NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE THREE AND nine MONTHS ENDED september 30, 2018 AND 2017
|
1.
|
ORGANIZATION AND BUSINESS
|
American Education Center, Inc.
(“AEC New York”) is a New York Corporation organized on November 8, 1999 and is licensed by the Education Department
of the State of New York to engage in education related consulting services.
On May 7, 2014, the President and
then sole shareholder of AEC New York formed a new company (“AEC Nevada”) in the State of Nevada with the same name.
On May 31, 2014, the President and the sole shareholder of AEC New York exchanged his 200 shares for 10,563,000 shares of AEC Nevada.
The share exchange resulted in AEC New York becoming a wholly owned subsidiary of AEC Nevada (hereinafter the “Company”).
On October 31, 2016, the Company
completed an acquisition transaction through a share exchange with two stockholders of AEC Southern Management Co., Ltd. (“AEC
Southern UK”), a company incorporated in December 2015 with a registered capital of 10,000 British Pounds pursuant to the
laws of England and Wales. The Company acquired 100% of the outstanding shares of AEC Southern UK in exchange for 1,500,000 shares
of its common stock valued at $210,000 (the “AEC Southern UK Share Exchange”). Prior to the consummation of AEC Southern
UK Share Exchange, Ye Tian and Rongxia Wang held 51% and 49%, respectively, of ownership interest in AEC Southern UK. As a result
of the AEC Southern UK Share Exchange, AEC Southern UK became a wholly owned subsidiary of the Company.
AEC Southern UK holds 100% equity
interest in AEC Southern Management Limited, a Hong Kong company (“AEC Southern HK”) incorporated on December 29, 2015,
with a registered capital of HK$10,000. AEC Southern UK owns 100% equity interest in Qianhai Meijiao Education Consulting Management
Co., Ltd., a foreign wholly owned subsidiary incorporated pursuant to PRC laws (“AEC Southern Shenzhen”) on March 29,
2016, with a registered capital of RMB 5,000,000.
On July 13, 2018, the Company
completed an acquisition transaction through the issuance of 100,000 shares of the Company common stock with the owner of American
Institute of Financial Intelligence LLC (“AIFI”), a New Jersey corporation incorporated on May 10, 2017. As a result,
AIFI became a 51% majority owned subsidiary of the Company.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARies
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE
THREE AND
NINE
MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
|
1.
|
ORGANIZATION AND BUSINESS
(continued)
|
The Company’s corporate structure
is as follows:
Headquartered in New York with operations
in People’s Republic of China (“PRC”) through its PRC operating entity, the Company operates two business segments:
|
(1)
|
AEC New York capitalizes
on the rising demand of middle-class families in China for quality education and work experiences in the United States (“US”)
and delivers customized high school and college placement and career advisory services to Chinese students wishing to study in
the US. Its advisory services include language training, college admission advisory, on-campus advisory, internship and start-up
advisory as well as student and family services.
|
|
(2)
|
AEC Southern UK delivers
customized corporate training and advisory services to corporate clients in China in the food industry on subjects such as human
resource management, organizational management, and information on local food safety regulations.
|
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARies
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE
THREE AND
NINE
MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
|
Basis of Consolidation and Presentation
The accompanying unaudited consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial information pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission (“SEC”). These unaudited consolidated financial statements include the accounts of the Company and its subsidiaries.
All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all
adjustments considered necessary to give a fair presentation have been included. Interim results are not necessarily indicative
of full-year results. Certain prior year balances have been reclassified to conform to the current year’s presentation; none
of these reclassifications had an impact on reported financial position or cash flows for any of the periods presented. The information
in this Form 10-Q should be read in conjunction with information included in the Company’s annual report on Form 10-K for
the fiscal year ended December 31, 2017 filed with the SEC on April 17, 2018.
Cash
Cash consists of all cash balances
and liquid investments with an original maturity of three months or less are considered as cash equivalents.
Accounts Receivable
Accounts receivable are carried
at net realizable value. The Company maintains an allowance for doubtful accounts, periodically evaluates its accounts receivable
balances and makes general and/or specific allowances when there is doubt as to their collectability. In evaluating the collectability
of individual receivable balances, the Company considers many factors, including the age of the balances, customers’ historical
payment history, their current credit-worthiness and current economic trends. Accounts receivable are written off against the allowance
only after exhaustive collection efforts. As of September 30, 2018 and December 31, 2017, the allowance for doubtful accounts was
$5,026,192 and $249,527, respectively.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE
THREE
AND
NINE
MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
|
Foreign Currency Translation
The Company’s functional currency
is US dollars. The company has two bank accounts located in the PRC. Translation adjustments arising from the use of different
exchange rates from period to period are included as a separate component of accumulated other comprehensive income included in
statements of changes in stockholders’ equity. Gain and losses from foreign currency transactions are included in the consolidated
statements of operations and comprehensive income.
Revenue Recognition
Revenues
are recognized when the following four criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the service has
been rendered, (iii) the fees are fixed or determinable, and (iv) collectability is reasonably assured. Revenue is stated net of
discounts and sales related tax.
AEC New
York delivers customized high school and college placement, career advisory as well as student and family services. Fees related
to such advisory services are generally paid to the Company in advance and they are recorded as deferred revenue. Revenues are
recognized proportionally as services are rendered or upon completion.
AEC Southern
UK delivers customized corporate training and advisory services. It receives monthly non-refundable retainer payments and recognizes
revenue when services are rendered. AEC Southern UK’s business operations in the PRC has been suffering high cost and operating
expense, uncollectable accounts receivable and high net loss. Currently, AEC Southern UK is seeking solutions, namely optimization
of training model, expanding advisory services, and may restructure business model if needed.
Intangible Asset
The Company’s finite-lived
intangible asset consists of a customized online campus system that was acquired from a third party. The system is used to provide
online training for career advisory services and corporate training and advisory services. The asset was recorded at cost on the
acquisition date and is amortized on a straight-line basis over its economic useful life.
The Company reviews its finite-lived
intangible asset for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of the asset to be held and used is measured by a comparison of the carrying amount of an asset
to its undiscounted future net cash flows expected to be generated by the asset. If such asset is not recoverable, a potential
impairment loss is recognized to the extent the carrying amount of the asset exceeds its fair value. Fair value is generally determined
using a discounted cash flow approach.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE
THREE AND
NINE
MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
|
Stock-Based Compensation
The Company uses the fair value-based
method for stock issued for services rendered and therefore all awards to employees and non-employees will be recorded at the market
price on the date of the grant and expensed over the required period of services to be rendered.
The fair value of stock options
issued to third party consultants and to employees, officers and directors are recorded in accordance with the measurement and
recognition criteria of FASB ASC 505-50, “
Equity-Based Payments to Non-Employees
” and FASB ASC 718, “
Compensation
– Stock Based Compensation
,” respectively.
The options are valued using the
Black-Scholes valuation model. This model is affected by the Company’s stock price as well as assumptions regarding a number
of subjective variables. These subjective variables include but are not limited to the Company’s expected stock price volatility
over the expected term of the awards, and actual and projected stock option and warrant exercise behaviors and forfeitures.
Income Taxes
The Company accounts for income
taxes in accordance with FASB ASC 740, “
Income Taxes,
” which requires the recognition of deferred income taxes
for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets
and liabilities represent the future tax consequences for those differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to
offset future taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected
to be realized.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE
THREE AND
NINE
MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
|
Income Taxes (continued)
ASC 740 also addresses the determination
of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under
ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is “more likely than not”
that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that
has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on derecognition of
income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for
interest and penalties associated with tax positions. At September 30, 2018 and December 31, 2017, the Company does not have
a liability for any unrecognized tax benefits.
The income tax laws of various jurisdictions
in which the Company and its subsidiaries operate are summarized as follows:
United States (“US”)
On December 22, 2017, the U.S. Tax
Cuts and Jobs Act (TCJA) was signed into law. The TCJA results in significant revisions to the U.S. corporate income tax system,
including a reduction in the U.S. corporate income tax rate, implementation of a territorial system and a one-time deemed repatriation
tax on untaxed foreign earnings. Generally, the impacts of the new legislation would be required to be recorded in the period of
enactment.
The Company is subject to corporate
income tax in the US at 34% and 21%, respectively, for the year 2017 and 2018. Provisions for income taxes in the United States
have been made for taxable income the Company had in the US for the three and nine months ended September 30, 2018.
United Kingdom (“UK”)
According to current England and
Wales income tax law, resident companies are taxable in the United Kingdom on their worldwide profits and subject to an opt-out
for non-UK permanent establishments (PEs), while non-resident companies are subject to UK corporation tax only on the trading profits
attributable to a UK PE, or the trading profits attributable to a trading of dealing in or developing UK land, plus UK income tax
on any other UK source income.
AEC Southern UK was incorporated
in the United Kingdom and is governed by the income tax laws of England and Wales.
Since AEC Southern UK had no PE
in UK as December 31, 2017 and had no UK-Source income during 2017, the Company is not subject to tax on non-UK source income.
The Company took full allowance of deferred tax assets which the Company does not expect to utilize in the near future.
Hong Kong
AEC Southern HK was formed in Hong
Kong. Pursuant to the income tax laws of Hong Kong, the Company is not subject to tax on non-Hong Kong source income.
The People’s Republic
of China (“PRC”)
AEC Southern Shenzhen was incorporated
in the PRC. Pursuant to the income tax laws of China, the Company is not subject to tax on non-China source income.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE
THREE
AND
NINE
MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
|
The provisions of ASC 740-10-25,
“Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for consolidated financial
statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This ASC also provides
guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and
liabilities, accounting for interest and penalties associated with tax positions, and related disclosures.
Fair Value Measurements
FASB ASC 820, “
Fair Value
Measurement
,” specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques
reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs).
In accordance with ASC 820, the following summarizes the fair value hierarchy:
Level 1 Inputs –
|
Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.
|
|
|
Level 2 Inputs –
|
Inputs other than the quoted prices in active markets that are observable either directly or indirectly.
|
|
|
Level 3 Inputs –
|
Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements.
|
FASB ASC 820 requires the use of
observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different
levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that
is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize
the use of unobservable inputs.
The Company did not identify any
assets or liabilities that are required to be presented at fair value on a recurring basis. Non-derivative financial instruments
include cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses, taxes payable, and loan from stockholders.
As of September 30, 2018 and December 31, 2017, the carrying values of these financial instruments approximated their fair values
due to their short-term nature.
Use of Estimates
The preparation of the unaudited
consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect certain
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
The
THREE AND
NINE
MONTHS ENDED
SEPTEMBER 30, , 2018 AND 2017
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
Earnings (Loss) per Share
Earnings (loss) per share is calculated
in accordance with FASB ASC 260, “
Earnings Per Share
.” Basic earnings (loss) per share is based upon the weighted
average number of common shares outstanding during the period. Diluted earnings per share is based on the assumption that all dilutive
convertible shares and stock options are converted or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later),
and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Options and
warrants are only dilutive when the average market price of the underlying common stock exceeds the exercise price of the options
or warrants because it is unlikely they would be exercised if the exercise price were higher than the market price.
Noncontrolling interest
According to Financial Accounting
Standards Board (FASB) Statement No. 160, the noncontrolling interest shall be reported in the consolidated statement of financial
position within equity, separately from the parent’s equity. That amount shall be clearly identified and labeled, for
example, as noncontrolling interest in subsidiaries. An entity with noncontrolling interests in more than one subsidiary may present
those interests in aggregate in the consolidated financial statements。
Bargain Purchase
According to Financial Accounting
Standards Board (FASB) Statement No. 141 (revised 2007), a barging purchase is defined as a business combination in which the
total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred
plus any noncontrolling interest in the acquiree, and it requires the acquirer to recognize that excess in earnings as a gain
attributable to the acquire.
Contingent Consideration
The Company recognizes the fair
value of any contingent consideration that is transferred to the seller in a business combination on the date at which control
of the acquiree is obtained. This value is generally determined through a probability-weighted analysis of the expected cash flows.
Contingent consideration is
classified as a liability or as equity on the basis of the definitions of an equity instrument and a financial liability. The contingent
consideration is payable in cash and, accordingly, the Company classified its contingent consideration as a liability. It is not
remeasured, and any gain or loss on settlement at an amount different from its carrying value will be recognized in net income
in the period during which it is settled.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINEMONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
|
3.
|
RECENTLY ISSUED ACCOUNTING
STANDARDS
|
In August 2014, the FASB issued
accounting standard update which requires management to assess whether there are conditions or events, considered in the aggregate,
that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial
statements are issued. If substantial doubt exists, additional disclosures are required. This update was effective for the Company's
annual period ended January 28, 2017. The adoption of the new standard did not have a material impact on the Company’s consolidated
financial position, results of operations, cash flows or disclosures.
In February 2016, the FASB issued
ASU 2016-02, “Leases.” The new standard establishes a right-of-use (“ROU”) model that requires a lessee
to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be
classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.
The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered
into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients
available. The Company is currently evaluating the impact of pending adoption of the new standard on its consolidated financial
statements.
In January 2017, the FASB issued
accounting standard update which simplifies the test for goodwill impairment. To address concerns over the cost and complexity
of the two-step goodwill impairment test, the amendments in this update remove the second step of the test. An entity will apply
a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over
its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the
optional qualitative assessment of goodwill impairment. This update is effective for annual or any interim goodwill impairment
tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment
tests performed on testing dates after January 1, 2017. The Company adopted the update in the fourth quarter of 2018. The adoption
of the new standard did not have an impact on our consolidated financial statements.
In May 2017, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09, Scope of Modification
Accounting, which amends the scope of modification accounting for share-based payment arrangements and provides guidance on the
types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification
accounting under ASC 718. For all entities, this ASU is effective for annual reporting periods, including interim periods within
those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim
period. The adoption of this ASU is not expected to have a material effect on the Company’s consolidated financial statements.
In February 2018, the FASB issue
ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220). The amendments in this update affect any entity
that is required to apply the provisions of Topic 220, Income Statement—Reporting Comprehensive Income, and has items of
other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The
amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods
within those fiscal years.
In March 2018, the FASB issue ASU
2018-05: Income Taxes (Topic 740) that addresses the recognition of provisional amounts in the event that the accounting is not
complete and a reasonable estimate can be made. The guidance allows for a measurement period of up to one year from the enactment
date to finalize the accounting related to the TCJA.
The FASB has issued ASU No. 2014-09,
Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification
605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity
recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual reporting
periods beginning after December 15, 2016, including interim periods within the reporting period and should be applied retrospectively
to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized
at the date of initial application. The Company has adopted ASU 2014-09 under the modified retrospective method in the first quarter
of 2018. The Company has substantially completed a review of the new standard to its existing customer contracts. The Company does
not believe the adoption of ASU 2014-09 would have a material effect on the Company’s consolidated financial statements.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
|
4.
|
CONCENTRATION OF CREDIT
AND BUSINESS RISK
|
The Company maintains its cash accounts
at two commercial banks in the US and two commercial banks in the PRC, respectively. The Federal Deposit Insurance Corporation
covers funds held in US banks and it insures $250,000 per bank for the total of all depository accounts. Fund held in the PRC bank
is covered by Deposit Insurance Ordinance (index: 000014349/2015-00031) that insures RMB500,000 for the total of all depository
accounts. As of September 30, 2018, the Company’s US bank accounts had cash balances in excess of federally insured limits
of approximately $1,187,590. The Company performs ongoing evaluation of its financial institutions to limit its concentration of
risk exposure. Management believes this risk is not significant due to the financial strength of the financial institutions utilized
by the Company.
The following table represents major
customers that individually accounted for more than 10% of the Company’s gross revenue for the nine months ended September
30, 2018 and 2017:
|
|
2018
|
|
|
|
Gross
Revenue
|
|
|
Percentage
|
|
|
Accounts
Receivable
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer 1
|
|
$
|
1,490,120
|
|
|
|
29.8
|
%
|
|
$
|
626,812
|
|
|
|
17.4
|
%
|
Customer 2
|
|
|
1,067,300
|
|
|
|
21.3
|
%
|
|
|
1,215,140
|
|
|
|
33.6
|
%
|
Customer 3
|
|
|
535,200
|
|
|
|
10.7
|
%
|
|
|
84,700
|
|
|
|
2.3
|
%
|
|
|
2017
|
|
|
|
Gross
Revenue
|
|
|
Percentage
|
|
|
Accounts
Receivable
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer 1
|
|
$
|
12,180,697
|
|
|
|
59.8
|
%
|
|
$
|
3,376,689
|
|
|
|
51.1
|
%
|
Customer 2
|
|
|
2,826,640
|
|
|
|
13.9
|
%
|
|
|
2,244,716
|
|
|
|
34.0
|
%
|
Customer 3
|
|
|
2,376,125
|
|
|
|
11.7
|
%
|
|
|
301,219
|
|
|
|
4.6
|
%
|
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE
THREE AND
NINE
MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
Operating segments have been determined
on the basis of reports reviewed by Chief Executive Officer (CEO) who is the chief operating decision maker of the Company. The
CEO considers the business from a geographic perspective and assesses performance and allocates resources on this basis. The reportable
segments are as follows:
The Company has two operating segments:
AEC New York and AEC Southern UK.
|
·
|
AEC New York delivers placement,
career and other advisory services Its advisory services include language training, admission advisory, on-campus advisory, internship
and start-up advisory as well as other advisory services.
|
|
·
|
AEC Southern UK delivers customized corporate
training and advisory services to corporate clients in China in the food industry to help them comply with local food safety regulations
and standards.
|
For three months ended September
30, 2018, American Institute of Financial Intelligence LLC had no operating activities and had intangible asset, net of $117,000.
Revenues from external customers,
gross profit, segment assets and liabilities for each business are as follows:
|
|
For the nine months ended September 30,
2018
|
|
|
|
AEC New York
|
|
|
AEC Southern UK
|
|
|
Total
|
|
Segment revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate training & advisory
|
|
$
|
-
|
|
|
$
|
1,465
|
|
|
$
|
1,465
|
|
Placement advisory
|
|
|
515,701
|
|
|
|
-
|
|
|
|
515,701
|
|
Career advisory
|
|
|
1,074,325
|
|
|
|
-
|
|
|
|
1,074,325
|
|
Student & Family advisory
|
|
|
3,410,620
|
|
|
|
-
|
|
|
|
3,410,620
|
|
Total revenue
|
|
$
|
5,000,646
|
|
|
$
|
1,465
|
|
|
$
|
5,002,111
|
|
Gross profit
|
|
$
|
1,622,885
|
|
|
$
|
1,465
|
|
|
$
|
1,624,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For three months ended September 30, 2018
|
|
|
|
AEC New York
|
|
|
AEC Southern UK
|
|
|
Total
|
|
Segment revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate training & advisory
|
|
$
|
-
|
|
|
$
|
1,465
|
|
|
$
|
1,465
|
|
Placement advisory
|
|
|
472,825
|
|
|
|
-
|
|
|
|
472,825
|
|
Career advisory
|
|
|
252,600
|
|
|
|
-
|
|
|
|
252,600
|
|
Student & Family advisory
|
|
|
1,176,420
|
|
|
|
-
|
|
|
|
1,176,420
|
|
Total revenue
|
|
$
|
1,901,845
|
|
|
$
|
1,465
|
|
|
$
|
1,903,310
|
|
Gross profit
|
|
$
|
540,384
|
|
|
$
|
1,465
|
|
|
$
|
541,849
|
|
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE
THREE AND
NINE
MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
|
5.
|
SEGMENT REPORTING (continued)
|
|
|
For the nine months ended September 30, 2017
|
|
|
|
AEC New York
|
|
|
AEC Southern UK
|
|
|
Total
|
|
Segment revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate training & advisory
|
|
$
|
|
|
|
$
|
15,007,337
|
|
|
$
|
15,007,337
|
|
Placement advisory
|
|
|
677,640
|
|
|
|
-
|
|
|
|
677,640
|
|
Career advisory
|
|
|
2,438,035
|
|
|
|
-
|
|
|
|
2,438,035
|
|
Student & Family advisory
|
|
$
|
2,256,130
|
|
|
$
|
-
|
|
|
$
|
2,256,130
|
|
Total revenue
|
|
$
|
5,371,805
|
|
|
$
|
15,007,337
|
|
|
$
|
20,379,142
|
|
Gross profit
|
|
$
|
1,776,618
|
|
|
$
|
4,931,595
|
|
|
$
|
6,708,213
|
|
|
|
For the three months ended September, 2017
|
|
|
|
AEC New York
|
|
|
AEC Southern UK
|
|
|
Total
|
|
Segment revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate training & advisory
|
|
$
|
|
|
|
$
|
3,738,741
|
|
|
$
|
3,738,741
|
|
Placement advisory
|
|
|
141,432
|
|
|
|
-
|
|
|
|
141,432
|
|
Career advisory
|
|
|
841,290
|
|
|
|
-
|
|
|
|
841,290
|
|
Student & Family advisory
|
|
$
|
494,280
|
|
|
$
|
-
|
|
|
$
|
494,280
|
|
Total revenue
|
|
$
|
1,477,002
|
|
|
$
|
3,738,741
|
|
|
$
|
5,215,743
|
|
Gross profit
|
|
$
|
468,135
|
|
|
|
856,808
|
|
|
$
|
1,324,943
|
|
|
|
September, 2018
|
|
|
|
AEC New York
|
|
|
AEC Southern UK
|
|
|
Total
|
|
Segment assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$
|
6,256,792
|
|
|
$
|
1,336,425
|
|
|
$
|
7,593,217
|
|
Segment liabilities
|
|
$
|
3,950,507
|
|
|
$
|
2,262,393
|
|
|
$
|
6,212,900
|
|
|
|
December 31, 2017
|
|
|
|
AEC New York
|
|
|
AEC Southern UK
|
|
|
Total
|
|
Segment assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$
|
5,008,678
|
|
|
$
|
7,252,528
|
|
|
$
|
12,261,206
|
|
Segment liabilities
|
|
$
|
2,483,434
|
|
|
$
|
2,734,279
|
|
|
$
|
5,217,713
|
|
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE
THREE AND
NINE
MONTHS ENDED
SEPTEMBER 30
,
2018 AND 2017
On October 31, 2016, 1,500,000 common
stock of the Company were granted to AEC Southern UK’s CEO that are expected to vest over a three-year period commencing
November 1, 2016. The shares were valued using the market price of the Company’s common stock on the grant date of $0.14
per share. On the grant date, $210,000 was recognized as deferred compensation, which will be expensed over the three-year vesting
period using the straight-line method. On December 31, 2017, the remaining deferred compensation was expensed due to the resignation
of AEC Southern UK’s CEO.
On December 31, 2016, 6,000,000
stock of the Company were granted to the AEC Southern UK’s Chairman and are expected to vest over a three-year period commencing
November 1, 2016. The shares were valued using the market price of the Company’s common stock on the grant date of $0.55
per share. On December 31, 2016, $3,300,000 was recognized as deferred compensation, which will be expensed over the remaining
two year and ten months using the straight-line method. As of September 30, 2018, the remaining deferred compensation was $1,191,668.
Future amortization of the deferred
compensation is as follows:
Year Ending December 31,
|
|
|
|
|
|
|
|
2018
|
|
|
275,000
|
|
2019
|
|
|
916,668
|
|
|
|
|
|
|
Total
|
|
$
|
1,191,668
|
|
Stock compensation expense was $275,000,
$825,000, $292,500 and $877,500 for the three and nine months ended September 30, 2018 and 2017, respectively.
The Company has security deposits
with the landlord for its New York office of $266,021 as of September 30, 2018 and December 31, 2017.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR
THE
THREE AND
NINE
MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
The Company’s customized
online campus system is being amortized on a straight-line basis over four and a half years and the recent acquired learning platform
is being amortized on a straight-line basis over 10 years. The gross carrying amount and accumulated amortization of this asset
as of September 30, 2018 and December 31, 2017 are as follows:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Intangible asset: online campus system
|
|
$
|
612,814
|
|
|
$
|
612,814
|
|
Intangible asset: learning platform
|
|
|
120,000
|
|
|
|
-
|
|
Less: accumulated amortization
|
|
|
(275,362
|
)
|
|
|
(170,226
|
)
|
|
|
|
|
|
|
|
|
|
Intangible asset - net
|
|
$
|
457,452
|
|
|
$
|
442,588
|
|
For the three and nine months
ended September 30, 2018 and 2017, amortization expenses were $37,035, $105,135, $34,045, and $102,136, respectively.
The following table sets forth the
future amortization expense to be recognized:
Year Ending December 31,
|
|
|
|
|
|
|
|
2018
|
|
$
|
37,045
|
|
2019
|
|
|
148,181
|
|
2020
|
|
|
148,181
|
|
2021
|
|
|
46,045
|
|
2022
|
|
|
12,000
|
|
Thereafter
|
|
|
66,000
|
|
|
|
|
|
|
Total
|
|
$
|
457,452
|
|
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE
THREE AND NINEMONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
The Company receives advance payments
for services to be performed and recognizes revenue when services have been rendered. The deferred revenue at September 30, 2018
and December 31, 2017 was $321,999 and $20,000, respectively.
|
10.
|
RELATED-PARTY TRANSACTIONS
|
The Company’s CEO has a 34%
interest in Columbia International College, Inc. (“CIC”). The Company conducts no transaction with CIC between December
31, 2017 and September 30, 2018.
The Company’s CEO has a 40%
interest in Wall Street Innovation Center, Inc. (“WSIC”), a company incorporated in the state of New York that focuses
on career and business development activities. AEC New York’s Chief Operating Officer currently serves as the President/CEO
of WSIC. In the course of delivering career advisory services, the Company has engaged WSIC to assist in certain career development
activities. Included in accounts payable is an amount due to WSIC of $372 and $372 as of September 30, 2018 and December 31, 2017.
Additionally, the Company had entered into a sublease agreement with WSIC in March 2016, which was subsequently terminated on June
30, 2017.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE THREE AND
NINE
MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
On December 1, 2014, an unrelated
party loaned the Company $295,579, with interest at 10%. The Company repaid $150,000 on November 10, 2017. The remaining is to
be repaid on December 13, 2019. Interest are to be paid on the last day of each quarter from 2015 to 2019, except for the last
payment on December 12, 2019.
Interest expense for the three
and nine months ended September 30, 2018 and 2017 was $3,639, $10,918 and $7,389, $22,167 respectively.
In December 2014, the Company
entered into a lease for office space with an unrelated party, expiring on July 31, 2025. The lease commenced on March 1, 2015
and the Company received two months of free rent. Due to free rent and escalating monthly rental payments, utilities, real estate
taxes, insurance and other operating expenses, the lease is being recognized on a straight-line basis of $34,065 per month for
financial statement purposes which creates deferred rent as shown on the balance sheets. In February 2016, the Company entered
into a sublease agreement to lease space to WSIC for an annual rental of $250,000. The sublease income was netted against the Company’s
rent expense. The sublease commenced on March 1, 2016 and terminated on June 30, 2017(see Note 10).
Rent expense was approximately
$95,492, $283,370 for the three and nine months ended September 30, 2018.
Future minimum lease commitments
are as follows:
Year Ending December 31,
|
|
Gross Lease
Payment
|
|
|
|
|
|
2018
|
|
|
95,492
|
|
2019
|
|
|
388,333
|
|
2020
|
|
|
418,604
|
|
2021
|
|
|
439,350
|
|
2022 and thereafter
|
|
|
1,666,383
|
|
|
|
|
|
|
Total
|
|
$
|
3,008,162
|
|
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE
THREE AND
NINE
MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
The component of deferred tax assets
at September30, 2018 and December 31, 2017 is as follows:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
-
|
|
|
$
|
-
|
|
Allowance for doubtful accounts
|
|
|
-
|
|
|
|
63,441
|
|
Accelerated Depreciation
|
|
|
30,898
|
|
|
|
(37,800
|
)
|
Tax impact of foreign operations, net
|
|
|
-
|
|
|
|
-
|
|
Deferred tax asset, net
|
|
$
|
30,898
|
|
|
$
|
25,641
|
|
The Company’s subsidiary incorporated
in the UK has unused net operating losses (“NOLs”) of $412,125 available for carry forward to future years for UK income
tax reporting purposes.
In assessing the realization of
deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets
will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in making this assessment. A valuation allowance is provided
for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their
benefits, or that future deductibility is uncertain.
Based on the assessment, the Company
has established a full valuation allowance against all of the deferred tax asset relating to UK NOLs because the Company is more
likely than not to realize the benefit from the utilization of such NOL carry forwards.
The provision for income taxes for
the three and nine months ended September 30, 2018 and 2017 are as follows:
|
|
For the three months
ended September 30,
|
|
|
For the nine months
ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(24,969
|
)
|
|
$
|
(28,753
|
)
|
|
$
|
-
|
|
|
$
|
85,795
|
|
State
|
|
|
(18,843
|
)
|
|
|
(14,734
|
)
|
|
|
-
|
|
|
|
51,462
|
|
Foreign
|
|
|
418,606
|
|
|
|
(38,147
|
)
|
|
|
50,762
|
|
|
|
184,698
|
|
Total current
|
|
|
374,794
|
|
|
|
(81,634
|
)
|
|
|
50,762
|
|
|
|
321,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
24,938
|
|
|
|
10,217
|
|
|
|
31,232
|
|
|
|
49,300
|
|
State
|
|
|
11,924
|
|
|
|
(7,386
|
)
|
|
|
24,014
|
|
|
|
15,200
|
|
Foreign
|
|
|
(123,281
|
)
|
|
|
-
|
|
|
|
(106,008
|
)
|
|
|
-
|
|
Total deferred
|
|
|
(86,419
|
)
|
|
|
2,831
|
|
|
|
(50,762
|
)
|
|
|
64,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
288,375
|
|
|
$
|
(78,803
|
)
|
|
$
|
-
|
|
|
$
|
386,455
|
|
The Company conducts business globally
and, as a result, files income tax returns in the US (federal, state and city), and other foreign jurisdictions. In the normal
course of business, the Company is subject to examination by taxing authorities throughout the world, including jurisdictions in
the US and UK. The Company is subject to income tax examinations of US federal, state, and city for 2017, 2016, and 2015 tax years
and in the UK for 2017 and 2016. The Company is not currently under examination nor has it been notified by the authorities.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE
THREE AND NINE MONTHS ENDED
SEPTEMBER
30
, 2018 AND 2017
|
13.
|
Income
taxes (
continued
)
|
A reconciliation of the provision
for income taxes, with the amount computed by applying the statutory federal income tax rate for the nine months ended September 30,
2018 and 2017 is as follows:
|
|
For the three months
ended September 30,
|
|
|
For the nine months
ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax at federal statutory rate
|
|
|
21.0
|
%
|
|
|
34.0
|
%
|
|
|
21.0
|
%
|
|
|
34.0
|
%
|
State and local taxes, net of federal benefit
|
|
|
(11.0
|
)
|
|
|
(14.8
|
)
|
|
|
(11.0
|
)
|
|
|
4.3
|
|
Tax impact of foreign operations
|
|
|
13.3
|
|
|
|
(32.6
|
)
|
|
|
(0.9
|
)
|
|
|
(10.7
|
)
|
Reversal valuation allowance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8.5
|
)
|
Over accrual
|
|
|
-
|
|
|
|
30.5
|
|
|
|
-
|
|
|
|
5.5
|
|
Tax adjustment
|
|
|
-
|
|
|
|
79.2
|
|
|
|
-
|
|
|
|
0.7
|
|
Non-deductible/ non-taxable items
|
|
|
(10.4
|
)
|
|
|
-
|
|
|
|
(9.1
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12.9
|
%
|
|
|
96.3
|
%
|
|
|
-
|
%
|
|
|
25.3
|
%
|
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARies
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE THREE AND NINEMONTHS ENDED SEPTEMBER 30, 2018 AND 2017
The Company didn’t grant any
options during the three and nine months ended September 30, 2018.
The following is a summary of stock
option activity:
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
3,200,000
|
|
|
$
|
|
|
|
|
5.87 years
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled and expired
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2018
|
|
|
3,200,000
|
|
|
$
|
2.45
|
|
|
|
5.12 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at September 30, 2018
|
|
|
1,933,333
|
|
|
$
|
1.91
|
|
|
|
4.33 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2018
|
|
|
1,933,333
|
|
|
$
|
1.91
|
|
|
|
4.33 years
|
|
|
$
|
-
|
|
The aggregate intrinsic value is
calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common
stock. There were no options exercised during the three and nine months ended September 30, 2018.
There was no compensation expense
related to all the above options because the value ascribed to these options was not material.
|
15.
|
ISSUANCE OF COMMON STOCK
|
Stock issued for business
acquisition
On July 10, 2018, the Company
issued 100,000 shares of the Company’s common stock (the “Consideration Shares”) to FIFPAC, Inc., (the “Seller”),
of which par value is $0.001 per share, at market price of $0.48 per share, in exchange for 51% equity ownership of the AIFI pursuant
to Business Purchase Agreement. Refer to Footnote 16 Business Acquisition.
Stock issued to employees
and for services
In July and August 2018, the
Company signed the agreements to issue an aggregate of 449,900 shares of the Company’s common stock to 18 individuals who
are either employees of the Company or have been service providers to the Company, for employment-based compensation or service
provided, respectively. The Company has issued an aggregate of 433,000 shares of the Company’s common stock to 10 individuals
in the amount of $199,840 before September 30, 2018.
On July 10, 2018, the Company
entered into a Business Purchase Agreement (the “Purchase Agreement”) with FIFPAC, Inc., a New Jersey corporation (the
“Seller”), a 100% owner of American Institute of Financial Intelligence LLC, a New Jersey corporation (“AIFI”
or the “Target”) which closed on the same date.
Pursuant to the Purchase Agreement,
on July 10, 2018, the Company issued 100,000 shares of the Company’s common stock (the “Consideration Shares”)
to the Seller, of which par value is $0.001 per share at price of $0.48 per share, in exchange for 51% equity ownership of the
AIFI. Pursuant to ASC 805, the Company recognized a gain of $13,200 on the effective date of July 10, 2018.
According to the Purchase Agreement,
the contingent consideration consisted of compensatory arrangement for services to be performed by the owner of the acquiree, and
such amounts are to be determined in the future by both parties; therefore, the fair value cannot be determined at the acquisition
date. The Company as an acquirer did not recognize a liability at the acquisition date.
The following table summarizes
the consideration paid and the amounts of net assets acquired as of the date of acquisition:
Fair value of net asset acquired (AIFI’s net identified assets)
|
|
$
|
120,000
|
|
Less:
|
|
|
|
|
Fair value of consideration transferred (FMV of AEC’s 100k shares issued)
|
|
|
(48,000
|
)
|
Fair value of noncontrolling interest (120k x 49%)
|
|
|
(58,800
|
)
|
|
|
$
|
(106,800
|
)
|
|
|
|
|
|
Gain on barging purchase
|
|
$
|
13,200
|
|
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARies
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE THREE AND NINEMONTHS ENDED SEPTEMBER 30, 2018 AND 2017
|
17.
|
COMMITMENTS
& CONTINGENCY
|
A contingency should be recognized
at its acquisition date fair value if that value can be determined. (The guidance in Topic 820 is used to determine fair value).
If the acquisition-date fair value of contingency cannot be determined, then an asset or liability is recognized for the contingency
if it’s probable at the acquisition date that such asset or liability exists and if its amount is reasonable estimable.
A contingency is not recognized
for a contingency in the accounting for a business combination if: a) its fair value cannot be determined and b) the probable and
reasonably estimate criteria are not met. Instead, the contingency is disclosed and accounted for subsequent to the acquisition
date in accordance with Topic 450.
Pursuant to the Company’s
Business Purchase Agreement, the contingent consideration consisted of compensatory arrangement for services to be performed by
the officers of the acquiree, and such amounts are to be determined in the future by both parties; therefore the fair value cannot
be determined at the acquisition date. The Company as an acquirer did not recognize a liability at the acquisition date.
Substantial doubt about the
Company’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate
that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that
the financial statements are issued. Our current operating results indicate substantial doubt exists related to the Company's ability
to continue as a going concern. We believe that the new education platforms acquired are probable of occurring and mitigating the
substantial doubt raised by our current operating results and satisfying our estimated liquidity needs 12 months from the issuance
of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to generate liquidity, including
the availability of additional debt financing, or whether such actions would generate the expected liquidity as currently planned.
The Company’s management
has performed subsequent events procedures through the date the financial statements were available to be issued. There were no
subsequent events requiring adjustment to or disclosure in the consolidated financial statements except for the following.
On October 23, 2018, AEC Nevada
incorporated a company, AEC Management Ltd. in the British Virgin Islands, pursuant to the laws of British Virgin Islands (“AEC
BVI”). AEC BVI is a wholly owned subsidiary of AEC Nevada, and as of the date of this report, does not have significant business
activities.
On July 23, 2018, the company
entered into a Consulting Agreement (“Consulting Agreement”) with Leisure Time Holdings Limited (“Leisure Time”).
Pursuant to the Consulting Agreement, the Company agreed to issue in the aggregate, 30,000 fully paid up shares (the “Shares”)
of common stock of the Company (the “Common Stock”), including 10,000 shares of Common Stock issuable upon Effective
Date, and 5,000 shares of Common Stock per installment for four monthly installments, and an additional fee equal to 10% of the
value of any transactions introduced to the Company by Leisure Time payable in cash or shares as remuneration for the Services.
The Company issued 15,000 shares to Leisure Time on November 13, 2018. No services were provided during the three months ending
in September 30, 2018.
On November 6, 2018, the Company’s
Board of Directors, with the written consent of the holders of a majority of the shares of Common Stock and Preferred Stock issued
and outstanding, voting together as a single class, approved an increase of
the number of shares of
the authorized Common Stock
from 180,000,000 to 450,000,000
and Preferred Stock
from
20,000,000 to 50,000,000,
effective as of November 6, 2018. The par value of Common Stock remains $0.001 per share and the
par value of Preferred Stock remains $0.001 per share.