into one fully paid and non-assessable share of the Company’s common stock at a conversion price of $1 per share.

Manager Share Issuance

On November 26, 2018, the Company entered into a Manager Share Issuance Agreement (the “Manager Share Issuance Agreement”) with Mr. Max P. Chen, the Chief Executive Officer, President, and Chairman of the Board of the Company (“Mr. Chen”), whereby the Company agreed to reward Mr. Chen for his dedicated services to the Company by issuing 12,500,000 shares of Series B Preferred Stock to him with resale restrictions. The transactions underlying the Manager Share Issuance Agreement closed on the same day and 12,500,000 shares of Series B Preferred Stock were issued to Mr. Chen. The Company recognized stock compensation expense of $1,250,000 for the year ended December 31, 2018.

Stocks issued for exchange agreement

On November 26, 2018, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with the Holder, whereby the Company agreed to issue 12,500,000 shares of Series B Convertible Preferred Stock of the Company (“Series B Preferred Stock”), par value $0.001 per share, and 7,500,000 shares of common stock with resale restrictions to the Holder in exchange for 500,000 shares of Series A Convertible Preferred Stock of the Company, par value $0.001 per share (the “Series A Preferred Stock”), held by the Holder. The transactions underlying the Exchange Agreement closed on the same day and 12,500,000 shares of Series B Preferred Stock and 7,500,000 shares of Common Stock were issued to the Holder. The Series A Preferred Stock were returned to the Company and cancelled.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

21.

BUSINESS ACQUISITION

On July 10, 2018, the Company entered into the Purchase Agreement with the 100% owner of AIFI which closed on the same date.

Pursuant to the Purchase Agreement, on July 10, 2018, the Company issued the Consideration Shares to the Seller, for a purchase price of $0.48 per share, in exchange for 51% equity ownership of AIFI. Pursuant to ASC 805, the Company recognized a gain of $13,200 on the effective date of July 10, 2018.

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

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

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

Gain on bargain purchase	$	13,200

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

22.

COMMITMENTS & CONTINGENCY

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

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

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

23.

GOING CONCERN

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

24.

SUBSEQUENT EVENT

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

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

Overview

American Education Center, Inc. was incorporated in Nevada (“AEC Nevada”) in May 2014 as a holding company, and operates through its wholly owned subsidiaries, American Education Center, Inc., incorporated in the State of New York in 1999 (“AEC New York”), AEC Management Ltd., incorporated in the British Virgin Islands on October 23, 2018 (“AEC BVI”) and the subsidiaries of AEC BVI.

AEC New York was approved and licensed by the Education Department of the State of New York in 1999 to engage in education consulting service between the U.S. and China. For approximately 20 years, AEC New York has devoted itself to international education exchange between China and the U.S., by providing education and career enrichment opportunities for students, teachers, and educational institutions from both countries.

AEC Nevada acquired AEC Southern UK and its subsidiaries in 2016 pursuant to the Share Exchange Agreement (as defined below). AEC Southern UK holds 100% of the equity interests in AEC Southern Management Limited, a Hong Kong company (“AEC Southern HK”) incorporated on December 29, 2015, with a registered capital of HK$10,000. AEC Southern UK owns 100% of the equity interests in Qianhai Meijiao Education Consulting Management Co., Ltd. (“AEC Southern Shenzhen”), a foreign wholly owned subsidiary incorporated pursuant to PRC law on March 29, 2016, with a registered capital of RMB5,000,000.

On July 10, 2018, AEC New York acquired a 51% equity ownership in American Institute of Financial Intelligence LLC, a New Jersey limited liability company (“AIFI”) from FIFPAC Inc. (“FIFPAC”), a New Jersey corporation, the then 100% owner of AIFI, pursuant to a Business Purchase Agreement. AIFI currently does not have any active operating activities.

On April 22, 2019, AEC BVI acquired AEC Southern HK and its subsidiary, AEC Southern Shenzhen, pursuant to a share transfer agreement by and among the related parties, AEC BVI and AEC Southern UK, for a nominal consideration (the “AEC Southern HK Transfer”). On May 1, 2019, Pursuant to a certain share exchange agreement dated May 1, 2019, AEC Nevada sold 100% of the equity interest in AEC Southern UK to three individuals, Ye Tian, Rongxia Wang and Weishou Li (the “AEC Southern UK Sale”). Accordingly, following the transactions underlying the AEC Southern HK Transfer and the AEC Southern UK Sale, AEC Southern UK is no longer a subsidiary of ours, and we operate AEC Southern HK and AEC Southern Shenzhen through AEC BVI.

AEC BVI, via its operating entity in the PRC, AEC Southern Shenzhen, serves as a local platform for expanding the Company’s business in mainland China. Our PRC operations are based in the city of Shenzhen, Guangdong province, a city designated by the PRC as a Special Economic Zone (“SEZ”). SEZs are granted a more free-market oriented economic and regulatory environment, with business and tax policies designed to attract foreign investment and technology.

On May 22, 2020, AEC Southern HK formed Yiqilai (Shenzhen) Consulting Management Co., Ltd. (“AEC YQL”) in Shenzhen, China pursuant to PRC laws. AEC YQL is a wholly owned subsidiary of AEC Southern HK, and as of the date of this Quarterly Report on Form 10-Q, does not have significant business activities.

As of the date of this report, the corporate structure of the Company is illustrated as follows:

Our mission is to become a leading provider for international education services, and providing total solutions for technology in education field, as well as providing corporation advisory management services.

Currently, through AEC New York and AEC Southern Shenzhen we provide four types of consulting services:

	●	Placement Advisory Services;
	●	Career Advisory Services;
	●	Student & Family Services; and
	●	Other Advisory Services.

Services to our clients are provided through the Company’s principal executive office in New York, NY, and AEC Southern Shenzhen’s office in Shenzhen, China.

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

Headquartered in New York with operations in the PRC, the Company, during the quarter ended June 30, 2020 operated, and currently operates in two market segments:

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

	(2)	AEC BVI, though AEC Southern Shenzhen, delivers customized high school and college placement and career advisory services to Chinese students wishing to study in the U.S. through businesses referred by AEC New York to AEC Southern Shenzhen. Currently, all revenues of AEC BVI are generated from AEC Southern Shenzhen.

Placement Advisory Services

Our Placement Advisory Services include Language Training, Placement Advisory and Elite College Advisory services.

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

Our Language Training service is based on the existing ESL training platform which provides language training for standard test preparation and is designed to help improve student’s English listening, speaking, reading, and writing skills. Student customers will be able to take these training courses online when our ESL online training platform goes live, which we expect to take place in the third quarter of 2020.

Targeting the needs of Chinese families in obtaining admission to Ivy League and other prestigious universities in the U.S., our Elite College Advisory service is designed to assist qualified Chinese students in applying to prestigious colleges and universities in the U.S. Specifically, we arrange campus tours, assist our student customers with their university applications, provide tailored language training, offer guidance on interview and communication techniques, and follow up on their applications.

Once our student customers are admitted into their target universities, our Placement Advisory services further extend to academic and cultural related experiences including, among other things, providing assistance with applying for a second major or minor, transferring to a different university, housing accommodations, and applying for accelerated degrees. To help students optimize their on-campus experience and train their leadership and social skills, we also organize seminars and social events with our partner scholars and universities, non-profit and for-profit business organizations. Additionally, to help enrich their cultural experiences, we organize extracurricular and artistic activities including dance, music, painting, photography, and other performance events.

For college application, we have designed the Key School Admissions Program, giving student customers closely guided application consulting services to gain admission to top U.S. universities.

For on-campus academic counseling, we offer the Elite100 program that focuses on leadership and communication skills development for our student customers.

We provide placement services through both AEC New York and AEC BVI. AEC New York refers businesses to AEC Southern Shenzhen when clients in the PRC need local support.

Career Advisory Services

Our Career Advisory Services include our Internship Advisory program and our Start-up Advisory program.

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

Our Start-up Advisory program provides advisory services to individual students and/or their families who want to start or make an investment in a business in the U.S. Collaborating with our strategic partners, our services include (i) recommending alternative business development opportunities; (ii) assistance with business plan development; (iii) assistance with accounting and financial management, marketing, product and project design; and (iv) assistance in project financing.

Student & Family Advisory Services

Our Student & Family Advisory Services are designed to assist our students and/or their families in the process of settling down in the U.S., so they can effectively focus on their studies. We provide thorough services tailored to the unique needs of each student family encountered in the U.S.

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

Other Advisory Services

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

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

Impact of the COVID-19 Pandemic

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern,” and on March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic”. The pandemic has forced governments around the world to take drastic measures to halt the outbreak, resulting in quarantines, stay-at-home requirements, travel restrictions, temporary change of immigration policies and temporary closure of businesses and facilities in China, the U.S., and throughout the world. A substantial part of the Company’s revenue and workforce are concentrated in China and in the U.S. Additionally, all of our four lines of business rely upon the ability to travel and the level of interest of our customers and prospective customers to study, work and reside overseas, which has been significantly affected by the pandemic. Consequently, we saw a significant decrease in requests for our services, which has materially adversely affected the Company’s business operations and its financial condition and operating results for the six months ended June 30, 2020, and these negative impacts will likely continue through the rest of the fiscal year 2020.

In order to respond to the COVID-19 outbreak, our Company has taken certain measures to our operations to ensure the safety of our staff, as well as to adjust to the reopening but potential surge of new cases. We have made work-from-home possible for our staff, so as to reduce congregation and possibility of transmission of the disease. We have been devoting time and effort to research and develop new services and products. Additionally, we have identified an online platform related to education to diversify our means in generating revenue and are in the process of negotiating a partnership or acquisition. We expect to close this transaction in September 2020.

The COVID-19 pandemic is rapidly evolving. The information in this Quarterly Report on Form 10-Q is based on data currently available to us and will likely change as the pandemic progresses. As of the date of this Quarterly Report on Form 10-Q, some countries have slowly re-opened, but with surges of new cases appearing, while the U.S. continues to see increasing new COVID-19 cases in certain states. As COVID-19 persists throughout areas in which we operate and the rest of the world, we believe the outbreak has the potential to continue to have a material negative impact on our operating results and financial condition going into the third and fourth quarters of 2020. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our employees, suppliers, student customers and other customers, and the impact on the Company’s ability to obtain debt and equity financing to fund business activities, all of which are uncertain and cannot be predicted. Given these uncertainties, at present, we cannot reasonably estimate the related impact to our business, operating results and financial condition for the year ending December 31, 2020.

Significant Accounting Policies

The discussion and analysis of our consolidated financial condition and results of operations is based upon our unaudited 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 BVI. 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, 2020, the Company does not have a liability for any unrecognized tax benefits.

We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our unaudited 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. AEC New York delivers customized high school and college placement, career advisory as well as student and family services. Fees related to such advisory services that are collected from individuals are generally paid to the Company in advance and they are recorded as deferred revenue. Revenues are recognized proportionally as services are rendered or upon completion. Fees related to our advisory services provided by AEC New York to corporate customers (such as staffing agencies and placement agencies) are generally collected after services are provided, and are recorded as accounts receivable.

On January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We first evaluate our leases to determine whether they are classified as a finance lease or as an operating lease. A lease is a finance lease if any of the following criteria are met: (a) ownership transfers, (b) the lease includes an option to purchase the underlying asset, (c) the lease term is for the major part of the remaining economic life of the underlying asset, (d) the present value of the lease payments equals or exceeds the fair value of the underlying asset, or (e) the underlying asset is of a specialized nature that is expected to have no alternative use to the lessor at the end of the lease term. As such, all of our leases are classified as operating leases. We then determine whether the short-term exemption applies. The short-term exemption applies if the lease term 12 months or less and does not include a purchase option whose exercise is reasonably certain. If the short-term exemption applies then lease payments are recognized as expense and no asset or liability is recorded. If the short-term exemption does not apply, then we record an operating lease right-of-use asset and a corresponding operating lease liability equal to the present value of the lease payments. The ten-year commercial real estate lease we entered into in December 2014 did not meet the short-term exemption and, accordingly, we recorded the present value of the lease payments as a right-of-use asset and a lease liability in the unaudited consolidated balance sheet. We recognize expense on a straight-line basis over the life of the lease.

Recent Accounting Pronouncements

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, 2019, as filed on May 29, 2020. Our financial statements have been prepared assuming that we will continue as a going concern. We expect we will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through, among other things, additional funding from a shareholder of the Company, and believe that will be sufficient to meet our anticipated needs for working capital and satisfying our estimated liquidity needs 12 months from the date of the financial statements.

On May 1, 2019, the Company sold AEC Southern UK to three individuals, Ye Tian, Rongxia Wang and Weishou Li. As a result, (1) the financial results of AEC Southern UK were reflected in our consolidated statement of income, retrospectively, as discontinued operations beginning in the first quarter of 2019; and (2) the related assets and liabilities associated with AEC Southern UK in the consolidated balance sheet as of December 31, 2019 are classified as discontinued operations. See "Note 10 - Discontinued Operations" to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

The Three Months Ended June 30, 2020, as Compared to the Three Months Ended June 30, 2019

	For the three months ended June 30,
	2020			2019			Variance			%
Key revenue streams:
Placement Advisory Services	$	41,484		$	304,069		$	(262,585	)		(86	)%
Career Advisory Services		120,500			861,975			(741,475	)		(86	)
Student & Family Advisory		-			-			-			NM
Other Advisory		-			3,000			(3,000	)		(100	)%
Total revenues	$	161,984		$	1,169,044		$	(1,007,060	)		(86	)%
Gross Profit	$	106,267		$	482,754		$	(376,487	)		(78	)%
Gross Margin		66	%		41	%

Revenue

	●	Total revenues for the three months ended June 30, 2020, were $161,984, representing a decrease of $1,007,060, or 86% from $1,169,044 for the same period in 2019. The decrease was mainly due to the recent outbreak of the COVID-19 pandemic around the globe, which negatively impacted our services to current customers who were getting ready to study or work in the U.S., besides the seasonality factors related to the high school/college admission process. The outbreak of COVID-19 in China since January 2020, coupled with travels bans from China to the US prevented students from China from entering the U.S. and paused applications from prospective students from China to U.S. educational institutions. These factors adversely impacted the financial performance of the Company. Total revenues for the three months ended June 30, 2020 were all generated by the operations of AEC New York, which deliver customized high school and college placement and career advisory services to Chinese students seeking to study in the U.S.

	●	Revenues for the three months ended June 30, 2020, from our placement advisory services decreased by $262,585 from $304,069 for the same period in 2019. The decrease in our placement advisory services was due to the decrease in service requests. Revenues for our career advisory services decreased by $741,475, or 86% from $861,975 for the same period in 2019, primarily due to the decreased request from negative impact of the COVID-19. Revenues from other advisory services decreased by $3,000 from $3,000 for the same period in 2019, due to the service request from customers. We expect the impact of COVID-19 on our business, especially on school application and career advisory services, will last for at least the coming two fiscal quarters, due to restrictions on domestic and international travels, delay of the spring semester and cancellation of overseas exams, as well as difficulty to obtain valid visas. We will continually monitor the development of the epidemic as well as the impact on our operations and financial performance and actively adjust our operational strategies and make efforts on cost control and reducing expenditures. We will also strive to expand our target market and provide support of online study to our customers.

	●	In addition, the Chinese government offers incentives and benefits though its Talents Policy to Chinese students who return to China to work and live there. This Talents Policy has encouraged many of our clients who recently graduated or are about to graduate to go back to China, instead of staying in the U.S., which resulted in less service requests for our placement advisory and student & family advisory services. Additionally, the decrease in the value of China’s currency and the relatively restrictive U.S. policy on international students is increasingly driving Chinese students to choose to apply to universities and colleges in non-U.S. countries or choose to return to the PRC after graduation, rather than staying in the U.S. To mitigate the effect of such recent changes, we are expanding our local services in the PRC, concentrating on new services promotion and increasing our mergers and acquisitions efforts by focusing on researching, identifying prospective targets, negotiating and executing on this strategy.

Gross Profit & Gross Margin

	●	Our gross profit for the three months ended June 30, 2020 was $106,267, representing a decrease of $376,487 from $ 482,754 for the three months ended June 30, 2019. The decrease can be attributed mainly to a decline in service request as the travel restrictions imposed as a result of COVID-19 had led to fewer student customers requesting our services.

	●	Our gross margin was approximately 66% for the three months ended June 30, 2020, compared to approximately 41% for the same period in 2019.

The following table summarizes changes in operating expenses and provision for income taxes for the periods presented:

	For the three months ended June 30,
	2020			2019			Variance			%
Operating expenses
Selling and marketing	$	60,754		$	61,960		$	(1,206	)		(2	)%
General and administrative		777,991			1,059,041			(281,051	)		(27	)%
Total operating expenses	$	838,745		$	1,121,001		$	(282,257	)		(25	)%
Income tax benefit	$	(199,530	)	$	366,076		$	(565,606	)		100	%
Net (loss) from continuing operations including non-controlling interest	$	(532,945	)	$	(1,004,228	)	$	471,283			NM	%

Operating Expenses

●

Total operating expenses decreased by $282,257 or 25% as compared to the three months ended June 30, 2019. The decrease mainly represents the net effect of the decrease of the marketing expense and professional fee, and the increase of the uncollectable account receivables.

Income Tax Benefit

●

Income tax benefit of $199,530 for the three months ended June 30, 2020 represents the net effect of the tax payable and net losses for the periods presented.

Net Loss

●

Net loss from continuing operations including non-controlling interest was $532,945 for the three months ended June 30, 2020, as compared to the net loss of $1,004,228 for the three months ended June 30, 2019, which representing the net effect of the decreased operation expenses and revenue.

The Six Months Ended June 30, 2020, as Compared to the Six Months Ended June 30, 2019

	For the six months ended June 30,
	2020			2019			Variance			%
Key revenue streams:
Placement Advisory Services	$	41,484		$	832,516		$	(791,032	)		(95	)%
Career Advisory Services		234,191			1,817,275			(1,583,084	)		(87	)
Student & Family Advisory		-			487,000			(487,000	)		(100	)
Other Advisory		507			3,000			(2,493)			(83	)%
Total revenues	$	276,182		$	3,139,791		$	(2,863,608	)		(91	)%
Gross Profit	$	110,128		$	1,371,104		$	(1,260,976	)		(92	)%
Gross Margin		40	%		44	%

Revenue

	●	Total revenues for the six months ended June 30, 2020, were $276,182, representing a decrease of $2,863,608, or 91% from $3,139,791 for the same period in 2019. The decrease was mainly due to the recent outbreak of the COVID-19 pandemic around the globe, which negatively impacted our services to current customers who were getting ready to study or work in the U.S., besides the seasonality factors related to the high school/college admission process. The outbreak of COVID-19 in China since January 2020, coupled with travels bans from China to the US prevented students from China from entering the U.S. and paused applications from prospective students from China to U.S. educational institutions. These factors adversely impacted the financial performance of the Company. Total revenues for the six months ended June 30, 2020 were all generated by the operations of AEC New York, which deliver customized high school and college placement and career advisory services to Chinese students seeking to study in the U.S.

	●	Revenues for the six months ended June 30, 2020, from our placement advisory services decreased by $791,032 from $832,516 for the same period in 2019. The decrease in our placement advisory services was due to the decrease in service requests. Revenues for our career advisory services decreased by $1,583,084, or 87% from $1,817,275 for the same period in 2019, primarily due to the decreased request from negative impact of the COVID-19. Revenues from our student & family advisory services decreased by $487,000 from $ 487,000 for the same period in 2019. Revenues from other advisory services decreased by $2,493 from $3,000 for the same period in 2019, due to the service request from customers. We expect the impact of COVID-19 on our business, especially on school application and career advisory services, will last for at least the coming two fiscal quarters, due to restrictions on domestic and international travels, delay of the spring semester and cancellation of overseas exams, as well as difficulty to obtain valid visas. We will continually monitor the development of the epidemic as well as the impact on our operations and financial performance and actively adjust our operational strategies and make efforts on cost control and reducing expenditures. We will also strive to expand our target market and to start providing online courses to our customers.

	●	In addition, the Chinese government offers incentives and benefits though its Talents Policy to Chinese students who return to China to work and live there. This Talents Policy has encouraged many of our clients who recently graduated or are about to graduate to go back to China, instead of staying in the U.S., which resulted in less service requests for our placement advisory and student & family advisory services. Additionally, the decrease in the value of China’s currency and the relatively restrictive U.S. policy on international students is increasingly driving Chinese students to choose to apply to universities and colleges in non-U.S. countries or choose to return to the PRC after graduation, rather than staying in the U.S. To mitigate the effect of such recent changes, we are expanding our local services in the PRC, concentrating on new services promotion and accelerating our mergers and acquisitions efforts.

Gross Profit & Gross Margin

	●	Our gross profit for the six months ended June 30, 2020 was $110,128, representing a decrease of $1,260,976 from $1,371,104 for the six months ended June 30, 2019. The decrease can be attributed mainly to a decline in service request as the travel restrictions imposed as a result of COVID-19 had led to fewer student customers requesting our services.

	●	Our gross margin was approximately 40% for the six months ended June 30, 2020, compared to approximately 44% for the same period in 2019.

The following table summarizes changes in operating expenses and provision for income taxes for the periods presented:

	For the six months ended June 30,
	2020			2019		Variance			%
Operating expenses
Selling and marketing	$	74,115		$	201,249	$	(127,134	)		(63	)%
General and administrative		1,425,116			1,451,878		(26,763)			(2	)
Total operating expenses	$	1,499,231		$	1,653,127	$	(153,897)			(9	)%
Income tax benefit	$	(362,153	)	$	366,076	$	(528,699	)		NM	%
Net (loss) from continuing operations including noncontrolling interest	$	(1,026,633	)	$	(646,802)	$	(379,831	)		NM	%

Operating Expenses

●

Total operating expenses decreased by $153,897 or 9% as compared to the six months ended June 30, 2019. The decrease mainly represents the net effect of the decrease of the marketing expense and professional fee, and the increase of the uncollectable account receivables.

Income Tax Benefit

●

Income tax benefit of $362,153 for the six months ended June 30, 2020 represents the net effect of the tax payable and net losses for the periods presented.

Net Loss

●

Net loss from continuing operations including non-controlling interest was $1,026,633 for the six months ended June 30, 2020, as compared to the net loss of $646,802 for the six months ended June 30, 2019, which representing the net effect of the decreased operation expenses and revenue.

Liquidity and Capital Resources

Discontinued Operations

On May 1, 2019, the Company sold AEC Southern UK to three individuals, Ye Tian, Rongxia Wang and Weishou Li. As a result, (1) the financial results of AEC Southern UK were reflected in our consolidated statement of income, retrospectively, as discontinued operations beginning in the first quarter of 2019; and (2) the related assets and liabilities associated with AEC Southern UK in the consolidated balance sheet for the years ended December 31, 2019, are classified as discontinued operations. See "Note 10 - Discontinued Operations" to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

Cash Flows and Working Capital

As of June 30, 2020, we had cash of $922,567, a decrease of $112,828 from $1,035,395 as of December 30, 2019 for continuing operations. We have financed our operations primarily through cash flow from operating activities. We require cash for working capital, payment of accounts payables and accrued expenses, salaries, commissions and related benefits, and other operating expenses and income taxes. The following table sets forth a summary of our cash flows for the periods indicated.

	Six Months ended June 30,
	2020			2019			Variance			%
Net cash used in operating activities
Net cash used in continuing operating activities	$	(533,490	)	$	(798,029	)	$	264,539			NM	%
Net cash used in by discontinued operating activities		-			-			-			NM
Net cash used in operating activities	$	(533,490	)	$	(798,029	)	$	264,539			NM	%

Net cash (used in) provided by financing activities
Net cash (used in) provided by continuing financing activities	$	421,236		$	580,867		$	(159,631	)		(27	)%
Net cash (used in) provided by discontinued financing activities		-			-			-			NM
Net cash (used in) provided by financing activities	$	421,236		$	580,867			(159,631	)		(27	)%

Effect of exchange rates changes on cash		(574	)		1,171			(1,745	)		NM
Net change in cash	$	(112,828	)	$	(215,991	)	$	103,163			NM	%

Cash Flow from Operating Activities

●

Net cash used in continuing operating activities for the six months ended June 30, 2020 was $112,828, decreased by $103,163 for the six months ended June 30, 2019. The decrease in net cash used in operations in the six months ended June 30, 2020 was primarily attributable to slowing down payment to our service providers and decreased operating expense.

Cash Flow from Investing Activities

●

No cash flow from investing activities for six months ended June 30, 2020 and 2019.

Cash Flow from Financing Activities

	●	Net cash provided by financing activities for the six months ended June 30, 2020, was $421,236, a decrease of $159,631, for the six months ended June 30, 2019. The decrease in net cash flow used in financing activities was primarily attributable to repayment of short-term loan.

	●	The Company borrowed two loans in the aggregate of $282,454 from a shareholder of the Company, with $141,227 (translated from RMB1,000,000) borrowed on April 1, 2020, and with $141,227 (translated from RMB1,000,000) borrowed on May 26, 2020. The loan amounts are non-interest bearing, unsecured and due on demand.

	●	The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in the United States. On May 4, 2020, Company was informed by its lender, Bank of America, N.A (the “Bank”), that the Bank received approval from the U.S. Small Business Administration (“SBA”) to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the recently enacted CARES Act administered by the SBA. Per the terms of the PPP Loan, Company received total proceeds of $77,588 from the Bank. In accordance with the requirements of the CARES Act, the Company intends to use the proceeds from the PPP Loan primarily for payroll costs. The PPP Loan has a 1.00% interest rate, and is subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act. The PPP Loan forgiveness amount will be reduced for any EIDL advance that the Company receives. The amount of loan forgiveness will be further reduced if the borrower terminates employees or reduces salaries during the eight-week period following the loan’s origination. The Company currently believes that its use of the loan proceeds met the conditions for forgiveness of the loan. On April 24, 2020, AEC New York received an advance in the amount of $9,000 from the U.S. Small Business Administration (“SBA”) under the Economic Injury Disaster Loan (“EIDL”) program administered by the SBA, which program was expanded pursuant to the CARES Act. On June 1, 2020, Company received approval for a loan under the SBA’s EIDL program from SBA. Per the terms of the EIDL, the Company received total proceeds of $150,000. The EIDL Loan has a 3.75% interest rate, and is subject to the terms and conditions applicable to all loans made pursuant to the EIDL Program as administered by the SBA. Company will use all the proceeds of this loan solely as working capital to alleviate economic injury caused by disaster occurring in 2020.

Working Capital

The following table sets forth our working capital from continuing operations:

	June 30,			December 31,
	2020			2019		Variance		%
Total current assets from continuing operations	$	2,881,461		$	4,163,050	$	(1,281,589)		(31)	%
Total current liabilities from continuing operations		3,893,935			4,147,871		(253,936)		(6)
Working capital	$	(1,012,474	)	$	15,179	$	(1,027,653)		NM	%
Current ratio		0.74			1.00

	●	As of June 30, 2020, we had a working capital deficiency of $1,012,474, a decrease of $1,027,653 from a working capital surplus of $15,179 as of December 31, 2019. The decrease in working capital represents the net effect of uncollected accounts receivable, and repayment to vendors as detailed in the Section “Cash Flow from Financing Activities” above.

	●	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.

Going Concern

The independent auditors' report accompanying our June 30, 2020 financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.

Additionally, we expect that the outbreak of COVID-19 will continue to have material and adverse impacts on our cash flow for the three months ending September 30, 2020 with potential continuing impacts on subsequent periods. As such, we expect we will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through, among other things, additional funding from a shareholder of the Company, and believe that will be sufficient to meet our anticipated needs for working capital and satisfying our estimated liquidity needs 12 months from the date of the financial statements.

Off-Balance Sheet Arrangements

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

Seasonality

We experience seasonality in business with students as customers, specifically our placement advisory, career advisory and student and family services, all related to the business of AEC New York. The seasonality reflects the general trend of the industry of admissions and education related services, corresponding to the predominantly fall semester start dates of educational institutions admissions. Our services are higher in the fourth and first quarters of our fiscal year than the other two quarters, reflecting the engagement for services of educational institutions admissions predominantly occurring in the fourth quarter and first quarter of a calendar year, and other consulting services corresponding to the beginning of academic year, i.e. the fall semester.

Subsequent Events

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Smaller reporting companies are not required to provide the information required by this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Control and Procedures.

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

During the three months ended June 30, 2020, we have established procedures requiring the CEO to review filing-related files before preparing the consolidated financial statements and to confirm and ensure that all significant, non-routine events and pending transactions are properly disclosed.

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 Quarterly Report on Form 10-Q. Based on this evaluation, our CEO has concluded that, as of June 30, 2020, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and reported properly within the time periods specified by the SEC, and did not provide reasonable assurance that information required to be disclosed by the Company in such reports would be accumulated and communicated to the Company’s management, including its CEO, 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 June 30, 2020. Although we have determined that the existing controls and procedures are not effective, the deficiencies identified have not been deemed material to our reporting disclosures.

We have identified the following deficiencies, we have limited administrative and accounting resources, outdated accounting software and generally weak accounting processes and internal control procedures. Additionally, we have inadequate segregation of duties in certain accounting processes, including the payroll, cash receipts and disbursements processes in our accounting system, partly as a result of our limited size and accounting staff. We have taken steps to remediate these issues, including (1) hiring one more accounting personnel, (2) updating our operations manual to clarify and limit the power of our management team and our employees, and (3) periodical inspections by major shareholders to supervise both of our financial condition and decision making process. We expect that we will have improved controls and documentation in place by December 31, 2020.

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 Quarterly Report on Form 10-Q 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

Smaller reporting companies are not required to provide the information required by this item.

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

There has been no unregistered sale of equity securities during the three months ended June 30, 2020.

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS

Exhibit No.		Description
3.1		Certificate of Amendment filed with the Secretary of State of the State of Nevada dated November 8, 2018 (incorporated by reference to our Form 8-K, Exhibit 3.1, filed with the Securities and Exchange Commission on November 19, 2018)
3.2		Bylaws (incorporated by reference to our Form S-1 Registration Statement, Exhibit 3.2, filed with the Securities and Exchange Commission on December 18, 2014)
3.3		Certificate of Designation of Series A Convertible Preferred Stock, (incorporated by reference to our Form 8-K, Exhibit 3.1, filed with the Securities and Exchange Commission on November 3, 2017)
3.4		Certificate of Designation of Series B Convertible Preferred Stock (incorporated by reference to our Form 8-K, Exhibit 3.2, filed with the Securities and Exchange Commission on November 19, 2018)
4.1		Specimen stock certificate (incorporated by reference to our Form S-1 Registration Statement, Exhibit 4.1, filed with the Securities and Exchange Commission on December 18, 2014)
31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
101.INS		XBRL Instance Document *
101.SCH		XBRL Taxonomy Extension Schema Document *
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB		XBRL Taxonomy Extension Label Linkbase Document *
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document *

Filed herewith.

In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 herewith are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed filed for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

	American Education Center, Inc.

	By:	/s/ Max P. Chen
	Name:	Max P. Chen
August 14, 2020	Title:	President, Sole Director, Chief Executive Officer, Interim Chief Financial Officer, and Secretary

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