AMERICAN EDUCATION CENTER, INC. - Quarter Report: 2016 June (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 31,550,000 shares of common stock at par value of $0.001 as of August 22, 2016.

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

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOr the SIX MONTHS ended jUNE 30, 2016 and 2015 

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

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

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

Basis of Accounting and Presentation

The unaudited interim financial statements of the Company as of June 30, 2016 and for the three and six months ended June 30, 2016 and 2015, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) which apply to interim financial statements.  Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2016.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOr the SIX MONTHS ended jUNE 30, 2016 and 2015

Basis of Accounting and Presentation (continued)

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

Cash and Cash Equivalents

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

Accounts Receivable

The Company carries its accounts receivable at cost less an allowance for doubtful accounts if required. On a periodic basis, management evaluates accounts receivable balances and establishes an allowance for doubtful accounts, based on history of past write-offs and collections, when necessary. As of June 30, 2016, the Company considers all accounts receivable to be fully collectible and, therefore, did not provide for an allowance for doubtful accounts.

Revenue Recognition

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

The Company offers a limited refund policy to students who have received consulting services pursuant to our Career Program, where we assist them in identifying and applying to internship and/or work opportunities that are suitable to their educational background and experience level.  The Company requires prepayment for these services where we assist them in identifying and applying to internship and/or work opportunities that are suitable to their educational background and experience level. Prior to the student clients successfully securing suitable internship and/or work opportunities, these prepayments are disclosed as “advances from clients” in the consolidated balance sheet. Part of the prepayment is subject to refund if our student clients are unable to secure suitable internship or work opportunities.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOr the SIX MONTHS ended jUNE 30, 2016 and 2015

Concentration of Credit and Business Risk

The Company maintains its cash accounts at 3 commercial banks. The Federal Deposit Insurance Corporation (“FDIC”) insures up to $250,000 per bank for the total of all depository accounts. At June 30, 2016, the Company had cash balances in excess of Federally insured limits of approximately $162,000. 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 institutions utilized by the Company.

The following table represents certain information about the Company’s major customers which individually accounted for more than 10% of the Company’s gross revenue for the six months ended June 30:

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

Stock-Based Compensation

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

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

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

Income Taxes

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

ASC 740 also addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is “more likely than not” that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of June 30, 2016 and December 31, 2015, the Company does not have a liability for any unrecognized tax benefits.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

Fair Value of Financial Measurements

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

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

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

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

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

The Company did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis. Non-derivative financial instruments include cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses, loan from stockholder and advances from clients. As of June 30, 2016 and December 31, 2015, the carrying values of these financial instruments approximated their fair values due to their short term nature.

Use of Estimates

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015 

Earnings (Loss) per Share

The Company computes net income (loss) per common share in accordance with FASB ASC 260, Earnings Per Share (“ASC 260”). Under the provisions of ASC 260, basic net income (loss) per common share is computed by dividing the amount available to common stockholders by the weighted average number of shares of common stock outstanding during the period.

Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock options are converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. The Company’s common stock equivalents were excluded in the computation of diluted net (loss) per share since their inclusion would be anti-dilutive. Basic and diluted shares outstanding are the same for the three and six months ended June 30, 2015 and 2016. Total shares issuable upon the exercise of all outstanding stock options for the six months ended June 30, 2016 and 2015 were as follows:

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015 

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

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

The Company has security deposits with the landlords of $266,021 as of June 30, 2016 and December 31, 2015.

The Company receives advance payments for services to be performed and recognizes deferred revenue when the services have be rendered. The deferred revenue at June 30, 2016 and December 31, 2015 was $0 and $553,624, respectively.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015 

The Career Program of student services requires prepayment to the Company which has been shown as advances from clients on the balance sheet. The Career Program focuses on assisting the student clients to improve their career development by identifying and applying to internships and/or work opportunities that are suitable to their educational background and experience level. 

Part of the advance will be refunded if our student clients are unable to secure suitable internships or work opportunities. The advances from clients at June 30, 2016 and December 31, 2015 were $176,019 and $63,679, respectively. Advances from clients represent the unearned services of the Career Program at the respective dates and are subject to refund. The student clients typically receive application results within three months from prepayment, and the Company believes that the outcome of the Career Program of student services usually is known within three months from prepayment and no longer than six months.

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

The Company’s President/Chairman/Chief Financial Officer/Secretary has a 34% interest in Columbia International College, Inc. (“CIC”). The Company has accounts receivable from CIC of $21,500 as of June 30, 2016 and December 31, 2015. The Company paid $5,000 and $225,000 for consulting services to CIC for the three and six months ended June 30, 2016, respectively. The Company paid $0 and $5,000 of tuition fees to CIC for the three and six months ended June 30, 2015, respectively.

On December 1, 2014, a third party, who is also a client, loaned the Company $295,579, with interest at 10%. The loan is to be repaid on December 13, 2019. Interest will be paid on the last day of each quarter from 2015 to 2019, except for the last payment on December 12, 2019. The Company paid the interest for the first, second, and third quarter at the end of December, 2015. The Company paid the interest for the fourth quarter of 2015 in January 2016, which created a technical default for late payment. A waiver was issued on March 23, 2016 to waive this default. The Company paid the interest for each of the three months periods ended March 31, 2016 and June 30, 2016. Interest expense for the three and six months ended June 30, 2016 and 2015 was $7,949, $16,570, $7,949, and $16,570, respectively.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015 

In December 2014, the Company entered into a lease for office space with an unrelated party, expiring on July 31, 2025. The lease was to commence on December 11, 2014, however, due to renovation issues, the lease was changed and commenced on March 1, 2015 and the Company received two months of free rent. Due to free rent and escalating monthly rental, utilities, real estate taxes, insurance and other operating expenses, the lease has been straight-lined for financial statement purposes which created deferred rent as shown on the balance sheets. In November 2015, the Company entered into a sublease agreement to lease space to an unrelated third party for a monthly rental of $3,000 for the first three months and $1,500 for the remainder of the lease term. The sublease commenced on December 1, 2015 and expires on November 30, 2016. In November 2015, the Company entered into another sublease agreement to lease space to an unrelated third party for a monthly rental of $20,000. The sublease commenced on April 1, 2016 and expires on March 31, 2017. The sublease income will be netted against the Company’s rent expense. The future rent income to be received in 2016 and 2017 will be $199,500 and $60,000, respectively. Rent expense, net of sublease income, was approximately $99,000, $195,000, $69,000 and $141,000 for the three and six months ended June 30, 2016 and 2015, respectively.

Future minimum lease commitments are as follows:

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

The (benefit) provision for income taxes for the three and six months ended June 30 consist 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.

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

In November 2015, the Board of Directors (the “Board”) adopted an Equity Incentive Plan (“Plan”). The purpose of the Plan is to attract, retain and motivate employees, directors and persons affiliated with the Company and to provide such participants with additional incentive and reward opportunities. The awards may be in the form of incentive stock options and non-qualified stock options. The accumulated number of shares of stock reserved for issuance as of June 30, 2016 and December 31, 2015 are 1,900,000 and 400,000, respectively.

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

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

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015 

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

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

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

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015 

During the six months ended June 30, 2016, the Company issued an aggregate of 1,550,000 shares of common stock at $0.01 per share which was the market value on the dates issued for the exchange of consulting services from unrelated third parties.

The Company’s management has performed subsequent events procedures through August 22, 2016, which is the date the consolidated financial statements were available to be issued. Except for the matter discussed below, there were no subsequent events requiring adjustment to or disclosure in the consolidated financial statements.

On August 11, 2016, Mr. Hinman Au resigned from the Company as Chief Executive Officer ("CEO"), effective immediately. The Board of Directors of the Company has accepted Mr. Au’s resignation. Following Mr. Au’s departure, the Board appointed Mr. Max P. Chen, President and sole member of the Board, as interim CEO effectively August 11, 2016, until such time that the Company employs a new CEO.

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

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

Description of Business

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

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

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

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

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

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

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

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

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

We have consulting agreements and recognize deferred revenue based on completion of the service. The Career Program of student services requires prepayment to the Company which has been shown as advances from clients on the balance sheet. The Company offers a limited refund policy to students who have received consulting services pursuant to our Career Program, where we assist them in identifying and applying to internship and/or work opportunities that are suitable to their educational background and experience level. Part of the advance is subject to refund if our student clients are unable to secure suitable internship or work opportunities. Our student clients typically receive application results within three months from prepayment, and the Company believes that the outcome of the Career Program of student services usually is known within three months from prepayment and no longer than six months.

During the three months period ended June 30, 2016, we have been in the process of adjusting our client selection and screening criteria, and have become more selective with our clients.

Growth Strategy 

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

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

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

Results of Operations

Below we have included a discussion of our operating results and material changes in 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.

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 December 18, 2014, as amended.

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

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)             

Three months ended June 30, 2016 and 2015

Revenue

Revenues from educational programs and consulting services for the three months period ended June 30, 2016 were $1,226,851, representing a decrease of $423,210, 25.65% from the three months period ended June 30, 2015. The decrease was mainly attributable to strict standard initiative. Our revenue of $1,226,851 consisted of institutional consulting services of $1,012,727, parent services of $24,916, and student services of $189,208.

Institutional Consulting Services

Our revenue of institutional consulting services for the three months period ended June 30, 2016 was $1,012,727, a decrease of $382,629, 27.42% from $1,395,356 for the three months period ended June 30, 2015, which is caused by the temporary shrinkage in consulting services engaged because of the new standard of clients. The cost of revenue mainly consisted of wages and fees for consultants and contractors.

General and Administrative Expenses

General and administrative expenses consisted primarily of compensation and related costs for personnel and facilities, and include costs related to human resources, information technology and legal organizations, as well as fees for professional services. Our general and administrative expenses were $392,434 for the three months ended June 30, 2016, and $692,080 for the three months ended June 30, 2015, a decrease of $299,646 or 43.30%. The decrease in general and administrative expenses was primarily attributable to a decrease of a $259,416 of commission fees, and a decrease of $50,664 of rent expense. The former was another manifestation of less service provided due to more strict standard applied screening customers. The latter was because lease of our old office located at 17 Battery Place Suit 300, NY 10004 was effectively terminated. We didn’t have any bad debt expense in three months ended June 30, 2016.

Other Income

Other income for the three months ended June 30, 2016 principally related to rent received from third party for the sublease of office space.

Income Taxes

Income taxes for the three months ended June 30, 2016 relate principally to the creation of a valuation allowance for deferred tax assets principally related to the net operating loss carry forwards and the allowance for doubtful accounts due to the uncertainty of their realization. The provision for taxes for the three months ended June 30, 2015 principally related to Federal, state and local income taxes and the deferred tax expense related to deferred revenue.

Net Loss

The net loss was $141,452 for the three months ended June 30, 2016, compared to a net income of $377,917 for the three months ended June 30, 2015, a decrease of $519,369. It was the financial consequences of clients with high follow up cost.

Six months ended June 30, 2016 and 2015

Revenue

Revenues from educational programs and consulting services for the six months period ended June 30, 2016 were $3,910,655, representing an increase of $1,586,551, 68.27% from the six months period ended June 30, 2015. The growth was mainly driven by the increase in the number of clients engaging our student services and institutional services in Q1, partially offset by weaker results from Q2 due to strict standards in screening customers. Our revenue of $3,910,655 consisted of institutional consulting services of $2,929,302, parent services of $47,649, and student services of $ 933,704.

Institutional Consulting Services

Institutional consulting services for the six months period ended June 30, 2016 was $2,929,302 an increase of $1,084,099, 58.75% from $1,845,203 for the six months period ended June 30, 2015, which was primarily attributable to the increase in consulting services and application fees in Q1, partially offset by weaker results from Q2 as a result of strict standers in choosing clients. The cost of revenue mainly consisted of wages and fees for consultants and contractors.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation and related costs for personnel and facilities, and include costs related to human resources, information technology and legal organizations, as well as fees for professional services. Our general and administrative expenses were $859,914 for the six months ended June 30, 2016, and $1,169,478 for the six months ended June 30, 2015, a decrease of $309,564 or 26.47%. The decrease in general and administrative expenses was primarily attributable to a decrease of a $477,351 of commission fees. We didn’t have any bad debt expense in six months ended June 30, 2016.

Other Income

Other income for the six months ended June 30, 2016 principally related to rent received from third party for the sublease of office space.

Income Taxes

Income taxes for the six months ended June 30, 2016 relate principally to the creation of a valuation allowance for deferred tax assets principally related to the net operating loss carry forwards and the allowance for doubtful accounts due to the uncertainty of their realization. The provision for taxes for the six months ended June 30, 2015 principally relates to Federal, state and local income taxes and the deferred tax expense related to deferred revenue.

Net Loss

The net loss was $32,083 for the six months ended June 30, 2016, compared to a net income of $102,075 for the six months ended June 30, 2015, a decrease of $134,158. It is the financial consequences of clients with high follow up cost.

Liquidity and Capital reserve

As of June 30, 2016, we had cash and cash equivalents of $438,422, a decrease of $655,333 from $1,093,755 as of December 31, 2015. 

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

We require cash for working capital, payment of accounts payables and accrued expenses, salaries, commissions and related benefits, and other operating expenses and income taxes.

As of June 30, 2016, we had working capital of $ 379,273 a decrease of $7,805 from $387,078 as of December 31, 2015. The decrease of working capital was principally attributable to decrease in cash $655,333, decrease in accounts receivable $171,972, decrease in accounts payable $438,532 and decrease in deferred revenue $553,624. We identify the reasons for these changes are 1) our initiative to ask up-stream companies to screen customers more strictly before direct them to AEC and 2) the residual effect of the customers with high follow up costs that are still in our system.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Cash Flow from Operating Activities

Net cash used in operating activities for the six months ended June 30, 2016 was $655,333, compared to net cash provided by operating activities of $140,243 for the six months ended June 30, 2015, a decrease in net cash provided by operating activities of $795,576. We had net loss of $32,083 for the six months ended June 30, 2016, a decrease of $134,158 from the net income of $102,075 for the six months ended June 30, 2015. Regarding working capital adjustment reconciliations, the three biggest contributor of equivalent negative cash flow are: recognition of deferred revenue $553,624, settlement of accounts payable $414,871 and deferred income taxes impact $16,792. The top three cash inflow equivalents are collection of accounts receivable of $171,972, increase of advances from clients of $112,340 and consumption of prepaid expense of $47,830. The major reasons for these changes are 1) our initiative to ask up-stream companies to screen customers more strictly before direct them to AEC and 2) the residual effect of the customers with high follow up costs that are still in our system. Besides the better business decision on which client to engage on what standards, AEC will continue to secure its cash flow on operation by engaging all available short term finance tools and exercise rigorous caution up on receivable items.

Cash Flow from Investing Activities

We had no cash flows from investing activities during the three months periods ended June 30, 2016 and 2015.

Cash Flow in Financing Activities

We had no cash flows from financing activities during the three months periods ended June 30, 2016 and 2015.

Recent Accounting Announcements

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

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

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

Off-Balance Sheet Arrangements

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

Seasonality

We now experience seasonality in our business. The seasonality reflects the general trend of the industry of admissions and education related services, corresponding to the predominantly fall semester start dates of educational institutions admissions. Our services are higher in the fourth and first quarters of our fiscal year than the other two quarters, reflecting the engagement for services of educational institutions admissions predominantly occurring in the fourth quarter and first quarter of a calendar year, and other consulting services corresponding to the beginning of academic year, i.e. the fall semester.

Subsequent Event

Other than the Form 8-K filed on August 15, 2016 for the resignation of our CEO, Mr. Hinman Au, and our President and Chairman of the Board, Max Chen assumes the role as interim CEO, the Company has evaluated subsequent events through the issuance of the consolidated financial statements and no additional subsequent event is identified.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

As of June 30, 2016, the Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on the foregoing, the Company’s Interim Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2016.  The Company does not have a Chief Financial Officer that is familiar with the accounting and reporting requirements of a U.S. publicly listed company. In addition, the Company does not believe it has sufficient documentation concerning its existing financial processes, risk assessment and internal controls. There are also certain deficiencies in the design or operation of the Company’s internal control over financial reporting that has adversely affected its disclosure controls that may be considered to be “material weaknesses.”

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

Changes in Internal Control Over Financial Reporting

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

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

ITEM 1A. RISK FACTORS

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

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

From June 18 to 28, 2016, the Company issued an aggregate of 1,550,000 shares of common stock to six consultants in exchange for services provided. The Company recorded a fair value of $15,500 for these shares.

In June, 2016, the Company issued options to purchase an aggregate of 1,500,000 shares of common stock, to five consultants and employees.

On November 27, 2015, the company issued options to purchase an aggregate of 400,000 shares of common stock, to two third party consultants.

Unless stated otherwise below, all issuances of securities described under this “Item 2 – Recent Sales of Unregistered Securities” were issued pursuant to exemptions from registration provided by Section 4(2) of the Securities Act and Regulation D promulgated there under and Regulation S.

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURE.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS

The following exhibits are filed herewith:

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.

EXHIBIT INDEX