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EX-31.2 - CERTIFICATION - Chineseinvestors.com, Inc.chinese_10k-ex3102.htm
EX-32.1 - CERTIFICATION - Chineseinvestors.com, Inc.chinese_10k-ex3201.htm
EX-31.1 - CERTIFICATION - Chineseinvestors.com, Inc.chinese_10k-ex3101.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

(Mark one)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the fiscal year ended May 31, 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: 0-28599

 

 

CHINESEINVESTORS.COM, INC.

(Exact name of registrant as specified in its charter)

 

 

Indiana   91-2008633

(State or Other Jurisdiction

of Incorporation or Organization)

 

(IRS Employer

Identification Number)

 

13791 E. Rice Place, Suite # 107, Aurora, CO 80015

(Address of principal executive offices, including zip code)

 

(303) 481-4416

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Name of exchange on which registered
Common Stock, $0.008 par value   None

 

Securities registered pursuant to Section 12(g) of the Act: All Common Stock $0.008 par value

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ¨    No  þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨    No  þ

 

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  þ    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  ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

 

 

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 þ

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  þ

 

As of August 29, 2012, there were outstanding 5,103,624 shares of the issuer’s common stock, par value $0.008 per share and 2,003,776 shares of the issuer’s preferred stock, par value $0.001 per share.

 

Documents incorporated by reference: None

 

 

1
 

 

CHINESEINVESTORS.COM, INC.

 

ANNUAL REPORT ON FORM 10-K

FISCAL YEAR ENDED MAY 31, 2012

 

TABLE OF CONTENTS

 

        Page
PART I
         
ITEM 1.   BUSINESS   2
ITEM 1A.   RISK FACTORS   10
ITEM 1B.   UNRESOLVED STAFF COMMENTS   10
ITEM 2.   PROPERTIES   11
ITEM 3.   LEGAL PROCEEDINGS   11
ITEM 4.   MINE SAFETY DISCLOSURE   11
         
PART II
         
ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES   11
ITEM 6.   SELECTED FINANCIAL DATA   12
ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   13
ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   15
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   15
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   15
ITEM 9A.   CONTROLS AND PROCEDURES   15
ITEM 9B.   OTHER INFORMATION   16
         
PART III
         
ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   16
ITEM 11.   EXECUTIVE COMPENSATION   17
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   18
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   18
ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES   18
         
PART IV
         
ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES   19
         
SIGNATURES   20
         
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS     F-1

 

 

1
 

 

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

The statements contained in this report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our “expectations,” “anticipation,” “intentions,” “beliefs,” or “strategies” regarding the future. Our actual results could differ materially from those in the forward-looking statements. Among the factors that could cause actual results to differ materially are the factors discussed in Item 1A. “Risk Factors.”

 

Part I

 

NOTE: When we use the term(s) “we,” “us,” “our” and “the Company,” we mean ChineseInvestors.com, an Indiana Corporation.

 

Item 1. Business.

 

1.a.) General Development of Business.

 

ChineseInvestors.com, an Indiana corporation, was incorporated on January 6, 1997 in the State of Indiana under the corporate name “MAS Acquisition LII Corp.” Prior to June 12, 2000, the Company was a ‘blank check’ company seeking a business combination with an unidentified business.

 

On June 12, 2000, we acquired 8,200,000 shares of common stock, representing 100% of the outstanding shares of Chineseinvestors.com, Inc., which was incorporated in the State of California on June 15, 1999. In connection with this acquisition, Aaron Tsai, our former sole officer and director, was replaced by Chineseinvestors.com, Inc.’s officers and directors.

 

The stockholders of Chineseinvestors.com, Inc. were issued 8,200,000 shares of our common stock, or approximately 96% of our total outstanding common shares. After giving effect to the acquisition. Chineseinvestors.com, Inc. became a wholly owned subsidiary and we changed our name to Chineseinvestors.com, Inc.  Immediately prior to the acquisition of Chineseinvestors.com, Inc., MAS Capital Inc. returned 8,200,000 shares of common stock for cancellation without any consideration.

 

Chineseinvestors.com, Inc. was established as an ‘in language’ (Chinese) financial information web portal, offering various levels of information relative to the US Equity and Financial Markets as well as certain other specific financial markets (including China A Shares, FOREX, etc.). Over the years, various informational components have been added and the general content improved as the Company continues to derive the majority of its income from various subscription services it offers to its customers.  We offer subscription services to provide education about investing and news and analysis on the stock market as well as news about particular stocks that we are following.  Nevertheless, we do not provide our subscribers with individualized investment advice and never have investment discretion over any subscribers’ or site visitors’ funds.

 

Chineseinvestors.COM, Inc. has been in continuous operation since July of 1999 using the web domains (uniform resource locators) of www.chineseinvestors.com and www.chinesefn.com.   

 

We established a Representative Office business presence in leased office space in Shanghai, China in late 2000 from which we could fulfill most of our support types of service and also have a leased office presence in Arcadia, California. 

  

In early 2010, the Company began to prepare the necessary documents and information needed for a Form 10 submission to facilitate the Company’s’ ability to raise capital on the public market. In particular, we have retained the firm of B F Borgers CPA PC to be our independent auditor.

 

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We filed our Form 10/12G on or about November 29, 2010 with the SEC and responded to all comments, receiving our letter of acknowledgement and completion of that process on or about June 10, 2011. During the interim time period we filed all documents as required by the SEC relative to amendments, forms 10Q’s, and 8K’s as necessary, and revisions thereto.

 

We began a search for a Market Maker in early 2011, eventually selecting Glendale Securities having offices in Sherman Oaks, California.

 

As of May 2012, the Company employed 47 (2011-35) persons in its Shanghai Office in a raviety of administrative and operational capacities, including its CEO and Office Manager. All but 5 (2011-3) are employed full time. The Company also has two contract officer(s) and a full time support team member employed in the US.

 

As of August 2012, the Company employs 53 persons in its Shanghai Office in a variety of administrative and operational capacities, including its CEO and Office Manager. Additionally, it employs 21 persons in its newly established Client Service Center in Shanghai, which supports the Company’s new Binary Options initiative in partnership with KrisWorld Limited of Hong Kong. The Company also has two contract officer(s) and one full time support team member employed in the US.

 

1.b.) Shareholder, Company, and Material Events Recap.

 

In November 2009, the Company completed a private placement of stock that started in December, 2008. We raised a total of $1 million in that private placement. In addition, the Company initiated work to compile the financial statements and data that would eventually be used in the generation of its audited financial statements.

 

In December of 2009, the Company purchased a note held by Hollingsworth LLC, a past majority shareholder   for $112,500. The note was related to a purchase of Hollingsworth LLC’s interests in the Company by Mr. “Sabean” (hereafter referred to as “Sabean”), a shareholder in October of 2005 (as noted in our prior disclosures).

 

In January 2010, the Company repurchased 13,451,461 shares from “Sabean” in consideration of a payment of $150,000, forgiveness of the note receivable owed by “Sabean” (via the Hollingsworth LLC interests as purchased in October of 2005), and through the issuance of 2,500,000 stock options. The Company then retired these shares to treasury reducing the total number of shares outstanding accordingly.

   

In April of 2010 and with Mr. Myers earlier resignation in March of 2009, the Board of Directors had been seeking a new independent member for the Board of Directors, as it anticipated filing a Form 10 registration statement in an effort to become a public reporting company later in the year.  On April 30, 2010, James S. Toreson was appointed to the Board of Directors.  The Board of Directors felt that Mr. Toreson’s general corporate experience and past service with the Company (Interim CEO from March 2002 through March 2003) qualified him as an excellent choice for its 1st independent director.  Mr. Toreson was originally nominated by Hollingsworth LLC as a condition of their participation and purchase of stock as noted but Mr. Toreson has not been affiliated with the Hollingsworth or its principals since March of 2003.

 

On June 26, 2010, the Company held an annual meeting of its shareholders in Arcadia, California.   Mr. Wang, Mr. Roper, and Mr. Toreson were elected to full terms as directors at the meeting.

 

The Company filed a Regulation D offering in January of 2011.  The proceeds of the private placement will be focused on continuing our growth.  As of May 2011 we had raised $525,000 through the sale of 4,375,002 shares of common stock at $0.12 per share, adding 17 new shareholders resulting in a total of 352 shareholders of record. We are not using a broker-dealer to sell our shares.  

 

In June 2011 the Company elected to increase the target amount raised within the Regulation D offering from $1million to $1.5million.

 

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As of August 29, 2011 the Company had raised $1,069,000 through the sale of 8,908,335 shares of its common stock to 27 accredited investors.

 

In August of 2011, the Company repurchased 5,170,106 shares and retired 2,500,000 options belonging to “Sabean” in consideration of a payment of $250,000 that included certain repayment terms and condition. As of August 3, 2011 “Sabean” is no longer a shareholder in the Company.

    

In December of 2011, the Company entered into an agreement for services with KrisWorld Development Limited of Hong Kong in support of their Binary Options business and as noted in various news releases at that time.

 

In March of 2012, the Company retired the remaining balance of the note related to the repurchase of shares as noted above with Sabean at a substantial discount as reflected in our financial statements.

 

In March of 2012, the Company completed an offering of its convertible preferred stock raising $2,003,776 through the sale of 2,003,776 shares of its convertible preferred stock. 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 of February 29, 2012. 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.

 

In May of 2012, the Company began to offer various corporate consulting services as well as public company consulting for smaller private businesses considering various public options and as noted in various news releases at that time.

 

In July of 2012, the Company modified its services agreement with KrisWorld Development Limited of Hong Kong in consideration of deploying a Client Service Center related to supporting service offerings with KrsiWorld in Shanghai, China. This new Client Service Center is designed to accommodate up to 80 employees and began operations in early August of 2012.

 

1.c.) General Company Information.

 

Market and Market Prospects

 

The Company’s primary market focus is on the segment of the Chinese population (both in the US and abroad) that does not have English language reading and or speaking skills but who wish to participate in the various financial markets that typically do not offer real time Chinese language information from an investment and or general information perspective. With the emergence of a Chinese middle class as well as those who have had wealth transferred to them, there appears to be a continuing expansion of interest by the Chinese public in the general financial and securities marketplace as a whole.

 

More recently the Company has begun to focus on the development of various additional service initiatives including 1) offering consulting services, 2) establishing and operating a client service center for one of its business partners, 3) offering various investor and public relation services, 4) reworking its content services division to deliver a higher quality of information as well as building up its current client base, and 5) offering additional services within its current business channel.

 

The Company

 

ChineseInvestors.com, Inc. endeavors to be an innovative company, specializing in providing real-time market commentary and analysis in the Chinese language. Our services are mainly offered to Chinese speaking individuals, offering several types of subscription-based services and serve various types of investors and traders as depicted in our Subscriber Services offering(s) shown herein. Market coverage includes the general range of US financial markets, Chinese A Shares, and the FOREX market.

 

4
 

 

The Company has worked toward establishing its web presence. Due to the lack of site use information in competitor companies and based upon our web site access metrics; the Company must acknowledge that while it has a substantial public audience, it is difficult to ascertain exactly where any specific leadership position lies and therefore can make no definitive statement as to an overall position of our website and presence within our specific marketplace. Recently (July 2012 Web Trends Report) the Company experience over 150,000 unique visitors represented by just under 400,000 visitor sessions, noting the average site visit lasted just over 31 minutes.

 

With our screen layout and menu options, we display our research tools in a manner designed for ease of use. The content and technology comprising our integrated information platform is also designed to be adaptable so that as we develop new research tools and adopt new content and features, these new research tools, content and features can be easily integrated with our existing platform.

 

Our service offerings permit users to subscribe to several of our service packages and we have over 1,000 active paying subscribers. Our registered users are Internet users who maintain a registered account with either www.chinesefn.com or www.chineseinvestors.com.

 

Our website presents analysis, commentary, and computer generated quantitative analysis to provide our subscribers and users with a broad view of the world financial markets. We do not attempt to convince our users to buy or sell any securities or to invest in any specific investments. We believe our subscribers and users view us as an unbiased provider of financial information. A substantial portion of our revenue is derived from the annual and monthly subscription fees charged for our service offerings. We receive subscription fees at the beginning of the subscribers’ subscription periods noting that the related revenue is deferred over the specific subscription period(s).

 

To facilitate the offering of our services the Company has five full time editorial staff members.  Each staff member is a graduate of a college or university in China and is fluent in English.  These staff members monitor CNBC, Bloomberg and other sources of financial news for developments on the stocks being tracked.  They listen to conference calls conducted by the management of the tracked stocks, but do not ask questions.  The staff members translate the news, developments and their notes and provide that information to the subscribers.  The stocks tracked are generally large capitalization stocks traded on the NYSE or NASDAQ-NMS.  Companies are selected based on industry and market segment.  The Company periodically selects and or drops the companies being tracked.

 

Our Subscription Services

 

A substantial portion of our revenue is derived from the annual and monthly subscription fees charged for our service offerings. We receive subscription fees at the beginning of the subscribers’ subscription periods and defer recognition of these fees for revenue recognition purposes over the period over which the revenue is earned. Membership Services include, but are not limited to, the following:

   

VIP Golden Membership Subscription Services

 

Our registered VIP Golden Members enjoy the following services; 1) timely and important information about US-listed companies; 2) real-time analysis and tracking of the US stock market quotations; 3) trend analysis of the overall market and individual sectors; and 4) access to a sample investment portfolio selected by the Company for educational simulation relative to individual stock research as well as real-time trading demonstrations of various trading techniques.  We typically follow and provide analyses for large capitalization companies listed on the New York Stock Exchange (NYSE) and the NASDAQ® National Market System (NASDAQ-NMS).  This service also includes access to various other services including our Market Hotspot Report (this report provides current as well as historical performance information on active issues as well as sectors within the US Marketplace), Intraday Market Analysis (after close), Weekly Market Commentary, etc.

 

Our VIP service offers educational demonstrations through which our editors illustrate basic rules and skills to our subscribers as a group on how to evaluate various investments through fundamental and technical analysis.  We do not provide this service to individual subscribers to help them make personal investment decisions. This service is intended to teach subscribers how to use technical analyses to invest in and trade stocks.

 

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In our VIP Golden Membership Subscription Services, subscribers can input the market news, their own views, or other information, and share the results with other subscribers in an open forum format.  However, we do not offer a function that allows members to input specifics such as their current net worth, risk sensitivity, investment objectives and time frame that would then generate investment suggestions.  This would be a financial planning function that we are not permitted to provide as we do not provide investment advice.

 

At the time of publication, our editors may or may not hold the securities that are identified for use as part of an example portfolio.  This portfolio can change its holdings at any time and the results of the analysis of the individual components of the portfolio are reflected in our updates. Under no circumstances does the information in our services represent a recommendation to buy or sell stocks.

 

Education Materials (Video Training), Stock Investment

 

These training materials are offered in a CD/DVD format and are shipped to the purchaser immediately upon purchase and include 1) fundamentals critical to a consistent investment strategy, 2) what to look for in creating a fundamental analysis, 3) how to spot various trading opportunities, 4) how to find swing trading opportunities for individual stocks, 5) what is position trading and holding time analysis.  In addition we also provide evaluations as well as analyze all the sample shareholdings and volatile stocks in our sample portfolio.  In this way we strive to help you understand why you may be making certain moves so that you can learn various rationales and strategies, thus becoming a better investor. These educational materials are based upon historic performance information and do not provide advice on current potential investments, but rather provide an educational point of reference only.

  

Option Investment & Trading Subscription Services

 

This program includes 1) instructional analysis for Market Index Option Trading, 2) instructional analysis for Stock Option Trading, 3) instruction and analysis for long term Stock Option Trading, 4) introductory articles for Options, 5) real-time market education and analysis, 6) pre-market analysis of three stock indexes daily chart analysis of the Dow-Jones Industrial average, the NASDAQ index and the Standard & Poor’s index with our views and outlook for the three index options including a sample daily tracking of option portfolio, etc.

 

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FOREX (Foreign Currency Exchange) Subscription Services

 

Offering services including 1) a daily FOREX Headline, 2) a daily Video FOREX Market Analysis, 3) educational alerts for our training sample portfolio transactions, 4) a daily comment(s) review of key FOREX activity, etc.

 

Dark Horse Subscription Services

 

The Dark Horse column focuses on the US-listed small-cap stocks (with trading caps below 100 million shares over the twelve months calendar year); a place where investors from novices to professionals come to for ideas on which companies demonstrate certain characteristics indicating growth even in a challenged economy.   This is a subscription based service that analyzes individual stocks and provides an experienced investor’s opinion to all members of the service on various companies.  This analysis does not provide individual investment advice but rather provides an outlook as to the company’s current and potential performance to the entire group.   The Dark Horse research staff spends time daily researching small-cap stocks (virtually all of which are listed for trading on the NYSE or NASDAQ-NMS) to identify those issues with advancement potential based upon various commonly used measurement metrics every week from more than 9,000 US-listed stocks for the service's model portfolio.

 

Research reports on Dark Horse Stocks include a detailed analysis for those stocks where/when the price reaches a potential entering point, key business backdrop, market potential of the subordinated sector, fund statement of top-10 shareholders, ratings by boutique firms as well as the earnings per share, P/E ratio and P/B ratio (price to earnings and price to book value) of any of those stocks would be included in the reports.  The Company selects four to ten stocks periodically for inclusion on the watch list.  Our staff monitors news, analysts’ calls, reported trades by material shareholders and other persons required to publicly report trades, press releases and provides analysis and alerts to subscribers.  Tracking of Dark Horse Model Portfolio Stocks subscribers are alerted to the release of reports on traded stocks from broker-dealers and important news releases and our analyses of the material developments for the tracked Dark Horse stocks are provided as well.  All the news related to the model portfolio stocks is provided in timely manner while the potential influences price fluctuation of the stock is also analyzed.   Dark Horse Model Portfolio Performances (Profit and loss conditions of the portfolio) are shown in a table, price movements of model portfolio updated daily, and the yield conditions of the model portfolio is therefore clearly displayed.

 

General Content Production

 

To facilitate the offering of our services the Registrant has five full time editorial staff members.  Each staff member is a graduate of a college in China.  Each is fluent in English.  The staff members monitor CNBC, Bloomberg and other sources of financial news for developments on the stocks being tracked.  They do in fact listen to conference calls conducted by the management of the tracked stocks, but do not ask questions.  The staff members translate the news, developments and their notes and provide that information to the subscribers.  The stocks tracked are generally large capitalization stocks traded on the NYSE or NASDAQ-NMS.  Companies are selected based on industry and market segment.  The Registrant periodically selects or drops the companies being tracked.

 

General Advertising Services

 

The Company provides website based advertising services in the form of various types of advertising as may be observed throughout the website.

   

Free Analysis and Research Tools

 

We also provide a free stocks and research tool to its customers including the following services:

 

  1. Price charts of relevant stocks as well as the price and volume changes of the day.

 

After the ticker of a specific stock is searched on the chinesefn.com website, the price chart of a certain period (today, 5d, 1m, etc) will be displayed with clear information of price movement, volume change as well as the highest and lowest points of 52 weeks. Dividend payment information will also be provided.

 

  2. News updates for relevant stocks.

 

News updates including the latest boutique firm ratings, company earnings, conference calls, merger and acquisition activity, as well as other information that may influence the price movements of relevant stocks are also provided for free.

 

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Planned Additional Education Services

 

We plan to continue to expand our presence in China through the establishment additional related services that will likely be provided by third party vendor(s) working directly with us.  The Company has not as of yet identified such potential relationships but is working on updating its formal business strategy and plans to identify such potential third party or other partners prior to publishing its curricula.

 

We plan to substantially increase our presence in the US as well as China, expanding our educational training and seminar products substantially.

   

We believe that we have the requisite blend of experience and technical skills related to financial market awareness and content publication to develop a series of course devoted to investor education and offered in the Mandarin language.  Based on the demands of individuals both in China and outside China as well as on the structure and features of the financial markets we anticipate we will be able to substantially increase our presence and revenues once we are able to offer services within China (Peoples Republic of China).

 

These courses will range in content providing basic knowledge and practical trading skills.  They will be coupled with training in the use of digitalized, randomized, and quantified analyses for stock trading analysis and trading; helping the participants to be more skillful in practical trading as they progress through the course work.

 

Courses will also provide a number of actual cases and samples focusing on formal trading practice as well as the practical trading practices of experts that can be shared.  The course will also provide valuable real world experience from which to develop the participants’ own style of trading.

   

We are also planning to set up new education service locations within China in Shanghai, Wenzhou, Hangzhou, Nanjing, Ningbo, Beijing and Shenyang, so as to promote the business of investment education.

 

News

 

Our news feature allows users to search and view breaking economic and financial news and information from around the world. Through our website content, our subscribers can access timely and customized financial information and reports, categorized and integrated into topics and sub-topics that they select, based on their investment and analysis needs.

 

Our Websites

 

Our website content and our research tools are the key components of our information platform. Our websites have two primary functions:

 

  To attract visitors and market our subscription based service offerings; and
  To store content and serve as an integral part of our information platform.


In order to attract visitors to our websites, we offer a significant portion of our website content free of charge. This free content includes stock quotes, trading volumes and pricing indicators for listed companies in the United States. Our websites also have an important marketing function for our subscription based service offerings. We provide examples to our visitors on our websites of the enhanced content and features they can access by becoming a subscriber to one of our service offerings.

 

Our premium content and features are accessible through our web-based research tools. Subscribers to our web-based research tools are required to register and maintain personal accounts with our websites.

  

We believe our websites are designed for ease of use and accommodate low bandwidth access to the Internet. In addition, we have also historically derived some revenue from online advertising. We plan to attract more advertising revenue as our subscriber base increases.

 

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We currently offer different service packages incorporating some or all of our research tools to our users. Our service packages provide research tools focused around three main areas: securities market data, technical analysis, and fundamental analysis. We view the migration of existing subscribers and the attraction of new subscribers to our service offerings with more comprehensive research tools as one of our most important growth strategies.

 

We may, from time to time, offer discounts or promotions, depending on our perceived need in accordance with our pricing policy. Any of such discounts or promotions could apply to new or repeat subscribers as we may determine.

 

We have taken steps to protect our customer and proprietary information through deployment of additional security contracted for through our web hosting service provider, IT Software Design.  To our knowledge no such dissemination of Company information has occurred as of the date of this documents submittal.  We are unsure of what material adverse effect such an event would cause.  We are in the process of securing service and trade mark protection for our Chineseinvestors.com and Chinesefn.com names.

 

Customer Support

 

Our customer support center provides our subscribers real-time and personal support. Our customer support personnel, in addition to their sales and marketing functions, help our existing and prospective subscribers to resolve any technical problems they may have. We have an in-house training program for our customer support personnel, which include training courses on world financial markets, our service features and functionalities, technical problem solving skills in respect of our research tools and general customer service guidelines.

 

The Company maintains a Customer Service Center that is open twenty four hours a day, seven days a week (24/7) in Shanghai China.  The center is staffed with individuals having both Chinese and English Language skills who are available by both telephone (1-800-808-8760) as well as email (info@chinesefn.com).  Once a inquiry call or email is initiated, follow up provided by an individual best suited to answering the specific question is undertaken often times resulting in a new email address point of contact as it relates to the specific Customer Service Representative responding to the inquiry.  The Company also provides various levels of translation support for its advertisers as may be contracted for.

  

Typical Customer Service or Technical Support Calls include:

 

  What's the website address of chinesefn.com;
  How do I access the website or how do I register online;
  What products are free and which ones are offered at a cost;
  What is the cost of a particular product;
  Where to login our membership section;
  Company intro and what content they can get access to our website;
  When and where they can find the updated news;
  Where are the archives; etc.
  Customer can't login to the website; (technical support)
  The computer can't refresh the webpage; (technical support)
  The computer can't submit user's message; (technical support)
  The computer can't show the web content in traditional Chinese (technical support)

 

Sales and Marketing

 

We market our service offerings through our websites, as well as through customer support personnel at our telemarketing and customer service center in Shanghai, China. Our websites provide detailed descriptions of our service offerings while our customer support personnel are available to explain to callers the various features of our offerings and to resolve our subscribers’ technical problems. We charge our subscribers a subscription fee for the use of our service packages over an agreed upon service period, typically three months to one year. Our subscribers either pay us by cash, by online bank transfer, or by direct wiring of cash. Upon receipt of payment, we promptly activate our subscribers’ accounts with us.

   

9
 

 

The Company currently utilizes several advertising relationships in a continuing effort to build its brand awareness including SVC Media Services, AM1300 Radio, Phoenix Satellite Television, SINA, etc.  The Company plans to continue to use these resources as well as add new media providers based upon need, performance, and cost.  The Company plans to continue with other advertising efforts in the form of seminars, referrals, and the planned offering of educational services.

 

While the Company does not currently have a formal budget for advertising; it plans to develop a more substantial plan and outlook in the near future as a part of its business planning and strategy development efforts and as it achieves revenues and or funding that will allow it to continue to expand its business.

 

The market potentials for our Portal, IR and PR marketing and Conference and Online Platform businesses are extremely competitive and rapidly changing.  We note that at this time we have not as yet developed offerings for these particular online services and may fail to do so in a manner that might affect our businesses ability to remain competitive. Please note that while we are aware our Company may develop service offerings as noted we have not as of yet explored the potential products related to the offerings as noted above and therefore cannot describe these businesses and planned offerings as we currently have none.  

 

We are working on identifying other possible products that could be deployed as well as produce income for the company as they relate to "Portal, IR and PR marketing and Conference and Online Platform businesses" that could include those designed to 1) integrate with our portal such as various hybrid advertising services (word specific, etc.), 2) investor and or public relations promotional material dissemination (on behalf of various businesses and or advertisers) via website delivery mechanisms, 3) sponsoring as well as hosting related online (interactive) educational programs and conference events, etc.

 

We do offer various educational conferences (both free and fee based) in both China and the US on a regular basis as well as the services and information available to our subscribers and visitors on our website. These educational conferences typically include various segments dedicated to the various sectors our subscribers and guests may be interested including US Equities, Foreign Currency Exchange, China Stocks, etc.  These events generally include other speakers that have specific education and experience skills within these various sectors.  These events generally last between two and three hours and are held at public venues such as conference centers, hotels, etc.

 

The Company is currently exploring other media opportunities, more specifically with CBN (China), a cable service in China with approximately 120,000,000 subscriber points of service in Shenzhen, Shanghai, and the general southern China coastal geography and with FX168 in offering various awareness campaigns in China related to its partner KrisWorld Development Limited of Hong Kong.

 

Database Technology

 

We have developed database technology to address the specific requirements of our information services. Our database design and search techniques allow for efficient data retrieval within the unique operating parameters of the Internet.

  

Item 1A. Risk Factors.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 1B. Unresolved Staff Comments.

 

None.

 

10
 

 

Item 2. Properties

 

The Company currently maintains leased space in Shanghai, China (as described in the Financials) as well as a office presence in Arcadia, California.  It also maintains a correspondence address in Arcadia, California on a month to month basis as well as an executive office suite in Aurora, Colorado.

 

Shanghai Offices

18 B-C, No 55, Huai Hai Road (W), Shanghai, China, 200030 (lease expired 05/01/2012)

21 J-K-L, No 55, Huai Hai Road (W), Shanghai, China, 200030 (lease expires 10/13)

Arcadia Offices 150 N Santa Anita Avenue, Suite 300, Arcadia, CA 91006 (month to month)
Correspondence Address 411 E. Huntington Drive,  #107-228, Arcadia, CA 91006 (month to month)

 

Corporate Offices 13791 East Rice Place, Suite #107, Aurora, CO 80015 (lease exp. 02/13)

 

The Company has no other real property holdings or leases other than those as disclosed above.

 

Item 3. 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 4. Mine Safety Disclosure

 

Not applicable.

 

Part II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

 

In August of 2011, the Company repurchased 5,170,106 shares and retired 2,500,000 options belonging to Leon J. “Sabean” in consideration of a total payment of $250,000 ($100,000 on August 3, 2011 with two subsequent payments of $75,000 due April 28, 2012 and the second and final payment is due April 28, 2013).  As of August 3, 2011 “Sabean” is no longer a shareholder in the Company. See subsequent event footnote in the financial section of this document for additional information regarding this transaction. Subsequently, in March 2012 the Company was able to retire the $150,000 note in consideration of a reduced cash payment to Mr. Sabean of $107,500.

 

In summary the Company has reduced the shares outstanding via the “Sabean’ repurchase agreement(s) by 21,121,567shares (includes 2,500,000 options) at a cost of $515,000 or approximately $0.024 per share (at retirement) while raising $2,069,000 (December 2008 through August 29, 2011) through the sales of 18,908,337 shares of stock at $0.10 and $0.12 per share as noted.

 

In February of 2012 three persons holding options as already identified in past filings chose to exercise certain portions of those outstanding options causing an additional 139,908 shares to be issued to these individuals in accordance with the terms and conditions therein and as previously disclosed.

 

In February of 2012, the Company issued 95,760 shares of its common stock to 16 individuals (non-officer or director) in its current and past employees as consideration services provided as the Company worked to become publicly quoted.

 

In March of 2012, the Company completed an offering of its convertible preferred stock raising $2,003,776 through the sale of 2,003,776 shares of its convertible preferred stock. 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 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
 

 

Item 6. Selected Financial Data

 

Financial Tables and Explanations (years ending May 31st)

 

Description  2012   2011   2010   2009   2008 
   (audited)   (audited)   (audited)   (audited)   (unaudited) 
Total Revenues  $897,105   $845,097   $939,817   $697,933   $670,911 
Less Cost of Goods Sold   (686,865)  $(556,195)  $(531,184)  $(442,776)  $(349,607)
Operating Income   210,240   $288,902   $408,633   $255,157   $321,304 
Expenses, General & Administration   (1,995,918)  $(1,033,582)  $(954,846)  $(998,000)  $(360,985)
Income <Loss>, Continuing Operations   (2,206,158)  $(744,681)  $(546,213)  $(742,843)  $(39,681)
Income <Loss>, Per Share (Continuing Operations)   (.44)  $(0.17)  $(0.12)  $(0.14)  $(0.01)
Total Shares Outstanding (includes Options)   4,992,454    4,281,322    4,411,462    5,392,895    4,446,645 
Long Term Obligations   3,871   $5,797   $8,015   $3,988   $ 
Cash Dividends Declared per Common Share      $   $   $   $ 
Total Assets   1,248,967   $354,655   $252,063   $417,966   $200,515 

  

Total Revenues describes all income from all Company related activities including subscription sales, advertising sales, FOREX support service fees, and education/training sales.

 

Cost of Goods Sold refers to all operating expense related to the overhead of delivery of content services including the cost of commission and other Shanghai office expenses.

 

Expenses, General & Administration refers to the expense related to general advertising, US operational overhead, salaries and related expenses of US Citizens, the costs of note and share repurchases, the costs of options granted, US based web hosting services, etc.

 

Income <Loss, refers to the value remaining when subtracting Expenses, General & Administration from the Operating Revenues value.

 

Income <Loss>, Per Share refers to any income or loss per share value when dividing the Income <Loss>, value by the number of common shares outstanding.

 

Weighted Averages Shares Outstanding refers to the total number of shares outstanding at any given year end period.

 

Long Term Obligations  refers to those specific values associated with defined Long Term Obligations as shown in our Financial Statements.

 

Cash Dividends Declared per Common Share refers to any dividends that may have paid out on behalf of the common stock shareholder; noting the Company has never paid any such dividend.

 

Total Assets refers to the total assets as may be reflected in the Financial Statements.

 

12
 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Fiscal Year Ending May 31, 2012

 

Subscription Revenue:  The Company experienced a significant decrease in subscription based revenues ($760,748 in FY 2011 decreasing to $552,327 in FY 2012) as it was exposed to the various volatilities of the overall marketplace and individual investors continued to retreat to the ‘sidelines’. It should also be noted that while certain negative market conditions will continue to impact these sales, the Company has recently hired a new Content Services Editor in Chief (August of 2012) as well as support team that is being tasking with improving our content as well as generating new subscribers (free as well as paid service related) through various new initiatives.

 

FOREX Revenue:  There was a decrease in FOREX revenue from $55,822 (FY 2011) to $29,324 (FY 2012) noting this decline in revenues is expected to continue as we experience less demand for back of the house support services that generate the revenue within this category as well as a general pull back in the individual investor community related to this market segment.

 

Advertising Revenue:  The revenue from advertising increased from $28,800 (FY 2011) to $52,180 (FY 2012) and is expected to increase again during this next annual period as we roll out new service offerings including those related to IR (investor relations) and PR (public relations) services and continue to invest in our general infrastructure to deliver related services.

 

Binary Option Service Revenues: This new revenue category generated $263,274 during the last 6 months of FY 2012 and is expected to increase substantially over the next year. During the 1st two months of FY 2013 we generated just over $145,000 in revenue and with the establishment of a client service center in Shanghai, China to support these services (in conjunction with our partner KrisWorld Development Limited of Hong Kong) in August of 2012, we expect this income stream to grow significantly.

 

Annual Expenses

 

Cost of Services Sold: These related costs increased modestly (from $556,195 in FY 2011 to $686,865 in FY 2012) due to commissions payable in respect to our new binary options revenue stream.

 

General & Administrative Expense: While these expenses have increased substantially ($948,822 in FY 2011 to $1,513,683 in FY 2012) it should be noted that much of this net increase comes from 1) our investment in additional sales team capacity in Los Angeles, 2) increasing levels of general compensation to more competitive rates relative to our investment in our personnel, 3) travel and public company related expenses, and 4) general administrative and accounting expense increases that are also mostly related to our remaining a public company.   Subsequent to its successful efforts with the preferred stock private placement the company awarded its officers and board members various bonus amounts resulting in total expense of $86,000 in the 2012 fiscal year.

 

Private Placement commissions In fiscal year 2012 the company raised $2,003,766 through a Private Placement of the Company’s Convertible Preferred Stock causing an increase in related offering expense noting that we also bore the additional legal, accounting, and professional expense related to this private placement as well as expenses related to our working to become a public company with an actively traded OTCBB symbol. In addition the Company paid employees total commissions of $168,179 for selling its preferred stock.

 

Advertising Expenses: Advertising related expenses increased from $84,760 in FY 2011 to $235,189 in FY 2012. These expenses increased over those of the prior year due to a substantial increase in our seminar as well as general advertising related to our new partner activity (KrisWorld Development Limited of Hong Kong) as related to binary options support.

 

13
 

 

During the quarter ending February 29th, 2012 the Company agreed to an 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.

 

Deemed dividend for beneficial conversion of convertible preferred stock: During the fourth quarter, effective February 29, 2012, the Company issued 2,003,776 shares of preferred stock as Series A convertible preferred stock for total proceeds of $2,003,776. 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. 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 $520,982 ($1.06 common stock price February 29th, 2012 compared to $.80 effective conversion rate=$.26 per share. $.26 times 2,003,776=$520,982), as a deemed dividend recognizable in the current year. 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.

  

Liquidity

 

The Company is currently addressing its liquidity concerns due to its ongoing operating losses, by continually building upon its revenue generation subscription service products, binary option related services in support of our partner (KrisWorld Development Limited of Hong Kong), increasing its advertising based revenues (as discussed) and by increasing its offerings of other consulting services. Since inception in 1997, 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 general revenues in order to continue to fund our business operations.

 

To this end the Company has recently secured up to $1.5 million in the form of an equity investment line from Kodiak Capital LLC that it can utilize as may be strategically advisable or needed in the future. The S1 registration Statement for this facility became effective (SEC) on or about July 5th, 2012 and may be used to access these funds upon written request by the company in tranches of up to $500,000 each until February 28, 2014. 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.  

 

There can be no assurance that the Company currently has sufficient capital or access to capital needed for operations for the next annual period.

  

Off-Balance Sheet Arrangements

 

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk, or credit support to us or engages in leasing, hedging, or research and development services with us.

 

Contractual Obligations

 

We have no contractual obligations outstanding other than those based on a month to month continuing basis as they relate to technical services (web hosting, Bloomberg services, etc.) and as they relate to a specific office space lease in Shanghai, China (located at 18 B-C, No 55, Huai Hai Road (W), Shanghai, China, 200030).

 

14
 

 

Item 7.a. Quantitative and Qualitative Disclosures About Market Risk

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 8. Financial Statements and Supplementary Data

 

Reference is made to the Financial Statements, the Notes thereto, and the Report of Independent Public Accountants thereon commencing at page F-1 of this Report, which Financial Statements, Notes, and report are incorporated herein by reference.

    

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9.a. Controls and Procedures

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of May 31, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework. Our management has concluded that, as of May 31, 2012, our internal control over financial reporting is not effective primarily based on these criteria, due to material weaknesses resulting from our failure to 1) implement and monitor specific cutoff procedures, 2) properly review and approve bank reconciliations or provide correct responsibilities to adequately segregate activity in the area of cash receipts and cash disbursements, 3) effectively implement comprehensive entity level internal controls, 4) adequately segregate duties within the accounting department due to an insufficient number of staff, 5) have policies and procedures in place  to insure the timely recording of its transactions in accordance with generally accepted accounting procedures, and 6) implement appropriate information technology controls.

 

Evaluation of Disclosure Controls and Procedures

 

Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form 10-K, have concluded that, based on such evaluation, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Controls and Procedures

 

In the current year the Company implemented a internal controls system over disbursements. There were no other significant changes in our internal controls over financial reporting or in other factors identified in connection with the evaluation required by Exchange Act Rules 13a-15(d) or 15d-15(d) that occurred during the quarter ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

15
 

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management assessed the effectiveness of our internal controls over financial reporting as of May 31, 2012 based on the framework in Internal Control-Integrated Framework, published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, we have concluded that our internal controls over financial reporting were not effective as of May 31, 2011.

 

Management is working to improve its disclosure controls and procedures over financial reporting and to resolve deficiencies.

 

This Annual Report on Form 10-K does not include an attestation report by our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only our management’s report in this Annual Report on Form 10-K.

 

Item 9.b. Other Information

 

None. 

   

Part III

 

Item 10. Directors, Executive Officers, and Corporate Governance

 

Name                                   Age   Served Since   Position
    Warren (Wei) Wang   43   Dec. 1999   Chief Executive Officer and Chairman of the Board
Brett Roper   58   Mar. 2002   Secretary of the Board of Directors and Vice President of Corporate Services
    Paul Dickman   32   Aug. 2011   Chief Financial Officer
    James S. Toreson   69   Apr. 2010   Director (Independent) (Previous Board Service Mar. 2002 thru Apr. 2003)

 

Notes:

 

  I. All terms are set for the single annual period between our Annual Shareholders Meeting(s).

 

  II. James S. Toreson served on the Board of Directors previously in association with the Hollingsworth LLC ownership time period from March of 2002 through August of 2003. Mr. James S. Toreson is the single voting member of our audit, nominating, and compensation committees although Mr. Warren Wang and Mr. Brett Roper serve on these committees in a non-voting capacity as Management Representatives.

 

  III. Mr. Toreson and Mr. Roper had no relationship with Mr. Wang or each other prior to October of 2001 when they were introduced to each other, as well as the Company and Hollingsworth LLC as a part of the Due Diligence Team assembled to provide consideration and support to Hollingsworth LLC prior to their investment in the Company, occurring in March of 2002.

 

  IV. Mr. Roper served on the Board of Directors starting in March of 2002 (through December of 2005 as the Hollingsworth LLC Representative) and continues to serve in that capacity as of this date.

 

  V. The Audit Committee was enlarged to three persons in June of 2010 with James S. Toreson serving as its Chairman and single voting member as of this date. Mr. Toreson, who is independent within the meaning of Regulation S-K Item 407(d)(5)(i)(B) has been determined to have the necessary financial experience to serve as the committee financial expert.  Mr. Toreson is qualified as a financial expert due to his understanding of generally accepted accounting principles which he has gained through a combination of education and experience as a key executive for over 30 years in a wide variety of businesses.  A brief summary of his business experience is listed below Mr. Roper and Mr. Wang serves on the committee in a non-voting capacity. 

 

16
 

 

Item 11. Executive Compensation

 

The following information summarizes the compensation earned during the year ending May 31, 2012 and May 31, 2011.

 

Officers and Management

 

Name and Principal Position  Year   Salary   Bonus   Stock
Awards
   Option
Awards
   Non
Equity Incentive Plan
Comp
   Non-
Qualified
Defer.
Comp
   All Other
Compensation
   Totals 
Warren Wang   2012   $110,000   $19,000   $   $   $   $   $   $129,000 
Chief Executive Officer   2011   $96,000   $   $   $310,741   $   $   $   $406,741 
                                              
Brett Roper   2012   $71,900   $19,000   $   $   $   $   $   $90,900 
VP, Corporate  Services   2011   $57,500   $   $   $   $   $   $   $57,500 
                                              
Lan Jiang   2012   $72,000   $16,000   $   $   $  $   $   $88,000 
Office Manager, Shanghai   2011   $60,000   $   $   $   $   $   $   $60,000 
                                              
Paul Dickman, Chief Financial Officer   2012   $51,000   $16,000   $   $   $   $   $   $67,000 
                                              
Keevin Gilespie, VP Marketing   2012   $19,960   $   $   $   $   $   $   $19,960 

 

Board of Directors

        

Name and Principal Position  Fees Earned or Paid in Cash   Stock
Awards
   Option
Awards
   Non-Equity Incentive Plan Compensation   Non-Qualified
Defer. Compensation
   All Other
Compensation
   Totals 
Warren Wang, Chairman of the Board  $   $   $   $   $   $   $ 
                                    
Brett Roper, Secretary of the Board  $12,000.00   $   $   $   $   $   $12,000.00 
                                    
James S. Toreson, Director  $14,600.00   $   $   $   $   $16,000   $30,600.00 

____________

(1)           Brett Roper took on the role of Chief Operating Officer in March of 2012

(2)           Mrs. Lan Jiang is not an officer of the corporation, does not serve on the Board of Directors, and is included in this table as a part of our related party disclosure as she is the spouse of the CEO, Mr. Warren Wang.

(3)           All other compensation for directors includes a one-time bonus awarded subsequent to the Company becoming publicly trading and raising $2,003,776 through its offering of preferred stock.

  

Employment Contracts

 

The Company currently does not have any active employment agreement(s) with any employee associated with the Company.

 

It is the Company’s intent to enter into an employment contract in the near future with its CEO and Founder, Mr. Warren Wang as well as any other employee(s) or contractor(s) determined by the Board of Directors to be critical to the Company’s future operations.

 

Non-Statutory Stock

 

The Company does not currently have any type of stock based compensation, award, or incentive plan document but plans to create such a plan in the near future in consultation with and the approval of our Compensation Committee.

   

Compensation Plan

 

The Company’s current compensation plan for key individuals is as follows:

 

The Compensation Committee intends (as already noted) to create a stock based compensation and incentive plan in the near future that would address performance of Board of Director(s) duties as well as reward employee job performance.

 

The Compensation Committee plans to formalize a compensation plan in the near future in consultation with and the approval of our Compensation Committee.

 

17
 

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth certain information as of the date of this Filing with respect to the beneficial ownership of the Company’s Common Stock and Warrants by all persons known by the Company to be beneficial owners of more than 5% of any such outstanding classes. Unless otherwise specified, the named beneficial owner has, to the Company’s knowledge, sole voting and investment power.

 

     Amount of    Percent of Class 
Title Of Class  Name, Title and Address of Beneficial Owner of Shares  Beneficial
Ownership(1)
   Before
Offering
   After
Offering
 
Common  Warren Wang, CEO, Chairman of the Board, Director(2)   878,393    23.0%    17.2% 
Common  Brett Roper, Secretary of the Board of Directors (3)   12,500    00.3%    00.2% 

 

Notes:

 

1. As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or share investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of a security). Current Ownership (options included) currently stands at 8,633,736 shares of common stock (includes options).

 

2. The address for Warren Wang is c/o ChineseInvestors.com, Inc., 150 North Santa Anita Ave., Suite 300, Arcadia, California, 91006. Mr. Wang currently has 312,500 Options (related to the repurchase of shares as previously disclosed) exercisable at $0.80 per option over a four-year time period (78,125 per year) after the Company is listed (BB or equal) and trading.

 

3. The address for Brett Roper is 4142 South Cathay Way, Aurora, Colorado, 80013. These shares were awarded to Mr. Roper by Hollingsworth LLC in May of 2002 for services performed for that entity.
   
4.

The offering referred to above was the convertible preferred share offering which resulted in the company selling 2,003,776 shares of preferred stock that could be converted into an additional 2,504,720 shares of common stock after the restriction period ends August 27, 2012

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

The board of directors must approve all related party transactions. All material related party transactions will be made or entered into on terms that are no less favorable to us than can be obtained from unaffiliated third parties.

 

Director Independence

 

James S. Toreson is our only non-employee director, and our board of directors has determined that he meets the qualification of being an independent pursuant to the current SEC guidelines.  The Board has adopted the NASDAQ® definition of an independent director.  Under those rules, Mr. Toreson would be considered independent if he is not an employee of the Company and he does not have a relationship with the Company that would interfere with his exercise of independent judgment in acting as a director of the Company.  Mr. Toreson has advised Messrs. Wang and Roper that he has no such relationship that would interfere with his exercising independent judgment as a director of the Company.

 

Item 14. Principal Accounting Fees and Services

 

Audit Fees

 

The following table sets forth the aggregate fees billed by our auditors, B. F. Borgers CPA, PC in FY 2012 and FY 2011. Our Board of Directors has considered these fees and professional services rendered compatible with maintaining the independence of that firm.

 

   For Year Ending May 31, 
   2012   2011 
Audit Fees (1)  $20,000   $19,000 
Audit-Related Fees (2)   12,000    9,000 
Tax Fees (3)   1,000    1,000 
Totals  $33,000   $29,000 

_________________________

(1)  Audit Fees consist of fees for the audit of our annual financial statements, review of our interim financial statements and review in connection with our statutory and regulatory filings.
(2)  Audit-Related Fees consist of fees related to assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees”.
(3)  Tax Fees consist of fees related to tax compliance, tax advice, and tax planning.

 

18
 

 

 

 

Part IV

 

Item 15. Exhibits, Financial Statement Schedules

 

(b) Exhibits.

 

Exhibit Number   Exhibit Description
     
31.1*   Certification of the Principal Executive Officer Pursuant to 17 CFR 240.13a-14(a), as Adopted Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
31.2*   Certification of the Principal Financial Officer Pursuant to 17 CFR 240.13a-14(a), as Adopted Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1*   Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Extension Schema Document.
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document.

 

* Filed or “Furnished” herewith.

 

19
 

 

CHINESEINVESTORS.COM, INC.

 

FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED MAY 31, 2012 AND 2011

 

 

 

INDEX TO CONSOIDATED FINANCIAL STATEMENTS

 

 

Report of Independent Registered Public Accounting Firm F-3
   
Balance Sheets as of May 31, 2012 and 2011 F-4
   
Statements of Stockholders’ Equity (Deficit) for the years ended May 31, 2012 and 2011 F-5
   
Statements of Operations for the years ended May 31, 2012 and 2011 F-6
   
Statements of Cash Flows for the years ended May 31, 2012 and 2011 F-7
   
Notes to the Financial Statements F-8 to F-27

 

 

 

F-1
 

   

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Stockholders of ChineseInvestors.com, Inc.:

 

We have audited the accompanying balance sheets of ChineseInvestors.com, Inc. (“the Company”) as of May 31, 2012 and 2011 and the related statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit. 

 

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion. 

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ChineseInvestors.com, Inc., as of May 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended, in conformity generally accepted accounting principles in the United States of America.

 

The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the Company's internal control over financial reporting.  Accordingly, we express no such opinion.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ B.F. Borgers CPA PC

 

B F Borgers CPA PC
Denver, CO
August 29, 2012

 

F-2
 

  

 Chineseinvestors.com, Inc.

  

BALANCE SHEETS

 

As of May 31, (Expressed in U.S. Dollars)

 

   2012   2011 
   $   $ 
           
ASSETS          
Current assets          
Cash and cash equivalents [note 1]   1,065,564    252,302 
Accounts receivable, net [note 1]   78,989    4,560 
Other current assets [note 1]   31,377    27,689 
Total current assets   1,175,930    284,551 
Property & equipment, net [note 4]   9,035    6,946 
Website development, net [note 5]   64,002    63,158 
Total assets   1,248,967    354,655 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
Current liabilities          
Accounts payable   61,105    7,527 
Deferred revenue [note 1]   148,191    270,577 
Accrued liabilities [note 1]   91,671    51,596 
Total current liabilities   300,967    329,700 
Long-term deferred revenue [note 3]   3,871    5,797 
Total liabilities   304,838    335,497 
           
Commitments [note 6]          
Subsequent events [note 7]          
          
Stockholders’ equity [note 3]          
Preferred stock Authorized 20,000,000 common shares with a par value of $0.001 per share Issued and outstanding 2,003,776 (2011 – 0) preferred shares   2,004     
Common stock Authorized 80,000,000 common shares with a par value of $0.008 per share Issued and outstanding 5,108,279 (2011 – 4,902,087) common shares   40,866    39,217 
Additional paid-in capital   10,010,927    6,883,867 
Foreign currency gain/(loss)   1,738    1,321 
Retained Deficit   (9,111,406)   (6,905,247)
Total stockholders’ equity/(deficit)   944,129    (19,158)
Total liabilities and stockholders’ equity (deficit)   1,248,967    354,655 

  

See accompanying notes

 

F-3
 

 

 Chineseinvestors.com, Inc.

 

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)

  

Year ended May 31, (Expressed in U.S. Dollars)

 

   Common Stock   Preferred Stock   Additional Paid in   Foreign Currency   Stockholders'     
   Shares   Amount   Shares   Amount   Capital   Gain / Loss   (Deficit)   Total 
   #   $   #   $   $   $   $   $ 
                                         
Balance at May 31, 2010   4,198,962    33,592            6,044,834    290    (6,160,566)   (81,850)
Common stock issued for cash   546,875    4,375            520,625            525,000 
Exercise of Stock Options   156,250    1,250            (1,250)            
Stock Option Compensation Expense                   319,658            319,658 
Net (loss) for the year                           (744,682)   (744,682)
Unrealized Foreign Currency Gain / Loss                       1,031        1,031 
Balance at May 31, 2011   4,902,087    39,217            6,883,867    1,321    (6,905,248)   19,157 
Common stock issued for cash   566,667    4,533            539,467            544,000 
Repurchase and retirement of stock   (646,263)   (5,170)           (229,851)           (235,021)
Common stock issued to external company for services   50,000    400            47,600            48,000 
Common stock issued to employees   95,760    766            248,210            248,976 
Preferred stock issued for cash           2,003,776    2,004    2,001,772            2,003,776 
Deemed dividend associated with preferred stock issuance                       520,982              520,982 
Common stock issued as cashless options   140,028    1,120            (1,120)            
Net (loss) for the year                             (2,206,158)   (2,206,158)
Unrealized Foreign Currency Gain / Loss                         417        417 
Balance at May 31, 2012   5,108,279    40,866         2,004    10,010,927    1,738    (9,111,406)   944,129 

 

See accompanying notes

 

F-4
 

 

Chineseinvestors.Com, Inc.

 

STATEMENTS OF OPERATIONS AND (LOSS)

(UNAUDITED)

 

Year ended May 31, (Expressed in U.S. Dollars)

 

   2012   2011 
Operating revenues          
Subscription revenue   552,327    760,475 
Binary option commissions   263,274     
FOREX revenue   29,324    55,822 
Advertising revenue   52,180    28,800 
Total revenue   897,105    845,097 
           
Cost of services sold   686,865    556,195 
           
Gross Profit   210,240    288,902 
           
General & administrative expenses   1,525,786    948,822 
Private placement commissions   168,179     
Advertising expenses   235,189    84,760 
Total Expenses   1,929,154    1,033,582 
           
Operating (loss) for the year   (1,718,914)   (744,680)
Gain on early extinguishment of debt   33,738     
           
Deemed dividend for beneficial conversion of convertible preferred stock   (520,982)    
           
Loss before tax   (2,206,158)   (744,680)
           
Tax        
           
Net Loss   (2,206,158)   (744,680)
           
Weighted average number of common shares outstanding – basic and diluted   4,992,454    4,281,322 
           
Earnings (loss) per share - basic   (0.44)   (0.17)

 

See accompanying notes

 

F-5
 

 

Chineseinvestors.Com, Inc.

 

STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

Year ended May 31, (Expressed in U.S. Dollars)

 

   2012   2011 
           
OPERATING ACTIVITIES          
Net (loss) for the twelve month period  $(2,206,158)  $(744,680)
Adjustment to reconcile net (loss) to net cash used in operating activities:          
Depreciation & amortization   12,881    12,499 
Interest recognized on interest free note to repurchase and retire treasury shares   6,217     
Stock based expense payment   48,000     
Share based compensation   248,976    319,658 
Deemed dividend for beneficial conversion of convertible preferred stock   520,982     
Gain on early extinguishment of debt   (33,738)    
Deposits   (3,271)   (6,595)
Accounts receivable   (74,429)   3,691 
Accounts payable   53,578    3,766 
Other accrued liabilities   (84,237)   (2,183)
           
Net cash (used in) operating activities   (1,511,199)   (413,844)
           
INVESTING ACTIVITIES          
Purchase of equipment   (15,815)   (13,656)
           
FINANCING ACTIVITIES          
Proceeds from private placement of common stock   544,000    525,000 
Proceeds from private placement of preferred stock   2,003,776     
Cash used for treasury stock purchase and retirement   (207,500)    
Net cash provided by financing activities   2,340,276    525,000 
           
Increase (decrease) in cash and cash equivalents   813,262    97,500 
Cash and cash equivalents, beginning of year   252,302    154,802 
Cash and cash equivalents, end of year   1,065,564    252,302 
           
Supplemental disclosure of cash flow information          
Cash paid for interest   36,243     
Cash paid for income taxes        
Cash paid for China representative office tax   32,876    35,268 

  

See accompanying notes

 

F-6
 

 

NOTES TO THE FINANCIAL STATEMENTS

(AUDITED)

 

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, 1997.

 

1. Liquidity and Capital Resources:

 

Cash Flows – During the year ending May 31, 2012, the Company primarily utilized cash and cash equivalents and proceeds from issuances of its common and preferred stock to fund its operations. During the two years ending May 31, 2012 and May 31, 2011, the Company received $1,069,000 of proceeds from the sale of common stock and $2,003,776 of proceeds from the sale of preferred stock.

 

Cash flows used in operations for the years ended May 31, 2012 and 2011 were $1,511,199 and $413,844, respectively which was an increase over prior years. Increased marketing costs, capital raise expenditures and higher general and administrative costs were the primary reasons for this increase.

 

Capital Resources – As of May 31, 2012, the Company had cash and cash equivalents of $1,065,564 as compared to cash and cash equivalents of $252,302 as of May 31, 2011.

 

Since inception in 1997, 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 Securities and Exchange Commission for annual financial statements.

    

F-7
 

 

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.

 

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 year ended May 31, 2012 the cost of these incentives was $109,382, 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.

 

Private placement commissions – Private placement commissions were commissions paid to company employees for sales of preferred stock through a private placement that was sold in February. None of these fees were paid to company officers or directors.

 

F-8
 

 

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.

 

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 May 31, 2012 and 2011 there were deposit balances in a US bank of $1,057,320 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 China is secured by the Chinese government. At May 31, 2011 and 2010 there were deposits of $7,111 and $1,057,320, 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 is completed when the merchant bank deposits the cash to the Company bank 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 May 31, 2012 and May 31, 2011, the Company had accounts receivable of $78,989 and $4,560, respectively.

 

The Company evaluates the need for an allowance for doubtful accounts on a regular basis. As of May 31, 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 is comprised of deposits in Chinese Renminbi on building space under an operating lease and are stated at the current exchange rate at year end.

 

Other current assets were $31,377 and $27,689 for the years ended May 31, 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 $12,881 and $12,499 for the years ended May 31, 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 May 31, 2012 and May 31, 2011.

 

Accrued Liabilities – Accrued liabilities are comprised of the following:

        

   May 31,   May 31, 
   2012   2011 
China Employees Salaries and Commissions Accrual  $40,544   $23,479 
Representative Office Tax Accrual   5,697    5,249 
Other Accruals   45,430    22,873 
   $91,671   $51,596 

     

F-9
 

  

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 $235,189 and $84,760 in the twelve months ended May 31, 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.

 

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 stock or options are awarded for previous or current service without further recourse. The Company issued stock options to contractors and external companies 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 payment for services already rendered with no recourse.

 

F-10
 

 

The following table summarizes share-based compensation expense recorded in selling, general and administrative expenses during each period presented (in thousands):

   

   Twelve Months Ended 
   May 31,   May 31, 
   2012   2011 
Shares issued   143,760    312,500 
Total share-based expense  $298,976    319,658 

         

Share based expense paid to outside companies is expenses as occurred. Since the Company’s stock is publicly traded, the value is determined based on the number of shares issued and the trading value of the stock on the date of the transaction.

 

Stock option activity was as follows (converted post reverse split):

   

  

 

 

Number of

Shares

   Weighted
Average
Exercise
Price ($)
 
Balance at May 31, 2010   510,000    0.032 
Granted   482,813   $0.56 
Exercised   (156,250)   0.80 
Forfeited or expired        
Balance at May 31, 2011   836,563   $0.48 
Granted   50,000   $0.00 
Exercised   (140,028)   0.80 
Forfeited or expired   (312,500)   0.00 
Balance at May 31, 2012   389,035   $0.48 

         

The following table presents information regarding options outstanding and exercisable as of May 31, 2012:  

   

Weighted average contractual remaining term – options outstanding   1.94 years 
Aggregate intrinsic value – options outstanding  $346,241 
Options exercisable   265,718 
Weighted average exercise price – options exercisable  $.56 
Aggregate intrinsic value – options exercisable  $236,489 
Weighted average contractual remaining term – options exercisable   2.59 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%  

 

F-11
 

 

On February 10, 2012 the Company granted 95,760 shares of common stock to various persons for services rendered and in consideration of efforts to assist the Company in becoming a publicly traded company. The average share price on that date was $2.60 per share resulting in the Company recognizing $248,976 in compensation expense. None of these shares were issued to officers and or directors.

 

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 of interest expense, reducing the note discount balance to $8,762. When the note was retired the 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, $0.008 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 Company will be declaring distributions in the foreseeable future.

 

During the first quarter of 2012 the Company issued 566,667 shares of common stock for cash consideration of $544,000.

 

In October 2011 the Company executed the final documents 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. All company financials statements are retroactively adjusted at this ratio.

 

F-12
 

 

Series A Convertible Preferred Stock

 

During the fourth quarter, effective February 29, 2012, the Company issued 2,003,776 shares of preferred stock as Series A convertible preferred stock for total proceeds of $2,003,776. 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 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.

 

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 $520,982 ($1.06 common stock price February 29th, 2012 compared to $.80 effective conversion rate=$.26 per share. $.26 times 2,003,776=$520,982), as a deemed dividend recognizable in the current year. 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:

 

   May 31,   May 31, 
   2012   2011 
Furniture & removed extra fixtures  $34,957   $27,967 
Leasehold improvements   9,540    9,540 
    44,497    37,507 
Less: accumulated depreciation   (35,462)   (30,561)
   $9,035   $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 twelve months ended May 31, 2012 and 2011 was $5,300 and $5,109 respectively.

 

5. Intangible Assets:

 

Intangible assets are comprised of the following:

   

   November 30,   May 31, 
   2012   2011 
Website development costs  $119,794   $119,794 
Less: accumulated amortization   (55,792)   (56,636)
   $64,002   $63,158 

     

Amortization is calculated over a straight-line basis using the economic life of the asset. Amortization expense for the twelve months ended May 31, 2012 and 2011 was $7,581 and $7,389 respectively.

  

F-13
 

 

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.

   

2013 fiscal year  $21,658 

  

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 May 31, 2012.

 

2013 fical year   $ 9,339  

 

Office Lease – Shanghai Client Service Center – The Company entered into a lease for office space for twelve months in Shanghai, China as part of a new joint venture to promote the binary options sales for which the Company will be responsible for 50% of the total cost. That amount is presented below. The lease period started August 1, 2012 and will terminate August 31, 2013, resulting in the following future commitments, based on the exchange rate at May 31, 2012.

 

2013 fiscal year   $ 50,728  
2014 fiscal year   $ 15,218  

 

 

Concentrations – During the periods ending May 31, 2012 and 2011, the majority of the Company’s revenue was derived from its operations in PRC from individuals, primarily in the United States and Canada.

 

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. Income Taxes:

 

The Company recorded no income tax provision or benefit for the years ended May 31, 2012 and 2011, because the Company believes it is more likely than not that these will not be utilized in the near future due to net losses. The Company generated no taxable income. The income tax provision (benefit) differs from the amount computed by applying the U.S. Federal income tax rate of 34% plus applicable state rates to the loss before income taxes due to the unrecognized benefit resulting from the Company’s valuation allowance, as well as due to nondeductible expenses.

 

For income tax reporting purposes, the Company has approximately $3.4 million of net operating loss carry forwards that expire at various dates through 2032. The Tax Reform Act of 1986 contains provisions that may limit the net operating loss carry forwards and tax credits available to be used in any given year if certain events occur, including significant changes in ownership interests. Realization of net operating loss and tax credit carry forwards is dependent on generating sufficient taxable income prior to their expiration dates.

 

F-14
 

  

As of May 31, 2012 and 2011, the Company had approximately $1,456,000 and $957,000, respectively, of net deferred tax assets, comprised primarily of the potential future tax benefits from net operating loss carry forwards. Based upon the level of historical taxable income and projections for future taxable income over the period in which the deferred tax assets are deductible, management could not conclude that realization of the deferred tax assets as of May 31, 2012 and 2011, was more likely than not, and therefore, the Company has recorded a valuation allowance to reduce the net deferred tax assets to zero. The valuation allowance increased approximately $499,500 and $182,000 during the years ended May 31, 2012 and 2011 respectively. The amount of deferred tax assets considered realizable could be adjusted in the near term if future taxable income is generated.

      

The Company’s effective tax rate differs from the statutory rate due to the following (expressed as a percentage of pre-tax income):

    

Description                                       2012     2011  
    Federal Statutory Rate     35%       34%  
    State Statutory Rate     6%       6%  
    Change in Rate / Other     (2% )     (1%)  
    Permanent Tax Differences     (12% )     (15%
    Calculated Rate     27%       24%  
    Actual Calculated Rate     (27% )     (24% )
    Difference     0%       0%  

       

8. Subsequent Events:

  

Shared expense client service center – Subsequent to year-end the Company entered into an agreement with a binary option sales company, Kris World, to open a client service center in Shanghai starting in the first quarter of 2013 fiscal year. The Company can terminate its interest in the client service center at any time and only be responsible for 50% of the lease expense as disclosed in the lease section above; currently it is estimated that the project cost to Chineseinvestors.com, Inc. establishing the center will be approximately $180,000.

 

Vice President of Sales – Subsequent to year-end the Company terminated the employment of its vice president of sales with no severance pay awarded. At this time the Company does not have immediate plans to refill this position.

 

SEC approval of S-1 – Subsequent to year-end the SEC officially approved the Company’s proposed offering for sale of up to 1.5 million shares of the Company’s common stock through a relationship with a private equity fund.

 

F-15
 

 

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: August 29, 2012 By: /s/ Paul Dickman  
    Paul Dickman  
    Chief Financial Officer  
       
Date: August 29, 2012 By: /s/ Wei Wang  
    Wei Wang  
    Chief Executive Officer  

 

 

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