AMERICAN EDUCATION CENTER, INC. - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number: 333-201029

AMERICAN EDUCATION CENTER, INC.

(Exact Name of Registrant as Specified in Its Charter)

(212) 825-0437

(Registrant’s Telephone Number, Including Area Code)

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 21,000,000 as of November 16, 2015.

TABLE OF CONTENTS

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

FORWARD-LOOKING STATEMENTS

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

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “will,” “plan,” “could,” “target,” “contemplate,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these or similar words.  Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue the Company’s operations.  These statements may be found under Part I, Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as elsewhere in this Quarterly Report on Form 10-Q generally.  Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, matters described in this Quarterly Report on Form 10-Q.  

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

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

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

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

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

PART I.

FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

FOr the NINE months ended SEPTEMBER 30, 2015 and 2014

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

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

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

Basis of Accounting and Presentation

The unaudited interim financial statements of the Company as of September 30, 2015 and for the three and nine months ended September 30, 2015 and 2014, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) which apply to interim financial statements.  Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2015.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

FOr the NINE months ended SEPTEMBER 30, 2015 and 2014

Basis of Accounting and Presentation (continued)

As disclosed above, the exchange of shares of AEC New York for the shares of AEC Nevada, has been treated as a transaction between entities under common control, similar to a pooling of interest, whereby the assets and liabilities are recorded at their carrying values. Based upon this treatment, the equity section of AEC New York has been recast as if this transaction had occurred at the beginning of the earliest period being presented and accordingly, as if the 10,563,000 shares of AEC Nevada have been outstanding since then. AEC Nevada had no assets or liabilities when formed.

The consolidated financial statements are comprised of AEC Nevada and its wholly owned subsidiary, AEC New York. All significant intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

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

Accounts Receivable

The Company carries its accounts receivable at cost less an allowance for doubtful accounts if required. On a periodic basis, management evaluates accounts receivable balances and establishes an allowance for doubtful accounts, based on history of past write-offs and collections, when necessary. As of September 30, 2015, the Company considers all accounts receivable to be fully collectible and, therefore, did not provide for an allowance for doubtful accounts.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

FOr the NINE months ended SEPTEMBER 30, 2015 and 2014

Revenue Recognition

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

Before 2014, consulting fees were generally paid in advance. Consulting services that had refund provisions were recognized when such provisions have been fulfilled and the refund provisions no longer existed. In 2014, the Company discontinued utilizing the refund provisions in its consulting agreements and recognizes deferred revenue based on completion of the services. The Company offers a limited refund policy to students who have received consulting services regarding their H1B visas. Services for H1B consulting are prepaid. The Company prepares the filing for the visas for $2,000 which is non-refundable. If the visa application is accepted, the remaining prepayment will be recognized as revenue, if not, the remaining prepayment is refunded.

Concentration of Credit and Business Risk

The Company maintains its cash accounts at a commercial bank. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 per bank for the total of substantially all depository accounts. At September 30, 2015, the Company had no cash balances in excess of Federally insured limits. The Company performs ongoing evaluation of the financial institution to limit its concentration of risk exposure. Management believes this risk is not significant due to the financial strength of the financial institution utilized by the Company.

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

FOr the NINE months ended SEPTEmber 30, 2015 and 2014

Concentration of Credit and Business Risk (continued)

*Harvard Management Associates, Inc. (“HMA”), an affiliate wholly owned by the Company’s President/Chairman/Chief Financial Officer/Secretary (see Note 7).

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes (“ASC 740”), which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets and liabilities represent the future tax consequences for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. At September 30, 2015, the Company has established a 50% valuation allowance against its deferred tax asset, principally for operating losses, due to the uncertainty in realizing the benefit. At September 30, 2015, the Company had approximately $181,000 of unused operating losses expiring through 2035.

ASC 740 also addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is “more likely than not” that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of September 30, 2015 and December 31, 2014, the Company does not have a liability for any unrecognized tax benefits.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

FOr the NIne months ended September 30, 2015 and 2014

Fair Value of Financial Measurements

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

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, accounts payable and accrued expenses, loan from stockholder and advances from clients. As of September 30, 2015 and December 31, 2014, the carrying values of these financial instruments approximated their fair values due to their short term nature.

Use of Estimates

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

FOr the nine months ended september 30, 2015 and 2014

Earnings (Loss) per Share

Earnings (loss) per share is calculated in accordance with FASB ASC 260, Earnings Per Share. Basic earnings (loss) per share is based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock options are converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Basic and diluted shares outstanding are the same for the three and nine months ended September 30, 2015 and 2014, because the Company had no common stock equivalents.

The Company has assessed all newly issued accounting pronouncements released during the nine months ended September 30, 2015 and through the date of this filing, and has found none of them will have a material impact on the Company’s financial statements when or if adopted.

The Company leases two offices from third parties, expiring in 2016 and 2025 respectively. The Company has security deposits with the landlords of $306,683.

The Company receives advance payments for services to be performed and recognizes deferred revenue when the services have be rendered. The deferred revenue at September 30, 2015 and December 31, 2014 was $461,148 and $112,029, respectively.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

FOr the NINe months ended september 30, 2015 and 2014

The services for H1B visas require prepayment to the Company which has been shown as advances from clients on the balance sheets. When the application for the visa is submitted, the Company recognizes $2,000 of the advance as revenue which is non-refundable. The balance of the advance received will be recognized as revenue when the visa application is accepted. If the visa application is not accepted, the remaining advance will be refunded. For the three and nine months ended September 30, 2015 and 2014, the Company refunded approximately $82,000, $261,000, $0, and $0, respectively of these advances. At September 30, 2015, advances from clients for 2014 H1B visa applications was fully refunded. Advances from clients for 2015 H1B visa application is still subject to refund.

The Company currently has an effective Form S-1 for the sale of up to 9,000,000 shares of the Company’s common stock at $0.01 per share. As of September 30, 2015, the Company received $51,836 for the sale of 5,183,600 shares of common stock, which is shown as prepaid stock subscriptions in the consolidated balance sheet (see Note 13).

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

The Company leased office space under a month to month arrangement from a third party commencing October 2013 at a monthly rental of approximately $1,700, which was paid by Harvard Management Associates, Inc. (“HMA”), an affiliate wholly owned by the Company’s President/Chairman/Chief Financial Officer/Secretary. The related payable of $0 and $4,950 at September 30, 2015 and December 31, 2014, respectively, is included in accounts payable and accrued expenses. Rent expense under this related lease was approximately $0, $0, $5,000 and $5,000 for the three and nine months ended September 30, 2015 and 2014, respectively.

The Company has no receivable or payable with HMA as of September 30, 2015. The Company received revenue from HMA of $26,000, $26,000, $100,000, and $380,000 for the three and nine months ended September 30, 2015 and 2014, respectively.

The Company’s President/Chairman/Chief Financial Officer/Secretary has a 34% interest in Columbia International College, Inc. (“CIC”). The Company paid $0, and $5,000 of tuition fees to CIC during the three and nine months ended September 30, 2014, respectively. The Company received $80,000 of commission revenue from CIC during the three and nine months ended September 30, 2015.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

FOr the NIne months ended september 30, 2015 and 2014

On December 1, 2014, an unrelated thirty party loaned the Company $295,579, with interest at 10%. The loan is to be repaid on December 13, 2019. Interest will be paid on the last day of each quarter from 2015 to 2019, except for the last payment on December 12, 2019. The Company did not pay the interest for the three months ended March 31, 2015 which made the loan in default. An amendment to the loan agreement was issued on June 22, 2015 which changed the commencement date for the first payment to July 1, 2015 and waived the default. The Company paid the interest for the first, second, and third quarter at the end of September, 2015. Interest expense for the three and nine months ended September 30, 2015 and 2014 was $7,949, $24,519, $0, and $0, respectively.

In March 2014, the Company entered into to a lease for office space with an unrelated third party. This lease agreement requires a monthly rental of $13,554 and expires on May 31, 2016. In December 2014, the Company entered into another lease for office space with an unrelated party. The lease was to commence on December 11, 2014, however, due to renovation issues, the lease was changed and commenced on March 1, 2015 and the Company received two months of free rent. The lease has been straight-lined for financial statement purposes which created deferred rent as shown on the balance sheets. This lease agreement requires a monthly rental of $29,558 and expires on July 31, 2025. Rent expense was approximately $153,000, $381,000, $44,000, and $83,000 for the three and nine months ended September 30, 2015 and 2014, respectively.

Future minimum lease commitments for the above leases are as follows:

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

FOr the nine months ended September 30, 2015 and 2014

The components of deferred tax assets at September 30, 2015 and December 31, 2014 are as follows:

The Company has established a 50% valuation allowance against the deferred tax assets at September 30, 2015 due to the uncertainty of realizing the full tax benefits.

The provision for income taxes for the three and nine months ended September 30, consists of the following:

The Company’s tax returns are subject to examination by the Federal, State and City taxing authorities. The 2012, 2013 and 2014 tax years are open and subject to examination by the taxing authorities. The Company is not currently under examination nor have they been notified by the authorities.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

FOr the Nine months ended september 30, 2015 and 2014

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

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company’s expenses continue to exceed its revenue and support which has created a deficiency in stockholders’ equity of approximately $184,000. In addition, as of September 30, 2015 the Company has a working capital deficiency of $104,000. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The continuation of the Company as a going concern is dependent upon its ability to generate revenue significantly in excess of its expenses to generate profitable operations. The Company has created and implemented a financial recovery plan to mitigate these risks. The plan includes implementation of a more aggressive cash collection program to address the Company’s liabilities and alleviate its cash flow constraints. The Company also created a break-even budget for the next quarter and has already made significant effort to cut non-operating expenses. The financial statements do not include any adjustments necessary, should the Company not be able to continue as a going concern.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

FOr the Nine months ended september 30, 2015 and 2014

The Company’s management has performed subsequent events procedures through November 13, 2015, which is the date the consolidated financial statements were available to be issued.

As of November 13, 2015, the Company has received advances of $38,164 for the remaining 3,816,400 shares of common stock subscriptions, at $0.01 per share, for the offering pursuant to the S-1 Registration Statement for the sale of 9,000,000 shares of the Company’s common stock.

On November 13, 2015, the Company issued options to a consultant to purchase an aggregate of 300,000 shares of its common stock for services to be rendered.

On November 13, 2015, the Company issued options to a consultant to purchase an aggregate of 100,000 shares of its common stock for services to be rendered.

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

The following discussion of the results of our operations and financial condition should be read in conjunction with our consolidated financial statements and the related notes thereto, which appear elsewhere in this Quarterly Report on Form 10-Q. Except for the historical information contained herein, the following discussion, as well as other information in this report, contain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the “safe harbor” created by those sections. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events. Actual results and the timing of the events may differ materially from those contained in these forward looking statements due to a number of factors, including those discussed in the “Forward-Looking Statements” set forth elsewhere in this Quarterly Report on Form 10-Q.

Description of Business

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

AEC New York was approved and licensed by the Education Department of the state of New York in 2003 to engage in education consulting service between the U.S. and China. For fifteen years, AEC New York has devoted itself to international education exchange between China and the United States, by providing education and career enrichment opportunities for students, teachers, and educational institutions from both countries.

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

Currently, we primarily provide four types of services: Students Services, Educator Placements, Institution Services, as well as Executive Services. Services to our clients are provided through the Company’s principal executive office in New York, NY, and the three local representative offices in China - Nanjing and Chengdu, as well as a recently opened one in Hangzhou. We plan to open more representative offices in China in the future. Our representative offices are registered with their respective local administrations of industry and commerce effective from August 12, 2014 to August 12, 2019, from February 17, 2014 to February 26, 2019, and from June 1, 2015 to February 12, 2018 respectively. The Company entered into cooperation contracts with business partners in Jiangxi, Shanghai and Shenzhen on May 29, 2014, June 10, 2014 and May 7, 2014, respectively, allowing our business partners to set up representative offices bearing the name of America Education Center in each of these locations. However, as of the date of this quarterly report, we have not yet set up representative offices in Jiangxi, Shanghai or Shenzhen, nor have we registered with local authorities to operate our businesses in these locations.

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

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

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

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

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

Prior to December 31, 2013, in certain cases, we collected our service fees in advance from clients. If we were not successful in all of the promised services, these fees were refundable. Accordingly, until all the promised work was completed successfully, these fees were shown as deferred revenue. Commencing in 2014, in order to better manage our company financially, we changed our policy. We now have discontinued utilizing the refund provisions in our consulting agreements and recognize deferred revenue based on completion of the service. The Company offers a limited refund policy to students who have received consulting services regarding their H1B visas. Consulting services for H1B are prepaid. A portion (in the amount of $2,000) of such prepayment will become non-refundable once the Company completes preparation and files visa applications on behalf of the clients. If the visa application is accepted, the remaining prepayment will be recognized as revenue, if not, the remaining prepayment will be refunded. 

Opportunities

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

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

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

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

Results of Operation

Below we have included a discussion of our operating results and material changes in the periods covered by this Form 10-Q periodic report. Our revenue and operating results normally fluctuate as a result of seasonal or other variations in our enrollments and the extent of expenses required in using consulting services from third parties. Our student population varies as a result of new enrollments and other reasons that we cannot always anticipate. We expect quarterly fluctuations in operating results to continue as a result of various enrollment patterns and changes in expenses. The Company is working on expanding its businesses and stabilizing the sources of its revenues, as well as controlling its overhead cost.

For additional information on the potential risks associated with these initiatives and our operations, please refer to the Risk Factors sections in our Registration Statement on Form S-1, filed with the SEC on July 22, 2015, as amended.

The following table sets forth information from our statements of operations for the three months and nine months period ended September 30, 2015 and 2014:

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

Comparison of the Three Months Ended September 30, 2015 and 2014

Revenue

Revenues from educational programs, executive services, and consulting services for the three month period ended September 30, 2015 were $2.26 million, representing an increase of $1.50 million or 197% from $0.76 million in the three months period ended September 30, 2014. The growth was mainly driven by the increase in the number of clients engaging our executive services, student services and institutional services from China due to the expansion of our business and enhancement of our education content in addition to deferred revenue being recognized as revenue in the three months ended September 30, 2015. Our revenue of $2.26 million for the three months ended September 30, 2015 consisted of parent services of $0.07 million, student VIP-services of $0.29 million, and consulting revenue to Company of $1.90 million.

Consulting Services

Consulting services were part of our costs and expenses. We retain unrelated third parties to provide us with consulting services. For the three-month period ended September 30, 2015, this item was $1.92 million, representing an increase of $1.64 million or 586% from $0.28 million in the three months period ended September 30, 2014.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation and related costs for personnel and facilities, and include costs related to human resources, information technology and legal organizations, bad debt expense, interest expense, marketing, advertising and promotion, as well as fees for professional services and commission fees. Our general and administrative expenses were $0.63 million for the three months ended September 30, 2015, and $0.07 million for the three months ended September 30, 2014, an increase of $0.56 million or 800%. The increase in general and administrative expenses is primarily attributable to the expansion of our business and an increase in the commission fees, which consisted of an increase $0.357 million in commission fees, and $0.133 million in rent expenses. In addition, during the three months ended September 30, 2015, the increase was offset by a reversal of “bad debt expense” in the amount of $75,000.

Income taxes

Income taxes for the three months ended September 30, 2015 relate principally to the creation of a 50% valuation allowance for deferred tax assets principally for operating losses, due to the uncertainty in realizing the full tax benefits. The provision for taxes for the three months ended September 30, 2014 principally relates to Federal, state and local income taxes and the deferred tax expense related to deferred revenue.

Net Loss

As a result of the foregoing, we had net loss attributable to the Company and its subsidiaries of $0.25 million, or loss of $0.01 per share basic and diluted, for the three months ended September 30, 2015, as compared to net income of $0.22 million, or an earnings per share of $0.02 per share basic and diluted for the three months ended September 30, 2014. Our net loss was primarily attributable to a significant increase in consulting services, as part of our costs and expenses.

Comparison of the Nine Months Ended September 30, 2015 and 2014

Revenue

Revenues from educational programs, executive service, and consulting services for the nine months ended September 30, 2015 were $4.58 million, an increase of 2.91 million or 174% from $1.67 million for the nine months ended September 30, 2014. The growth was mainly driven by an increase in the number of clients engaging our student VIP services, parent services, and an increase in demand for our institutional services from China due to the expansion of our business. Our revenue for the nine months ended September 30, 2015 of $4.58 million consisted of parent service of 0.15 million, student VIP-service of $0.68 million, and consulting revenue to the Company service of $3.75 million.

Consulting Services

Consulting services were part of our costs and expenses. We retain unrelated third parties to provide us with consulting services. For the nine-month period ended September 30, 2015, this item was $2.82 million, representing an increase of $1.79 million or 174% from $1.03 million in the nine months period ended September 30, 2014. The increase in consulting services is primarily attributable to the increase in the demand of our services, which in turn increase the need for consulting services.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation and related costs for personnel and facilities, and include costs related to human resources, information technology and legal organizations, bad debt expense, interest expense, marketing, advertising and promotion, as well as fees for professional services and commission fees. Our general and administrative expenses were $1.80 million for the nine months ended September 30, 2015, and $0.26 million for the nine months ended September 30, 2014, an increase of $1.54 million or 592%. The increase in general and administrative expenses is primarily attributable to increases of $0.86 million of commission fees, $0.18 million of professional fees, interest expense of $0.025 million, and $0.30 million of rent expense.

Income taxes

Income taxes for the nine months ended September 30, 2015 relate principally to the creation of a valuation allowance for deferred tax assets principally for operating losses, due to the uncertainty in realizing the full tax benefits. The provision for taxes for the nine months ended September 30, 2014 principally relates to Federal, state and local income taxes and the deferred tax expense related to deferred revenue.

Net Loss

As a result of the foregoing, we had net loss attributable to the Company and its subsidiaries of $0.15 million, or a loss of $0.01 per share basic and diluted, for the nine months ended September 30, 2015, as compared to net income of $0.21 million, or earnings of $0.02 per share basic and diluted for the nine months ended September 30, 2014.

Liquidity and Capital Resources

Our current assets primarily consist of cash and cash equivalents and accounts receivable. We do not have inventory. We have financed our operations through our revenues, and loans from our major stockholder.

As of September 30, 2015, we had a working capital deficiency of $0.104 million, an increase of $0.082 million or 373% from a working capital deficiency of $0.022 million as of December 31, 2014. The decrease in working capital deficiency is primarily attributable to the increase in our accounts payable and accrued expenses, increase in advances for stock subscription, increase in deferred revenue, offset by the increase in accounts receivable, and increase in cash and cash equivalents. We have historically funded our working capital needs with cash flow from operations. The increase in our accounts receivable was primarily attributable to the implementation of our business plan leading to increase demand for our consulting services in addition to more consulting services being completed in the three-month period ended September 30, 2015. Management plans to adopt a remediation plan for the working capital deficiency, including implementing a more aggressive cash collection program.

As of September 30, 2015, we had accounts receivable of $0.80 million, an increase of $0.80 million from December 31, 2014, mainly due to the expansion of our business since our inception in 2014.

As of September 30, 2015, we had cash and cash equivalent of $0.16 million, an increase of $0.08 million or 100% from $0.08 million as of December 31, 2014.

As of September 30, 2015, we had deferred revenue of $0.46 million, an increase of $0.35 million from December 31, 2014. The increase was mainly due to the expansion of our business, and resulting in the increase of consulting fees paid in advance for services to be performed and to be recognized as deferred revenue when the services have been rendered. See Note 2 “Revenue Recognition” and Note 5 of Financial Statement for more information.

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

Cash flow in Operating Activities

Net change in cash for the nine months ended September 30, 2015 was $0.077 million, compared to net cash provided by operating activities of $0.066 million for the nine months ended September 30, 2014. We had a net loss of $0.15 million for the nine months ended September 30, 2015, plus a deferred income tax provision of $0.09 million and deferred rent expense of $0.08 million. The increases of $0.45 million in accounts payable and accrued expenses, deferred revenue of $0.35 million and advances from clients of $0.01 million were partially offset by an increase in accounts receivable of $0.80 million. These changes resulted in net change in cash of $0.077 million.

Critical Accounting Policies

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

Accounts Receivables

As of September 30, 2015, the Company considers all accounts receivable to be fully collectible and therefore, did not provide for an allowance for doubtful accounts. See Accounts Receivables in Note 2 of the Financial Statements for more information.

The Company has assessed all newly issued accounting pronouncements released during the three months ended September 30, 2015 and through the date of this filing, and believes none of them will have a material impact on the Company’s financial statements when or if adopted.

Going Concern Consideration  

Our auditors have issued an opinion expressing doubt as to our continuing operation as a going concern, citing our working capital deficiency during this quarter. To address this matter, the management will take several actions to provide liquidity and reduce costs and expenses going forward, including conducting a more aggressive cash collection program to address the Company’s working capital deficiency and alleviate its cash flow constraints. Our president and significant shareholder, Mr. Max P. Chen is also committed to continue his full support of the Company and the Company’s operations. Additionally, given that the management anticipates long-term revenue growth, we believe that the Company’s current capital and borrowing capabilities are adequate to cover the Company’s planned operating and capital requirements. However, the Company may have the need to obtain additional capital through loans, line of credit, or raise new capital, in which case the operating losses and negative working capital may make it difficult to obtain loans or a line of credit or raise any new capital and any such capital raised (if any) may result in significant dilution to existing stockholders.

Off-Balance Sheet Arrangements  

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

Seasonality  

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

Subsequent Events  

The Company has evaluated subsequent events through the issuance of the consolidated financial statements through November 13, 2015, which is the date the consolidated financial statements were available to be issued. As of November 13, 2015, the Company has received advances of $38,164 for the remaining 3,816,400 shares of common stock subscriptions, at $0.01 per share, for an offering registered on a Registration Statement on Form S-1 regarding an aggregate of 9,000,000 shares of the Company’s common stock.

On November 13, 2015, we issued options to purchase in an aggregate up to 300,000 shares of our common stock to a consultant. Options for 100,000 shares of our common stock will vest on July 1, 2015 and expire on June 30, 2021 for an exercise price of $1.00 per share. Options for another 100,000 shares of our common stock will vest on July 1, 2016 and expire on June 30, 2022 for an exercise price of $2.00 per share. Options for the remaining 100,000 shares of our common stock will vest on July 1, 2017 and expire on June 30, 2023 for an exercise price of $3.00 per share.

On November 13, 2015, we issued options to purchase in an aggregate up to 100,000 shares of common stock to a consultant. Options for the first 40,000 shares of our common stock will vest on July 1, 2015 and expire on June 30, 2021 for an exercise price of $1.00 per share. Options for the next 30,000 shares of our common stock will vest on July 1, 2016 and expire on June 30, 2022 for an exercise price of $2.00 per share. Options for the remaining 40,000 shares of our common stock will vest on July 1, 2017 and expire on June 30, 2023 for an exercise price of $3.00 per share.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable. 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

As of September 30, 2015, the Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on the following, its Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2015: (1) Due to the restatement described in our Post-Effective Amendment No. 2 to Form S-1 filed with the SEC on July 22, 2015, our disclosure controls and procedures were not effective to provide reasonable assurance that the information relating to American Education Center Inc. including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to American Education Center Inc.’s management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure; (2) The Company also does not have a Chief Financial Officer that is familiar with the accounting and reporting requirements of a U.S. publicly-listed company, nor does it have a financial staff with accounting and financial expertise in U.S. generally accepted accounting principles (“US GAAP”) reporting; (3) the Company does not believe it has sufficient documentation concerning its existing financial processes, risk assessment and internal controls. There are also certain deficiencies in the design or operation of the Company’s internal control over financial reporting that has adversely affected its disclosure controls that may be considered to be “material weaknesses.” The Company’s Board of Directors (the “Board”) has been actively engaged in developing a remediation plan to address the identified ineffective controls that existed as of September 30, 2015. Subsequently, we implemented a remediation plan that consisted of, among other things, redesigning the procedures to enhance the identification, capture, review, approval and recording of contract terms including agreements with related parties, actively searching for a Chief Financial Officer with significant experience in public reporting company.

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

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

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

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 affect on our business, financial condition or operating results.

ITEM 1A. RISK FACTORS

During the three and nine months ended September 30, 2015, there were no material changes to the risk factors previously disclosed in the “Risk Factors” Section in our Post Effective Amendment No. 2 to Form S-1, effective July 22, 2015.

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

We have not offered or sold any unregistered securities in the three-month period ended September 30, 2015.

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURE.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS

The following exhibits are filed herewith:

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.