AMERICAN EDUCATION CENTER, INC. - Quarter Report: 2017 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2017, or

For the transition period from           to

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):

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date 41,350,000 shares of common stock at par value of $0.001 as of August 8, 2017.

TABLE OF CONTENTS

 Index to Form 10-Q

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

FORWARD-LOOKING STATEMENTS

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

Forward-looking statements, which involve assumptions and describe our 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 because 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 some 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.  CONSOLIDATED FINANCIAL STATEMENTS

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2017

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See accompanying notes to consolidated financial statements.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOr the THREE AND SIX MONTHS ended JUNE 30, 2017 and 2016

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 and its subsidiaries (the “Company”). This exchange made AEC New York a wholly owned subsidiary of the Company.

On October 31, 2016, the Company completed an acquisition transaction through a share exchange with the stockholders of AEC Southern Management Co., Ltd. (“AEC Southern UK”), a company incorporated in December 2015 with registered capital of 10,000 British Pounds (approximately US$ 15,000) pursuant to the laws of England and Wales. The Company acquired 100% of the outstanding shares of AEC Southern UK in exchange for 1,500,000 shares of its common stock valued at $210,000, representing 4.63% of the issued and outstanding shares of common stock. Before October 31, 2016, AEC Southern UK was owned by the following persons, Ye Tian owned 51.00% and Rongxia Wang owned 49%. As a result of the acquisition, AEC Southern UK became a wholly-owned subsidiary of the Company.

AEC Southern UK holds 100% equity interest in AEC Southern Management Limited, a Hong Kong company (“AEC Southern HK”) incorporated on December 29, 2015, with a registered capital of HK Dollars 10,000 (approximately US$ 1,300). AEC Southern UK holds 100% equity interest in Qianhai Education Consulting Management Co., Ltd., a foreign wholly owned subsidiary incorporated pursuant to PRC laws (“AEC Southern Shenzhen”) on March 29, 2016, with a registered capital of RMB 5,000,000 (approximately US$ 768,000).

The Company has a corporate structure which is set forth as follows:

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

The Company’s primary goal is to build upon the concept of “one-stop comprehensive services” for international students, educators, and institutions.

AEC New York 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. It currently provides admission, visa application consulting, housing and other consulting services to Chinese students wishing to study in the United States. It also provides exchange and placement services for qualified United States educators to teach in China. AEC New York also provides localization consulting services to multi-national companies with employees coming to the United States to work.

AEC Southern UK provides targeted and tailored executive training services. AEC Southern UK currently has two major clients from the food industry. The training focuses on food industry regulation compliance in various geographical regions of Nanning, Qingdao and Shenzhen, International Organization for Standardization (“ISO”) 9001 compliance, human resources management and organizational management. AEC Southern UK is looking to expand its clientele to companies in other industries.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

Basis of Accounting and Presentation

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 subsidiaries, AEC New York, AEC Southern UK, AEC Southern HK and AEC Southern Shenzhen. All significant intercompany accounts and transactions have been eliminated in consolidation

The unaudited consolidated financial statements of the Company as of June 30, 2017 and for the three months and six months ended June 30, 2017 and 2016, have been prepared in accordance with 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, 2017 are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2017.

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 the history of past write-offs and collections, when necessary. As of June 30, 2017 and December 31, 2016, the allowance for doubtful accounts was $108,300 and $63,000, respectively.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND six MONTHS ENDED June 30, 2017 AND 2016

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.

AEC New York provides localize consulting services to multi-national companies and educational and career enrichment services to students. Consulting services to multi-national companies are recognized when all services are rendered. Services provided to students are generally paid in advance and are recognized proportionally as services are completed. The unearned advances of students services are reflected as “deferred revenue” in the consolidated balance sheets. No refund terms are offered for both types of services provided.

AEC Southern UK provides consulting services regarding ISO and the U.S. Food and Drug Administration (“FDA”) standards and related staff training consulting and other services such as marketing and distribution consulting. AEC Southern UK recognizes monthly non-refundable retainer payments and recognizes revenue for its consulting services when provided.

Intangible Assets

Finite-lived intangible assets that are acquired from a third party are recorded at cost on their acquisition dates and are amortized on a straight-line basis over the economic useful life of the asset. The finite-lived intangible asset consists of a customized computer system, comprised of an email platform, student information management portal, online studying and conferencing portals.

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND six MONTHS ENDED june 30, 2017 AND 2016

Stock-Based Compensation

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

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

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

Income Taxes

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND six MONTHS ENDED june 30, 2017 AND 2016

Income Taxes (continued)

ASC 740 also addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is “more likely than not” that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of June 30, 2017 and December 31, 2016, the Company does not have a liability for any unrecognized tax benefits.

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

United States (“US”)

The Company is subject to United States tax at 34%. Provisions for income taxes in the United States have been made for taxable income the Company had in the US for the three and six months ended June 30, 2017 and 2016.

United Kingdom (“UK”)

AEC Southern UK was incorporated in the United Kingdom and is governed by the income tax laws of England and Wales. According to current England and Wales income tax law, the applicable income tax rate for the Company is 20%.

Hong Kong

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

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

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND six MONTHS ENDED june 30, 2017 AND 2016

Fair Value Measurements

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

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

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

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

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

The Company did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis. Non-derivative financial instruments include cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses, corporate taxes payable, and loan from stockholders. As of June 30, 2017 and December 31, 2016, the carrying values of these financial instruments approximated their fair values due to their short term nature.

Use of Estimates

The preparation of consolidated 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 SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

Earnings (Loss) per Share

Earnings (loss) per share is calculated in accordance with FASB ASC 260, “Earnings Per Share.” Basic earnings (loss) per share is based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock options are converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Options and warrants are only dilutive when the average market price of the underlying common stock exceeds the exercise price of the options or warrants because it is unlikely they would be exercised if the exercise price were higher than the market price. Basic and diluted shares outstanding are the same for the three and six months ended June 30, 2017 and 2016, since the exercise prices for the outstanding options were higher than average market price of underlying common stock.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

In May 2014, the FASB issued Accounting Standards Update (the “ASU”) No. 2014-09, "Revenue from Contracts with Customers (Topic 606).'' This guidance supersedes current guidance on revenue recognition in Topic 605, "Revenue Recognition.'' In addition, there are disclosure requirements related to the nature, amount, timing, and uncertainty of revenue recognition. In August 2015, the FASB issued ASU No.2015-14 to defer the effective date of ASU No. 2014-09 for all entities by one year. For public business entities that follow U.S. GAAP, the deferral results in the new revenue standard being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. In March 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers,” with respect to Principal versus Agent Considerations. In April 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers,” with respect to Identifying Performance Obligations and Licensing. In April 2016, the FASB additionally issued ASU No. 2016-12, “Revenue from Contracts with Customers,” with respect to Narrow-Scope Improvements and Practical Expedients. In December 2016, the FASB issued ASU No. 2016-20, “Revenue from Contracts with Customers,” with respect to Technical Corrections and Improvements. We do not believe the adoption will have a material impact on our consolidated financial statements.

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

The Company maintains its cash accounts at three commercial banks located in United States and one commercial bank in Hong Kong. The Company uses a commercial bank located in Hong Kong which is not covered by protection similar to that provided by the Federal Deposit Insurance Corporation (“FDIC”) on funds held in United States banks. The FDIC insures $250,000 per bank for the total of all depository accounts. At June 30 2017, the Company’s US bank accounts had cash balances in excess of Federally insured limits of approximately $418,000. The Company performs ongoing evaluation of its financial institutions to limit its concentration of risk exposure. Management believes this risk is not significant due to the financial strength of the financial institution utilized by the Company.

The following table represents 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 SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND six MONTHS ENDED june 30, 2017 AND 2016

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

The Company has two operating segments, which are AEC New York and AEC Southern UK businesses.

AEC New York

The business is principally business consulting services, and student VIP services regarding language training, job placements, and academic tutorials.

AEC Southern UK

The business currently focuses on tailored executive and staff training and consulting to assist businesses in the food industry in meeting the ISO and the FDA standards.

Entity-Wide Disclosures

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND six MONTHS ENDED june 30, 2017 AND 2016

5. SEGMENT REPORTING (continued)

Entity-Wide Disclosures (continued)

The Company didn’t have operating segments as it only had one operating subsidiary, AEC New York, during six months ended June 30, 2016.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

On October 31, 2016, a total of 1,500,000 shares were granted to AEC Southern UK’s CEO and vest over a three-year period commencing November 1, 2016. The shares were valued using the market price of the Company’s common stock on the grant date of $0.14 per share. On the grant date, $210,000 was recognized as deferred compensation, which will be expensed over the three year vesting period using the straight line method. As of June 30, 2017, the remaining deferred compensation was $163,334.

On December 31, 2016, a total of 6,000,000 shares were granted to the AEC Southern UK’s Chairman and vest over a three-year period commencing November 1, 2016. The shares were valued using the market price of the Company’s common stock on the grant date of $0.55 per share. On December 31, 2016, $3,300,000 was recognized as deferred compensation, which will be expensed over the remaining two year and ten months using the straight-line method. As of June 30, 2017, the remaining deferred compensation was $2,566,667.

Future amortization of the deferred compensation is as follows:

Stock compensation expense was $292,500, $585,000, $0, and $0 for the three and six months ended June 30, 2017 and 2016, respectively.

The Company has security deposits with the landlord of $266,021 as of June 30, 2017 and December 31, 2016.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND six MONTHS ENDED june 30, 2017 AND 2016

The customized computer system is being amortized on a straight line basis over four and a half years. The gross carrying amount and accumulated amortization of this assets as of June 30, 2017 and December 31, 2016 are as follows:

For the three and six months ended June 30, 2017 and 2016, amortization expense was $34,036, $68,091, $0, and $0, respectively.

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND six MONTHS ENDED june 30, 2017 AND 2016

The Company receives advance payments for services to be performed and recognizes revenue when the services have been rendered. The deferred revenue at June 30, 2017 and December 31, 2016 was $188,952 and $177,132, respectively.

The loan from stockholders of $113,906 as of June 30, 2017 and December 31, 2016, respectively, represents unsecured non-interest bearing loans, arising from expenses paid on behalf of the Company. The loans are due on demand.

The Company’s President/Chairman/Chief Financial Officer/Secretary has a 34% interest in Columbia International College, Inc. (“CIC”). In the normal course of business, the Company conducts certain transactions with CIC. Included in accounts receivable is an amount due from CIC of $21,500 as of June 30, 2017 and December 31, 2016. The Company paid $0, $0, $50,000, and $225,000 for consulting services to CIC for the three and six months ended June 30, 2017 and 2016, respectively.

AEC New York’s Chief Operating Officer also serves as Chief Executive Officer of Wall Street Innovation Center, Inc. (“WSIC”). The Company entered into a sublease agreement with WSIC in March 2016, which expires in February 2021. WSIC paid the annual rent of $250,000 in advance. In the normal course of business, the Company conducts certain transactions with WSIC. Included in accounts payable is an amount due to WSIC of $372 and $110,000 as of June 30, 2017 and December 31, 2016, respectively. Cost of consulting service recorded for the three and six months ended June 30, 2017 and 2016 were $0, $0, $18,655, and $18,655, respectively.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

On December 1, 2014, an unrelated 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. Interest expense for the three and six months ended June 30, 2017 and 2016 was $7,440, $14,829, $7,949, and $16,570, respectively.

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 amended and commenced on March 1, 2015 and the Company received two months of free rent. Due to free rent and escalating monthly rental payments, utilities, real estate taxes, insurance and other operating expenses, the lease is being recognized on a straight-line basis of $34,066 per month for financial statement purposes which creates deferred rent as shown on the balance sheets. In February 2016, the Company entered into a sublease agreement to lease space to WSIC for an annual rental of $250,000 (see Note 10). The sublease commenced on March 1, 2016 and expires on February 28, 2021. The sublease income will be netted against the Company’s rent expense. Rent expense, net of sublease income, was approximately $58,000, $98,000, $99,000 and $195,000 for the three and six months ended June 30, 2017 and 2016, respectively.

Future minimum lease commitments are as follows:

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND Six MONTHS ENDED June 30, 2017 AND 2016

13. Income taxes

The component of deferred tax assets at June 30, 2017 and December 31, 2016 is as follows:

The provision for income taxes for the three and six months ended June 30 consists of the following:

The Company conducts business globally and, as a result, files income tax returns in the US federal jurisdiction, state and city, and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including jurisdictions in the US and UK. The Company is subject to income tax examinations of US federal, state, and city for 2016, 2015 and 2014 tax years and in the UK for 2016. The Company is not currently under examination nor have they been notified by the authorities.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

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

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND six MONTHS ENDED june 30, 2017 AND 2016

The Company didn’t grant or exercise any options during the three and six months ended June 30, 2017.

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, 2017 and 2016.

Total recognized compensation expense related to all the above options was $0, $0, $0, and $0 for the three and six months ended June 30, 2017 and 2016, respectively.

AMERICAN EDUCATION CENTER, Inc. AND SUBSIDIARies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND six MONTHS ENDED june 30, 2017 AND 2016

The Company’s management has performed subsequent events procedures through August XX, 2017, which is the date the consolidated financial statements were available to be issued. There were no subsequent events requiring adjustment to or disclosure in the consolidated financial statements.

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

The following discussion 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 thereto, which appear elsewhere in this Quarterly Report on Form 10-Q, 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 many factors, including those discussed in the “Forward-Looking Statements” set forth elsewhere in this Quarterly Report on Form 10-Q.

Overview

AEC Nevada was incorporated in May 2014 as a holding company; it conducts its business in the U.S. through its wholly owned subsidiary, AEC New York, and in China through its wholly owned subsidiaries, AEC Southern UK and the AEC Southern Subsidiaries. Through our AEC New York operation, we are devoted to international education exchanges and provide 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. 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, living 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.

AEC Southern UK and AEC Southern Subsidiaries currently focus on providing executives services, specifically, tailored executive and staff training and consulting. Since AEC Nevada’s acquisition of AEC Southern UK and AEC Southern Subsidiaries in October 2016, the Company has provided tailored executive services to assist executives in the food industry businesses in meeting the ISO (“ISO 9001 Quality Management”) and FSA (“Food Standards Agency”) standards.

There are two separate operating groups within AEC. In combination, they provide five types of consulting services.

Our Student & Family Services provide guidance and consulting services to help our client students and their families throughout the school application and admission process, and continuing with their studying and living needs while they complete their degrees. Beyond graduation, we can continue to help them secure suitable internships and other career development opportunities in the United States.

Our Student & Family Services fall into three sub-categories: Academic, Life and Career.

The Academic offering 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. For middle school students, we assist in providing information on U.S. high schools. We also help high school graduates with admissions applications to U.S. colleges and universities.

We place ESL teachers in our representative office in China to conduct ESL programs. Students who enroll in this program receive preparation in taking ESL tests and will obtain certificates upon successfully passing these tests.

AEC’s Elite 100 Program provides consulting services to talented Chinese students to enable them to reach a comprehensive understanding of American politics, business, science, education, culture and other areas. We offer academic consulting services to these top Chinese students to apply to prestigious colleges and universities in the United States. In connection with our admission services, we assist these students in arranging campus tours, writing programs, tailored ESL language programs and interview guidance. After the students are admitted into U.S. colleges/universities, we provide consulting services in connection with applications for a second major, transfers, housing accommodations, accelerated degree applications and other services. We enroll the students in seminars and events in which we partner with other business organizations, governments, non-government organizations (“NGOs”), scholars and universities to help these students build social networks and cultivate their leadership skills. We also help arrange extracurricular activities tailored for each student, such as organized artistic endeavors including dance, music, painting, photography and other performance events to enrich their cultural experience.

Our Life program offers consulting services, including personalized VIP services, to assist our Chinese customers to settle in the U.S. so they can focus effectively on their studies, as well as VIP services for the families of our students to visit and/or settle in the U.S. The Company refers its customers to its business partners in the U.S. to assist the customers with purchasing real estate properties, organizing their personal financial management and investment needs, buying insurance and starting businesses. These VIP services provide “concierge services” personally tailored for our clients to meet almost all aspects of their needs during their stay in the U.S. Every VIP client has an exclusive consultant to help meet his or her needs and monitors their progress along the way, so that a customized career plan can be developed taking into consideration changing conditions. VIP services include high school enrollment, college applications, medical insurance, parental travel support, housing, legal and immigration status, internship, job application and referrals to financial and real estate investment advisory firms and other related services.

Our Career program focuses on clients’ career development by identifying internship and work opportunities that are suitable to their educational background and experience level. Through this program we strive to provide clients with potential career paths, assist them in every step of the way from academic improvement to career assistance. In addition, we introduce our student customers to companies and prospective employers that may potentially provide internships and part-time or full-time work opportunities to our student customers.

Through our Institutional Services, we assist U.S. institutions such as middle schools, high schools, and universities and colleges, to enroll students from China by establishing alliances and strategic business partnerships with colleges and universities in China; and we deliver tailored executive staff training services for companies in China.

Educational institutions in the U.S. retain us to reach, market to and recruit a broad population of prospective students. Although many U.S. educational institutions are interested in attracting more students from China to diversify their student bodies, they often have a difficult time marketing to and enrolling students from China often due to lack of understanding the Chinese culture and access to qualified students. We serve as an international liaison to provide marketing services to students in China. We enter into agreements with U.S. schools to market their institutions, academic programs, local environment and their students’ lifestyle on their behalf.

Additionally, we offer targeted and tailored executive staff training services provided through our AEC Southern subsidiary. Currently we have two enterprise clients who from time to time request from us customized training courses for their senior executives in specific areas such as regulatory compliance, human resources management, organizational management, business model development, and government relations. To provide this type of training, we work with third-party vendors to design one-week or two-week training programs conforming to our clients' specifications. We organize and arrange the training sessions, while the instructors are provided by our vendors.

Executive Services, we provide services to Chinese and other multi-national 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, as well as offering a full range of family support services.

Pursuant to our Student Exchange Programs, we recruit and enroll Chinese students in U.S. educational institutions for Exchange Programs, whereby students will finish the remainder of their education and receive their diplomas in China.

Finally, our Educator Placement services are 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.  To ensure that educators experience a smooth transition, we also provide local services to educators, which include settlement services, financial services, assistance with insurance coverage, tax services, living services, as well as business consulting services.

Please refer our Form 10-K for fiscal year of 2016, which was filed on April 17^th, 2017 for more information about our operations.

Pursuant to Accounting Standard Codification 280 “Segment Reporting” (“ASC 280”), we are required to identify reportable segments. Given the following criteria, we identify AEC has two reporting segments: AEC US and AEC Southern UK: 1. These two segments engage two sets of customers and vendors to generate revenue and incur expenses; 2. Separate financial information is generated for these two segments and; 3. Based on these financial reports and other segment specific information, the chief operating decision maker determines the resources to be allocated and evaluates the performance, of each segment.

Significant Accounting Policies

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

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities.

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

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

Revenue is recognized when the following criteria are met: (1) when persuasive evidence of an arrangement exists; (2) delivery of the services has occurred; (3) the fee is fixed or determinable; and (4) collectability of the resulting receivable is reasonably assured. Tuition and consulting fees are generally paid in advance upon service engagement and are recognized when all services are rendered, net of refunds, if any. Tuition fees are recognized when reliable estimates of the number of students enrolled in the program are available upon the class completion. Consulting services that have refund provisions are recognized when such provisions have been fulfilled and refund provisions are no longer applicable.

Revenues are recognized as AEC UK and AEC New York companies meet the following criteria: a. AEC assumes primary obligation in the arrangements, b. AEC has latitude in setting the price charged to customers, c. AEC has the ability to change the products delivered or services provided, d. AEC has discretion in vender selection, e. AEC determines the product and service specifications and f. AEC assumes credit risks.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. 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 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 assessed all newly issued accounting pronouncements released during the six months ended June 30, 2017 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.

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 services as well as 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 annual report on Form 10-K for the period ended December 31, 2016.

The following table sets forth information from our statements of operations for the three-month period ended June 2017 and 2016:

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

The following table sets forth information from our statements of segment reporting for the three-month period ended June 2017 and 2016:

Three Months Ended June 30, 2017 as Compared to Three Months Ended June 30, 2016

Revenue

The Company generates revenue from two separate segments: AEC US (the business generated by AEC New York) and AEC Southern UK. The Company completed the acquisition of AEC Southern UK in October 31, 2016. As such, no revenue was generated from the AEC Southern UK operation for the three months ended June 30, 2016.

AEC US’s business is principally consulting services and student VIP services regarding language training, job placement and academic tutorials.

AEC Southern UK’s business currently focuses on tailored executive staff training and consulting. These services are tailored to assist businesses in the food industry in meeting the ISO (“ISO 9001 Quality Management”) and FSA (“Food Standards Agency”) standards.

Our aggregate revenue from both AEC US and AEC Southern UK, for the three month period ended June 30, 2017 were $5,704,693 representing an increase of $4,477,842, or 365% from $1,226,851 for the three month period ended June 30, 2016. The growth was mainly driven by the expansion in our operations of AEC Southern UK and an increase in the number of clients participating in our student services.

Revenue by reporting segments are broken down as following: AEC US, total revenue $1,813,310, consist of company consulting revenue of $1,336,540, and student VIP service of $476,770; AEC Southern UK, total revenue of $3,891,383, all of which was consulting revenue from two companies.

Revenue from AEC US was $1,813,310 an increase of $586,459, or 48% from $1,226,851 for three months ended June 30 from prior year.

In terms of service types, our revenues are generated from consulting services to individuals and companies including our Elite 100 services, parent services and student VIP services through AEC New York and Executive staff training services through AEC Southern UK.

The aggregate revenue generated from consulting services to companies increased by $4,215,196 or 416% to $5,227,923 for the three months ended June 30, 2017 from $1,012,727 for the same period in the prior year. The increase is primarily due to the expansion of our services, specifically the food safety compliance/consulting services in China, which contributed $3,891,383 to the overall increase.

The aggregate revenue generated from consulting services to students and parents increased by $262,646, 123% to $476,770 for three months ended June 30, 2017 from $214,124 for the three months ended June 30, 2016, all of which increase came from AEC US’s business.

The increase in revenue in the three months ended June 30, 2017 was a result of expansion in our operations of AEC Southern UK, which contributed $3,891,383 or 68% to the overall revenue for the three months ended June 30, 2017.

Total Cost and Expenses

Our overall cost and expenses increased by $4,199,188 or 284%, to $5,678,092 for the three month period ended June 30, 2017 from $1,478,904 for the same period in the prior year.

Cost and expenses for providing our services to our clients are comprised of the cost of third-party consulting services, application fees, and general and administrative expenses.

Consulting Services

Cost of consulting services for the three month period ended June 30, 2017 was $3,584,877, an increase of $2,501,207 or 231% from $1,083,670 for the three month period ended June 30, 2016, which is primarily attributable to the rapid expansion of our business operations, especially with AEC Southern UK’s consulting services in China. We expect our consulting services to increase further in accordance with further expansion of our business operations.

Consulting services cost by reporting segment are broken down as follows: AEC US, cost of consulting services $964,991; AEC Southern UK, cost of consulting services $2,619,886.

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 and marketing and promotion expenses. Our general and administrative expenses were $2,093,215 for the three months ended June 30, 2017, and $392,434 for the three months ended June 30, 2016, indicating an increase of 433% or $1,700,781. This was mainly due to increase in marketing expense of $1,300,000 and personnel compensation of $300,000, all from the recently acquired operations of AEC Southern UK. The marketing expenses are consistent with the expansion of our business operations.

General and administrative expenses by reporting segment are broken down as follows: AEC US, of $492,861; AEC Southern UK, of $1,600,354.

Income taxes

The provision for taxes for the three months ended June 30, 2017 principally relates to federal, state, local and foreign jurisdiction 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.

The provision for income taxes was $114,973 for the three months ended June 30, 2017. Tax expenses by reporting segment are broken down as follows: AEC US, of $180,744; AEC Southern UK, due to the net loss of $263,084 for three months period ended June 30,2017, tax payable was offset by $65,771 from $288,616 for three months ended March 31, 2017.

Net Loss

Net loss was $88,370 for the three months ended June 30, 2017, compared to net loss of $141,452 for the three months ended June 30, 2016.

The net loss is broken down by reporting segments as follows: AEC US net income of $174,714, AEC Southern UK net loss of $263,084.

The following table sets forth information from our statements of operations for the six month period ended June 2017 and 2016:

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

The following table sets forth information from our statements of segment reporting for the six-month period ended June 2017 and 2016:

Six Months Ended June 30, 2017 as Compared to Six Months Ended June 30, 2016

Revenue

The Company generates revenue from two separate segments: AEC US (the business generated by AEC New York) and AEC Southern UK. The Company completed the acquisition of AEC Southern UK in October 31, 2016. As such, no revenue was generated from the AEC Southern UK operation for the three months ended June 30, 2016.

AEC US’s business is principally consulting services and student VIP services regarding language training, job placement and academic tutorials.

AEC Southern UK’s business currently focuses on tailored executive staff training and consulting. These services are tailored to assist businesses in the food industry in meeting the ISO (“ISO 9001 Quality Management”) and FSA (“Food Standards Agency”) standards.

Our aggregate revenue from both AEC US and AEC Southern UK, for the six month period ended June 30, 2017 were $15,163,399 representing an increase of $11,252,744, or 288% % from $3,910,655 for the six month period ended June 30, 2016. The growth was mainly driven by the expansion in our operations of AEC Southern UK and an increase in the number of clients participating in our student services.

Revenue by reporting segments are broken down as following: AEC US, total revenue $3,894,803, consist of company consulting revenue of $3,358,595, and student VIP service of $536,208; AEC Southern UK, total revenue of $11,268,596, all of which was consulting revenue from two companies.

Revenue from AEC US decreased by $15,852, or 0.14%, from $3,910,655 for six months ended June 30, 2017 to $3,910,655 for the same period in the prior year.

In terms of service types, our revenues are generated from consulting services to individuals and companies including our Elite 100 services, parent services and student VIP services through AEC New York and Executive staff training services through AEC Southern UK.

The aggregate revenue generated from consulting services to companies increased by $11,697,889 or 399% to $1,4627,191 for the six months ended June 30, 2017 from $2,929,302 for the same period in the prior year. The increase is primarily due to the expansion of our services, specifically the food safety compliance/consulting services in China, which contributed $11,268,596 to the overall increase.

The aggregate revenue generated from consulting services to students and parents declined by $445,145, all of which decrease came from AEC US’s business. But as the increasing demand for education-related services from Chinese and other international students in the US, bilateral cooperation between China and the U.S. and AEC US’s value-added services, we expect the number of our clients to increase.

The increase in revenue in the six months ended June 30, 2017 was a result of expansion in our operations of recently acquired AEC Southern UK, which contributed $11,268,596 or 74% to the overall revenue for the six months ended June 30, 2017.

Total Cost and Expenses

Our overall cost and expenses increased by $9,592,043 or 242%, to $13,556,716 for the six month period ended June 30, 2017 from $3,964,673 for the same period in the prior year.

Cost and expenses for providing our services to our clients are comprised of the cost of third-party consulting services, application fees, and general and administrative expenses.

Consulting Services

Cost of consulting services for the six month period ended June 30, 2017 was $9,780,129, an increase of $6,722,942 or 220% from $3,057,187 for the six month period ended June 30, 2016, which is primarily attributable to the rapid expansion of our business operations, especially with AEC UK’s consulting services in China. We expect our consulting services to increase further in accordance with further expansion of our business operations.

Consulting services cost by reporting segment are broken down as follows: AEC US, cost of consulting services $2,586,320; AEC Southern UK, cost of consulting services $7,193,809.

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 and marketing and promotion expenses. Our general and administrative expenses were $3,776,587 for the six months ended June 30, 2017, and $859,914 for the six months ended June 30, 2016, indicating an increase of 339% or $2,916,673. This was mainly due to increase in marketing expenses of $2,360,000 and personnel compensation of $600,000, all from the recently acquired operations of AEC Southern UK, The marketing expenses are consistent with the expansion of our business operations.

General and administrative expenses by reporting segment are broken down as follows: AEC US, of $816,021; AEC Southern UK, of $2,960,566.

Income taxes

The provision for taxes for the six months ended June 30, 2017 principally relates to federal, state, local and foreign jurisdiction 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.

The provision for income taxes was $465,258 for the six months ended June 30, 2017.

Income tax expense by reporting segment is broken down as follows: AEC US, tax expense of $242,413, AEC Southern UK, tax expense of $222,845. 

Net Income

Net income was $1,141,427, for the six months ended June 30, 2017, compared to net loss of $32,083 for the six months ended June 30, 2016, an increase of $1,173,510.

Net income broken down by reporting segments is AEC US, of $250,049, and AEC Southern UK, of $891,378.

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Liquidity and Capital Resources

Our current assets primarily consist of cash and cash equivalents, accounts receivable, and prepaid expenses. We do not have inventory. Our accounts receivables are primarily from our long-time customers, the management evaluates the collectability of each customer periodically.

Our current liabilities primarily consist of accounts payable, accrued expenses, and taxes payable.

As of June 30, 2017, we had cash and cash equivalents of $1,606,952, a decrease $683,477 from $2,290,429 as of December 31, 2016.

Cash and cash equivalents are broken down by reporting segments as of June 30, 2017 is as follows, AEC US, of $675,619 and AEC Southern UK, of $931,333.

We have financed our operations primarily through cash flow from operating activities.

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

As of June 30, 2017, we had working capital surplus of $2,859,199, an increase of $1,873,957 from a working capital of $985,242 as of December 31, 2016. The increase in working capital surplus is principally attributable to the increase of overall revenue, represented by increases in accounts receivable.

We believe that our working capital will be sufficient to enable us to meet our cash requirements for the next 12 months. However, we may incur additional expenses as we seek to expand our operations by establishing additional representative offices in our major market, the PRC, increasing our marketing efforts and hiring more personnel to support our growing operations. We believe we have adequate working capital to fund future growth activities.

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

AMERICAN EDUCATION CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Cash Flow from Operating Activities

Net cash used in operating activities for the six months ended June 30, 2017 was $683,477, compared to net cash consumed by operating activities of $655,333 for the six months ended June 30, 2016, an increase in net cash consumed by operating activities of $28,144. We had net income of $1,141,427 for the six months ended June 30, 2017, an increase of $1,173,510 from the net income of $32,083 for the six months ended June 30, 2016. The increase of net cash used in operating activities for the six months ended June 30, 2017 compared to the six months ended June 30, 2016 was due to a decrease in in accounts receivable by $4,016,232, from $171,972 for the six months ended June 30, 2016.

These changes are primarily attributable to the combination of the following: seasonality, where a significant portion of our clients engage our services in the fourth quarter of the fiscal year; we now pay our service providers faster; and reduction of deferred revenue reflecting the increased efficiency in providing our services where services are delivered faster and in a shorter time frame.

Cash Flow from Investing Activities

We had no cash flow from investing activities during the six month periods ended June 30, 2017 and 2016.

Cash Flow in Financing Activities

We had no cash flow from financing activities during the six month periods ended June 30, 2017 and 2016.

Off-Balance Sheet Arrangements

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

Seasonality

We experience seasonality in business with students as chief customers, particularly AEC US’s student consulting/college application business. The seasonality reflects the general trend of the industry of admissions and education related services, corresponding to the predominantly fall semester start dates of educational institutions 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.

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

Subsequent Event

The Company’s management has performed subsequent events procedures through August 14, 2017, which is the date the consolidated financial statements were available to be issued. There were no subsequent events requiring adjustment to or disclosure in the consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Control and Procedures.

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Form 10-Q, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of June 30, 2017, our disclosure controls and procedures were not sufficiently effective to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported properly within the time periods specified by the SEC, and did not provide reasonable assurance that information required to be disclosed by the Company in such reports would be accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting

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

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

During the three months ended June 30, 2017, 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, 2016, filed on April 17, 2017.

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

There were no issuance of options or shares, registered or not during the three months ended June 30, 2017.

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