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EX-31.2 - CERTIFICATION - Chineseinvestors.com, Inc.chinese_10q-ex3102.htm
EX-31.1 - CERTIFICATION - Chineseinvestors.com, Inc.chinese_10q-ex3101.htm
EX-32.1 - CERTIFICATION - Chineseinvestors.com, Inc.chinese_10q-ex3201.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 
(Mark one)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended February 29, 2012
 
OR

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period __________ to __________
 
Commission File Number: 000-54207

 
ChineseInvestors.COM
(Exact name of registrant as specified in its charter)

 
Indiana
 
35-2089868
(State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer
Identification Number)

411 E. Huntington Drive #107-228, Arcadia, CA 91006
(Address of principal executive offices, including zip code)

Brett Roper, Director of Administrative Services — (303) 345-1262
(Registrant’s telephone number, including area code)

Copies to: Michael E. Shaff, Esq., Irvine Venture Law Firm, LLP
17901 Von Karman Avenue, Suite 500, Irvine, CA 92614 Telephone (949) 660-7700

Indicate by check mark whether the registrant (1) has 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.    Yes  x    No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer
 
¨
  
Accelerated filer
 
¨
       
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
 
The Registrant has 4,992,454 shares of common stock and 2,003,776 shares of preferred stock outstanding as of April 16, 2012.
 
 
 

 
 
ChineseInvestors.COM, Inc.
 
FORM 10-Q for the Quarter Ended February 28, 2012
 
INDEX
 
 
 
Page
PART I - FINANCIAL INFORMATION
     
Item 1.
Financial Statements
3
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
18
     
Item 4.
Controls and Procedures
18
     
PART 2 - OTHER INFORMATION
     
Item 1.
Legal Proceedings
18
     
Item 1A.
Risk Factors
18
     
Item 2.  
Unregistered Sales of Equity Securities and Use of Proceeds
19
     
Item 3.  
Defaults Upon Senior Securities  
19
     
Item 4.
(Removed and reserved)
19
     
Item 5.
Other Information
19
     
Item 6.
Exhibits 
19
     
Signatures
19
 
 
 
2

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.
 
Chineseinvestors.Com, Inc.
 
BALANCE SHEETS

As of
(Expressed in U.S. Dollars)

   
(UNAUDITED)
February 29, 2012
   
(Audited)
May 31, 2011
 
   
$
   
$
 
             
ASSETS
           
Current assets
           
Cash and cash equivalents [note 1]
   
1,568,685
     
252,302
 
Accounts receivable, net [note 1]
   
8,821
     
4,560
 
Other current assets [note 1]
   
38,203
     
27,689
 
Total current assets
   
1,615,709
     
284,551
 
Property & equipment, net [note 4]
   
3,186
     
6,946
 
Website development, net [note 5]
   
63,387
     
63,158
 
Total assets
   
1,682,282
     
354,655
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities
               
Accounts payable
   
7,637
     
7,527
 
Commissions Payable [note 1]
   
158,846
     
         —
 
Private placement rescentions payable [note 1]
   
69,631
     
         —
 
Deferred revenue [note 1]
   
163,972
     
270,577
 
Accrued liabilities [note 1]
   
40,575
     
51,596
 
Total current liabilities
   
440,661
     
329,700
 
Long-term deferred revenue [note 3]
   
4,615
     
5,797
 
Total liabilities
   
445,276
     
335,497
 
                 
Commitments [note 6]
               
Subsequent events [note 7]
               
                 
Stockholders’ equity [note 3]
               
Common stock Authorized 80,000,000 common shares with a par value of $0.008 per share Issued and outstanding 4,992,454 common shares
   
39,200
     
39,217
 
Preferred stock Authorized 20,000,000 common shares with a par value of $0.001 per share Issued and outstanding 1,851,000 preferred shares
   
1,851
         
Additional paid-in capital
   
9,089,981
     
6,883,867
 
Foreign currency gain/loss
   
1,670
     
1,321
 
Stockholder’s Deficit
   
(7,895,696
   
(6,905,247
Total stockholders’ equity
   
1,237,006
     
19,158
 
Total liabilities and stockholders’ equity
   
1,682,282
     
354,655
 


See accompanying notes
 
 
3

 
 
 
Chineseinvestors.Com, Inc.
 
STATEMENTS OF OPERATIONS AND (LOSS)
(UNAUDITED)
 
 
(Expressed in U.S. Dollars)

 
                         
   
Three months ended February 29,
   
Nine months ended February 29,
 
   
2012
   
2011
   
2012
   
2011
 
Operating revenues
                       
Subscription revenue
   
125,794
     
193,172
     
459,597
     
545,257
 
Binary option commissions
   
87,550
             
87,550
         
FOREX revenue
   
8,615
     
5,717
     
29,461
     
49,822
 
Advertising revenue
   
8,100
     
12,600
     
46,780
     
28,800
 
Total revenue
   
230,059
     
211,489
     
623,388
     
623,879
 
                                 
Cost of services sold
   
154,181
     
159,270
     
447,129
     
426,055
 
                                 
General & administrative expenses
   
323,830
     
175,009
     
909,624
     
573,032
 
Commissions for private placement memorandum
   
158,846
             
158,846
         
Advertising expenses
   
52,135
     
22,200
     
131,975
     
62,050
 
                                 
Net (loss) for the quarter
   
(458,933
)
   
(144,990
)
   
(1,024,186
)
   
(437,258
)
                                 
Gain on early extinguishment of debt
   
33,738
     
         —
     
         33,738
     
         —
 
                                 
Loss from continuing operations
   
(425,195
   
(144,990
)
   
(990,448
)
   
(437,258
)
                                 
Weighted average number of common shares outstanding – basic
   
34,250,579
     
34,250,579
     
34,250,579
     
34,250,579
 
                                 
Earnings (loss) per share - basic
   
(0.00
)
   
(0.00
)
   
(0.01
)
   
(0.01
)
Weighted average number of common shares outstanding – diluted
   
42,030,579
     
42,030,579
     
42,030,579
     
42,030,579
 
Earnings (loss) per share - diluted
   
(0.00
)
   
(0.00
)
   
(0.01
)
   
(0.01
)

 
 
 
See accompanying notes
 
 
4

 
 
 
Chineseinvestors.Com, Inc.

STATEMENTS OF CASH FLOWS
(UNAUDITED)

Nine months ended February 29,
(Expressed in U.S. Dollars)

   
2012
   
2011
 
             
OPERATING ACTIVITIES
           
Net (loss) for the nine month period
 
$
(1,024,186
 
$
(437,258)
 
Adjustment to reconcile net (loss) to net cash used in operating activities:
               
Depreciation & amortization
   
11,541
     
10,738
 
Share based compensation
   
48,000
     
160,741
 
Deposits
   
(10,165)
     
(1,181)
 
Accounts receivable
   
(4,261
   
3,040
 
Accounts payable
   
110
     
(2,925)
 
Other accrued liabilities
   
115,855
     
(4,187)
 
                 
Net cash (used in) operating activities
   
(863,106
   
(271,032
)
                 
INVESTING ACTIVITIES
               
Purchase of equipment
   
(8,011
   
(8,658
)
                 
FINANCING ACTIVITIES
               
Proceeds from private placement of common stock
   
544,000
     
261,000
 
Proceeds from private placement of Preferred stock
   
1,851,000
         
Cash used for treasury stock purchase and retirement
   
(207,500
)
       
Purchase and Retirement of Shares
   
         — 
     
         —
 
     
2,187,500
     
261,000
 
                 
Increase (decrease) in cash and cash equivalents
   
1,316,383
     
(18,690
Cash and cash equivalents, beginning of quarter
   
252,302
     
154,802
 
Cash and cash equivalents, end of quarter
   
1,568,685
     
136,112
 
                 
Supplemental disclosure of cash flow information
               
Cash paid for interest, net of interest capitalized
   
     
 
Cash paid for income taxes
   
     
 
Cash paid for China representative office tax
   
32,876
     
27,229
 

 
 
See accompanying notes
 

 
 
5

 
 
 
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)

Organization and Nature of Operations:

Business Description Chinseinvestors.com, Inc. (the Company) was incorporated on June 15, 1999 in the State of California. The Company is a provider of Chinese language web-based real-time financial information. The Company’s operations had been located in California until September 2002 at which time the operations were relocated to Shanghai, in the People’s Republic of China (PRC).

During May, 2000, the Company entered into an agreement with MAS Financial Corp. (“MASF”) whereby MASF agreed to transfer control of a public shell corporation to the Company and perform certain consulting services for a fee of $30,000.

During June, 2000, the Company completed reorganization with MAS Acquisition LII Corp. (“MASA”) with no operations or significant assets. Pursuant to the terms of the agreement, the Company acquired approximately 96% of the issued and outstanding common shares of MASA in exchange for all of its issued and outstanding common stock. MASA issued 8,200,000 shares of its restricted common stock for all of the issued and outstanding common shares of the Company. This reorganization was accounted for as though it were a recapitalization of the Company and sale by the Company of 319,900 shares of common stock in exchange for the net assets of MASA. In conjunction with the reorganization MASA changed its name to Chineseinvestors.com, Inc.

The Company is now incorporated as a C corporation in the State of Indiana as of June 1, 2004.

1.
Liquidity and Capital Resources:

Cash Flows — Cash flows used in operations for the nine month period ended February 29, 2012 and 2011 were $831,688 and $271,032, respectively which was an increase over prior quarters. Increased marketing costs, business line expansion, and higher general and administrative costs due to the cost of developing and marking a new conference initiative promoting its products were the primary reasons for this increase.

Capital Resources — As of February 29, 2011, the Company had cash and cash equivalents of $1,568,685 as compared to cash and cash equivalents of $252,302 as of May 31, 2011.

Since inception, the Company has primarily relied upon proceeds from private placements of its equity securities to fund its operations. The Company anticipates continuing to rely on sales of our securities in order to continue to fund its business operations. Issuances of additional shares will result in dilution to its existing stockholders. There is no assurance that the Company will be able to complete any additional sales of our equity securities or that it will be able arrange for other financing to fund our planned business activities.

2.
Critical Accounting Policies and Estimates:

Basis of Presentation — These accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC for annual financial statements.
    
Foreign Currency – The Company has operations in the PRC, however the functional and reporting currency is in US dollars.  To come to this conclusion the Company considered the direction of Accounting Standards Codification (“ASC”) section 830-10-55.
  
Selling Price and Market - As a representative office in PRC the Company is not allowed to sell directly to PRC based customers.  Over 90% of its customers are in the United States and 100% of all sales are paid in US dollars.  This indicates the functional currency is US dollars.
 
 
6

 

 
Financing - The Companies financing has been generated exclusively in US dollars from the United States.  This indicates the functional currency is US dollars.
 
Expenses – The majority of expense are paid in US dollars.  The expenses generated in PRC are paid by a monthly or weekly cash transfer from the US when the expenses are due, resulting in very little foreign currency exposure.  This indicates the functional currency is US dollars.
 
Numerous Intercompany Transactions – The Company has multiple transactions each month between the US and Chinese representative office.  This indicates the functional currency is US dollars.
 
Due to the functional and reporting currency both being in US dollars, ASC 830-10-45-17 states that a currency translation is not necessary.

Reclassifications — Certain amounts in the prior year’s financial statements have been reclassified to conform to the current year presentation and to correct prior year errors.

Revenue recognition — Revenue consists of four primary sources:

1. Fees from banner advertisement, webpage hosting and maintenance, on-line promotion and translation services, advertising and promotion fees for customers in the Company’s Chinese Investment Guides, sponsorship fees from investment seminars, road shows, and forums.  The sales prices of these services are fixed and determinable at the time the contracts are signed and there are no provisions for refunds contained in the contracts. These revenues are recognized when all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured.

2. Fees from membership subscriptions; these revenues are recognized over the term of the subscription. Subscription terms are generally between 3 and 12 months but can occasionally be as short as 1 month or as long as 24 months. Long term deferred revenues are recognized from subscriptions over 12 months.

3. Fees related to setting up and providing ongoing administrative and translation support for currency trading accounts in association with Forex. These fees are recognized when earned.

4.  Commissions earned from setting up binary option accounts for Option World, a Chinese base binary option trading platform.  As an incentive to encourage people to set up larger accounts, Option World will give a gift of various consumer electronic products, for example a new $10,000 account receives an Ipad or Iphone and a $20,000 account receives a Macbook Air.  Since Chineseinvestors.com, Inc. has the primary relationship with these customers, the company will provide these products to the customers and then Option World will reimburse them for these expenses.  During the quarter ended February 29, 2012 the cost of the incentives was $41,974, both received and spent.  Since these transactions were basically “pass-through transactions” these numbers were netted against each other and were not included in revenue or expense.

Costs of Services Sold — Costs of services sold are the total direct cost of the Company’s operations in Shanghai.

Website Development Costs — The Company accounts for its Development Costs in accordance with ASC 350-50, “Accounting for Website Development Costs.” The Company’s website comprises multiple features and offerings that are currently developed with ongoing refinements. In connection with the development of its products, the Company has incurred external costs for hardware, software, and consulting services, and internal costs for payroll and related expenses of its technology employees directly involved in the development. All hardware costs are capitalized as fixed assets. Purchased software costs are capitalized in accordance with ASC codification 350-50-25 related to accounting for the costs of computer software developed or obtained for internal use. All other costs are reviewed to determine whether they should be capitalized or expensed.
 
 
7

 

Cash and Cash Equivalents — The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. At certain times cash in bank may exceed the amount covered by FDIC insurance. At February 29, 2012 and May 31, 2011 there were deposit balances in a US bank of $1,542,510 and $245,191, respectively. In addition the Company maintains cash balance in The Bank of China, which is a government owned bank. The full balance of the deposits in PRC is secured by the Chinese government. At February 29, 2012 and May 31, 2011 there were deposits of $26,175 and $7,111, respectively, in The Bank of China. 
  
Accounts Receivable and Concentration of Credit Risk — The Company extends unsecured credit to its customers in the ordinary course of business. Accounts receivable related to subscription revenue is recorded at the time the credit card transaction is completed, and when the credit card processing company deposits the cash to the Company account. Revenue related to advertising and Forex are regularly collected within 30 days of the time of services being rendered. However, since these are ongoing contracts there has been no instance of failure to pay. As of February 29, 2012 and May 31, 2011, the Company had accounts receivable of $8,821 and $4,560, respectively.

The Company evaluates the need for an allowance for doubtful accounts on a regular basis. As of February 29, 2012 and 2011, the Company determined that based on historically having no bad debts an allowance was not needed.

The operations of the Company are located in the People’s Republic of China (“PRC”). Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy.
 
Other Current Assets — Other current assets comprised various deposits in Chinese Renminbi related to building space under an operating lease and are stated at the current exchange rate at the period end and prepaid expenses related to several invoices that were paid prior to the services being completed.
 
Other current assets were $38,203 and $27,689 at February 29, 2012 and May 31, 2011, respectively.
 
Property and Equipment — Property and equipment are stated at cost. Depreciation and amortization of property and equipment is provided using the straight-line method over estimated useful lives ranging from three to five years. Leasehold improvements are amortized over the life of the lease. Depreciation and amortization expense was $11,542 and $10,728 for the nine months ended February 29, 2012 and 2011, respectively.
 
Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Gains and losses from retirement or replacement are included in operations.

Impairment of Long-life Assets — In accordance with ASC Topic 360, the Company reviews its long-lived assets, including property, plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There was no impairment as of February 29, 2012 and May 31, 2011.

Accrued Liabilities— Accrued liabilities are comprised of the following:
        
   
November 30,
   
May 31,
 
   
2011
   
2011
 
China Employees Salaries and Commissions Accrual
 
$
19,459
   
$
23,479
 
Representative Office Tax Accrual
   
8,448
     
5,249
 
Other Accruals
   
12,668
     
22,873
 
   
$
40,575
   
$
51,596
 
      

 
8

 
Private placement rescentions payable – The Company initially planned to raise $1,000,000 through the sale of convertible preferred stock, but due to the amount of interest in these shares the Company decided to increase the raise to $2,000,000.  As a requirement to increase the PPM to that level the Company had to give notice to all investors that had already purchases shares in the PPM, and give them the option of resending their purchase due to the dilutive effect of the additional shares.  A total of four investors rescinded their purchase resulting in the company having a balance of $69,631 to return to them at February 29, 2012.

Use of Estimates — The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the 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 period. Actual results could differ from those estimates.
 
Fair Value of Financial Instruments — The Company has adopted the provisions of ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:      
   
 
Level one — Quoted market prices in active markets for identical assets or liabilities;

 
Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

 
Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

All Company financial instruments are Level one and are carried at market value. Therefore no adjustment is required.

Income Taxes — Income taxes are accounted for under the asset and liability method of ASC 740. Deferred tax assets and liabilities are recognized for net operating loss and other credit carry forwards and the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the tax effect of transactions are expected to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the year that includes the enactment date.

Deferred tax assets are reduced by a full valuation allowance since it is more likely than not that the amount will not be realized. Deferred tax assets and liabilities are classified as current or noncurrent based on the classification of the underlying asset or liability giving rise to the temporary difference or the expected date of utilization of the carry forwards.

Advertising Costs — Advertising costs are expensed when incurred. Advertising costs totaled $131,975 and $62,050 in the nine months ended February 29, 2012 and 2011, respectively.

Earnings (Loss) Per Share — Earning (loss) per share is computed using the weighted average number of common shares outstanding during the period. The Company has adopted ASC 260 (formerly SFAS128), Earnings Per Share.

Stock Based Compensation — The Company accounts for share-based payments pursuant to ASC 718, “Stock Compensation” and, accordingly, the Company records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options and restricted stock awards using the Black-Scholes option pricing model.
 
 
9

 

Stock compensation expense for stock options is recognized over the vesting period of the award or expensed immediately under ASC 718 and EITF 96-18 when options are given for previous service without further recourse. The Company issued stock options to contractors that had been providing services to the Company upon their termination of services. Under ASC 718 and EITF 96-18 these options were recognized as expense in the period issued because they were given as a form of compensation for services already rendered with no recourse.

The following table summarizes share-based compensation expense recorded in selling, general and administrative expenses during each period presented (in thousands):
   
   
Nine Months Ended
 
   
February 29,
   
February 29,
 
   
2012
   
2011
 
Stock options
   
50,000
     
312,500
 
Total share-based compensation expense
 
$
48,000
     
160,741
 
        
Stock option activity was as follows (converted post reverse split):
   
   
 
 
Number of
Shares
   
Weighted
Average
Exercise
Price ($)
 
Balance at May 31, 2009
   
510,000
     
0.032
 
Granted
   
482,813
   
$
0.56
 
Exercised
   
(156,250)
     
0.80
 
Forfeited or expired
   
     
 
Balance at May 31, 2010
   
836,563
   
$
0.48
 
Granted
   
50,000
   
$
.00
 
Exercised
   
(119,963
)
   
.80
 
Forfeited or expired
   
(312,500
)
   
0.00
 
Balance at February 29, 2012
   
454,100
   
$
0.48
 
        
The following table presents information regarding options outstanding and exercisable as of February 29, 2012:  
   
WWeighted average contractual remaining term — options outstanding
 
2. 19 years
 
    Aggregate intrinsic value — options outstanding
   
 
    Options exercisable
   
265,718
 
    Weighted average exercise price — options exercisable
  $
  .56
 
    Aggregate intrinsic value — options exercisable
   
 
    Weighted average contractual remaining term — options exercisable
 
2.84 years
 
 
As of February 29, 2012, future compensation costs related to options issued was $0.
 
The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option pricing model with weighted average assumptions for grants as follows:
    
Risk-free interest rate
    1.44 %
Expected life of options
 
4-5 years
 
Annualized volatility
    90.6 %
Dividend rate
    0 %
       
 
 
10

 
Significant Shareholder Stock Repurchase and debt issuance —In the first quarter of 2011 the Company repurchased and retired 5,170,106 shares and 2,500,000 options from a significant shareholder, which completely liquidated his interest in the Company.  The total cost of the transaction to the Company was $250,000.  The initial payment of $100,000 was made in August, 2011 and the other $150,000 was due as a non-interest bearing note payable in two equal installments.  The first payment was due in the fourth quarter of the 2012 fiscal year and the final payment was due in the fourth quarter of fiscal year 2013.  As there was no stated interest rate, in compliance with ASC 835-30-45-1a the Company calculated the net present value of the future payments and disclosed the future payments net of the discount of $14,948 as a liability on the balance sheet using an imputed interest rate of 8.5%.

During the quarter ending February 29th, 2012 the Company agreed to a early payoff of the entire note for a cash payment of $107,500 delivered February 10th, 2012.  In accordance with ASC 470-50-40-2 the company recorded the gain of $33,738, on the early retirement of note payable in other comprehensive income on the face of the financial statements.

The Company continued to accrued interest expense on the note payable for the quarter ending February 29, 2012 until the date the note was paid off and recognized an additional $2,319, reducing the note discount balance to $8,762 at upon the note being retired balance was adjusted to zero.
 
3.
Stockholders’ Equity:
 
At February 29, 2012 and May 31, 2011, the Company was authorized to issue 80,000,000 shares of common stock, $.008 par value per share.  In addition, 20,000,000 shares of $.001 par value preferred stock were authorized.  All commons stock shares have full dividend rights.  However, it is not anticipated that the Registrant will be declaring distributions in the foreseeable future.

During the first quarter of 2012 the Company issued 4,533,333 shares of common stock for cash consideration of $544,000.

In October 2011 the Company reinstated a Term Sheet originally signed in August, 2011 with a private capital source describing the provision of a Financing Facility to the Company having a face value of $1.5 million; to be made available in $500,000 tranches in exchange for purchasing the Company's stock under a proposed S1 registration statement at 85% of the lowest daily volume average share price over a five (5) trading day period once the Company calls for the funding.  The agreement would remain in force for 24 months from the date of contemplated execution.
 
When the final facility was approved and executed, the Company paid a document preparation fee to the funding source of $10,000 and paid them 50,000 restricted shares of the Company's stock in consideration of the Facility's creation and funds availability.  On November 4th, when the shares were issued the most recent shares sold at the market rate of $.96, resulting in a non-cash expense of $48,000 being recognized in the current quarter.  These shares are restricted in that they cannot be sold for six months.  In addition, if The Company does not use the capital raise or the funding source is unable to generate the agreed upon capital, the shares are to be returned to the Company.  However, in consideration of the accounting principal of “more likely than not” as explained in accounting standards codification 350-25-35-30 and 740-10-25-6 the Company recognized the expenses in the second quarter in general and administrative expense.

On September 8, 2010, in the third quarter of FY 2012 the Company reverse split its shares at a rate of 8 to 1 resulting in total shares outstanding changing from 38,579,925 to 4,822,491.

Series A Convertible Preferred Stock

During the current quarter, ending February 29, 2012, the Company issued 1,851,000 shares of preferred stock as Series A convertible preferred stock for total proceeds of $1,851,000. The terms of the preferred stock allow the holder to convert each share of preferred stock into 1.25 shares of common stock at any time after six months from the date of issuance. The holders of shares of preferred stock shall have the right to one vote for each share of common stock into which such preferred stock could convert. The holders of shares of preferred stock are also entitled to receive cumulative dividends in preference to any declaration or payment of any dividend at the rate of $.06 per share per annum when, and if declared by the Board of Directors.
 
 
11

 
 
No dividends have been declared as of February 29, 2012. However, upon issuance of preferred stock convertible in shares of common stock at a price lower than the fair market value of common stock on the date of issuance, in accordance with the guidance provided in ASC 505-10-50 and Emerging Issues Task Force (“EITF”) No. 00-27, we will record the intrinsic value of this beneficial conversion feature which we calculated to be $500,470 ($1.06 common stock price February 29th, 2012 compared to $.80 effective conversion rate=$.26 per share.  $.26 times 1,924,888=$500,470), as a deemed dividend recognizable over the next six months, resulting in a line item on the income statement under the Net Income (Loss) line for “Deemed dividend for beneficial conversion of convertible preferred stock” of  $250,235 in the next two quarters which will increase our paid-in capital and reduce our retained earnings.   This deemed dividend was calculated based upon a closing price on February 29, 2012 (the date the shares were formally accepted by the Company) of $1.06 per share and an effective sale price (with conversion) per the preferred share agreement of $.80 per share of common stock.
  
4.
Property and Equipment:

Property and equipment are recorded at cost, net of accumulated depreciation and are comprised of the following:

   
February 29,
   
May 31,
 
   
2012
   
2011
 
Furniture & removed extra fixtures
 
$
29,902
   
$
27,967
 
Leasehold improvements
   
9,540
     
9,540
 
     
39,442
     
37,507
 
Less: accumulated depreciation
   
(36,256
)
   
(30,561
)
   
$
3,186
   
$
6,946
 
   
Depreciation on equipment is provided on a straight line basis over its expected useful lives at the following annual rates
  
Computer equipment
3 years
Furniture & fixtures
3 years
Leasehold improvements
Term of the lease
      
Depreciation expense for the nine months ended February 29, 2012 and 2011 was $5,695 and $5,149 respectively.
 
5.
Intangible Assets:

Intangible assets are comprised of the following:
   
   
November 30,
   
May 31,
 
   
2011
   
2010
 
Website development costs
 
$
119,794
   
$
113,718
 
Less: accumulated amortization
   
(56,407
)
   
(50,560
)
   
$
63,387
   
$
63,158
 
     
Amortization is calculated over a straight-line basis using the economic life of the asset. Amortization expense for the nine months ended February 29, 2012 and 2011 was $5,847 and $5,579 respectively.
 
  
 
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6.
Commitments and Concentrations:

The Company reimburses its Chief Executive Officer (CEO) for an apartment pursuant to a month-to-month lease for the use of the CEO and his family in PRC for a monthly expense of approximately $900. This lease could be terminated at any time with no additional payments required.


Office Lease — During the first quarter of 2010 the Company renewed their office lease in Shanghai for an additional two years ending September 30, 2013 resulting in the following additional future commitments, based on the exchange rate at February 29, 2012.
   
2012
 
$
63,109
 
2013
 
$
21,175
 
  
Office Lease – Shenzhen office lease – The Company lease office space for six months in Shenzhen, China as part of a new initiative to promote the binary options sales.  The lease period started March 1, 2012 and will terminate August 31, 2012, resulting in the following future commitments, based on the exchange rate at February 29, 2012.

2012
 
$
14,097
 
2013
 
$
14,097
 


Concentrations — During the periods ending February 29, 2012 and 2011, all of the Company’s revenue was derived from its operations in PRC.

Litigation — The Company is involved in legal proceedings from time to time in the ordinary course of its business. As of the date of this filing, the Company is not a party to any lawsuit or proceedings which, individually or in the aggregate, in the opinion of management, is reasonably likely to have a material adverse effect on the financial condition, results of operation or cash flow of the Company.

7.
Subsequent Events:
 
Preferred Stock Sale - The Company completed its sale of convertible preferred stock by raising an additional $152,776 in the fourth quarter of 2012, resulting in issuing a total of 2,003,776 shares of convertible preferred stock at $1.00 per share, through which the Company raised a total of $2,003,776.  

Addition of Vice President of Sales – Subsequent to the quarter end the company hired Keevin Gillespie for the roll of vice president of sales.  The company is currently working on finalizing his employment agreement and will have that in place by year end.
 
 
13

 

Financial Tables and Explanations 

STATEMENTS OF OPERATIONS AND (LOSS)
(UNAUDITED)
 
                         
   
Three months ended
February 29,
   
Nine months ended
February 29,
 
   
2012
   
2011
   
2012
   
2011
 
Operating revenues
                       
Subscription revenue
 
$
125,794
   
$
193,172
   
459,597
   
545,257
 
Binary option commissions
   
87,550
             
87,550
         
FOREX revenue
   
8,615
     
5,717
     
29,462
     
49,822
 
Advertising revenue
   
8,100
     
12,600
     
46,780
     
28,800
 
Total revenue
   
175,738
     
211,489
     
665,362
     
623,879
 
                                 
Cost of services sold
   
154,181
     
159,270
     
447,129
     
426,055
 
                                 
General & administrative expenses
   
323,830
     
175,009
     
909,624
     
573,032
 
Advertising & other expenses
   
252,955
     
22,200
     
332,795
     
62,050
 
                                 
Net (loss) for the quarter
   
(458,933
)
   
(144,990
)
   
(1,024,186
)
   
(437,258
)

 
 
 
14

 
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

ChineseInvestors.com, Inc. (“the Company”, “we” or “us”) endeavors to be an innovative company, specializing in providing real-time market commentary and analysis in Chinese language character sets (traditional and simplified). Our services are primarily used by Chinese speaking individuals living in North America. We offer several types of subscription-based services and serve several levels of investors and traders (novice to professional). Our market coverage includes the general range of US financial markets, Chinese ‘A’ shares, and the Forex and binary option market.
 
We currently offer a variety of subscription services including 1) VIP Golden Membership, 2) Education Materials (Video Training), 3) Option Investment & Trading, 4) US Market Megatrend Software, 5) China Market Megatrend Software, 6) FOREX (Foreign Currency Exchange), 7) Dark Horse, 8) Chinese Momentum Stock, 9) Analysis on News and earnings Internet Concept Stocks, and 10) The Five Most-Bullish Stocks as well as various free analysis and research tools.  Current details regarding these services may be found in our Form 10-12G/A as filed with the SEC on May 20, 2011.

Our business model currently requires that all of our product lines generate recurring monthly revenue from each client relative to a ‘client specific’ contract services duration; generally provided on a monthly, quarterly, or annual basis that incorporate discounts for longer duration commitments.

Business Environment and Trends

Global markets have been negatively impacted by a variety of factors, and the financial services industry in particular has been adversely affected by losses in the mortgage and credit markets. Our business is dependent upon the health of the financial markets as well as the financial health of the participants in those markets. The current financial crisis has resulted in lower activity levels and has led to the collapse of some market participants. We are also seeing customers intensify their focus on containing or reducing costs as a result of the challenging market conditions. While we expect these trends will to continue to affect our growth rate and operating results for the short term, we also expect our revenue to reflect these conditions as well as be affected by our advertising investment on a quarter-over-quarter basis for the balance of fiscal year ending May 31, 2012.

Nine months ended February 29, 2012 compared to the nine months ended February 28, 2011, 2011

Revenues

Subscription Revenue:  There was a decrease in subscription revenues from $545,257 in the nine months ended February 28, 2011, 2011 to $459,597 in the nine months ended February 29, 2012, representing an approximate 16% decrease in subscription revenues.  This decrease was primarily due to the Company making a substantial investment in binary option revenue stream and efforts related to raising capital through the sale of the convertible preferred stock.

Binary Option Commissions:  In December 2011, the Company began generating revenue through entry into an affiliate agreement with ‘Option World” (KrisWorld Development Limited of Hong Kong). This relationship provides for fees to be paid to the Company for various new account and existing account support activities noting that the Company also provides award fulfillment as well as other customer support related services to Option World and as related to their services as it relates to the Chinese Customer Marketplace.  To the period ending February 29, 2012 the Company has generated $87,550 in additional revenue from this relationship.
 
 
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FOREX Revenue:  The decrease in FOREX revenue from $49,822 (nine months ending February 28, 2011, 2011) to $29,462 (nine months ending January 29, 2012) is consistent with the previously discussed tapering off of this revenue stream.
 
Advertising Revenue:  The significant increase in advertising revenue from $28,800 to $46,780 was caused by additional advertising contracts for advertising during the conferences that the Company has been sponsoring.  This is not projected to be an ongoing revenue trend, and in the coming year the Company expects advertising revenue to decrease to a level similar to its historical trend.

Expenses

Cost of Services Sold:  The cost of services sold increased slightly from $426,055 to $447,129 from the nine months ending January 29th, 2011 to a similar period ending in 2012 as the company had expanded its operations in PRC to prepare for the projected increase in subscription revenues associated with new revenue lines, including binary option fees the Company is currently establishing.  This category of expenses primarily consists of the cost of the PRC operations.  Since a portion of these expenses are fixed, as the Company’s sales increase, the gross operating margin will improve. 

General & administrative expenses:  The Company’s administrative expenses of $909,624 were substantially higher in the nine months ended February 29, 2012 than they were in the period ended February 28, 2011, 2011 of $573,032, which represents a 59% increase for the period. Many of these expenses were related to organizing sales conferences as well as establishing a trial office in Vancouver, Canada, which was subsequently closed.  In addition, the Company has added additional personnel to the office in Arcadia and opened a new location in Shenzhen, China.  At various times during the quarter there have been up to an additional 10 employees between these offices.  All employees hired have been hired with a three month probation period.  In addition the company awarded year-end bonuses to employees in China to celebrate the Chinese New Year and awarded bonuses totaling $36,000 to various executives of the Company in recognition of their work in getting the Company to publicly traded status.

Advertising:  Advertising expenses increased over 100%, from $62,050 in the nine month period ending February 28, 2011, 2011 to $131,975 for the similar period ending February 29, 2012.  This increased expenditure level was primarily due to advertising expenses related to conferences to promote the new binary option initiative.

Equity

In the first quarter of 2012 the Company raised $544,000 through the sale of Company stock through a private placement memorandum.  In the third quarter of 2012 the Company issued 50,000 shares of the Company stock, resulting in recognizing an expense of $48,000, as payment to a private equity fund raising firm that is expected to raise additional capital for the Company within the next 24 months.  In the third quarter of 201 the Company raised $1,851,000 through the sale of convertible preferred stock through a private placement memorandum.

Quarter ended February 29, 2012 compared to the quarter ended February 28, 2011, 2011

Revenues
 
Subscription Revenues: Revenues in the third quarter declined from $193,172 in the third quarter of 2012 to $125,794 in the third quarter of 2011 primarily due to the CEO’s time investment in new binary option business.

Binary option revenues: In the third quarter of 2012 the Company has generated $87,550 in additional revenue from this relationship.
 
 
16

 
 
FOREX Revenue:   The decrease in FOREX revenue from $8,615 in the third quarter of 2012 to $5,717 in the third quarter of 2011 is consistent with the previously discussed tapering off of this revenue stream.
 
Advertising Revenue:  Advertising revenues in the third quarter of 2012 were $8,100 compared to the third quarter revenues of 2012 of $12,600.    This decrease was caused by the Company losing an advertiser from the same period of the prior year.
 
Expenses
Costs of Goods (Services) Sold: The cost of services sold declined 10% from $159,270 in the third quarter of 2011 to $154,181 in the third quarter of 2012.  This decrease was primarily caused by a reduction in commissions paid to the sales people in Shanghai related to subscription revenues.   This decrease is consistent with the current quarter reduction in subscription revenues.

General & Administrative Expenses: The Company’s administrative expenses of $323,830 were substantially higher in the quarter ended February 29, 2011 than they were in the period ended February 28, 2011 of $175,009, which represents a 155% increase compared to the similar period. Many of these expenses were related to organizing sales conferences as well as establishing a trial office in Vancouver, Canada.  Due to the lack of generating substantial increases sales the Company has discontinued both of these initiatives and expects expenses in this category to decline substantially in subsequent periods.
 
Advertising Expenses:  Advertising expenses increased 103%, from $19,540 in the third quarter of 2011 to $39,519 in the third quarter of 2012.  This increase lever of expenditures was primarily caused by higher advertising expenses related to new initiative.

Liquidity

The Company is currently addressing its liquidity issues by continually building upon its revenue generation subscription service products, establishing other products offered, and by seeking investment capital through private placement of common stock and debt. Since inception, the Company has at times relied primarily upon proceeds from private placements and sales of shares of its equity securities to fund its operations. We anticipate continuing to rely on sales of our securities as well as increasing our subscriptions services revenues in order to continue to fund our business operations. It should be noted that the Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will be able to complete all of the additional sales of our equity securities as planned and noted herein or that we will be able arrange for other financing to fund our planned business activities.

While all of these factors as noted above have the potential to impact the Company’s liquidity in either a positive or negative fashion, it is the Company’s position that should there be a continuing deficit in our operating costs. To that end the Company feels it will be able to raise the necessary capital to continue operations via the sale of additional stock as already disclosed and noted herein but we can offer no guarantee that we will be able to raise the needed working capital to provide liquidity through year end 2012. Once the Company establishes the additional revenue streams and completes the raising of additional funds through the private placement of convertible preferred stock, it should be able to attain a break even operating basis and subsequent to a modest time period, achieve a cash flow positive position.

Company Executive Promotions

During a board meeting in the current quarter the Company promoted two members of their management team.  Paul Dickman was promoted to the position of Chief Financial Officer, from having that same roll on a contract basis and Brett Roper was promoted to Chief Operations Officer from the roll of director of administrative services.  The Company does not yet have formal employment agreement with these individuals for their new positions, but is planning to have those finalized by year end.
 
 
17

 

Plan of Continued Operations

We have initiated a private placement of our common stock with Kodiak Capital, to insure the company has adequate cash to meet its continuing obligations as well as expand its business.  It is our intent to focus on continuing to build our subscription and advertising revenues through focused advertising as well as seminars.

The Company plans to continue to meet all of its obligations as well as conform with all of the requirements of becoming a public company while increasing its market presence as well as services offering spectrum.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required for smaller reporting companies.

Item 4. Controls and Procedures.

The Company’s Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of the Quarter ended and the issuance date of this filing.

We have identified material weaknesses in our internal controls over financial reporting. More specifically, the Company does not maintain a sufficient complement of personnel with an appropriate level of accounting and financial reporting knowledge, experience and training in the application of U.S. GAAP commensurate with our financial reporting requirements and the complexity of our operations and transactions. We also do not maintain an adequate system of processes and internal controls sufficient to support our financial reporting requirements and produce timely and accurate U.S. GAAP financial statements consistent with being a public company.

In order to further enhance our internal controls, management is currently working with our audit committee to identify and implement corrective actions to improve our disclosure controls and procedures and our internal controls. Specifically, the Company is currently evaluating the controls currently in place and a plan of action to add additional controls and expertise as necessary to correct the problems identified. The company has hired an internal control consultant to implement these corrective actions and is considering hiring a Controller to further segregate duties within the company. We believe these actions will remediate the material weakness described above once implemented. However, the material weakness will not be considered remedied until the applicable remedial controls are implemented and operate for a sufficient period of time and management has concluded that these controls are operating effectively. Our management plans to continue to work with our audit committee to continue to identify and implement corrective actions, where required, to further improve our disclosure controls and procedures and internal controls.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is not a party to any legal proceeding that it believes will have a material adverse effect upon its business or financial position.

Item 1A. Risk Factors.

Not required for smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the quarter ended February 29, 2012 the Company issued 1,851,000 shares of preferred stock, to fund its continued operations.
 
 
18

 

Item 3. Defaults Upon Senior Securities.

There have been no defaults upon senior securities.

Item 5. Other Information.

None.

Item 6. Exhibits.

 
Exhibit 31.1
Certification of the Chief Executive Officer pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
Certification of Chief Financial Officer pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
Certification pursuant to Section 906 Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
Exhibit 101.INS XBRL exhibit
Exhibit 101.SCH XBRL exhibit
Exhibit 101.CAL XBRL exhibit
Exhibit 101.DEF XBRL exhibit
Exhibit 101.LAB XBRL exhibit
Exhibit 101.PRE XBRL exhibit
 
Signatures
 
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
ChineseInvestors.com, Inc.
 
 
(Registrant)
 
       
Date: April 16, 2012
By:
/s/ Paul Dickman
 
   
Paul Dickman
 
   
Vice President, Accounting & Finance
 
       
Date: April 16, 2012
By:
/s/ Wei Wang
 
   
Wei Wang
 
   
Chief Executive Officer
 

 
 
 
 
 
19