Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Indicate by check mark whether the registrant
(1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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 definitions of
“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
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 accounting
standard provided pursuant to Section 13(a) of the Exchanger Act. ¨
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ¨
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act).
The aggregate market value of the voting
and non-voting common stock held by non-affiliates of the Registrant as of June 30, 2019 (the last business day of the Registrant’s
most recently completed fiscal year) was $11,489,850.
As of May 28, 2020, the registrant had 57,497,113 shares of
common stock issued and outstanding.
Throughout this Annual Report on Form 10-K,
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 its subsidiary; (iii) AEC Southern Management Co., Ltd, a company formed pursuant to the laws of England and Wales (“AEC
Southern UK”), before it ceased to be an indirect wholly owned subsidiary of AEC Nevada on May 1, 2019 pursuant to a sale;
and (iv) AEC Management Ltd., a British Virgin Islands company (“AEC BVI”) and the subsidiaries of BVI, unless otherwise
indicated or the context otherwise requires.
This Annual Report on Form 10-K is filed
after the March 30, 2020 deadline applicable to the Company for the filing of a Form 10-K in reliance on the 45-day extension provided
by an order issued by the U.S. Securities and Exchange Commission (the "SEC") under Section 36 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), Modifying Exemptions From the Reporting and Proxy Delivery Requirements
for Public Companies, originally issued on March 4, 2020, and later revised on March 25, 2020 (Release No. 34-88465) (the "Order").
On March 20, 2020, the Company filed a Current Report on Form 8-K to indicate its intention to rely on the Order for such extension.
Consistent with the Company’s statements made in the Form 8-K, the Company was unable to file this Annual Report on Form
10-K until the date of this Annual Report on Form 10-K because the lockdown due to the outbreak of COVID-19 led to the Company’s
delay in preparation and completion of its financial statements and the auditors’ inability to complete the field work and
onsite inventory audit required in order to prepare their audit report.
This Annual Report on Form 10-K 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 II, Item 7- “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” as well as elsewhere in this Annual Report on Form 10-K 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 Annual Report on Form 10-K.
In light of these risks and uncertainties,
there can be no assurance that the forward-looking statements contained in this Annual Report on Form 10-K 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
Annual Report on Form 10-K represent our views as of the date of this Annual Report on Form 10-K. 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 Annual Report on Form 10-K.
This Annual Report on Form 10-K 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 Annual Report on Form 10-K. 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.
ITEM 1. Business
Overview
American Education Center Inc. (“AEC
Nevada”) was incorporated in Nevada in May 2014 as a holding company. AEC Nevada operates through its wholly owned subsidiaries,
American Education Center, Inc., incorporated in the State of New York in 1999 (“AEC New York”), and AEC Management
Ltd., incorporated in the British Virgin Islands on October 23, 2018 (“AEC BVI”) and the subsidiaries of AEC BVI.
AEC New York was approved and licensed
by the Department of the State of New York in 1999 to engage in education consulting service between the U.S. and the People’s
Republic of China (the “PRC”). For more than 20 years, AEC New York has devoted itself to international education exchange
between China and the U.S., by providing education and career enrichment opportunities for students, teachers, and educational
institutions from both countries.
AEC Nevada acquired AEC Southern UK and
its subsidiaries in 2016 pursuant to the Share Exchange Agreement (as defined below). AEC Southern UK holds 100% of the equity
interests in AEC Southern Management Limited, a Hong Kong company (“AEC Southern HK”) incorporated on December 29,
2015, with a registered capital of HK$10,000. AEC Southern UK owns 100% of the equity interests in Qianhai Meijiao Education Consulting
Management Co., Ltd. (“AEC Southern Shenzhen”), a foreign wholly owned subsidiary incorporated pursuant to PRC law
on March 29, 2016, with a registered capital of RMB5,000,000.
AEC BVI acquired AEC Southern HK and its
subsidiary, AEC Southern Shenzhen, on April 22, 2019 pursuant to a share transfer agreement by and among the related parties, AEC
BVI and AEC Southern UK, for a nominal consideration (the “AEC Southern HK Transfer”). Pursuant to a certain share
exchange agreement dated May 1, 2019, AEC Nevada sold 100% of the equity interest in AEC Southern UK, on May 1, 2019, to three
individuals, Ye Tian, Rongxia Wang and Weishou Li (the “AEC Southern UK Sale”). Thereafter, AEC Southern UK ceased
to be a subsidiary of AEC Nevada.
AEC BVI, via its operating entity in the
PRC, AEC Southern Shenzhen, serves as a local platform for expanding the Company’s business in mainland China. Our PRC operations
are based in the city of Shenzhen, Guangdong province, a city designated by the PRC as a Special Economic Zone (“SEZ”).
SEZs are granted a more free-market oriented economic and regulatory environment, with business and tax policies designed to attract
foreign investment and technology.
Our mission is to become a leading provider
of international education services, and to provide total solutions for technology in education field.
Currently, we provide four types of consulting
services:
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Placement Advisory Services;
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Career Advisory Services;
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Student & Family Advisory Services; and
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Other Advisory Services.
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Services to our clients are provided through
the Company’s principal executive office in New York, NY and AEC Southern Shenzhen’s office in Shenzhen, China.
Leveraging our knowledge of and access
to the education system and environment in the U.S., our understanding of China’s market demand for overseas education services
and the evolving economy in China, we specialize in the delivery of customized high school and college placement advisory services
as well as career advisory services to Chinese students wishing to study and gain post-graduate work experience in the U.S. Our
advisory services are specifically designed to address the educational needs of the rising middle-class families in China. The
demand for our advisory services is primarily the result of China’s decades-long one-child policy, society’s focus
and emphasis on children’s education, and families’ desire to gain access to U.S. colleges and universities as well
as work experience in the U.S.
Our total revenues for the fiscal
years ended December 31, 2019 and 2018 were $5,308,412 and $7,012,439, respectively. For the fiscal year ended December 31,
2019, a vast majority of the revenue was from student advisory services in the U.S., delivered by AEC New York, which
accounted for approximately 97.7% of our total revenue. Similarly, for the fiscal year ended December 31, 2018, revenue from
student advisory services in the U.S., delivered by AEC New York, accounted for approximately 98.9% of our total revenue. Our
strategy is to continue to strengthen localized services provision for students in the U.S. and continue to expand the U.S.
market. We have already formulated and are in the process of implementing this multi-stage growth plan by marketing on
various media platforms. Based in Shenzhen, we are also promoting localized services for Chinese students through various
social media. For detailed information on marketing strategies and growth plans targeting to grow our advisory services in
the U.S., refer to “Item 1. Business—Our Marketing Strategies” and “Item 1. Business—Our Growth
Strategy.”
Share Exchange with AEC Southern
Management Co. Ltd
On November 8, 2016, AEC Nevada, AEC Southern
UK, Ye Tian (“Tian”), Rongxia Wang (“Wang”) (Tian and Wang, owners of record of 100% equity interests of
AEC Southern UK, collectively, the “Former AEC Southern UK Shareholders”), and Yangying Zou (“Zou”) entered
into a share exchange agreement (the “Share Exchange Agreement”) whereby AEC Nevada acquired AEC Southern UK as a 100%
subsidiary, for a consideration of 1,500,000 shares of its common stock, par value $0.001 per share (“Common Stock”).
Additionally, AEC Nevada also agreed to appoint Zou to serve as the CEO of AEC Southern UK and agreed to issue to Zou an aggregate
of 1,500,000 shares of Common Stock at the closing (the “Share Exchange Closing Date”) of the Share Exchange Agreement.
The transactions underlying the Share Exchange Agreement are referred hereinafter as the “Share Exchange Transaction.”
On March 27, 2017, the parties to the Share Exchange Agreement agreed to amend the Share Exchange Agreement so that the Share Exchange
Agreement would take effect on October 31, 2016, and amend the Share Exchange Closing Date to be on October 31, 2016. Pursuant
to the Share Exchange Agreement, AEC Southern Shenzhen became an operating entity of the Company in China.
Share Purchase Agreement with China
Cultural Finance Holdings Company Limited
On October 30, 2017, the Company entered
into a Share Purchase Agreement (the “Share Purchase Agreement”) with China Cultural Finance Holdings Company Limited,
a British Virgin Islands corporation (“CCFH”) pursuant to which the Company issued 500,000 shares (the “Shares”)
of the Company’s Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”),
at price of $4 per Share to CCFH, with the rights, privileges, and preferences set forth in the Certificate of Designation of Series
A Convertible Preferred Stock, for the aggregate price of $2,000,000 (the “Purchase Price”). The transactions underlying
the Share Purchase Agreement closed on the same day (the “Share Purchase Closing Date”).
Pursuant to the Share Purchase Agreement,
the Company agreed to use its commercially reasonable efforts to apply to list on the NASDAQ Capital Market or such other national
securities exchange as is reasonably acceptable to CCFH (the “National Exchanges”), so that the Common Stock will commence
trading on one of the National Exchanges (the “Uplisting”) within 365 days after the Share Purchase Closing Date (the
“Uplisting Deadline”). Pursuant to the Share Purchase Agreement, if the Company did not complete Uplisting on or before
the Uplisting Deadline, CCFH had, within 30 days following the Uplisting Deadline, the right to request the Company to buy back
any number of the Shares (the “Buy Back Shares”), for a payment of the Buy Back Shares times the Purchase Price Per
Share and such interest payment at a rate of 5% per annum accruing from the Share Purchase Closing Date, subject to the terms and
conditions of the Shares Purchase Agreement. CCFH did not exercise such right to buy back.
Business Purchase Agreement with
FIFPAC, Inc.
On July 10, 2018, the Company entered into
a Business Purchase Agreement (the “Business Purchase Agreement”) with FIFPAC Inc. (“FIFPAC”), a New Jersey
corporation, the 100% owner of American Institute of Financial Intelligence LLC, a New Jersey limited liability company (“AIFI”).
Pursuant to the Business Purchase Agreement,
the Company issued 100,000 shares of Common Stock to FIFPAC on July 10, 2018, in exchange for a 51% equity ownership in AIFI.
Certificate of Amendment to Increase
Authorized Stock
On November 6, 2018, the board of directors
of the Company, with the written consent of the holders of a majority of the shares of the Company’s Common Stock issued
and outstanding and the Company’s preferred stock issued and outstanding, voting together as a single class, authorized the
Company to (i) increase the number of authorized shares of Common Stock from 180,000,000 to 450,000,000 and the number of authorized
shares of preferred stock from 20,000,000 to 50,000,000 (the “Authorized Stock Increase”), and (ii) file a Certificate
of Amendment with the Secretary of State of the State of Nevada to effect the Authorized Stock Increase.
On November 8, 2018, the Company filed
a Certificate of Amendment with the Secretary of State of the State of Nevada to effect the Authorized Stock Increase, which became
effective upon filing.
Designation of Series B Convertible
Preferred Stock
On November 13, 2018, the Company filed
with the Secretary of State of the State of Nevada the Certificate of Designation of Series B Convertible Preferred Stock (the
“Certificate of Designation”), which became effective upon filing. The Certificate of Designation established and designated
the Series B Convertible Preferred Stock (“Series B Preferred Stock”) and the rights, preferences, privileges, and
limitations thereof, summarized in the following:
The Company designated 25,000,000 shares
as Series B Preferred Stock out of the 50,000,000 unissued shares of preferred stock of the Company, par value $0.001 per share,
with an original issue price of $0.1 per share. Series B Preferred Stock is senior in rights of payment, including dividend rights
and liquidation preference, to the Company’s common stock but junior to Series A Preferred Stock with respect to liquidation
preference.
Holders of shares of Series B Preferred
Stock are entitled to vote with shareholders of the Company’s common stock, voting together as a single class, except on
matters that require a separate vote of the holders of Series B Preferred Stock. In any such vote, each share of Series B Preferred
Stock is entitled to 20 votes per share.
Each share of Series B Preferred Stock
shall, upon the approval of the board of directors of the Company and without the payment of additional consideration by such holder
thereof, be convertible into one fully paid and non-assessable share of the Company’s common stock at a conversion price
of $1 per share.
Share Issuance Agreement and Exchange
Agreement with China Cultural Finance Holdings Company Limited
On November 26, 2018, the Company entered
into a Share Issuance Agreement (the “Share Issuance Agreement”) with CCFH, whereby the Company agreed to issue a certain
number of shares Common Stock to CCFH in exchange for an RMB5,000,000 investment in the Company’s subsidiary, AEC Southern
Shenzhen, a foreign wholly owned subsidiary incorporated pursuant to PRC laws. The transactions underlying the Share Issuance Agreement
closed on the same day and 7,199,113 shares of Common Stock were issued to CCFH.
On November 26, 2018, the Company entered
into an Exchange Agreement (the “CCFH Exchange Agreement”) with CCFH, whereby the Company agreed to issue 12,500,000
shares of Series B Preferred Stock, and 7,500,000 shares of Common Stock to CCFH in exchange for the 500,000 shares of Series A
Preferred Stock already held by CCFH. The transactions underlying the CCFH Exchange Agreement closed on the same day and 12,500,000
shares of Series B Preferred Stock and 7,500,000 shares of Common Stock were issued to CCFH.
As a result of the Share Issuance Agreement
and the CCFH Exchange Agreement, no shares of Series A Preferred were issued and outstanding as of November 26, 2018.
Manager Share Issuance Agreement
with Max P. Chen
On November 26, 2018, the Company entered
into a Manager Share Issuance Agreement (the “Manager Share Issuance Agreement”) with Mr. Max P. Chen, the Chief Executive
Officer, President, and Chairman of the Board of the Company, whereby the Company agreed to reward Mr. Chen for his dedicated services
to the Company by issuing 12,500,000 shares of Series B Preferred Stock to him. The 12,500,000 shares of Series B Preferred Stock
were issued to Mr. Chen on November 26, 2018.
Corporate Reorganization
On April 22, 2019, AEC BVI acquired AEC
Southern HK and its subsidiary, AEC Southern Shenzhen, pursuant to a share transfer agreement by and between AEC BVI and AEC Southern
UK, for a nominal consideration.
On May 1, 2019, AEC Nevada transferred
100% of the equity interest in AEC Southern UK, to three individuals, including Former AEC Southern UK Shareholders, Ye Tian and
Rongxia Wang, and Weishou Li pursuant to a share exchange agreement.
Upon completion of the above transactions,
AEC Southern UK is no longer one of our subsidiaries. We operate and control both AEC Southern HK and AEC Southern Shenzhen via
AEC BVI.
Corporate Structure
The corporate structure of the Company
as of the date of this quarterly report is illustrated as follows:
The address of our principal executive
offices and corporate offices is 2 Wall Street, Fl. 8, New York, NY 10005. Our telephone number is (212) 825-0437. Our website
is www.aec100.com.
Our Business
Headquartered in New York with operations
in China, the Company, during fiscal year ended December 31, 2019 operated, and currently operates, in two market segments:
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AEC New York capitalizes on the rising demand from the middle-class families in China for quality education in the U.S. It delivers customized high school and college placement and career advisory services to Chinese students wishing to study in the U.S. Its advisory services include language training, college admission advisory, on-campus advisory, internship and start-up advisory as well as student and family services.
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(2)
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AEC BVI delivers customized high school and college placement and career advisory services to Chinese students intending to study in the U.S., through business referred by AEC New York. During the fiscal year ended December 31, 2019 and presently, the revenue of AEC BVI is entirely generated by the operation of AEC Southern Shenzhen.
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Our Key Revenue Drivers
We have expanded our service platform to
include advisory services for our student customers wishing to study and gain post-graduate work experiences in the U.S. Currently,
our main advisory services include:
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Placement Advisory Services;
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Career Advisory Services;
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Student & Family Advisory Services; and
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Other Advisory Services.
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All advisory services above are provided
by our subsidiaries, AEC New York and AEC Southern Shenzhen.
Placement Advisory Services
Our Placement Advisory Services include
Language Training, Placement Advisory and Elite College Advisory services.
Since 1999, we have been delivering customized
Language Training & Placement Advisory services to Chinese students. Our one-stop advisory service encompasses ESL training
and assistance throughout the high school, college application, and admission process.
Our Language Training service is based
on the existing ESL training platform which provides language training for standard test preparation and is designed to help improve
student’s English listening, speaking, reading, and writing skills. Student customers will be able to take these training
courses online when our ESL online training platform goes live in 2020.
Targeting the needs of Chinese families
in obtaining admission to Ivy League and other prestigious universities in the U.S., our Elite College Advisory service is designed
to assist qualified Chinese students in applying to prestigious colleges and universities in the U.S. Specifically, we arrange
campus tours, assist our student customers with their university applications, provide tailored language training, offer guidance
on interview and communication techniques, and follow up on their applications.
Once our student customers are admitted
into their target universities, our Placement Advisory services further extend to academic and cultural related experiences including,
among other things, providing assistance with applying for a second major or minor, transferring to a different university, housing
accommodations, and applying for accelerated degrees. To help students optimize their on-campus experience and train their leadership
and social skills, we also organize seminars and social events with our partner scholars and universities, non-profit and for-profit
business organizations. Additionally, to help enrich their cultural experiences, we organize extracurricular and artistic activities
including dance, music, painting, photography, and other performance events.
For college application, we have designed
the Key School Admissions Program, giving student customers closely guided application consulting services to gain admission to
top U.S. universities.
For on-campus academic counseling, we offer
the Elite100 program that focuses on leadership and communication skills development for our student customers.
We provide placement services through both
AEC New York and AEC Southern Shenzhen. AEC New York refers businesses to AEC Southern Shenzhen when clients in China need local
support.
Career Advisory Services
Our Career Advisory Services include our
Internship Advisory program and our Start-up Advisory program.
Our Internship Advisory program focuses
on student’s career development by helping them identify and secure suitable internship and part-time or full-time work opportunities
that are appropriate for their educational background and experience level. Through this program, we strive to help students map
and navigate their career path and counsel them on matters including academic improvement to career assistance. Through this program,
our student customers are given opportunities to communicate with professionals in their field of study and to participate in real-world
case studies.
Our Start-up Advisory program provides
advisory services to individual students and/or their families who want to start or make an investment in a business in the U.S.
Collaborating with our strategic partners, our services include (i) recommending alternative business development opportunities;
(ii) assistance with business plan development; (iii) assistance with accounting and financial management, marketing, product and
project design; and (iv) assistance in project financing.
Student & Family Advisory Services
Our Student & Family Advisory Services
are designed to assist our students and/or their families in the process of settling down in the U.S., such that they can effectively
focus on their studies. We provide thorough services tailored to the unique needs of each student family encountered in the U.S.
Through our business partners, we assist
the students’ families with purchasing real estate properties, organizing their personal financial management and investment
needs, getting insurance and starting businesses. Our American Dream Program helps students’ families find investment projects
in the U.S. We also advise corporate clients whose executives are moving to the U.S. for work. The scope of our services includes
assistance with business consulting, relocation and other aspects of family support services.
Other Advisory Services
Through our Foreign Student Recruitment
services, we assist universities in China to recruit students from the U.S. We customize this service based on our strategic relationship
with college and universities in the U.S. and the specific recruitment goals of these universities in China. The demand for our
recruitment services is driven mainly by the lack of an established channel to attract students from the U.S. and the needs by
the Chinese universities to expand and diversify their student body.
Our Foreign Educator Placement services
are designed to meet the increasing demand for experienced educators and teachers from the U.S. to teach in China. Such demand
covers the need to recruit qualified US educators from Pre K-12 to teach in China.
Recent Development
In December 2019, a novel strain of coronavirus
was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world,
including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease
(COVID-19) a “Public Health Emergency of International Concern,” and on March 11, 2020, the World Health Organization
characterized the outbreak as a “pandemic”. The pandemic has resulted in quarantines, travel restrictions, and temporary
closure of stores and facilities in China and elsewhere. A substantial part of the Company’s revenue and workforce are concentrated
in China. Consequently, the COVID-19 outbreak may materially adversely affect the Company’s business operations and its financial
condition and operating results for 2020, including but not limited to material negative impact to the Company’s total revenues.
Because of the significant uncertainties surrounding the COVID-19 outbreak, the extent of the business disruption and the related
financial impact cannot be reasonably estimated at this time.
On May 22, 2020, AEC Southern HK formed Yiqilai
(Shenzhen) Consulting Management Co., Ltd. (“WOFE”) in the PRC. We intend to use WOFE as the primary entity to carry
out our plan to identify and acquire an operating company in the PRC for online education e-commerce platform business. This new
subsidiary is expected to expand and add to the our current business and is expected to better serve the our student customers.
Our Competitive Advantage
Our strength comes mainly from our understanding
of the Chinese education and education-related service markets and our ability in not only anticipating areas with great market
demand but also delivering quality, customized services on a consistent basis. We have a scalable business platform that is conducive
to growth in earnings and profitability; and have a business model that we believe adapts well to changing market conditions. We
believe that the following competitive strengths enhance our position in the markets that we are currently competing in:
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Experienced Management. Our management team is comprised of industry experts with extensive experience in the education service industry, knowledge of the education system in the U.S. and a deep understanding of the Chinese market as well as finance executives who specializes in mergers and acquisitions, business reorganization, internal controls and risk management. We have established a corporate culture that is based on integrity, built compliance into risk management, integrated structure and discipline into our operating management and financial reporting processes, and made it a priority to deliver quality, customized services without compromising our ability to generate sustainable operating profits.
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Proven Business Model. Our business model is to target those service areas that are driven by significant market demand and have potential for sustainable growth in the long run. We take a measured approach in growing our business and have been effective in anticipating market needs as we expand our customer base from students to corporate clients that need corporate training. As a total solutions education advisory services provider, we have been successful in meeting the market demand for quality education and career development in the U.S.
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Scalable Business Platform. As an emerging business in the education service business, we believe we have the structure and discipline to control our operating expenses and overhead as we grow our business and strive to improve our operating profits. By keeping a relatively low headcount and optimizing the use of outsourced industry experts, we believe we have been effective in delivering quality services while maintaining healthy operating margins.
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Customized Service Approach. Our success is built on our reputation in delivering consistent, reliable, quality, and customized advisory services. Our approach is result oriented and we customize our service based on the specific needs of our student and corporate customers. Without compromising our objective of delivering consistent growth in earnings and profitability, we take pride in the delivery of tailored advisory services to our student customers as well as customized corporate training for our customer’s corporate clients in China.
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Our Growth Strategy
Our goal is to become a leading total solutions
educational services provider for Chinese students wishing to study and gain work experiences in the U.S. Our business development
plan includes, among other things, the following strategic initiatives:
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Expand organically within existing markets and into new markets. To carry out our vision of strengthening our market position in the U.S., we are implementing a combination of on- and off-line marketing approaches to expand our student-customer base in markets we currently serve. Such approaches include the recently launched Membership Program that is designed to maximize the power of personal and commission-based referral of our services to other potential customers; and the AEC Help mobile application, a social network platform that is intended to bring students together under one roof, offering them alternative solutions to issues frequently encountered by foreign students in the U.S.
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Our Membership Program allows third-party agents and education service providers, either individuals or entities, to sign up as members. Benefits to becoming our members include access to all programs pursuant to our student advisory services currently provided by AEC New York. Our members typically have access to clients with needs that can be met by programs provided by AEC New York. After paying a one-time, non-refundable fee of $50,000 to become a member, members can seamlessly integrate our services with their service offerings by outsourcing the specific services to us. We believe the Membership Program will allow us to broaden the reach of our brand and services without establishing additional offices in China and in the U.S.
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Our AEC Help mobile application was developed in-house and is operated by AEC New York. It is an iOS app that users can download for free from Apple AppStore. Users are international students who are in the U.S. or seek to study in the U.S. The app provides various academic and non-academic resources compiled by us to assist users for studying and living in the U.S. Resources available through the AEC Help app include academic resources where users can filter and search for universities based on the user’s own test scores and preferences, and non-academic resources such as unit conversions, maps, real-time exchange rates, student events, etc. Where the online resources cannot provide sufficient assistance to our users, they are able to reach a member of our staff who will connect the user with a third-party service provide directly. We believe this social media network, AEC Help, will allow us to broaden our reach to potential student customers.
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To grow organically, we plan to expand our service offerings to existing student customers, as well as deepening our strategic relationships with top universities, top companies, and top recruitment agencies, to aggregate our resources to collectively deliver customized career advisory services. Previously, we intended to launch the Other Recruitment & Placement Services, which include our Foreign Student Recruitment services and Foreign Educator Placement services in 2019. However, due to the outbreak of COVID-19, this plan has been postponed to 2020. As of the date of this annual report, we believe we will be able to implement this plan next year. For detailed information on the impact of the outbreak of COVID-19, refer to “Item 1. Business—Outbreak of COVID-19.”
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Through our Foreign Student Recruitment services, we will assist universities in China to recruit foreign students from the U.S. and other countries. We customize this service based on our relationship with universities in China and their specific recruitment goals. We believe the demand for our recruitment services is driven mainly by the lack of an established channel to attract students from the U.S. and the needs to expand and diversify the university’s student body.
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Our Foreign Educator Placement services are designed to meet the increasing demand for experienced educators from the U.S. to teach in China. Based on our understanding of the market demand, we believe there is a significant service opportunity for us to recruit qualified U.S. educators from Pre-K-12 to college to teach in China.
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Technology Platforms. We believe that our future success also depends, in part, on our ability to vertically integrate training courses and content delivery, specifically, complementing and integrating off-line, in person delivery with off-the-shelf, online delivery of training modules, which will increase the scalability of our operation. We are in the process of completing the development of an online ESL/language training platform for our student customers as well as an online training platform for our customer’s corporate clients in China which, when completed and launched, will allow participants to access our training courses on demand and on a 24/7 basis. Leveraging these two newly developed online training platforms, we believe we could realize significant growth in our revenues from language training as well as corporate training.
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Mergers and Acquisitions. We plan to grow our training and advisory business through acquisitions and intend to replicate our success by identifying potential merger and acquisition targets, especially training institutions that are successful in their respective fields or industries, to efficiently and rapidly broaden our service offering. In addition, we are performing market research to identify suitable new markets and suitable targets in the education and training industry that are potentially profitable such as trade skills training, and personal development.
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As part of our growth strategy, we acquired AIFI in 2018. We intend to provide, through AIFI, financial education and services through its training and certification programs with the goal in building a financial education information ecosystem to cultivate people’s sound financial judgement and decision-making abilities. The AIFI programs are intended to provide extensive and important financial literacy knowledge and relevant services to the financial services industry, non-profit organizations and schools. Specific target audiences include but are not limited to industry professionals, financial literacy educators, lending industry customers, college students, and K-12 students. In the fiscal year ended December 31, 2019 and 2018, we did not generate any revenue from AIFI.
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Our Management Team
We believe we have a strong and experienced
management team including our founder, chief executive officer, interim chief financial officer, and chairman, Mr. Max P. Chen,
a pioneer and leader in the education service industry; Ms. Congying Fang, the director, president, and the chief executive officer
of AEC BVI; and Ms. Weihua Zhu, the chief operating officer of AEC New York with over a decade of experience in education advisory
services. Our team as a whole has many years of public and private company experience, industry and professional experience and
a significant network of business contacts in the industry, and extensive experience in SEC reporting, compliance and risk management,
business reorganization, and mergers and acquisitions.
Our Industry and Market Opportunities
The demand for global education is growing
rapidly in China, and the U.S. remains the top choice for Chinese students wishing to study abroad. According to one article published
by the PRC’s Ministry of Education in March 2018, approximately 5.19 million Chinese students had studied in foreign countries
in the past 40 years since 1978.
Source: Open Doors, IIE. Leading Places
of Origin: Previous Years. Retrieved from https://www.iie.org/Research-and-Insights/Open-Doors/Data/International-Students/Places-of-Origin/Leading-Places-of-Origin
The number of Chinese students entering
the U.S. to study grew sharply in 2006, when Congress loosened restrictions on student visas from China for the first time since
2001. Accordingly, there is a large and growing number of Chinese students in the U.S. seeking a broad range of acclimation support
and services, including education consulting services. We strive to become a bridge for these students with our service offerings.
According to Project Atlas, a collaborative
global research initiative led by the Institute of International Education, in the academic year 2018/2019, the total number international
students studying in the U.S. (in both public and private institutions) was 1,095,299, of which 369,548, or 33.7%, were Chinese
nationals. For the academic year 2017/2018, the comparable figures were 1,094,792 international students in the U.S., of whom
33.2% or 363,341 were Chinese. This growth trend has been in place for several years. However, with the current political
environment in Washington, DC regarding visas, it is not known whether it will continue in the future.
Our Competition
The education service and consulting industry
targeting both PRC citizens abroad and PRC residents is rapidly evolving, highly fragmented and competitive. We expect competition
in this industry to persist and intensify. For services provided by AEC New York, we primarily serve Chinese student customers
and their families in the U.S. For services provided by AEC BVI, our prospective student clients are primarily located in China.
Our advisory services for student customers
face significant competition from New Oriental Education & Technology Group Inc., a leader in the market of advisory services
for student customers that we operate in.
Our Marketing Strategies
We believe prospective
student customers are attracted to our advisory services due to our excellent brand name, personalized service model, and the quality
of our services. Historically, as a small business, we rely extensively on our strategic partners and word-of-mouth referrals in
growing our student customers, and employ the following marketing and recruiting methods to attract new student customers:
Commission-based
referrals. To enhance the effectiveness of the referral process, we pay a commission that ranges from 10% to 20% for successful
referrals. Our placement advisory and career advisory services have benefited from, and are expected to continue to benefit from,
commission-based referrals by our current and former student customers.
Marketing
materials. We plan to publish a “Chinese Visitors Guide Book.” It is planned to be a travel book with plug-in advertisements
for the Company, which will assist Chinese visitors to the U.S. and simultaneously promote our services. We will also advertise
in e-magazines, prepare and distribute brochures and present at exhibitions as part of our marketing strategy.
Social
media marketing. We maintain our own WeChat official account that offers information on education and life abroad. In addition,
we work with other WeChat official accounts with significant followings to publish information on AEC services. After every offline
event, our employees will create chat groups with all event attendants to facilitate direct communication and follow up.
We have launched
our in-house developed mobile application—AEC Help. It is an iOS app that users can download for free from the Apple
AppStore. Users are international students who are in the U.S. or seek to study in the U.S. The app provides various academic and
non-academic resources compiled by us to assist users for studying and living in the U.S. Resources available through AEC Help
Application include academic resources where users can filter and search for universities based on the user’s own test scores
and preferences, and non-academic resources such as unit conversions, maps, real-time exchange rates, student events, etc. Where
the online resources cannot provide sufficient assistance to our users, they are able to reach a member of our staff who will connect
the user with a third-party service provide directly. We believe this social media network, AEC Help, will allow us to broaden
our reach to potential student customers.
Our Customers
We currently provide services to Chinese
students wishing to study and/or gain work experience in the U.S. Some of these Chinese students are our direct customers, and
the others are ultimate users of our services through corporate customers we serve.
Our target corporate customers include
staffing agencies and student placement agencies. Our target student customers include high school students who want to apply for
U.S. colleges, college students who need academic counseling and future career consulting, and graduates who need professional
development, as well as students’ families. The cost of studying abroad is high, therefore international students usually
come from middle class or high-net-worth families.
For the year ended December 31, 2019, our
two largest customers, Oxbridge International Group Inc. and Skybound Consulting Inc. accounted for 50.3% and 21.5% of our revenues,
respectively.
Our Regulatory Environment
Regulation of the Education Industry in the U.S.
Government authorities in the U.S.,
at the Federal, state and local level, extensively regulate education and exchange student programs. Such regulations
include, among other things, the regulations, and policies of the United States Department of Education. Unlike the systems
of most other countries, however, the education system in the U.S. is highly decentralized, and the Federal government and
Department of Education are not heavily involved in determining curricula or educational standards. The establishment and
grading of such standards have been left to state and local school districts.
The Education Department of the State
of New York in 1999 consented for AEC New York to incorporate pursuant to §216 of New York Education Law Relating to Education
Corporations, and Section 104 of the New York Business Corporation Law, and consented in 2003 for AEC New York to amend its certificate
of incorporation to include education consulting service as its business purpose, pursuant to §216 of New York Education
Law Relating to Education Corporations, and Section 104(e) of the New York Business Corporation Law.
A more formalized regulation is the requirement
that a citizen of a foreign country who wishes to enter the U.S. must first obtain a visa, either a nonimmigrant visa for temporary
stay, or an immigrant visa for permanent residence. Foreign students must have a student visa to study in the U.S. Visas generally
require an application and an interview.
In addition to the regulatory approval
requirements described above, we are or will be, directly or indirectly, subject to extensive regulation of the educational industry
by the Federal and state governments and the governments’ of foreign countries in which our services are provided.
Regulation of the Education Industry in China
The principal laws and regulations governing
private education in China consist of the Education Law of the PRC, the Law for Promoting Private Education (2003),
the Implementation Rules for the Law for Promoting Private Education (2004), and Law for Promoting Private Education
(2016).
Under these regulations, “private
schools” are defined as schools established by non-governmental organizations or individuals using non-government funds.
Private schools providing academic qualifications education, kindergarten education, education for self-study examination, and
other education shall be subject to approval by the education authorities at or above the county level, while private schools engaging
in occupational qualification training and occupational skill training shall be subject to approvals from the authorities in charge
of labor and social welfare at or above the county level.
Since our operations in the PRC are either
delivered through our AEC New York office for education consulting services, placement services, and family support services, or
through our AEC Southern UK operation for corporate training, we believe we are not involved in providing services relating to
the fundamental education systems of the PRC, which include a school system of pre-school education, primary education, secondary
education, and higher education, a system of nine-year compulsory education and a system of education certificates. Therefore,
we believe our operations in the PRC are not subject to the PRC Private Education Laws. If our operations are found to be subject
to, and/or in violation of any of these laws, regulations, rules, or policies or any other law or governmental regulation to which
we or our customers are or will be subject, or if interpretations of the foregoing changes, we and our PRC subsidiaries may be
subject to civil and criminal penalties, damages, fines, and the curtailment or restructuring of our operations. Similarly, if
our customers are found non-compliant with applicable laws, they may be subject to sanctions.
Foreign Investment in Educational
Service Industry
The Ministry of Commerce of the PRC, or
MOFCOM, and the National Development and Reform Commission, or NDRC, promulgated the Catalogue of Industries for Guiding Foreign
Investment, or the “Catalogue,” as amended on March 10, 2015, which came into effect on April 10, 2015, and as
further amended on June 28, 2017, and came into effect on July 28, 2017 (the “2017 Catalogue”). On June 28, 2018, the
MOFCOM and NDRC promulgated the Special Measures for Foreign Investment Access (2018 version), or the “2018 Negative
List,” terminating the 2017 Catalogue. According to the 2018 Negative List, any foreign investment in preschool education,
senior high school education, and higher education has to take the form of a cooperative joint venture. Foreign investment is banned
from compulsory education, which means grades one to nine. Foreign investment is allowed in after-school tutoring services and
training services that do not grant certificates or diplomas. We do not believe we are subject to the aforementioned bans on foreign
investment in educational service industries.
Employment Laws
We are subject to laws and regulations
governing our relationship with our employees, including wage and hour requirements, working and safety conditions, social insurance,
housing funds, and other welfare. These include local labor laws and regulations, which may require substantial resources for compliance.
China’s National Labor Law,
which became effective on January 1, 1995, and China’s National Labor Contract Law, which became effective on January
1, 2008, permit workers in both state and private enterprises in China to bargain collectively. The National Labor Law and
the National Labor Contract Law provide for collective contracts to be developed through collaboration between the labor
union (or worker representatives in the absence of a union) and management that specify such matters as working conditions,
wage scales, and hours of work. The laws also permit workers and employers in all types of enterprises to sign individual
contracts, which are to be drawn up in accordance with the collective contract. The National Labor Contract Law has enhanced
rights for the nation’s workers, including permitting open-ended labor contracts and severance payments. The
legislation requires employers to provide written contracts to their workers, restricts the use of temporary labor, and makes
it harder for employers to lay off employees. It also requires that employees with fixed-term contracts be entitled to an
indefinite-term contract after a fixed-term contract is renewed once or the employee has worked for the employer for a
consecutive 10-year period.
As required under the Regulation of Insurance
for Labor Injury implemented on January 1, 2004, and amended in 2010, the Provisional Measures for Maternity Insurance of Employees
of Corporations implemented on January 1, 1995, the Decisions on the Establishment of a Unified Program for Old-Aged Pension Insurance
of the State Council issued on July 16, 1997, the Decisions on the Establishment of the Medical Insurance Program for Urban Workers
of the State Council promulgated on December 14, 1998, the Unemployment Insurance Measures promulgated on January 22, 1999, and
the Social Insurance Law of the PRC implemented on July 1, 2011, employers are required to provide their employees in the PRC with
welfare benefits covering pension insurance, unemployment insurance, maternity insurance, labor injury insurance and medical insurance.
In accordance with the Regulations on the Management of Housing Fund which was promulgated by the State Council in 1999 and amended
in 2002, employers must register at the designated administrative centers and open bank accounts for depositing employees’
housing funds. Employer and employee are also required to pay and deposit housing funds, with an amount no less than 5% of the
monthly average salary of the employee in the preceding year in full and on time. Except for housing funds, we are in compliance
with payment of all other employment related insurance on behalf of our employees.
Taxation in the U.S.
We are subject to income taxes in the U.S.,
and our domestic tax liabilities will be subject to the allocation of expenses in differing jurisdictions. Our future effective
tax rates could be subject to volatility or adversely affected by a number of factors, including:
· changes in the valuation of our deferred tax assets and liabilities;
· expected timing and amount of the release of any tax valuation allowances;
· tax effects of stock-based compensation;
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costs related to intercompany restructurings;
· changes in tax laws, regulations or interpretations thereof; and
· lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates.
In addition, we may be subject to audits
of our income and sales and other transaction taxes by U.S. federal and state authorities.
Taxation in the PRC
Pursuant to the Provisional Regulations
on Value-Added Tax (“VAT”) of the PRC, or the “VAT Regulations,” which were promulgated by the State Council
on December 13, 1993, and took effect on January 1, 1994, and were amended on November 10, 2008, February 6, 2016, and November
19, 2017, respectively, and the Rules for the Implementation of the Provisional Regulations on Value Added Tax of the PRC, which
were promulgated by the Ministry of Finance of the PRC, on December 25, 1993, and were amended on December 15, 2008, and October
28, 2011, respectively, entities and individuals that sell goods or labor services of processing, repair or replacement, sell services,
intangible assets, or immovables, or import goods within the territory of the PRC are taxpayers of value-added tax. The VAT rate
is 16% for taxpayers selling goods, labor services, or tangible movable property leasing services or importing goods, except otherwise
specified; 10% for taxpayers selling goods, labor services, or tangible movable property leasing services or importing goods, except
otherwise specified; 6% for taxpayers selling services or intangible assets.
Regulations on Dividend Distribution in the U.S.
Our Board of Directors’ ability to
declare a dividend is subject to restrictions imposed by Nevada corporate law. Nevada corporate law provides that no distribution
(including dividends on, or redemption or repurchases of, shares of capital stock) may be made if, after giving effect to such
distribution, (i) the corporation would not be able to pay its debts as they become due in the usual course of business, or, (ii)
except as otherwise specifically permitted by the articles of incorporation, the corporation’s total assets would be less
than the sum of its total liabilities plus the amount that would be needed at the time of a dissolution to satisfy the preferential
rights of preferred stockholders. Directors may consider financial statements prepared on the basis of accounting practices that
are reasonable in the circumstances, a fair valuation, including but not limited to unrealized appreciation and depreciation, and
any other method that is reasonable in the circumstances.
Regulations on Dividend Distribution in the PRC
The principal regulations governing dividend
distributions by wholly foreign owned enterprises and Sino-foreign equity joint ventures include:
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The Wholly Foreign Owned Enterprise Law (1986), as amended;
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The Wholly Foreign Owned Enterprise Law Implementing Rules (1990), as amended;
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the Sino-foreign Equity Joint Venture Enterprise Law (1979), as amended; and
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the Sino-foreign Equity Joint Venture Enterprise Law Implementing Rules (1983), as amended.
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Under these regulations, wholly
foreign owned enterprises and Sino-foreign equity joint ventures in China may pay dividends only out of their retained
earnings, if any, determined in accordance with PRC accounting standards and regulations. Additionally, a wholly
foreign-owned enterprise is required, as other enterprises subject to PRC laws, to set aside at least 10% of its after-tax
profits each year, if any, to fund statutory reserve funds until the cumulative amount of such funds reaches 50% of its
registered capital. For our PRC subsidiary that has achieved profit under the PRC accounting standards, it has set aside at
least 10% of its after-tax profits to meet the statutory reserve requirements. A wholly foreign-owned enterprise may, at its
discretion, allocate a portion of its after-tax profits calculated based on the PRC accounting standards to staff welfare and
bonus funds. Our subsidiary has not set aside its after-tax profits, if any, to fund these discretionary staff welfare and
bonus funds. We have not implemented any policy or plan for our PRC subsidiaries to maintain discretionary staff welfare and
bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends except in the
event of liquidation and cannot be used for working capital purposes. These requirements apply to AEC Southern
Shenzhen.
M&A Rules and Overseas Listings
On August 8, 2006, six PRC regulatory agencies,
namely, the MOFCOM, the State Assets Supervision and Administration Commission, the State Administration of Taxation, State Administration
for Industry & Commerce, or SAIC, China Securities Regulatory Commission, or CSRC, and the State Administration of Foreign
Exchange, jointly adopted the Provisions Regarding Mergers and Acquisitions of Domestic Projects by Foreign Investors, or
the M&A Rules, which became effective on September 8, 2006. This M&A Rules purport to require, among other things, offshore
special purpose vehicles formed for the purpose of acquiring PRC domestic companies and controlled by PRC companies or individuals,
to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. While the application
of the M&A Rules remains unclear, we believe, based on the advice of our PRC counsel, that CSRC approval was not required in
the context of our initial public offering as we are not a special purpose vehicle formed for the purpose of acquiring domestic
companies that are controlled by our PRC individual shareholders, as we acquired contractual control rather than equity interests
in our domestic affiliated entities. However, we cannot assure you that the relevant PRC government agency, including the CSRC,
would reach the same conclusion as our PRC counsel. If the CSRC or other PRC regulatory agency subsequently determines that we
needed to obtain the CSRC’s approval for our initial public offering or if CSRC, we may face sanctions by the CSRC or other
PRC regulatory agencies. In such event, these regulatory agencies may impose fines and penalties on our operations in the PRC,
limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from our initial public offering
into the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of
operations, and prospects, as well as the trading price of our Common Stock.
Properties/Facilities
Our principal executive office is located
at 2 Wall Street, Floor 8, New York, NY 10005 (the “Headquarters”). We entered into a lease agreement for the Headquarters
with an unrelated third-party landlord, pursuant to which the Company pays a monthly rent of $34,056. The Headquarters lease expires
on July 31, 2025.
AEC Southern Shenzhen entered into a new
lease in the fiscal year ended December 31, 2019, pursuant to which it leases office space from an unrelated third party on a month
to month basis with a monthly rental cost of RMB52,456 (approximately US$8,497). The lease will expire on April 30, 2024.
We believe our facilities are sufficient
for our business operations.
Employees
As of the filing date hereof, the Company
has 20 full and part-time employees inclusive of outsourced consultants. None of our employees are represented by a labor union.
We have not experienced any work stoppages, and we consider our relations with our employees to be good.
Off-Balance Sheet Arrangements
We did not have, during the periods presented,
and we are currently not a party to, any off-balance sheet arrangements.
Seasonality
AEC New York typically experiences seasonal
fluctuations in its revenues and results of operations, primarily due to quarterly changes in student enrollments related to the
admission seasons. AEC BVI does not experience substantial seasonality in its revenues and results of operations.
Intellectual Property
We regard our trademarks, domain names,
know-how, proprietary technologies and similar intellectual property as critical to our success, and we rely on trademark and trade
secret law and confidentiality and invention assignment with our employees and others to protect our proprietary rights. Our intellectual
property includes two domain names, https://americaneducationcenter.org/and https://aec100.com.
Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy or otherwise obtain and use our technology. Monitoring unauthorized use of our
technology is difficult and costly, and we cannot be certain that the steps we have taken will prevent misappropriation of our
technology. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result
in substantial costs and diversion of our resources.
In addition, third parties may initiate
litigation against us alleging infringement of their proprietary rights or declaring their non-infringement of our intellectual
property rights. In the event of a successful claim of infringement and our failure or inability to develop non-infringing technology
or license the infringed or similar technology on a timely basis, our business could be harmed. Moreover, even if we are able to
license the infringed or similar technology, license fees could be substantial and may adversely affect our results of operations.
ITEM 1A. RISK FACTORS
Risks Related to Our Business
If we are not able to continue to
attract students to enroll in our courses without a significant decrease in course fees, our revenues may decline, and we may not
be able to maintain profitability.
The success of our business depends
primarily on the number of students enrolled in our courses and the amount of course fees that our students are willing to
pay. Therefore, our ability to continue to attract students to enroll in our courses without a significant decrease in course
fees is critical to the continued success and growth of our business. This in turn will depend on several factors, including
our ability to develop new programs and enhance existing programs to respond to changes in market trends and student demand,
expand our geographic reach, manage our growth while maintaining the consistency of our service quality, effectively market
our programs to a broader base of prospective students, develop and license additional high-quality educational content and
respond to competitive pressures, as well as the ability of our partner colleges and institutions to maintain their
faculties’ teaching quality. If we are unable to continue to attract students to enroll in our courses without a
significant decrease in course fees, our revenues may decline and we may not be able to operate profitability.
Our business depends on our brand
name “American Education Center.” Because we do not currently have any copyright or trademark protection for our company
name or brand name, there is no guarantee that someone else will not encroach upon our intellectual property rights, which could
negatively affect our business and results of operations.
We believe that market recognition of our
name “American Education Center” has contributed significantly to the success of our business. We also believe that
maintaining and enhancing the “American Education Center” brand is critical to maintaining our competitive advantage.
We offer a diverse set of programs, services, and products to primary and middle school students, college students, and other adults
throughout many provinces and cities in China. As we continue to grow in size, expand our programs, services, and product offerings,
and extend our geographic reach, our ability to maintain and improve the quality and consistency of our services, products, and
offerings may be more difficult to achieve. We currently have no copyright or trademark for our company name or brand name. We
may seek such protection in the future; however, we currently have no plans to do so. Since we have no copyright protection, unauthorized
persons may attempt to copy aspects of our business, including our web site design or functionality, products, or marketing materials.
Any encroachment upon our corporate information, including the unauthorized use of our brand name, the use of a similar name by
a competing company or a lawsuit initiated against us for infringement upon another company's proprietary information or improper
use of their copyright, may affect our ability to create brand name recognition, cause customer confusion and/or have a detrimental
effect on our business. Litigation or proceedings may be necessary in the future to enforce our intellectual property rights, to
protect our trade secrets and domain name and/or to determine the validity and scope of the proprietary rights of others. Any such
infringement, litigation or adverse proceeding could result in substantial costs and diversion of resources and could harm our
business and results of operations.
A severe or prolonged slowdown in
the global or Chinese economy could materially and adversely affect our business and our financial condition.
The rapid growth of the Chinese economy
has slowed down since 2012 and such slowdown may continue. There is considerable uncertainty over the long-term effects of the
expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading
economies, including the United States and China. There have been concerns over unrest and terrorist threats in the Middle East,
Europe and Africa, which have resulted in volatility in oil and other markets. There have also been concerns on the relationship
among China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial disputes.
Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political
policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or
Chinese economy may materially and adversely affect our business, results of operations and financial condition. In addition, continued
turbulence in the international markets may adversely affect our ability to access capital markets to meet liquidity needs.
If we fail to successfully execute
our growth strategies, our business and prospects may be materially and adversely affected.
Our growth strategies include but are not
limited to expanding our service offerings to satisfy the needs of our student customers. Our ability in executing our growth strategies
depends largely on our capability in developing and delivering quality, customized services on a consistent basis and in a cost-effective
and timely manner, as well as maintaining and continuing to establish strategic relationships with other businesses and education
institutions. If we fail to successfully execute our growth strategies, we may be unable to maintain and grow our business operation,
and our profitability may be materially and adversely affected.
We face competition in the student advisory services markets,
and if we fail to compete effectively, our profitability may be adversely affected.
The markets for language training, college
placement, and career advisory are rather fragmented. With relatively low entry barriers, we face competition that focuses generally
on price. The number of our student customers may decrease due to price competition. Some of our competitors have greater resources
than we do. These competitors may be able to devote greater resources than us to the development, promotion, and marketing of their
programs and services, and respond more quickly to changes in student needs, admissions standards, or new technologies. We cannot
assure you that we will be able to compete successfully against current or future competitors. If we are unable to maintain our
competitive position or otherwise respond to evolving competition effectively, our profitability may be adversely affected.
We may need additional capital for
growth purposes. The availability of capital and the terms on which it will be available are uncertain.
We may need to raise funds to take advantage
of growth or acquisition opportunities in the future. We currently have no arrangements or commitments for additional financings.
If we cannot expand our operation or make acquisitions that we believe are necessary to maintain our competitive position, we may
not be able to maintain a reasonable growth rate. If we raise additional capital by selling equity or equity-linked securities,
these securities would dilute the ownership percentage of our existing stockholders. Also, these securities could also have rights,
preferences, or privileges senior to those of our Common Stock. Similarly, if we raise additional capital by issuing debt securities,
those securities may contain covenants that restrict us in terms of how we operate our business, which could also affect the value
of our Common Stock. We may not be able to raise capital on reasonable terms or at all.
Our strategic relationships are usually
non-exclusive arrangements and our strategic partners may provide the same or similar services to our competitors, which could
significantly dilute any competitive advantage we get from these relationships.
We rely on our strategic partners to provide
us with access to potential student customers and corporate customers with clients that need compliance training and advisory services.
Our strategic partners may enter identical or similar relationships with our competitors, which could diminish the value of our
service offerings. Our strategic partners could terminate their relationship with us at any time. We may not be able to maintain
our existing relationships or enter new strategic relationships.
Because we rely on a limited number
of customers for a large portion of our revenue, the loss of one or more of these customers could materially harm our business.
We receive a significant portion of
our revenue in each fiscal period from a relatively limited number of customers, and that trend is likely to continue. Sales
to our major customers (that individually accounted for more than 10% of our gross revenues) accounted for approximately
50.3% and 53.3% of our total revenue for the year ended December 31, 2019 and 2018. The loss of one or more of these major
customers, a significant decrease in orders from one of these customers, or the inability of one or more customers to make
payments to us when they are due could materially affect our revenue, business, and reputation. While none of our major
customers have failed to make payments to us when they are due, we cannot guarantee that we would not experience this in the
future.
We may be unable to protect our intellectual
property adequately or cost-effectively, which may cause us to lose market share or reduce our prices.
Our success depends in part on our brand
identity and our ability to protect and preserve our proprietary rights. We cannot assure you that we will be able to prevent third
parties from using our intellectual property rights and technology without our authorization. We own the intellectual property
of our products, including our mobile app, the AEC Help and our online training platform, and protect our intellectual property,
we rely on trade secrets, common law trademark rights, trademark registrations, copyright notices, copyright registrations, as
well as confidentiality and work for hire, development, assignment and license agreements with our employees, consultants, third
party developers, licensees, and customers. However, these measures afford only limited protection and may be flawed or inadequate.
In addition, enforcing our intellectual property rights could be costly and time-consuming and could distract management’s
attention from operating business matters.
The uncertainty involving the immigration
policies of the current administration of the U.S. could have significant adverse effects on the demand for our business and may
negatively impact our results of operation.
The current U.S. administration has evoked
uncertainty among international students and overseas business owners who wish to travel to the U.S. for education opportunities
and business opportunities, respectively. Our business model and revenue from advisory services to student customers depends on
the demand of international students and overseas business owners, and as such, could have a negative impact in our results of
operation.
New services and programs that we
develop may compete with our current offerings.
We are constantly developing new programs
and services to meet changes in student demand and respond to changes to admissions standards, market needs and trends and technological
changes. While some of the programs and services that we develop will expand our current offerings and increase student customers,
others may compete with or make irrelevant our existing offerings without increasing our total revenues from advisory services
provided to student customers. For example, our online training courses may take away students from our existing in-person courses.
If we are unable to expand our program and service offerings while increasing our total student customer base and profitability,
our business and growth may be adversely affected.
Our business is subject to fluctuations
caused by seasonality or other factors beyond our control, which may cause our operating results to fluctuate from quarter to quarter.
For our AEC New York operations, we have
experienced, and expect to continue to experience, seasonal fluctuations in our revenues and results of operations, primarily due
to quarterly changes in student customers resulting from admission seasons. Historically, we receive deposits for our services
during the second and third quarters of our fiscal year that usually lead to increased revenues during the subsequent quarters.
However, deposits are refundable and thus, if the student customer is not accepted to the college or university of his/her choice
(normally in the third and fourth quarters of our fiscal year), our revenues during these quarters may be lower than those in previous
quarters. In addition, because these deposits are refundable, revenue cannot be recognized until we successfully complete our services
and our student customers receive admission letters. These fluctuations could result in volatility and adversely affect our operations
from one quarter to the next. As our revenues grow, these seasonal fluctuations from AEC New York’s business operations may
become more pronounced.
Our historical financial and operating
results are not indicative of our future performance, and our financial and operating results are difficult to forecast.
Our financial and operating results to
date are not necessarily indicative of future operating results. In addition to the fluctuations described above, our revenues,
expenses, and operating results may vary from quarter to quarter and from year to year in response to a variety of other factors
beyond our control, including, but not limited to:
· general economic conditions;
· perception of value and future opportunities for an international education as perceived by our Chinese customers;
· changes in corporate training needs in China;
· regulations or actions pertaining to the provision of corporate training and advisory services in China;
· detrimental negative publicity about us, our competitors, or our industry;
· changes in consumers’ demand for our services and programs; and
· non-recurring charges incurred in connection with acquisitions or other extraordinary transactions or unexpected circumstances.
Due to these and other factors, we believe
that quarter-to-quarter comparisons of our operating results may not be indicative of our future performance, and therefore you
should not rely on them to predict the future performance of our Company. In addition to the above factors, our past results may
not be indicative of future performance because of new businesses developed or acquired by us.
Our business is difficult to evaluate
in part because we have limited experience with respect to some of our newer services, programs, and offerings.
Historically, our core business has
been the delivery of advisory services to Chinese student customers wishing to study in the U.S. in the areas of college
admission, internship, and career development. In the fourth quarter of 2016, we expanded our business to include corporate
training and advisory services with the acquisition of AEC Southern UK. We continue to develop ideas for new services to
expand our business and client base and we launch new projects on a regular basis and are in the process of rolling out our
online training services. Some of these new service offerings have not generated significant revenues to date, and we have,
necessarily, less experience responding quickly to changes, competing successfully, and maintaining and expanding our brand
in such new project areas. Consequently, there is limited operating history on which you can base your evaluation of the
business and prospects of these relatively newer operations.
If fewer Chinese students choose
to study in the United States, demand for our services and programs may decline.
The main demand for our main advisory services
is the increasing number of Chinese students who choose to study abroad, especially in the United States, reflecting the growing
demand for higher education in overseas countries by Chinese students. As such, any restrictive changes in immigration policy,
terrorist attacks, geopolitical uncertainties and any international conflicts involving these countries could increase the difficulty
for Chinese students to obtain student visas to study overseas or decrease the appeal of studying in such countries to Chinese
students. Any significant change in admission standards adopted by overseas educational institutions could also affect the demand
for overseas education by Chinese students. If overseas educational institutions significantly reduce their reliance on or acceptance
of admission and assessment tests, such as TOEFL, IELTS or the Scholastic Assessment Test, or the SAT, the difficulty for Chinese
students to meet the new admission standards could significantly increase, which could in turn negatively affect the demand for
overseas education by Chinese students. Additionally, Chinese students may also become less attracted to studying abroad due to
other reasons, such as improving domestic educational or employment opportunities associated with increased economic development
in China. These factors could cause declines in the demand for our main advisory services, which may adversely affect our revenue
and profitability.
An overall decline in the health
of the Chinese economy and global economy and other factors impacting education spending and/or disposable income, such as natural
disasters and fluctuations in inflation and foreign currency exchange rates may affect the spending power of our student customers,
reduce demand for our services and materially harm our business, results of operations and financial condition.
Our business depends on the demand for
education and the spending power and/or disposable income of the families of our student customers and, consequently, is sensitive
to a number of factors that influence spending, such as general current and future economic and political conditions, consumer
disposable income, energy and fuel prices, recession and fears of recession, unemployment, minimum wages, consumer debt levels,
conditions in the housing market, interest rates, tax rates and policies, inflation, war and fears of war, inclement weather, natural
disasters, terrorism, active shooter situations, outbreak of viruses, widespread illness, infectious diseases, contagions and the
occurrence of unforeseen epidemics (including the outbreak of the coronavirus, commonly referred to as “COVID-19” and
its potential impact on our financial results) and consumer perceptions of personal well-being and security.
The outbreak, and threat or perceived
threat of outbreak, of COVID-19 has negatively impacted the ability of our student customers and their families to travel to the
U.S., which could adversely affect our business, results of operations and financial condition
The outbreak of COVID-19, first in mainland
China, then in Asia and eventually throughout the world, may adversely affect our business, results of operations and financial
condition. Travel within China and to and from other countries, particularly the U.S., has been or may be restricted, which has
impacted or inhibited travel of our student customers and/or their families. Student customers currently engaging us for services
may not be able to travel to the U.S. in the near future and thus may be suspending their use of our services. Student customers
seeking to enroll in U.S. educational institutions may choose to remain in China, thereby not seeking our services. The foregoing
may result in reduced demand for our main advisory services, and accordingly, adversely affect our business, results of operations
and financial condition.
The continuing efforts of our senior
management team and other key personnel are important to our success, and our business may be harmed if we lose their services.
The continuing services of our senior management
team is very important to us. We particularly value the service of Mr. Max P. Chen—our founder, CEO, interim CFO, and Chairman—who
has been with AEC New York since its inception in 1999. If one or more of our senior executives or other key personnel are unable
or unwilling to continue in their present positions, we may not be able to replace them easily, and our business may be disrupted
or suffer from their departure. Competition for experienced management personnel in the private education sector is intense, the
pool of qualified candidates is limited, and we may not be able to retain the services of our senior executives or key personnel
or attract and retain high-quality senior executives or key personnel in the future. In addition, if any member of our senior management
team or any of our other key personnel joins a competitor or forms a competing company, we may lose teachers, students, key professionals,
and staff members.
We are an “emerging growth
company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make
our Common Stock less attractive to investors.
We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. For as long as we continue to be an emerging growth company,
we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are
not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404(b)
of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our annual reports and proxy statements
and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of
any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although we
could lose that status sooner if our revenues exceed $1.07 billion, if we issue more than $1,000,000,000 in non-convertible debt
in a three year period, or if the market value of our Common Stock held by non-affiliates exceeds $700,000,000 as of any April
30 before that time, in which case we would no longer be an emerging growth company as of the following April 30. We cannot predict
if investors will find our Common Stock less attractive because we may rely on these exemptions. If some investors find our Common
Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more
volatile.
We have elected to use the extended transition
period for complying with new or revised accounting standards under Section 102(b)(2) of the Jobs Act, that allows us to delay
the adoption of new or revised accounting standards that have different effective dates for public and private companies until
those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies
that comply with the public company effective dates.
Risks Related to Doing Business in China
The PRC laws and regulations governing
the Company’s business operations are sometimes vague and uncertain. Any changes in such PRC laws and regulations as well
as in the PRC economic, political, and social conditions may have a material and adverse effect on the PRC economy and the education
service industry in particular, and in turn the Company’s business.
There are substantial uncertainties regarding
the interpretation and application of the PRC laws and regulations, including but not limited to the laws and regulations governing
the Company’s business, or the enforcement and performance of the Company’s arrangements with customers in the event
of the imposition of statutory liens, death, bankruptcy, and criminal proceedings. The Company and any future subsidiaries are
considered foreign persons or foreign funded enterprises under the PRC laws, and as a result, the Company is required to comply
with the PRC laws and regulations. These laws and regulations are sometimes vague and may be subject to future changes, and their
official interpretation and enforcement may involve substantial uncertainty.
The effectiveness of newly enacted laws,
regulations, or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that
affect existing and proposed future businesses may also be applied retroactively. The Company cannot predict what effect the interpretation
of existing or new PRC laws or regulations may have on the Company’s businesses.
Doing business in the PRC is subject to
many uncertainties and changes in the political, economic, or social direction of the PRC could have an adverse effort on the Company’s
operations.
While the PRC economy has experienced significant
growth in the past two to three decades, growth has been uneven, both geographically and among various sectors of the economy.
Demand for our educational services depends, in large part, on economic conditions in China. Any significant slowdown in China’s
economic growth may cause our potential students to delay or cancel their plans to enroll in our schools, which in turn could reduce
our revenue.
The Company’s operations may be adversely
affected by significant political, economic, and social uncertainties in the PRC. The differing cultures, business preferences,
corruption, uncertain government regulations, tax systems, and currency regulations are risks that can impact the Company’s
operations. Although the PRC government has been pursuing economic reform policies, no assurance can be given that the PRC government
will continue to pursue such policies or that such policies may not be significantly attend, especially in the event of a change
in leadership, social or political description or unforeseen circumstance, there is also no guarantee that the PRC government’s
pursuit of economic reforms will be consistent, effective or continue.
Regarding intermediate and consulting
business activities relating to self-funded overseas studying, the Ministry of Education, or MOE, the Ministry of Public
Security, and the SAIC jointly issued the Administrative Regulations on Intermediate Services for Overseas Studies with
Private Funds and their Implementing Rules in 1999 and the Education Commission of Beijing and Beijing Administration for
Industry and Commerce jointly issued the Beijing Measures of Supervisions and Recognition of Intermediate Services for
Self-Funded Overseas Studies (Trial) in September 2015, which require that any intermediate service organization engaged in
such services procure from the MOE the Recognition on the Intermediate Service Organization for Self-funded Overseas Studies.
On January 12, 2017, the State Council promulgated the Decision of the State Council on the Third Installment of the
Cancellation of the Administrative Licensing Matters Delegated to Local Governments, which, among other things, cancelled the
Recognition on the Intermediate Service Organization for Self-funded Overseas Studies, which means that the requirement for
intermediate service organizations to obtain Recognition on the Intermediate Service Organization for Self-funded Overseas
Studies from the provincial government for their engaging in intermediate and consulting business activities relating to
self-funded overseas studies is cancelled. This Decision provided that after the cancellation of such requirements, the MOE
and the SAIC shall study and develop contract template for reference and strengthen their guidance, regulating and service to
intermediate service organizations and that the relevant industrial association shall play their role in self-discipline.
We believe that we are not required to
obtain the aforementioned license for our student advisory services because the services are primarily delivered in the U.S. For
our corporate training and advisory services provided through AEC Southern UK to corporate customers with corporate clients located
in the PRC, we believe they are not subject to the aforementioned regulations.
Certain PRC regulations, including
the M&A Rules and national security regulations, may require a complicated review and approval process, which could make it
more difficult for us to pursue growth through acquisitions in China.
The M&A Rules established additional
procedures and requirements that could make merger and acquisition activities in China by foreign investors more time-consuming
and complex. For example, the MOFCOM must be notified in the event a foreign investor takes control of a PRC domestic enterprise.
In addition, certain acquisitions of domestic companies by offshore companies that are related to or affiliated with the same entities
or individuals of the domestic companies, are subject to approval by the MOFCOM. In addition, the Implementing Rules Concerning
Security Review on Mergers and Acquisitions by Foreign Investors of Domestic Enterprises, issued by the MOFCOM in August 2011,
require that mergers and acquisitions by foreign investors in “any industry with national security concerns” be subject
to national security review by the MOFCOM. In addition, any activities attempting to circumvent such review process, including
structuring the transaction through a proxy or contractual control arrangement, are strictly prohibited.
There is significant uncertainty regarding
the interpretation and implementation of these regulations relating to merger and acquisition activities in China. In addition,
complying with these requirements could be time-consuming, and the required notification, review, or approval process may materially
delay or affect our ability to complete merger and acquisition transactions in China. As a result, our ability to seek growth through
acquisitions may be materially and adversely affected.
We may be exposed to liabilities
under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act could harm our
business.
We are subject to the United States Foreign
Corrupt Practices Act, or “FCPA,” and other laws that prohibit U.S. companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining business. Our activities in China create the risk of unauthorized
payments or offers of payments by one of the employees, consultants, sales agents, or distributors of our Company, even though
these parties are not always subject to our control. It is our policy to implement safeguards to discourage these practices by
our employees. However, our existing safeguards and any future improvements may prove ineffective, and the employees, consultants,
sales agents, or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA
may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could adversely impact our
business, operating results and financial condition.
Risks Related to the Shares of our Common Stock
The ownership of our Common Stock
is concentrated among a small number of shareholders, and if our principal shareholders, director, and officers choose to act together,
they may be able to significantly influence management and operations, which may prevent us from taking actions that may be favorable
to you.
Our ownership is concentrated among a small
number of shareholders, including our founder, director, officers, and entities related to these persons. Accordingly, these shareholders,
acting together, will have the ability to exert substantial influence over all matters requiring approval by our shareholders,
including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our
assets. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control of the Company
or impeding a merger or consolidation, takeover or other business combination that could be favorable to you.
The requirements of being a public
company may strain our resources and divert management’s attention.
Compliance with the Exchange Act and the
Sarbanes-Oxley Act and other applicable securities rules and regulations will increase our legal and financial compliance costs,
make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources. As a result,
management’s attention may be diverted from other business concerns, which could harm our business and operating results.
In addition, complying with public company disclosure rules makes our business more visible, which we believe may result in threatened
or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating
results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the
time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating
results.
Our Common Stock is considered a
“penny stock” which is subject to restrictions on marketability, so you may not be able to sell your shares.
The U.S. Securities and Exchange
Commission, or SEC, has adopted regulations which generally define “penny stock” to be an equity security that
has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific
exemptions. The market price of our common stock is currently less than $5.00 per share and therefore is designated as a
“penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to
disclose some information concerning the transaction, obtain a written agreement from the purchaser and determine that the
purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to
sell the common stock and may affect the ability of investors to sell their shares. These regulations may likely have the
effect of limiting the trading activity of the Company’s common stock and reducing the liquidity of an investment in
its common stock. In addition, investors may find it difficult to obtain accurate quotations of the common stock and may
experience a lack of buyers to purchase our Company’s stock or a lack of market makers to support the stock price.
We will be subject to the penny stock rules
adopted by the SEC that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks.
These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would
make it difficult for our shareholders to sell their shares.
Because we are not subject to compliance
with rules requiring the adoption of certain corporate governance measures, our shareholders have limited protections against interested
director transactions, conflicts of interest, and similar matters.
The Sarbanes-Oxley Act of 2002, as well
as rule changes proposed and enacted by the SEC, the New York and NYSE AMEX Equities exchanges and the Nasdaq Stock Market, as
a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are
designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on
those exchanges or the Nasdaq Stock Market. Because we are not presently required to comply with many of the corporate governance
provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner
than necessary, we have not yet adopted these measures.
We do not currently have independent audit
or compensation committees. As a result, our sloe director has the ability, among other things, to determine his own level of compensation.
Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such
standards of corporate governance may leave our shareholders without protections against interested director transactions, conflicts
of interest and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.
There may not be an active, liquid trading market for
our equity securities.
Our common stock trades exclusively on
the OTCQB Marketplace since September 2016. Trading volumes on the OTCQB Marketplace can fluctuate significantly, which could make
it difficult for investors to execute transactions in our securities and could cause declines or volatility in the prices of our
common stock.
If the price of our common stock
is volatile when we are trading, purchasers of our shares of common stock could incur substantial losses.
When and if an active market develops for
our securities, the market price of our Common Stock could fluctuate significantly for many reasons, including reasons unrelated
to our specific performance, such as reports by industry analysts, investor perceptions, or announcements by our competitors regarding
their own performance, as well as general economic and industry conditions. For example, to the extent that other large companies
within our industry experience declines in their share price, our share price may decline as well. Fluctuations in operating results
or the failure of operating results to meet the expectations of public market analysts and investors may negatively impact the
price of our securities. Quarterly operating results may fluctuate in the future due to a variety of factors that could negatively
affect revenues or expenses in any particular quarter, including vulnerability of our business to a general economic downturn;
changes in the laws that affect our products or operations; competition; compensation related expenses; application of accounting
standards; and our ability to obtain and maintain all necessary regulatory and industry certifications and/or approvals to conduct
our business. In addition, when the market price of a company’s shares drops significantly, shareholders could institute
securities class action lawsuits against the company. A lawsuit against us could cause us to incur substantial costs and could
divert the time and attention of our management and other resources.
Moreover, we cannot assure you that any
securities analysts will initiate or maintain research coverage of our company and our shares of common stock. We do not control
analysts or the content and opinions included in their reports. The price of our shares of common stock could decline if one or
more equity research analysts downgrade our shares of common stock or if analysts issue other unfavorable commentary or cease publishing
reports about us or our business.
If we fail to maintain effective
internal controls over financial reporting, the price of our Common Stock may be adversely affected.
We are required to establish and maintain
appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once
established, could adversely impact our public disclosures regarding our business, financial condition or results of operations.
Any failure of these controls could also prevent us from maintaining accurate accounting records and discovering accounting errors
and financial frauds. Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment
of our internal control over financial reporting. The standards that must be met for management to assess the internal control
over financial reporting as effective complex, and require significant documentation, testing and possible remediation to meet
the detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal
control over financial reporting. If we cannot assess our internal control over financial reporting as effective, investor confidence
and share value may be negatively impacted.
In addition, management’s
assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in
our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or
perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure
of management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of
our Common Stock.
Compliance with changing regulations
of corporate governance and public disclosure will result in additional expenses.
Changing laws, regulations, and standards
relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have
created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets
and public reporting. Our management has invested significant management time and financial resources to comply with existing standards
for public companies, any changes in these standards could which could lead to increased general and administrative expenses and
a diversion of management time and attention from revenue generating activities to compliance activities.
We do not intend to pay cash dividends
on our shares of Common Stock in the foreseeable future.
We do not anticipate paying any cash dividends
in the foreseeable future. We currently intend to retain our future earnings, if any, to fund the development and growth of our
business. In addition, the right of holders of our shares of Common Stock to receive dividends declared by our board of directors
may be restricted to the extent we issue preferred shares with dividend rights superior to those of our shares of Common Stock.
Shares of our Common Stock represent
equity interests and are subordinate to existing and future indebtedness.
Shares of our Common Stock represent equity
interests in our Company and, as such, rank junior to any indebtedness of our Company now existing or created in the future, as
well as to the rights of any preferred shares that may be issued in the future. In the future, we may incur substantial amounts
of debt and other obligations that will rank senior to our Common Stock or to which our Common Stock will be structurally subordinated.
Provisions in our charter documents
and Nevada law could discourage or prevent a takeover, even if an acquisition would be beneficial to our shareholders.
Provisions of our articles of incorporation
and bylaws, as well as provisions of Nevada law, could make it more difficult for a third party to acquire us, even if beneficial
to our shareholders. Provisions include (i) authorizing the issuance of “blank check” preferred shares that could be
issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt; (ii) prohibiting cumulative
voting in the election of directors, which would otherwise allow less than a majority of our shareholders to elect director candidates;
and (iii) advance notice provisions in connection with shareholder proposals that may prevent or hinder any attempt by our shareholders
to bring business to be considered by shareholders at a meeting or replace our Company’s board of directors.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable to smaller reporting companies.
ITEM 2. PROPERTIES
Our principal executive office is located
at 2 Wall Street, Floor 8, New York, NY 10005 (the “Headquarters”). We entered into a lease agreement for the Headquarters
with an unrelated third-party landlord pursuant to which the Company pays a monthly rent of $34,056. The Headquarters lease expires
on July 31, 2025.
AEC Southern Shenzhen entered into a new
lease in the fiscal year ended December 31, 2019 pursuant to which it leases office space from an unrelated third party on a month
to month basis with a monthly rental cost of RMB52,456 (approximately US$8,497). The lease will expire on April 30, 2024.
We believe our facilities are sufficient
for our business operations.
ITEM 3. 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 4. MINE SAFETY DISCLOSURE.
Not applicable.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
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1.
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ORGANIZATION AND BUSINESS
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American Education Center, Inc.
(“AEC New York”) is a New York corporation incorporated on November 8, 1999 and is licensed by the Department of the
State of New York to engage in education related consulting services.
On May 7, 2014, the President
and then sole shareholder of AEC New York formed a new company, American Education Center, Inc. in the State of Nevada (“AEC
Nevada”). On May 31, 2014, the President and the sole shareholder of AEC New York exchanged his 200 shares for 10,563,000
shares of AEC Nevada. The share exchange resulted in AEC New York becoming a wholly owned subsidiary of AEC Nevada (hereinafter
the “Company”).
On October 31, 2016, the Company
completed an acquisition transaction through a share exchange with two stockholders, Rongxia Wang and Ye Tian, of AEC Southern
Management Co., Ltd. (“AEC Southern UK”), a company formed in December 2015 pursuant to the laws of England and Wales.
The Company acquired 100% of the outstanding shares of AEC Southern UK in exchange for 1,500,000 shares of its common stock valued
at $210,000 (the “AEC Southern UK Share Exchange”). As a result of the AEC Southern UK Share Exchange, AEC Southern
UK became a wholly owned subsidiary of the Company.
AEC Southern UK held 100% of
the equity interests in AEC Southern Management Limited, a Hong Kong company (“AEC Southern HK”) formed on December
29, 2015. AEC Southern HK then formed Qianhai Meijiao Education Consulting Management Co., Ltd. (“AEC Southern Shenzhen”)
on March 29, 2016 pursuant to PRC laws, with a registered capital of RMB 5,000,000. Therefore, under PRC laws, AEC Southern Shenzhen
was a foreign wholly owned subsidiary of AEC Southern UK.
On July 13, 2018, pursuant to
a Business Purchase Agreement (the “Purchase Agreement”), the Company acquired 51% of the issued and outstanding equity
interests of American Institute of Financial Intelligence LLC (“AIFI”), a New Jersey limited liability company formed
on May 10, 2017, in exchange for 100,000 shares of the Company common stock issued to the then sole shareholder of AIFI. As a result,
AIFI became a 51% majority owned subsidiary of the Company.
On October 23, 2018, AEC Nevada
incorporated a subsidiary, AEC Management Ltd. (“AEC BVI”) in the British Virgin Islands, pursuant to the laws of British
Virgin Islands. AEC BVI is a wholly owned subsidiary of AEC Nevada, and as of the date of this report, does not have significant
business activities.
On April 22, 2019, AEC Southern
UK sold 100% of the equity interests of AEC Southern HK to AEC BVI and AEC Southern HK and its subsidiary became wholly-owned subsidiaries
of AEC BVI.
On May 1, 2019, the Company
sold 100% of the equity interest in AEC Southern UK to three individuals who were Ye Tian, Rongxia Wang and Weishou Li, and received
a consideration of 1,000,000 shares of outstanding shares of AEC Nevada.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
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1.
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ORGANIZATION AND BUSINESS (continued)
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The Company’s corporate
structure as of December 31, 2019 is as follows:
Headquartered in New York with
operations in the People’s Republic of China (“PRC”), the Company covers two market segments through two subsidiaries:
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(1)
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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.
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(2)
|
AEC BVI delivers customized high school and college placement and career advisory services to Chinese students wishing to study in the U.S. Currently, the revenue of AEC Southern is all generated from AEC Southern Shenzhen.
|
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Consolidation and
Presentation
The accompanying consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial information pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission (“SEC”). These consolidated financial statements include the accounts of the Company and its subsidiaries.
All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all
adjustments considered necessary to give a fair presentation have been included.
Cash
Cash consists of all cash balances
and liquid investments with an original maturity of three months or less are considered as cash equivalents.
Accounts Receivable
Accounts receivable are carried
at net realizable value. The Company maintains an allowance for doubtful accounts, periodically evaluates its accounts receivable
balances and makes general and/or specific allowances when there is doubt as to their collectability. In evaluating the collectability
of individual receivable balances, the Company considers many factors, including the age of the balances, customers’ historical
payment history, their current credit-worthiness and current economic trends. Accounts receivable are written off against the allowance
only after exhaustive collection efforts.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
Foreign Currency Translation
The Company’s
functional currency is US dollars. The Company has three bank accounts located in the PRC and one located in Hong Kong.
Translation adjustments arising from the use of different exchange rates, in the circumstance any subsidiary’s
functional currency is not US dollars, from period to period are included as a separate component of accumulated other
comprehensive income included in statements of changes in stockholders’ equity. Gain and losses from foreign currency
transactions are included in the consolidated statements of operations and comprehensive income.
Revenue Recognition
The Company adopted ASU No.
2014-09, Topic 606 on January 1, 2018, using the modified retrospective method. ASC 606 requires the use of a new five-step model
to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the
customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable
consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction
price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the
performance obligation.
AEC
New York delivers customized high school and college placement, career advisory as well as student and family services. Fees related
to such advisory services that are collected from individuals are generally paid to the Company in advance and they are recorded
as deferred revenue. Revenues are recognized proportionally as services are rendered or upon completion. Fees related to our advisory
services provided by AEC New York to corporate customers (such as staffing agencies and placement agencies) are generally collected
after services are provided, and are recorded as accounts receivable.
AEC
Shenzhen delivers customized high school and college placement and career advisory services. Fees related to such advisory services
are generally paid to the Company in advance and they are recorded as deferred revenue. Revenues are recognized proportionally
as services are rendered or upon completion.
For
the year ended December 31, 2019, approximately 4.7 million, or more than 88%, of the revenue was realized as accounts receivable
and approximately $490,000 of the revenue was realized from deferred revenue.
Property
and equipment, net
Property
and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. The estimated useful lives are as follows:
Intangible Asset
The Company’s finite-lived
intangible asset consists of a customized online campus system that was acquired from a third party. The system is used to provide
online training for career advisory services and corporate training and advisory services. The asset was recorded at cost on the
acquisition date and is amortized on a straight-line basis over its economic useful life.
The Company reviews its finite-lived
intangible asset for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of the asset to be held and used is measured by a comparison of the carrying amount of an asset
to its undiscounted future net cash flows expected to be generated by the asset. If such asset is not recoverable, a potential
impairment loss is recognized to the extent the carrying amount of the asset exceeds its fair value. Fair value is generally determined
using a discounted cash flow approach.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
Stock-Based Compensation
The Company uses the fair value-based
method for stock issued for services rendered and therefore all awards to employees and non-employees will be recorded at the market
price on the date of the grant and expensed over the required period of services to be rendered.
The fair value of stock options
issued to third party consultants and to employees, officers and directors are recorded in accordance with the measurement and
recognition criteria of FASB ASC 505-50, “Equity-Based Payments to Non-Employees” and FASB ASC 718, “Compensation
– Stock Based Compensation,” respectively.
The options are valued using
the Black-Scholes valuation model. This model is affected by the Company’s stock price as well as assumptions regarding a
number of subjective variables. These subjective variables include but are not limited to the Company’s expected stock price
volatility over the expected term of the awards, and actual and projected stock option and warrant exercise behaviors and forfeitures.
Income Taxes
The Company accounts for income
taxes in accordance with FASB ASC 740, “Income Taxes,” which requires the recognition of deferred income taxes for
differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets and
liabilities represent the future tax consequences for those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset
future taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected
to be realized.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
|
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 December 31, 2019 and December 31, 2018, the Company does not have a liability
for any unrecognized tax benefits.
The income tax laws of various
jurisdictions in which the Company and its subsidiaries operate are summarized as follows:
United States (“US”)
On December 22, 2017, the U.S.
Tax Cuts and Jobs Act (TCJA) was signed into law. The TCJA results in significant revisions to the U.S. corporate income tax system,
including a reduction in the U.S. corporate income tax rate, implementation of a territorial system and a one-time deemed repatriation
tax on untaxed foreign earnings. Generally, the impacts of the new legislation would be required to be recorded in the period of
enactment.
The Company is subject to Federal
corporate income tax in the US at 21%. Provisions for income taxes for the United States have been made for the year ended December
31, 2019.
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 formed in
the United Kingdom and is governed by the income tax laws of England and Wales.
On May 1, 2019, the Company
sold 100% of the equity interests in AEC Southern UK to three individuals and AEC Southern UK is no longer a subsidiary of the
Company. Since AEC Southern UK had no PEs in the UK as of May 1, 2019 and had no UK-source income during 2018, the Company is not
subject to tax on non-UK source income.
British Virgin Island
(“BVI”)
According to BVI corporate taxation,
there is a zero-rated income tax regime for all BVI-domiciled corporate entities, and there is no concept of residence applicable
to BVI corporate taxation.
AEC BVI was incorporated in
the BVI and is governed by the laws of the BVI.
Hong Kong
AEC Southern HK was formed in
Hong Kong. Pursuant to the income tax laws of Hong Kong, the Company is not subject to tax on non-Hong Kong source income.
The People's Republic
of China (“PRC”)
AEC Southern Shenzhen was incorporated
in the PRC. Pursuant to the income tax laws of China, the Company is not subject to tax on non-China source income. The Company
is subject to corporate tax in China at 25% for the net taxable income. AEC Southern Shenzhen has no income tax for the year ended
December 31, 2019 due to the net operating loss for the period.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
|
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 December 31, 2019 and 2018, respectively, the carrying values of these financial instruments approximated their fair values
due to their short-term nature.
Use of Estimates
The preparation of the consolidated
financial statements in accordance with GAAP requires management to make estimates and assumptions that affect certain reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
Earnings (Loss) per Share
Earnings (loss) per share is
calculated in accordance with FASB ASC 260, “Earnings Per Share.” Basic earnings (loss) per share is based upon
the weighted average number of common shares outstanding during the period. Diluted earnings per share is based on the assumption
that all dilutive convertible shares and stock options are converted or exercised. Dilution is computed by applying the treasury
stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time
of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during
the period. Options and warrants are only dilutive when the average market price of the underlying common stock exceeds the exercise
price of the options or warrants because it is unlikely that they would be exercised if the exercise price were higher than the
market price.
Noncontrolling interest
According to Financial Accounting
Standards Board (FASB) Accounting Standards noncontrolling interest shall be reported in the consolidated statement of financial
position within equity, separately from the parent’s equity. That amount shall be clearly identified and labeled, for example,
as noncontrolling interest in subsidiaries. An entity with noncontrolling interests in more than one subsidiary may present those
interests in aggregate in the consolidated financial statements。
Bargain Purchase
According to Financial Accounting
Standards Board (FASB) Accounting Standards, a barging purchase is defined as a business combination in which the total acquisition-date
fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling
interest in the acquiree, and it requires the acquirer to recognize that excess in earnings as a gain attributable to the acquire.
Contingent Consideration
The Company recognizes the fair
value of any contingent consideration that is transferred to the seller in a business combination on the date at which control
of the acquiree is obtained. This value is generally determined through a probability-weighted analysis of the expected cash flows.
Contingent consideration is
classified as a liability or as equity on the basis of the definitions of an equity instrument and a financial liability. The
contingent consideration is payable in cash and, accordingly, the Company classified its contingent consideration as a liability.
It is not remeasured, and any gain or loss on settlement at an amount different from it’s carrying value will be recognized
in net income in the period during which it is settled.
Leases
On January 1, 2019, the Company
adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which supersedes the lease
accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and
corresponding right-of-use (ROU) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing
and uncertainty of cash flows arising from leasing arrangements.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
The Company adopted the new
guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of
initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease
liabilities for operating leases, while accounting for finance leases remained substantially unchanged.
The Company determined if an
arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and
short- and long-term lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment,
other current liabilities, and other long-term liabilities in our consolidated balance sheets.
As of adoption of ASC 842 and
as of January 1, 2019, the Company was not a party to finance lease arrangements.
ROU assets represent the Company’s
right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease
payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present
value of lease payments over the lease term. As most of the leases do not provide an implicit rate, the Company use the industry
incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
The Company use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made
and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain
that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Under the available practical
expedient, the Company account for the lease and non-lease components as a single lease component.
Adoption of the standard resulted in the recognition of $2,016,142
of ROU assets and $2,237,583 of lease liabilities for leases on our consolidated balance sheet at adoption on January 1, 2019 related
to office space lease commitment on March 1, 2015. The difference between the ROU assets and lease liabilities was due to prepaid
rent. For a new lease commitment on May 1, 2019, the company initially recognized $414,157 (RMB2,899,099) of ROU assets and lease
liabilities of $399,048 (RMB2,793,341). The difference between the ROU assets and lease liabilities was due to prepaid rent and
initial direct cost.
AMERICAN EDUCATION
CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
|
3.
|
RECENTLY ISSUED ACCOUNTING STANDARDS
|
In January 2017, the FASB issued
accounting standard update which simplifies the test for goodwill impairment. To address concerns over the cost and complexity
of the two-step goodwill impairment test, the amendments in this update remove the second step of the test. An entity will apply
a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over
its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the
optional qualitative assessment of goodwill impairment. This update is effective for annual or any interim goodwill impairment
tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment
tests performed on testing dates after January 1, 2017. The Company adopted the update in the fourth quarter of 2018. The adoption
of the new standard did not have an impact on our consolidated financial statements.
In February 2018, the FASB issued
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 August 2018, the FASB issued
ASU 2018-13 to modify the disclosure requirements on fair value measurements. The amendments are effective beginning after December
15, 2019. An entity is permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures
until the effective date. Most amendments should be applied retrospectively, but certain amendments will be applied prospectively.
The Company is in the process of assessing the impact of the standard on the Company’s fair value disclosures. However, the
standard is not expected to have an impact on the Company’s consolidated financial position, results of operations and cash
flows.
In October 2018, the FASB issued
ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to the Related Party Guidance for Variable Interest Entities. ASU
2018-17 changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether decision-making
fees represent a variable interest, an entity considers indirect interests held through related parties under common control on
a proportional basis, rather than in their entirety. This guidance will be adopted using a retrospective approach and is effective
for the Company on January 1, 2020. The Company has evaluated the effect of the adoption of this ASU and does not expect there
will be impact on its consolidated financial statements and related disclosures from the adoption of the new guidance.
AMERICAN EDUCATION
CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
Activity in the allowance for
doubtful accounts was as followings:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Accounts receivable
|
|
$
|
5,479,473
|
|
|
$
|
4,095,378
|
|
|
Allowance for bad debts
|
|
|
(2,605,348
|
)
|
|
|
(1,189,147
|
)
|
|
Accounts receivable, net
|
|
$
|
2,874,125
|
|
|
$
|
2,906,231
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
1,189,147
|
|
|
$
|
141,000
|
|
|
Provision (net of recover)
|
|
|
1,557,201
|
|
|
|
1,048,147
|
|
|
Amounts written off, net of recoveries
|
|
|
(141,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
2,605,348
|
|
|
$
|
1,189,147
|
|
As of December 31, 2019 and
2018, fixed asset, net as follows:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Electronic equipment
|
|
$
|
6194
|
|
|
$
|
-
|
|
|
Office furniture
|
|
|
817
|
|
|
|
-
|
|
|
Less: accumulated depreciation
|
|
|
(785
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset - net
|
|
$
|
6,226
|
|
|
$
|
-
|
|
For the year ended December
31, 2019 and 2018, amortization expense was $791, and $0 respectively.
The gross carrying amount and
accumulated amortization of this asset as of December 31, 2019 and 2018 are as follows:
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Intangible asset: online campus system
|
|
$
|
612,814
|
|
|
$
|
612,814
|
|
|
Intangible asset: learning platform
|
|
|
120,000
|
|
|
|
120,000
|
|
|
Less: accumulated amortization
|
|
|
(460,588
|
)
|
|
|
(312,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset - net
|
|
$
|
272,226
|
|
|
$
|
420,407
|
|
The Company’s customized
online campus system is being amortized on a straight-line basis over four and a half years. For the year ended December 31, 2019
and 2018, amortization expense was $148,181 and $ 142,181, respectively.
The following table is the future
amortization expense to be recognized:
|
Year Ending December 31,
|
|
|
|
|
2020
|
|
|
148,181
|
|
|
2021
|
|
|
46,045
|
|
|
2022
|
|
|
12,000
|
|
|
2022
|
|
|
66,000
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
272,226
|
|
AMERICAN EDUCATION
CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
On October 31, 2016, 1,500,000
shares of common stock of the Company were granted and issued to AEC Southern UK’s CEO who would provide service over a three-year
period commencing November 1, 2016. The shares were valued using the market price of the Company’s common stock on the grant
date of $0.14 per share. On the grant date, $210,000 was recognized as deferred compensation, which was expensed over the three-year
period using the straight-line method. On December 31, 2017, the remaining balance of $198,333.33 deferred compensation was expensed
due to the resignation of AEC Southern UK’s CEO.
On December 31, 2016, the Company
granted and issued 6,000,000 shares of common stock to AEC Southern UK’s Chairman who would provide services over a three-year
period commencing November 1, 2016. The shares were valued using the market price of the Company’s common stock on the grant
date of $0.55 per share. On the grant date, $3,300,000 was recognized as deferred compensation, which was expensed over a three-year
period using the straight-line method. The Company decided not to cancel or retrieve the shares issued to the CEO of AEC UK as
compensation and recognized the remaining of the compensation as part of the loss from disposal during 2019.
The Company has security deposits
with the landlord for its New York office and the office in Shenzhen, China of $285,041 and $266,021 as of December 31, 2019 and
2018. As of December 31, 2019, AEC New York has security deposits of $266,021 and AEC Shenzhen has security deposits of $19,020.
|
9.
|
CONCENTRATION OF CREDIT AND BUSINESS RISK
|
The Company maintains its cash
accounts at two commercial banks in the US, three commercial banks in the PRC and one commercial bank in Hong Kong.
Funds held in US banks and insured
by Federal Deposit Insurance Corporation up to $250,000 per depositor, per insured bank, for each account ownership category.
Funds held in the PRC banks
are covered by Deposit Insurance Ordinance (index: 000014349/2015-00031) that insures RMB500,000 for the total of all depository
accounts.
Funds held in HK banks are insured
by Hong Kong Deposit Protection Board covers up toHK$500,000 per bank for the total of all depository accounts.
The Company performs ongoing
evaluation of its financial institutions to limit its concentration of risk exposure. Management believes this risk is not significant
due to the financial strength of the financial institutions utilized by the Company.
The following table represents
major customers that individually accounted for more than 10% of the Company’s gross revenue for the year ended December
31, 2019 and 2018:
|
|
|
2019
|
|
|
|
|
Gross
Revenue
|
|
|
Percentage
|
|
|
Accounts
Receivable
|
|
|
Percentage
|
|
|
Customer 1
|
|
$
|
2,667,700
|
|
|
|
50.3
|
%
|
|
$
|
2,024,779
|
|
|
|
37.1
|
%
|
|
Customer 2
|
|
$
|
1,141,900
|
|
|
|
21.5
|
%
|
|
|
1,588,520
|
|
|
|
29.1
|
%
|
|
|
|
2018
|
|
|
|
|
Gross
Revenue
|
|
|
Percentage
|
|
|
Accounts
Receivable
|
|
|
Percentage
|
|
|
Customer 1
|
|
$
|
2,317,940
|
|
|
|
33.1
|
%
|
|
$
|
717,399
|
|
|
|
8.3
|
%
|
|
Customer 2
|
|
|
1,416,500
|
|
|
|
20.2
|
%
|
|
|
1,210,860
|
|
|
|
13.9
|
%
|
|
Customer 3
|
|
|
655,500
|
|
|
|
9.3
|
%
|
|
|
134,000
|
|
|
|
1.5
|
%
|
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
|
10.
|
DISCONTINUED OPERATIONS
|
On May 1, 2019, AEC Nevada
sold 100% of the equity interest in AEC Southern UK to three individuals, Ye Tian, Rongxia Wang and Weishou Li, and received a
consideration of 1,000,000 shares of outstanding shares of AEC Nevada which was valued at $660,000 and the debt owed to AEC Southern
UK in the amount of $268,475 was forgiven by AEC Southern UK. The Company has classified the results of AEC Southern UK as discontinued
operations in the unaudited consolidated statement of income for all periods presented. The Company decided not to cancel or retrieve
the shares issued to the CEO of AEC UK as compensation and recognized the remaining of the compensation as part of the loss from
disposal. Additionally, the related assets and liabilities associated with the discontinued operations in the prior year
consolidated balance sheet are classified as discontinued operations. The Company recognized a gain of $561,808 from the disposition.
Pursuant to ASC Topic 205-20,
Presentation of Financial Statements - Discontinued Operations, the results of operations for the year ended December 31, 2019
and year ended December 31, 2018 from discontinued operations have been classified to loss from discontinued operations line on
the accompanying consolidated statements of operations and comprehensive loss presented herein. The assets and liabilities also
have been classified as discontinued operations in the Company’s consolidated financial statements as of December 31, 2019
and 2018.
The carrying amount of the major classes of assets and liabilities
of discontinued operation as of May 1, 2019 and December 31, 2018 consist of the following:
|
|
|
May 1,
2019
|
|
|
December 31,
2018
|
|
Assets of discontinued operation:
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
391
|
|
|
$
|
391
|
|
Accounts receivable
|
|
|
4,864,297
|
|
|
|
4,595,823
|
|
Allowance for doubtful account
|
|
|
(4,595,823
|
)
|
|
|
(4,595,823
|
|
Deferred compensation
|
|
|
-
|
|
|
|
916,668
|
|
Total assets of discontinued operation
|
|
$
|
268,865
|
|
|
$
|
917,059
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operation:
|
|
|
|
|
|
$
|
-
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,881,404
|
|
|
$
|
1,881,404
|
|
Other payables
|
|
|
-
|
|
|
|
-
|
|
Total liabilities of discontinued operation
|
|
$
|
1,881,404
|
|
|
$
|
1,881,404
|
The summarized operating result
of discontinued operation included in the Company’s consolidated statements of operation consist of the following:
|
|
|
From
January 1
to
May 1, 2019
|
|
|
From
January 1
to
December 31, 2018
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Cost of revenues
|
|
|
-
|
|
|
|
-
|
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
Operating expenses
|
|
|
(366,667
|
)
|
|
|
(5,587,406
|
)
|
|
Other income (expenses), net
|
|
|
-
|
|
|
|
4
|
|
|
Loss before income tax
|
|
|
(366,667
|
)
|
|
|
(5,587,402
|
)
|
|
Income tax expense (benefit)
|
|
|
-
|
|
|
|
(332,187
|
)
|
|
Loss from discontinued operation
|
|
|
(366,667
|
)
|
|
|
(5,255,215
|
)
|
|
Total loss from discontinued operations, net of income taxes
|
|
$
|
(366,667
|
)
|
|
$
|
(5,255,215
|
)
|
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
Operating segments have been
determined on the basis of reports reviewed by the Company’s Chief Executive Officer (CEO) who is the chief operating decision
maker of the Company. The CEO evaluates the business from a geographic perspective, assesses performance and allocates resources
on this basis. The reportable segments are as follows:
After the discontinued operations
of AEC Southern UK, the Company has two operating segments: AEC New York and AEC BVI.
|
|
·
|
AEC New York delivers placement, career and other advisory services Its advisory services include language training, admission advisory, on-campus advisory, internship and start-up advisory as well as other advisory services.
|
|
|
·
|
AEC BVI delivers customized high school and college placement and career advisory services to Chinese students wishing to study in the U.S. Currently, the revenue of AEC BVI all generated from AEC Southern Shenzhen.
|
The following table shows an
analysis by segment of the assets and liabilities of continuing and discontinued operations as of December 31, 2019 and 2018:
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
AEC New
York
|
|
|
AEC BVI
|
|
|
AEC
Southern UK
|
|
|
Total
|
|
|
Segment assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets from continuing operations
|
|
$
|
6,661,058
|
|
|
$
|
772,810
|
|
|
$
|
-
|
|
|
$
|
7,433,868
|
|
|
Segment assets of discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Segment assets
|
|
$
|
6,661,058
|
|
|
$
|
772,810
|
|
|
$
|
-
|
|
|
$
|
7,433,868
|
|
|
Segment liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities from continuing operations
|
|
$
|
5,249,953
|
|
|
$
|
965, 422
|
|
|
$
|
-
|
|
|
$
|
6,215,375
|
|
|
Segment liabilities of discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Segment liabilities
|
|
$
|
5,249,953
|
|
|
$
|
965, 422
|
|
|
$
|
-
|
|
|
$
|
6,215,375
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
AEC New
York
|
|
|
AEC BVI
|
|
|
AEC
Southern UK
|
|
|
Total
|
|
|
Segment assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets from continuing operations
|
|
$
|
6,206,780
|
|
|
$
|
99,933
|
|
|
$
|
-
|
|
|
$
|
6,306,713
|
|
|
Segment assets of discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
917,059
|
|
|
|
917,059
|
|
|
Segment assets
|
|
$
|
6,206,780
|
|
|
$
|
99,993
|
|
|
$
|
917,059
|
|
|
$
|
7,223,772
|
|
|
Segment liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities from continuing operations
|
|
$
|
3,394,637
|
|
|
$
|
52,608
|
|
|
$
|
-
|
|
|
$
|
3,447,245
|
|
|
Segment liabilities of discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
1,881,404
|
|
|
|
1,881,404
|
|
|
Segment liabilities
|
|
$
|
3,394,637
|
|
|
$
|
52,608
|
|
|
$
|
1,881,404
|
|
|
$
|
5,328,649
|
|
The Company recorded a total gain of $561,807 from
disposal of discontinued operation, including current period of operation loss of $366,667 before disposal.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
|
11.
|
SEGMENT REPORTING (Continued)
|
Revenues from external customers,
and gross profit for each business are as follows:
|
|
|
For the year ended December 31, 2019
|
|
|
|
|
AEC New York
|
|
|
AEC BVI
|
|
|
Total
|
|
|
Segment revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Placement advisory
|
|
$
|
1,141,900
|
|
|
$
|
122,207
|
|
|
$
|
1,264,107
|
|
|
Career advisory
|
|
|
3,153,605
|
|
|
|
-
|
|
|
|
3,153,605
|
|
|
Student & Family advisory
|
|
|
887,700
|
|
|
|
-
|
|
|
|
887,700
|
|
|
Other advisory
|
|
|
3,000
|
|
|
|
-
|
|
|
|
3,000
|
|
|
Total revenue from continued operations
|
|
$
|
5,186,205
|
|
|
$
|
122,207
|
|
|
$
|
5,308,412
|
|
|
Total revenue from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Gross profit
|
|
$
|
2,103,757
|
|
|
$
|
110,187
|
|
|
$
|
2,213,944
|
|
|
|
|
For the year ended December 31, 2018
|
|
|
|
|
AEC New
York
|
|
|
AEC
BVI
|
|
|
Total
|
|
|
Segment revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate training & advisory
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Placement advisory
|
|
|
627,700
|
|
|
|
76,464
|
|
|
|
704,164
|
|
|
Career advisory
|
|
|
2,084,055
|
|
|
|
-
|
|
|
|
2,084,055
|
|
|
Student & Family advisory
|
|
|
4,224,220
|
|
|
|
-
|
|
|
|
4,224,220
|
|
|
Total revenue from continued operations
|
|
$
|
6,935,975
|
|
|
$
|
76,464
|
|
|
$
|
7,012,439
|
|
|
Total revenue from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Gross profit
|
|
$
|
2,442,778
|
|
|
$
|
71,390
|
|
|
$
|
2,514,168
|
|
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
The Company receives advance
payments for services to be performed and recognizes revenue when services have been rendered. The deferred revenues as of December
31, 2019 and 2018 were $215,500 and $252,925, respectively.
|
13.
|
RELATED-PARTY TRANSACTIONS
|
The Company’s CEO has
a 34% interest in Columbia International College, Inc. (“CIC”). The Company prepaid CIC $48,000 for student consulting
services of which is expected to be fully delivered and accounted for in 2020.
The Company’s CEO has
a 40% interest in Wall Street Innovation Center, Inc. (“WSIC”), a corporation incorporated in the state of New York
that focuses on career and business development activities. In the course of delivering career advisory services, the Company has
engaged WSIC to assist in certain career development activities. The Company prepaid WSIC $49,628.23 for business consulting services
to be delivered and completed in 2020.
The Company’s CEO received
12,500,000 shares of Series B Convertible Preferred Stock of the Company (“Series B Preferred Stock”), par value $0.001
per share as a reward for his dedicated services to the Company on November 26, 2018.
The Company borrowed $574,564
(translated from RMB4,000,000) from a shareholder of the Company during the year ended December 31, 2019. The amounts due
to this related party were $574,564 and $0 as of December 31, 2019 and 2018, respectively. The amounts are non-interest bearing,
non-secure and due on demand.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2019 AND 2018
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. Interests are to be paid on the last day of each quarter from 2015 to 2019. On December 3, 2019,
the Company entered into an installment agreement with the lender, where the both parties agreed the loan balance of $148,434 including
original loan principal along with the last term’s interest with interest at 1.06%. The installment of $50,000 are to be
paid on the 10th day of each month. The outstanding balance of the principal was $98,433 as of December 31, 2019.
Interest expenses for the year
ended December 31, 2019 and 2018 were $14,610 and $14,558, respectively.
The Company currently has
two operating leases for offices in different cities. In December 2014, the Company entered into a lease for 10,086 square
feet of office space in New York, NY, with an unrelated party, expiring on July 31, 2025. The lease commenced on March 1,
2015 and the Company received two months of free rent. Due to free rent and escalating monthly rental payments, utilities,
real estate taxes, insurance and other operating expenses, the lease is being recognized on a straight-line basis of $34,065
per month for financial statement purposes.
We determined the present value
of the future lease payments using a discount rate of 8.05%, our incremental borrowing rate based on current SBA loan rate, resulting
in an initial right-of-use asset of $2,016,142 and lease liability of $2,237,583, which are being amortized ratably over the
term of the lease.
In May 2019, the Company entered into a lease of office space
in Shenzhen, Guangdong, PRC with an unrelated party, expiring on April 30, 2024. The lease commenced on May 1, 2019. We determined
the present value of the future lease payment using a discount rate of 8.16%, our incremental borrowing rate based on current SBA
loan rate, resulting in an initial right-of-use asset of $414,157 (RMB2,899,099) and lease liability of $399,048 (RMB2,793,341),
which are being amortized ratably over the term of the lease. As December 31, 2019, the amount updated due to foreign currency
translation as initial right-of-use asset of $416,430 (RMB2,899,099) and lease liability of $401,238 (RMB2,793,341).
As of December 31, 2019, the
balance of net right-of-use asset was $2,149,710, and lease liability was $2,399,174 (including $331,670 for current portion and
$2,067,504 for noncurrent portion).
Future minimum lease commitments
are as follows on December 31, 2019:
|
Year Ending December 31,
|
|
Gross Lease
Payment
|
|
|
2020
|
|
|
512,639
|
|
|
2021
|
|
|
539,027
|
|
|
2022 and thereafter
|
|
|
1,922,087
|
|
|
|
|
$
|
2,973,753
|
|
|
Less: Present value adjustment
|
|
|
(574,579
|
)
|
|
Operating lease liability
|
|
$
|
2,399,174
|
|
Payments under operating
leases are expensed on a straight-line basis over the periods of their respective leases. The total rent expense was
approximately $494,921 and $408,781 for the year ended December 31, 2019 and 2018, respectively.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
The component of deferred tax
assets at December 31, 2019 and 2018 are as follows:
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Net operating loss carryforwards
|
|
|
471,404
|
|
|
|
321,803
|
|
|
Allowance for bad debt
|
|
|
558,397
|
|
|
|
97,942
|
|
|
Accelerated Depreciation
|
|
|
-
|
|
|
|
8,461
|
|
|
Allowance for deferred tax asset
|
|
|
(472,186
|
)
|
|
|
-
|
|
|
Deferred tax asset, net
|
|
$
|
557,615
|
|
|
$
|
428,206
|
|
The provision for income taxes
and deferred income taxes for year ended December 31, 2019 and 2018 are as follows:
|
|
|
For the year
ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
35,867
|
|
|
$
|
(212,155
|
)
|
|
State
|
|
|
28,535
|
|
|
|
(150,115
|
)
|
|
Foreign
|
|
|
33,535
|
|
|
|
112,059
|
|
|
Total current
|
|
|
97,937
|
|
|
|
(250,211
|
)
|
|
Less from discontinued operation
|
|
|
-
|
|
|
|
112,059
|
|
|
Total from continuing operation
|
|
|
97,937
|
|
|
|
(362,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(75,785
|
)
|
|
|
(235,753
|
)
|
|
State
|
|
|
(53,624
|
)
|
|
|
(166,812
|
)
|
|
Foreign
|
|
|
-
|
|
|
|
(444,246
|
)
|
|
Total deferred
|
|
|
(129,409
|
)
|
|
|
(846,811
|
)
|
|
Less from discontinued operation
|
|
|
-
|
|
|
|
(444,246
|
)
|
|
Total from continuing operation
|
|
|
(129,409)
|
|
|
|
(402,565
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(31,472
|
)
|
|
$
|
(1,097,022
|
)
|
|
Less from discontinued operation
|
|
|
-
|
|
|
|
(332,187
|
)
|
|
Total from continuing operation
|
|
$
|
(31,472
|
)
|
|
$
|
(764,835
|
)
|
The Company conducts business
globally and, as a result, files income tax returns in the US federal jurisdiction, state and city, and foreign jurisdictions.
In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including jurisdictions
in the US. The Company is subject to income tax examinations of US federal, state, and city for 2018, 2017 and 2016 tax years.
The Company, to its knowledge, is not currently under examination nor has it been notified by the authorities.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
|
16.
|
Income taxes (continued)
|
A reconciliation of the provision
for income taxes, with the amount computed by applying the statutory effective income tax rate for the year ended December 31,
2019 and 2018 is as follows:
|
|
|
For the year
ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Tax at federal statutory rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
|
State and local taxes, net of federal benefit
|
|
|
11.0
|
|
|
|
15.4
|
|
|
PRC statutory income tax rate
|
|
|
25.0
|
|
|
|
25.0
|
|
|
Non-deductible/ non-taxable items
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
57
|
%
|
|
|
61.4
|
%
|
|
17.
|
FINANCIAL INSTRUments
|
Fair values
The Company’s financial
instruments from continuing operations approximate include cash and cash equivalents and prepaid expenses and other current assets
which approximate to fair value due to their short-term nature and include cash accounts. The Company’s borrowings approximate
fair value as the rates of interest are similar to what they would receive from other financial institutions. The carrying amounts
of these financial assets and liabilities are a reasonable estimate of their fair values because of their current nature.
The Company’s financial
instruments from discontinued operations include cash and cash equivalents, net accounts receivable, prepaid expenses and other
current assets, accounts payable, accrued expenses and other current liabilities, advance from customers, and income tax payable.
The carrying amounts of these financial instruments are a reasonable estimate of their fair values because of their current nature.
The following table summarizes
the carrying values of the Company’s financial assets and liabilities:
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Cash and cash equivalents of continuing operations
|
|
$
|
1,035,395
|
|
|
$
|
1,985,133
|
|
|
Accounts receivable, prepaid expenses and other current assets
|
|
|
3,127,655
|
|
|
|
3,206,946
|
|
|
Other assets of discontinued operations
|
|
|
-
|
|
|
|
917,059
|
|
|
Other financial liabilities(i)
|
|
|
4,147,871
|
|
|
|
3,225,784
|
|
|
Liabilities of discontinued operations
|
|
$
|
-
|
|
|
$
|
1,881,404
|
|
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
|
17.
|
FINANCIAL INSTRUments (Continued)
|
|
|
(i)
|
Accounts payable, accrued expenses and other current liabilities, advance from customers, and income tax payable.
|
The Company classifies its fair
value measurements in accordance with the three-level fair value hierarchy as follows:
Level 1 – Unadjusted quoted
prices in active markets for identical assets or liabilities
Level 2 – Inputs other
than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived
from prices), and
Level 3 – Inputs that
are not based on observable market data.
The financial assets
and liabilities carried at fair value on a recurring basis at December 31, 2019 are as follows:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of continuing operations
|
|
$
|
1,035,395
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,035,396
|
|
|
Cash and cash equivalents of discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other financial assets of continuing operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other financial assets of discontinued operations
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total Financial assets
|
|
$
|
1,035,395
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,035,396
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities of continuing operations
|
|
$
|
4,147,871
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,134,947
|
|
|
Other liabilities of discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total Financial Liabilities
|
|
$
|
4,147,871
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,134,947
|
|
The financial assets and liabilities carried at fair
value on a recurring basis at December 31, 2018 are as follows:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of continuing operations
|
|
$
|
1,985,133
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,985,133
|
|
|
Cash and cash equivalents of discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other financial assets of continuing operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other financial assets of discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total Financial Assets
|
|
$
|
1,985,133
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,985,133
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities of continuing operations
|
|
$
|
3,225,784
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,225,784
|
|
|
Other liabilities of discontinued operations
|
|
|
1,881,404
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,881,404
|
|
|
Total Financial Liabilities
|
|
$
|
5,107,188
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,107,188
|
|
Interest rate and credit risk
Financial instruments that potentially
subject the Company to concentrations of credit risks consist principally of cash and cash equivalents, and net accounts receivable.
The Company minimizes the interest rate and credit risk of cash by placing deposits with financial institutions located in the
United States and Mainland China. Management believes that there is no significant credit risk arising from the Company’s
financial instruments.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
|
17.
|
FINANCIAL INSTRUments (Continued)
|
Financial assets past due
The following table provides
information regarding the aging of financial assets that are past due, but which are not impaired at December 31, 2019:
|
|
|
Less than
90 days
|
|
|
90 days to
1 year
|
|
|
Over
1 year
|
|
|
Carrying
Value
|
|
|
Accounts receivable, net
|
|
$
|
845,320
|
|
|
$
|
2,000,109
|
|
|
$
|
-
|
|
|
$
|
2,845,429
|
|
|
Other receivable
|
|
$
|
-
|
|
|
$
|
28,696
|
|
|
$
|
-
|
|
|
$
|
28,696
|
|
|
Total accounts receivable, net
|
|
$
|
845,320
|
|
|
$
|
2,028,805
|
|
|
$
|
-
|
|
|
$
|
2,874,125
|
|
The Company determines past
due amounts by reference to terms agreed with individual clients. None of the net amounts outstanding have been challenged by the
respective clients and the Company continues to conduct business with them on an ongoing basis and does not consider its current
accounts receivable to be past due.
The Company did not grant any
stock options during the year ended December 31, 2019.
The following is a summary of
stock option activities:
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding at December 31, 2018
|
|
|
3,200,000
|
|
|
$
|
2.45
|
|
|
|
6.87 years
|
|
|
$
|
-
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled and expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
3,200,000
|
|
|
$
|
2.45
|
|
|
|
3.87 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2019
|
|
|
3,200,000
|
|
|
$
|
0.89
|
|
|
|
1.44 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2019
|
|
|
3,200,000
|
|
|
$
|
0.89
|
|
|
|
1.44 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 year ended December 31, 2019 and 2018.
The estimated fair value of
these options was $0, therefore no compensation expense was booked for the periods ended December 31, 2019 and 2018.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
Certificate of Amendment
to Increase Authorized Stock
On November 6, 2018, the board
of directors of the Company, with the written consent of a majority of the holders of the shares of the Company’s Common
Stock issued and outstanding and the Company’s preferred stock issued and outstanding, voting together as a single class,
authorized the Company to (i) increase the number of authorized shares of Common Stock from 180,000,000 to 450,000,000 and the
number of authorized shares of preferred stock from 20,000,000 to 50,000,000 (the “Authorized Stock Increase”), and
(ii) file a Certificate of Amendment with the Secretary of State of the State of Nevada to effect the Authorized Stock Increase.
On November 8, 2018, the Company
filed a Certificate of Amendment with the Secretary of State of the State of Nevada to effect the Authorized Stock Increase, which
became effective upon filing.
Stocks issued for business
acquisition
On July 10, 2018, the Company
issued 100,000 shares of the Company’s common stock (the “Consideration Shares”) to FIFPAC, Inc, the 100% equity
owner of AIFI, at a purchase price of $0.48 per share, in exchange for 51% equity ownership of the AIFI pursuant to the Purchase
Agreement. Refer to Footnote 21 Business Acquisition.
Stocks issued to employees
and for services
In July and August 2018, the
Company entered into agreements pursuant to which it issued an aggregate of 448,000 shares of the Company’s common stock
to 18 individuals who are either employees of the Company or have been service providers to the Company, for employment-based compensation
or services provided, respectively. Subsequently, pursuant to such agreements, the Company issued an aggregate of 433,000 shares
of the Company’s common stock to 10 out of the 18 individuals in the amount of $199,840 and 15,000 shares of the Company’s
common stock for services rendered in the amount of $7,000, prior to December 31, 2018.
In May 2019, the Company entered into agreements pursuant to
which it issued an aggregate of 200,000 shares of the Company’s common stock in the amount of $62,000 to 4 individuals who
have been service providers to the Company for services provided, prior to December 31, 2019.
Stocks issued for cash
investment
On November 26, 2018, the Company,
entered into a Share Issuance Agreement (the “Share Issuance Agreement”) with China Cultural Finance Holdings Company
Limited, a British Virgin Islands company and a shareholder of the Company (the “Holder”), whereby the Company agreed
to issue 7,199,113 of shares of the Company’s common stock at $0.10 per share, to the Holder in exchange for an RMB5,000,000
investment (the “CCFH Investment”) in the Company’s subsidiary, AEC Southern Shenzhen. The transactions underlying
the Share Issuance Agreement were closed on the same day and the shares of common stock were issued to the Holder (the “CCFH
Share Issuance”). The Company received $127,606 (HKD 1,000,000) as of December 31, 2019.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
|
20.
|
SERIES B PREFERRED STOCK
|
Designation of Series
B Convertible Preferred Stock
On November 13, 2018, the Company
filed with the Secretary of State of the State of Nevada a Certificate of Designation of Series B Convertible Preferred Stock (the
“Certificate of Designation”), which became effective upon filing. The Certificate of Designation established and designated
the Series B Convertible Preferred Stock (“Series B Preferred Stock”) and the rights, preferences, privileges, and
limitations thereof, summarized in the following:
The Company designated 25,000,000
shares as Series B Preferred Stock out of the 50,000,000 unissued shares of preferred stock of the Company, par value $0.001 per
share. Series B Preferred Stock is senior in rights of payment, including dividend rights and liquidation preference, to the Company’s
common stock but junior to Series A Preferred Stock with respect to liquidation preference.
Holders of shares of Series
B Preferred Stock are entitled to vote with shareholders of the Company’s common stock, voting together as a single class,
except on matters that require a separate vote of the holders of Series B Preferred Stock. In any such vote, each share of Series
B Preferred Stock is entitled to 20 votes per share.
Each share of Series B Preferred
Stock shall, upon the approval of the board of directors of the Company and without the payment of additional consideration by
such holder thereof, be convertible into one fully paid and non-assessable share of the Company’s common stock at a conversion
price of $1 per share.
Manager Share Issuance
On November 26, 2018, the Company
entered into a Manager Share Issuance Agreement (the “Manager Share Issuance Agreement”) with Mr. Max P. Chen, the
Chief Executive Officer, President, and Chairman of the Board of the Company (“Mr. Chen”), whereby the Company agreed
to reward Mr. Chen for his dedicated services to the Company by issuing 12,500,000 shares of Series B Preferred Stock to him with
resale restrictions. The transactions underlying the Manager Share Issuance Agreement closed on the same day and 12,500,000 shares
of Series B Preferred Stock were issued to Mr. Chen. The Company recognized stock compensation expense of $1,250,000 for the year
ended December 31, 2018.
Stocks issued for exchange
agreement
On November 26, 2018, the Company
entered into an Exchange Agreement (the “Exchange Agreement”) with the Holder, whereby the Company agreed to issue
12,500,000 shares of Series B Convertible Preferred Stock of the Company (“Series B Preferred Stock”), par value $0.001
per share, and 7,500,000 shares of common stock with resale restrictions to the Holder in exchange for 500,000 shares of Series
A Convertible Preferred Stock of the Company, par value $0.001 per share (the “Series A Preferred Stock”), held by
the Holder. The transactions underlying the Exchange Agreement closed on the same day and 12,500,000 shares of Series B Preferred
Stock and 7,500,000 shares of Common Stock were issued to the Holder. The Series A Preferred Stock were returned to the Company
and cancelled.
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARies
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
On July 10, 2018, the Company
entered into the Purchase Agreement with the 100% owner of AIFI which closed on the same date.
Pursuant to the Purchase Agreement,
on July 10, 2018, the Company issued the Consideration Shares to the Seller, for a purchase price of $0.48 per share, in exchange
for 51% equity ownership of AIFI. Pursuant to ASC 805, the Company recognized a gain of $13,200 on the effective date of July 10,
2018.
According to the Purchase Agreement,
the contingent consideration consisted of compensatory arrangement for services to be performed by the owner of the acquiree, and
such amounts are to be determined in the future by both parties; therefore, the fair value cannot be determined at the acquisition
date. The Company as an acquirer did not recognize a liability at the acquisition date.
The following table summarizes
the consideration paid and the amounts of net assets acquired as of the date of acquisition:
|
Fair value of net asset acquired (AIFI’s net identified assets)
|
|
$
|
120,000
|
|
|
Less:
|
|
|
|
|
|
Fair value of consideration transferred (FMV of AEC’s 100k shares issued)
|
|
|
(48,000
|
)
|
|
Fair value of noncontrolling interest (120k x 49%)
|
|
|
(58,800
|
)
|
|
|
|
$
|
(106,800
|
)
|
|
|
|
|
|
|
|
Gain on bargain purchase
|
|
$
|
13,200
|
|
AMERICAN
EDUCATION CENTER, Inc. AND SUBSIDIARies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND 2018
|
22.
|
COMMITMENTS & CONTINGENCY
|
A contingency should be recognized
at its acquisition date fair value if that value can be determined. (The guidance in Topic 820 is used to determine fair value).
If the acquisition-date fair value of contingency cannot be determined, then an asset or liability is recognized for the contingency
if it’s probable at the acquisition date that such asset or liability exists and if its amount is reasonable estimable.
A contingency is not recognized
for a contingency in the accounting for a business combination if: a) its fair value cannot be determined and b) the probable and
reasonably estimate criteria are not met. Instead, the contingency is disclosed and accounted for subsequent to the acquisition
date in accordance with Topic 450.
Pursuant to the Purchase Agreement,
the contingent consideration consisted of compensatory arrangement for services to be performed by the officers of the acquiree,
and such amounts are to be determined in the future by both parties; therefore, the fair value cannot be determined at the acquisition
date. The Company as an acquirer did not recognize a liability at the acquisition date.
Substantial doubt about the
Company’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate
that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that
the financial statements are issued. Our current operating results indicate that substantial doubt exists related to the Company’s
ability to continue as a going concern. We believe that the new education platforms acquired may mitigate the substantial doubt
raised by our current operating results and with additional funding from a shareholder of the Company will be sufficient to meet
its anticipated needs for working capital and satisfying our estimated liquidity needs 12 months from the date of the financial
statements. However, we cannot predict, with certainty, the outcome of our actions to generate liquidity, including the availability
of additional debt financing, or whether such actions would generate the expected liquidity as currently planned.
In January 2020, novel coronavirus
(“COVID-19”) has spread rapidly to many parts of China and other parts of the world. The epidemic has resulted in quarantines,
travel restrictions, and the temporary closure of stores and facilities in China and elsewhere. A substantial part of the Company’s
revenue and workforce are concentrated in China. Consequently, the COVID-19 outbreak may materially adversely affect the Company’s
business operations and its financial condition and operating results for 2020, including but not limited to material negative
impact to the Company’s total revenues. Because of the significant uncertainties surrounding the COVID-19 outbreak, the extent
of the business disruption and the related financial impact cannot be reasonably estimated at this time.
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.
In January 2020, the Company
entered into agreements pursuant to which it issued an aggregate of 700,000 shares of the Company’s common stock to 2 individuals
who are either employees of the Company or have been service providers to the Company, for employment-based compensation or services
provided, respectively.
The Company borrowed two loans
of $287,282 from a shareholder of the Company, $143,641 (translated from RMB1,000,000) borrowed on April 1, 2020, and
$143,641 (translated from RMB1,000,000) borrowed on May 26, 2020. The amounts are non-interest bearing, non-secure
and due on demand
The Company incorporated a
new subsidiary, Yiqilai (Shenzhen) Consulting Management Co., Ltd., in Shenzhen, China on May 22, 2020 pursuant to PRC laws.