Attached files
| file | filename |
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| EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER - Chineseinvestors.com, Inc. | ciix_10q-ex3201.htm |
| EX-31.2 - CERTIFICATION - Chineseinvestors.com, Inc. | ciix_10q-ex3102.htm |
| EX-31.1 - CERTIFICATION - Chineseinvestors.com, Inc. | ciix_10q-ex3101.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended February 28, 2018
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period __________ to __________
Commission File Number: 000-54207
ChineseInvestors.COM, Inc.
(Exact name of registrant as specified in its charter)
| Indiana | 35-2089868 | |
|
(State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification Number) |
227 W Valley Blvd. STE 208A San Gabriel, CA 91776
Wei Wang, Chief Executive Officer (800)958-8561
Copies to: Michael E. Shaff, Esq., Irvine Venture Law Firm, LLP
19900 MacArthur Boulevard. Suite 530, Irvine, CA 92612 Telephone (949) 660-7700
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
| Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x | |||
| Emerging growth company ¨ | ||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of February 28, 2018 there were outstanding 27,745,560 shares of the issuer’s common stock, par value $0.001 per share and 465,000 shares of the issuer’s Series 2012 preferred stock, par value $0.001 per share and 706,000 shares of the issuer’s Series A-2014 preferred stock, par value $0.001 per share and 1,022,958 shares of the issuer’s Series C-2016 preferred stock, par value $0.001 per share and 5,883,050 shares of the Series D-2017 preferred stock, par value $0.001 per share.
CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES.
FORM 10-Q for the Quarter Ended February 28, 2018
INDEX
| Page | ||||||
| PART I - FINANCIAL INFORMATION | ||||||
| Item 1. | Financial Statements | 3 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 20 | ||||
| Item 4. | Controls and Procedures | 20 | ||||
| PART II - OTHER INFORMATION | ||||||
| Item 1. | Legal Proceedings | 21 | ||||
| Item 2. | Unregistered Sale of Equity Securities and Use of Proceeds | 21 | ||||
| Item 3. | Defaults Upon Senior Securities | 21 | ||||
| Item 4. | Mine Safety Disclosures | 21 | ||||
| Item 5. | Other Information | 21 | ||||
| Item 6. | Exhibits | 21 | ||||
| Signatures | 22 | |||||
| 2 |
PART I - FINANCIAL INFORMATION
CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES
BALANCE SHEETS
Expressed in U.S. Dollars
| (Unaudited) | ||||||||
| February 28, | May 31, | |||||||
| 2018 | 2017 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 2,413,148 | $ | 1,770,729 | ||||
| Accounts receivable, net | 25,361 | 8,627 | ||||||
| Investments, available for sale, in affiliate | 85,774 | 72,166 | ||||||
| Investments, available for sale | 1,245,344 | 656,909 | ||||||
| Inventory | 118,492 | 7,690 | ||||||
| Other current assets | 439,261 | 271,401 | ||||||
| Total current assets | 4,327,380 | 2,787,522 | ||||||
| Non-current assets | ||||||||
| Investment-affiliate | 250,000 | 250,000 | ||||||
| Property and equipment, net | 203,156 | 53,032 | ||||||
| Website development, net | 103,554 | 81,687 | ||||||
| Total non-current assets | 556,710 | 384,719 | ||||||
| Total assets | $ | 4,884,090 | $ | 3,172,241 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 193,665 | $ | 303,463 | ||||
| Deferred revenue | 561,053 | 270,296 | ||||||
| Investor deposit | – | 210,100 | ||||||
| Customer deposit | 3,008 | – | ||||||
| Unearned revenue paid in stock | 401,862 | 231,945 | ||||||
| Accrued liabilities | 166,891 | 67,782 | ||||||
| Accrued dividend & interest | 105,793 | 167,688 | ||||||
| Secured debt | 995,140 | 410,000 | ||||||
| Embedded incentive interest | 5,374 | 23,520 | ||||||
| Total current liabilities | 2,432,786 | 1,684,794 | ||||||
| Non-current Liabilities | ||||||||
| Long-term deferred revenue | 124,698 | 96,144 | ||||||
| Total Non-current Liabilities | 124,698 | 96,144 | ||||||
| Total liabilities | 2,557,484 | 1,780,938 | ||||||
| Commitments and Contingencies | ||||||||
| Shareholders’ equity | ||||||||
| Preferred stock, series 2012, $0.001 par value 20,000,000 authorized, 465,000 and 615,000 were issued and outstanding at February 28, 2018 and May 31, 2017, respectively | 465 | 615 | ||||||
| Preferred stock, series A-2014, $0.001 par value 20,000,000 authorized, 706,000 and 1,770,000 were issued and outstanding at February 28, 2018 and May 31, 2017, respectively | 706 | 1,770 | ||||||
| Preferred stock, series C-2016, $0.001 par value 20,000,000 authorized, 1,022,958 and 5,000,043 were issued and outstanding at February 28, 2018 and May 31, 2017, respectively | 1,023 | 5,000 | ||||||
| Preferred stock, series-D-2017, $0.001 par value 20,000,000 authorized, 5,883,050 and 0 were issued and outstanding at February 28, 2018 and May 31, 2017, respectively | 5,883 | – | ||||||
| Common stock $0.001 par value 80,000,000 authorized 27,745,560 and 11,446,805 were issued and outstanding February 28, 2018 and May 31, 2017, respectively | 27,746 | 11,448 | ||||||
| Additional paid-in capital | 35,737,886 | 23,928,741 | ||||||
| Foreign currency gain | 11,079 | – | ||||||
| Unrealized (loss) on investments available for sale | (443,558 | ) | (206,892 | ) | ||||
| Accumulated deficit | (33,014,624 | ) | (22,349,379 | ) | ||||
| Total Shareholders' equity | 2,326,606 | 1,391,303 | ||||||
| Total liabilities and shareholders’ equity | $ | 4,884,090 | $ | 3,172,241 | ||||
See accompanying notes to the financial statements
| 3 |
CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES
STATEMENT OF COMPREHENSIVE (LOSS) AND INCOME
For the Three and Nine Months Ended February 28, 2018 and 2017
(Unaudited)
Expressed in U.S. Dollars
| Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Operating revenues | ||||||||||||||||
| Investor relations-advertisement | $ | 196,627 | $ | 301,367 | $ | 701,660 | $ | 670,529 | ||||||||
| Subscription | 214,506 | 196,520 | 530,102 | 677,843 | ||||||||||||
| Sales of products | 183,185 | – | 240,753 | – | ||||||||||||
| Other | 201,986 | – | 206,741 | 3,419 | ||||||||||||
| Total revenue | 796,304 | 497,887 | 1,679,256 | 1,351,791 | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Products | 79,092 | – | 91,462 | – | ||||||||||||
| Services | 367,301 | 565,236 | 1,025,519 | 1,014,632 | ||||||||||||
| 446,393 | 565,236 | 1,116,981 | 1,014,632 | |||||||||||||
| Gross profit (loss) | 349,911 | (67,349 | ) | 562,275 | 337,159 | |||||||||||
| . | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative Expense | 1,844,826 | 1,122,287 | 4,962,210 | 3,175,765 | ||||||||||||
| Advertising expense | 301,073 | 133,783 | 830,292 | 495,350 | ||||||||||||
| Total operating expenses | 2,145,899 | 1,256,070 | 5,792,502 | 3,671,115 | ||||||||||||
| Net loss from operations | (1,795,988 | ) | (1,323,419 | ) | (5,230,227 | ) | (3,333,956 | ) | ||||||||
| Other income/(expense) | ||||||||||||||||
| Other income | 1,279 | 8,146 | 10,153 | 9,095 | ||||||||||||
| Interest expense | (17,186 | ) | (10,892 | ) | (31,719 | ) | (78,526 | ) | ||||||||
| Net realized gain on marketable equity securities | – | 35,151 | – | 1,669,835 | ||||||||||||
| Total other income(expense) | (15,907 | ) | 32,405 | (21,566 | ) | 1,600,404 | ||||||||||
| Net loss | $ | (1,811,895 | ) | $ | (1,291,014 | ) | $ | (5,251,793 | ) | $ | (1,733,552 | ) | ||||
| Preferred stock deemed dividend | (2,120,523 | ) | (1,165,670 | ) | (5,168,865 | ) | (1,165,670 | ) | ||||||||
| Preferred stock dividends | (89,047 | ) | (63,953 | ) | (244,586 | ) | (141,916 | ) | ||||||||
| Net loss attributable to common shareholders | (4,021,465 | ) | (2,520,637 | ) | (10,665,244 | ) | (3,041,138 | ) | ||||||||
| Earnings per share attributable to common shareholders: | ||||||||||||||||
| Basic and diluted (loss) per share | $ | (0.15 | ) | $ | (0.33 | ) | $ | (0.52 | ) | $ | (0.40 | ) | ||||
| Weighted average number of shares outstanding - basic & diluted | 26,100,627 | 7,751,805 | 20,387,616 | 7,691,475 | ||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||
| Net unrealized gain (loss) on available for sale securities | (144,399 | ) | 38,895 | (236,666 | ) | (2,138,538 | ) | |||||||||
| Comprehensive loss attributable to common shareholders | $ | (4,165,864 | ) | $ | (2,481,742 | ) | $ | (10,901,910 | ) | $ | (5,179,676 | ) | ||||
See accompanying notes to the financial statements
| 4 |
CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
For the Nine Months Ended February 28, 2018 and 2017
(Unaudited)
Expressed in U.S. Dollars
| 2018 | 2017 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (5,251,793 | ) | $ | (1,733,552 | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities | ||||||||
| Non-cash revenue received as available for sale securities | (611,657 | ) | (317,500 | ) | ||||
| Net realized (gain)/loss on marketable equity securities | – | (1,669,835 | ) | |||||
| Foreign currency exchange loss(gain) | – | (1,018 | ) | |||||
| Stock Compensation | 724,220 | 426,950 | ||||||
| Depreciation and amortization | 34,024 | 10,515 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (16,734 | ) | (45,486 | ) | ||||
| Inventory | (110,802 | ) | – | |||||
| Other current assets | (224,995 | ) | (48,329 | ) | ||||
| Accounts payable | (109,798 | ) | 22,171 | |||||
| Accrued interest and dividends | (18,000 | ) | (116,933 | ) | ||||
| Deferred revenue | 319,311 | 49,168 | ||||||
| Customer deposit | 3,008 | – | ||||||
| Other accrued liabilities | 99,109 | 106,884 | ||||||
| Net cash (used in) operating activities | (5,164,107 | ) | (3,316,965 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of equipment | (206,016 | ) | (23,970 | ) | ||||
| Proceeds from the sale of marketable equity securities | – | 2,017,726 | ||||||
| Purchase of marketable equity securities-affiliate | – | (294,148 | ) | |||||
| Net cash provided by/(used in) investing activities | (206,016 | ) | 1,699,608 | |||||
| Cash flows from financing activities | ||||||||
| Cash raised by sale of class “C” preferred stock | – | 5,000,043 | ||||||
| Cash raised by sale of class “D” preferred stock | 5,933,050 | – | ||||||
| Cash paid for dividend | (306,627 | ) | – | |||||
| Cash raised through issuance of debt | 995,140 | 410,000 | ||||||
| Repayment of debt | (410,000 | ) | (660,000 | ) | ||||
| Investor deposit | (210,100 | ) | 350,150 | |||||
| Net cash provided by financing activities | 6,001,463 | 5,100,193 | ||||||
| Effects of currency translation on cash and cash equivalents | 11,079 | – | ||||||
| Net increase/(decrease) in cash and cash equivalents | 642,419 | 3,482,836 | ||||||
| Cash and cash equivalents - beginning of period | 1,770,729 | 197,231 | ||||||
| Cash and cash equivalents - end of period | $ | 2,413,148 | $ | 3,680,067 | ||||
| Supplemental cash flow disclosures | ||||||||
| Cash paid for interest | $ | 47,217 | $ | 75,639 | ||||
| Cash paid for income taxes | $ | 9,878 | $ | – | ||||
| Cash paid for China representative office tax | $ | 21,323 | $ | – | ||||
Supplemental disclosure of non-cash activity
During the three and nine months ended February 28, 2018, the Company received various stocks valued (FMV) at $0 and $1,006,575 respectively, for providing one to twelve months of investor relations (“IR”) services.
During the three and nine months ended February 28, 2017, the Company received various stock valued (FMV) at $25,000 and $305,000 respectively, for providing three to twelve months of investor relations (“IR”) services. $50,000 of such stock received in July 2016 from ACUG was returned in November 2016 due to cancellation of contract.
See accompanying notes to the financial statements
| 5 |
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
Organization and Nature of Operations:
Business Description
Chineseinvestors.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). The Company relocated part of the operations to California starting fiscal year 2015.
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.
In March 2017, the Company established and registered XiBiDi Biotechnology Co. Ltd. (“CBD Biotechnology Co. Ltd”) in the Pudong Free-Trade Area in Shanghai, established as a wholly owned foreign enterprise. In April, CIIX appointed XiangYang Yun as chief executive officer (CEO) of this wholly owned foreign enterprise. XiBiDi Biotechnology Co. Ltd.’s primary focus is online and retail sales of hemp-based health products in China and other complimentary products. Yun’s initial focus was the launch of the XiBiDi Magic Hemp Series (“CBD Magic Hemp Series”), a cosmetics line which included three initial products.
In November 2017, CBD Biotechnology Co. Ltd., teamed up with Chinese beauty influencer, The Godfather of Beauty, for the launch of its “CBD Magic Hemp Series” skincare line on China’s largest e-commerce retailer Alibaba. The Company’s flagship store, the "CBD Enterprise Store," is on Alibaba’s Taobao Platform. The Godfather of Beauty is an Internet celebrity with years of experience in live, online marketing on the Taobao Platform.
In November 2017, CBD Biotechnology Co. Ltd. also announced the expansion of its consumer division to enter the lucrative liquor (baijiu) market in China. On November 7, 2017, CBD Biotechnology was issued Wholesale Alcohol License from the ShangHai Wine Monopoly Bureau effective October 24, 2017 for a three year term, which allows CBD Biotechnology to act as a distributor of the baijiu. CBD Biotechnology entered into a wholesale agreement with China GuiZhou HanTai Wine, Inc. to distribute its baijiu, Yantai 1985, and kicked off its sales and marketing plan by partnering with Jinri Toutiao (translation: Today’s Headlines), a popular Chinese mobile application. The Company announced plans to spin off CBD Biotechnology Co. Ltd. at the end of February 2018, which was later postponed to the Company’s fiscal year end, May 31, 2018 by the Company’s Board of Directors.
In April 2017, the Company established ChineseHempOil.com, Inc. dba “Chinese Wellness Center” a Delaware corporation, as a subsidiary of the Company. ChineseHempOil.com, Inc. is responsible for the development and operation of the online and retail sales of non-industrial hemp-based health products in the United States. Chinese Wellness Center is the retail store located in the predominantly Chinese community of San Gabriel, California, located next to the Company’s headquarters. In addition, ChineseInvestors.com, Inc. announced the release of its first hemp oil product line, OptHemp, a premium, private label oil, made from full-spectrum, Colorado grown, GMO-Free, non-industrial hemp, manufactured using a CO 2 Extraction process.
In November 2017, ChineseHempOil.com, Inc. launched its OptHemp product line on Amazon.com kicking off a multi-channel campaign geared to both the US and Chinese-American markets during the 9th annual Singles Day Celebration. This launch commenced the e-commerce marketplace initiative that the Company set into motion in early June through a strategic partnership with a top 100 platinum level partner seller on Amazon Marketplace that agreed to include the OptHemp product line in its limited catalog for resale through the Amazon Channel. This partnership brings to the OptHemp product line, the full weight and power of a national sales and marketing agency that specializes in providing business solutions including headquarter sales services, analytics, insights and intelligence, retail services, marketing, digital technology and business process outsourcing. The Company announced plans to spin off ChineseHempOil.com, Inc. at the end of February 2018; however, the Company’s Board of Directors has recently approved postponing the spin-off until the Company’s fiscal year end, May 31, 2018.
| 6 |
In an effort to expand its media products, as the first quarter of fiscal year 2018 came to a close, the Company announced that it would be working with Wall Street Multimedia (“WSM”), an independent news agency located in the NYSE to produce a daily cryptocurrency video newscast in Chinese, providing timely information and exclusive analysis regarding all aspects of the emerging digital currency world, including specific cryptocurrencies, such as “Bitcoin” and “Ethereum,” industry trends, price movement, blockchain technology, sector-related stocks and ETFs, etc.
1. Liquidity and Capital Resources:
Cash Flows – During the nine months ended February 28, 2018, the Company primarily generated cash and cash equivalents, from issuances of its common and preferred stock to fund its operations. The Company received $5,933,050 of proceeds from the sale of Series “D-2017” preferred stock by February 28, 2018 with $100,000 of that received in the year ended May 31, 2017 and the remaining received during the nine months ended February 28, 2018.
Cash flows provided by (used in) operations for the nine months ended February 28, 2018 and 2017 were $(5,164,107) and $(3,316,965), respectively. The increased cash used in operations were due to increased general and admin expenses used in operation.
Capital Resources – As of February 28, 2018, the Company had cash and cash equivalents of $2,413,148 as compared to cash and cash equivalents of $1,770,729 as of May 31, 2017.
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 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.
Going Concern – The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. There is potential that the Company will not continue as a going concern. The recoverability of recorded property and equipment, intangible assets, and other asset amounts shown in the accompanying financial statements is dependent upon the Company’s ability to continue as a going concern and to achieve a level of profitability. The Company intends on financing its future activities and its working capital needs largely from the sale of equity securities until such time that funds provided by operations are sufficient to fund working capital requirements. However, there can be no assurance that the Company will be successful in its efforts. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
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.
Principles of Consolidation – The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America.
The consolidated financial statements include the accounts of Chineseinvestors.com Inc. and its subsidiaries (collectively the “Company”). The Company’s subsidiaries include 100% of ChineseHempOil.com Inc, XiBiDi Biotechnology Co, Ltd., Hemp Logic and CIIX Online.
Intercompany accounts and transactions have been eliminated upon consolidation.
| 7 |
Foreign Currency – The Company has operations in the People’s Republic of China (“PRC”), however the functional and reporting currency is in U.S. dollars. To come to this conclusion, the Company considered the direction of ASC section 830-10-55.
Selling Price and Market – As a representative office is located in the 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 U.S. dollars. This indicates the functional currency is U.S. dollars.
Financing – The Company’s financing has been generated exclusively in U.S. dollars from the United States. This indicates the functional currency is U.S. dollars.
Expenses – The majority of expense are paid in U.S. dollars. The expenses generated in PRC are paid by a monthly or weekly cash transfer from the U.S. when the expenses are due, resulting in very little foreign currency exposure. This indicates the functional currency is U.S. dollars.
Numerous Intercompany Transactions – The Company has multiple transactions each month between the U.S. and Chinese representative office. This indicates the functional currency is U.S. dollars.
CBD Biotechnology Co Ltd's functional currency is the Chinese Renminbi (RMB). The reporting currency is that of the US Dollar. Assets and liabilities are translated at the exchange rates as of the balance sheet date. Owners’ contribution is translated at historical rate. Income and expenditures are translated at the average exchange rate of the period. The RMB is not freely convertible into foreign currency and all foreign currency exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US dollar at the rates used in translation.
CBD Biotechnology Co Ltd. was not established until March 2017, therefore there is no translation for statement of comprehensive (loss) and income for three-month period end February 28, 2017 and nine-month period end February 28, 2017. The exchange rates used to translate amounts in RMB into USD for the purposes of preparing the financial statements were as follows:
| February 28, 2018 | |
| Balance sheet | RMB 6.32 to US $1.00 |
| Statement of comprehensive (loss) and income-three-month period | RMB 6.40 to US $1.00 |
| Statement of comprehensive (loss) and income-nine-month period | RMB 6.58 to US $1.00 |
| May 31, 2017 | |
| Balance sheet | RMB 6.80 to US $1.00 |
Revenue recognition – Revenue was derived from five different sources:
The Company recognizes revenue pursuant to revenue recognition principles presented in SAB Topic 13. First, persuasive evidence of an arrangement. Second, deliver has occurred or services have been rendered, thirdly the seller’s price to the buyer is fixed or determinable and lastly collectability is reasonably assured.
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 60 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 are in association with Forex. These fees are recognized when earned.
4. Investor relations income is earned by the Company in return for delivering current, publicly available information related to our client companies. These revenues are prepaid by the client company and as such are initially recorded as an asset with an offsetting unearned revenue liability. The value of the revenue earned is recognized based upon the fair market value of the client’s stock closing price at the contract date multiplied by the numbers of shares earned. Then this revenue is recognized over the term of the services period while the services are being provided. By recognizing the revenue incrementally, the Company are following the guidelines of SAB Topic 13, in that the Company are only recognizing revenue once the value of the revenue received is fixed and determinable. In addition, the Company is applying the definition of readily determinable fair value presented at Accounting Standards Codification 820-10-15-5 in assessing the amount to recognize in each accounting period. The revenue is recognized over the term of the services period, added to the value of cash received if any, then recognized as revenue in the period the services were delivered.
| 8 |
5. The Company recognizes revenue for product sales upon transfer of title to the customer. Customer purchase orders and/or contracts are generally used to determine the existence of an arrangement. Shipping documents and terms and the completion of any customer acceptance requirements, when applicable, are used to verify product delivery. The Company assesses whether a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company has no product returns or sales discounts and allowances because goods delivered and accepted by customers are normally not returnable.
6. Referral fee from cryptocurrency. The revenue is recognized at the time that a client referred by the Company completes a transaction with the merchant. At the end of each month, the Company bills its referral merchants for amounts due under the agreement. The Company does not receive upfront payments from its referral merchants, nor are there any guaranteed minimums that must be achieved before earning a referral fee. All fees earned through these arrangements are tracked by the Company’s internal systems.
Costs of Services/Products Sold – Costs of services provided are the total direct cost of the Company’s operations in Shanghai. Cost of goods sold includes cost of inventory sold during the period, net of discounts and inventory allowances, freight and shipping costs, warranty and rework costs.
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 February 28, 2018 and May 31, 2017 there were deposit balances in a United States bank of $2,134,914 and $1,716,138 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.
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. Revenues 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.
The Company evaluates the need for an allowance for doubtful accounts on a regular basis. As of February 28, 2018 and May 31, 2017, the Company determined that an allowance was not needed.
The operations of the Company are located in the 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.
Investments, available for sale, in affiliate – The Company invested in an affiliate, Medicine Man Technologies, Inc. (“MDCL”), in April 2014, implemented the equity method of accounting. The Company received its ownership in return for supporting the company during its formational stage and no cash, as such the stock received had a value of zero and the affiliate generated a loss through May 31, 2014. The Company has no further commitment to fund losses; therefore, management has deemed it proper to discontinue applying the equity method for the investment as defined by Accounting Standards Codification (“ASC”) 323-10-35-20 for the year ended May 31, 2014. In 2015 the affiliate company issued additional stock, diluting the Company’s position and restructured the management of the entity causing the Company to determine that it no longer had “significant influence” over its operations. The Company then started accounting for the stock owned as an available for sale security. As there was a public market for MDCL stock at February 28, 2018 and May 31, 2017, the Company recognized the stock as a Level 1 financial instrument. The Company has liquidated most of its holdings in MDCL stock generating approximately $0 and $1,996,939 cash during the nine months period ended February 28, 2018 and 2017, respectively. At February 28, 2018, the Company still held 41,238 shares of MDCL stock representing $85,774 of value based upon the closing market price of $2.08. At May 31, 2017, the Company held 41,238 shares of MDCL stock representing $72,166 of value based upon the closing market price of $1.75.
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Investments available for sale – Investments available for sale is comprised of publicly traded stock received in return for providing investor relations services to client companies. The investor relations services range from one month to a year, from the inception of the contract. The Company considers the securities to be liquid and convertible to cash in under a year. The Company has the ability and intent to liquidate any security that the Company holds to fund operations over the next twelve months, if necessary, and as such has classified all of its marketable securities as short-term.
The Company followed the guidance of ASC 320-10-30 to determine the initial measure of value based on the quoted price of an otherwise identical unrestricted security of the same issuer, adjusted for the effect of the restriction, in accordance with the provisions of topic 820-10-15-5, which states that an equity security has a readily determinable fair value if it meets the condition of having a “sales prices or bid-and-asked quotations which are currently available on a securities exchange registered with the U.S. Securities and Exchange Commission (SEC) or in the over-the-counter market, provided that those prices or quotations for the over-the-counter market are publicly reported by the National Association of Securities Dealers Automated Quotation systems or by the OTC Markets Group Ins. Restricted stock meets that definition if the restriction terminates within one year.” These shares were classified as available for sale securities in accordance with ASC 948-310-40-1 as the Companies intention is to sell them in the near-term (less than one year). In compliance with ASC 320-10-35-1, equity securities that have readily determinable fair values that are classified as available-for-sale shall be measured subsequently at fair value in the statement of financial position. Unrealized holding gains and losses for Available-for-sale securities (including those classified as current assets) shall be excluded from earnings and reported in other comprehensive income until realized.
As these shares will be earned over the term of the contracts, the Company will defer the recognition of the earnings of the revenue over the period the services are performed. The value recorded will be determined by multiplying the average of the closing price on the last day of the month for the period being reported based on closing market price per share.
Upon receipt, these shares were recorded as an asset on the Companies financials as "Investments, available for sale". The Company will also record a corresponding contra-asset account titled "Unearned Revenue paid in stock".
Inventories – Inventory is valued at the lower of cost or net realizable value. Cost is determined using weighted average cost method.
There is no any write off as of February 28, 2018 and May 31, 2017.
Other Current Assets – Other current assets consist of deposits in Chinese Renminbi on building space under an operating lease and are stated at the current exchange rate at year end. Security deposits of office rent in United States, purchase deposits to vendors for the Hemp oil purchase, prepaid expenses in both United States and Shanghai, details as below:
| February 28, | May 31, | |||||||
| 2017 | 2017 | |||||||
| Purchase deposit | $ | – | $ | 66,125 | ||||
| Prepaid expense | 351,603 | 151,283 | ||||||
| Security deposit-rent | 49,851 | 43,909 | ||||||
| Other current assets | 37,807 | 10,084 | ||||||
| $ | 439,261 | $ | 271,401 | |||||
Investment-affiliate – The Company made investment of $250,000 to Breakwater MB LLC in March 2017, a cannabis-focused investment and consulting company, formed by the Company’s board member and CFO, Paul Dickman, as a means to invest capital in and provide consulting services to private, cannabis-focused companies as they transition into the public market. The Company’s equity position in Breakwater MB, LLC will be approximately 12.5%. The Company adopts cost method for this investment.
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 $34,024 and $10,515 for the nine months ended February 28, 2018 and 2017, respectively.
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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 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 for the periods ended February 28, 2018 and 2017.
Accrued dividend & interest – The accrued dividend balance represents dividend payable related to the Series A-2014 preferred stock Series C-2016 preferred stock and Series D-2017 preferred stock. Accrued dividend was $88,790 and $150,831 for the period ended February 28, 2018 and May 31, 2017 respectively. The accrued interest balance represents interest payable for short term debt outstanding. Accrued interest was $17,003 and $16,857 for the period ended February 28, 2018 and May 31, 2017 respectively.
Accrued Liabilities – Accrued liabilities are comprised of the following:
| February 28, 2018 | May 31, 2017 | |||||||
| China Employees' Salaries and Commissions Accrual | $ | 6,799 | $ | 6,799 | ||||
| Other Accruals | 160,092 | 60,983 | ||||||
| $ | 166,891 | $ | 67,782 | |||||
Unearned revenue, revenue paid in stock – For the nine months ended February 28, 2018 and during fiscal year ended May 31, 2017, the Company received shares of stock and warrants, as payment for investor relations work that the Company will be providing through July 2018. As the Company earns the fee for this work, this balance will be reduced to reflect the portion still to be earned.
Deferred revenue – The Company receives payment for subscription revenues in advance before the subscription service is granted. The company recognizes the revenue as being earned as the services are delivered. The amount paid for which services have not yet been delivered related to subscription revenues is recorded as a liability in the current or long-term portion of the liabilities section of the balance sheet.
Short-term debt, secured by stock
In September 2016, the Company obtained short-term debt of $410,000 from various individuals. Based on the original lending agreements, the loans were to have been secured by shares of the stocks in the following companies.
| Company name | Shares Secured for Loan | |
| Sino-Global Shipping America LTD (SINO) | 80,000.00 | |
| Recon Technology LTD (RCON) | 60,000.00 | |
| Nengfa Weiye Energy (NFEC) | 185,000.00 | |
| SGOCO Group LTD (SGOC) | 28,333.33 | |
When entering the loan agreements, the Company believed that the SINO contract would be executed, and SINO shares would be delivered upon signing the contract. However, such IR service agreement was not executed due to a disagreement among SINO’s management, as a result, the Company has not obtained the SINO shares as of February 28, 2018. On January 9, 2018, the Company filed a lawsuit on the Los Angeles County Superior Court, Case No. EC067692 for breach of contract and common counts against SINO-GLOBAL SHIPPING AMERICA LTD. For NFEC, the Company obtained 100,000 shares at the time of entering the contract, and the remaining shares were fully received by the end of year 2016. For RCON, the Company obtained 50,000 shares upon entering the contract, however, the agreement called for collateral of 60,000 RCON shares. The collateral is now short by 10,000 shares of RCON common stock. The lenders received an incentive equal to 20% of the deemed increase, if any, in value of these secured shares (“Incentive Feature”) at the maturity of the short-term notes.
It was determined that these notes were not properly collateralized as the ownership of the collateral did not transfer from the Company to the collateral agent. All notes that were not properly collateralized have been repaid or renegotiated into new notes.
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With regard to the notes that came due in September 2017, the Company paid back principal and interest to borrowers totaling $343,051; The remainder of principal and interest represented by the notes was rolled over upon the lenders’ request into new notes with an outstanding principal balance totaling $116,669.
For the period ended February 28, 2018, the Company obtained short-term debt of $995,140 from various individuals. Of the $995,140, as noted above, $116,669 was rolled over from previous debt renegotiated with new notes. These loans were to be secured by shares of the stocks in the following companies:
| Company name | Shares Secured for Loan | |
| Nemaura Medical, Inc (NMRD) | 100,000.00 | |
| Recon Technology LTD (RCON) | 49,999.00 | |
| Solbright Group Inc. (SBRT) | 195,122.00 | |
| Nengfa Weiye Energy (NFEC) | 218,779.00 | |
| SGOCO Group LTD (SGOC) | 29,412.00 | |
It has been determined that with the exception of the notes secured by the Company’s NMRD shares, the notes cannot properly be secured. With regard to the notes secured by the NMRD shares, the transfer of the Company’s shares in NMRD to the Collateral Agent is in process. With regard to the notes that cannot be properly secured, the Company has prepared a letter agreement to the lenders offering the lenders the option to rescind the note or allow the notes to remain in place as unsecured notes. The letter agreement requests a response from the lenders no later than April 30, 2018.
Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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.
The financial statements include some amounts that are based on management's best estimates and judgments. The most significant estimates relate to depreciation and useful lives, and contingencies. These estimates may be adjusted as more current information becomes available, and any adjustment could be significant.
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. |
Much of the Company’s financial instruments are level one and are carried at market value, requiring no adjustment to book value. The financial instruments classified as level one were deemed to qualify as that classification because their value was determined by the price of identical instruments traded on an active exchange.
Level one instruments are based upon stated balance of financial institution or calculated based upon stock trading in the public market. Level two instruments are calculated based upon the sale of stock through a private placement at arms-length where our shares were an insignificant amount of the total volume of stock sold in the issuer. Level three financial instruments were valued by a professional independent appraiser hired by the Company to determine the valuation. The level three valuation calculation includes discounted cash flow models and market based models as appropriately utilized by a professional valuation firm. The inputs they used included the entities past financial performance, projected budgets, prior private stock sale history and comparable company valuations.
The following table summarizes the assets we are carrying and the fair value category in which they are currently classified:
| February 28, 2018 | May 31, 2017 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Cash | 2,413,148 | – | – | 1,770,729 | – | – | ||||||||||||||||||
| Investments | 1,331,118 | 250,000 | – | 729,075 | 250,000 | – | ||||||||||||||||||
| Total Financial Instruments | 3,744,266 | 250,000 | – | 2,499,804 | 250,000 | – | ||||||||||||||||||
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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.
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) passed that significantly reforms the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, effective as of January 1, 2018; limitation of the tax deduction for interest expense; limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); and repeal of the federal Alternative Minimum Tax (“AMT”).
In connection with the analysis of the impact of the TCJA, the Company determine it does not have any impact on the financial statements.
Other Revenue – Other revenue is comprised of revenue related to Forex service fees, referral commissions and other miscellaneous service revenues generated which is recognized over the period the term of the service term for the period ended February 28, 2018 and 2017.
Advertising Costs – Advertising costs are expensed when incurred.
Earnings (Loss) Per Share – Earnings (loss) per share is computed using the weighted average number of common shares outstanding during the period. The Company has adopted ASC 260 “Earnings Per Share”. Fully diluted loss per share are not calculated and presented on the financial statements as the calculation would be antidilutive.
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.
On July 14, 2017, the Company awarded and issued a restricted stock award to a service provider 30,000 shares in total, and the fair market value at the grant date was $0.80 per share. All these shares were fully vested at grant date, stock compensation expense totaling $24,120 were recorded.
On August 7, 2017, the Company awarded and issued a restricted stock award to a service provider 50,000 shares in total, and the fair market value at the grant date was $0.87 per share. All these shares were fully vested at grant date, stock compensation expense totaling $43,500 were recorded.
On October 31, 2017, the Company awarded restricted stock awards to various employees 1,340,000 shares in total, and the fair market value at the grant date was $0.49 per share. All these shares were fully vested at grant date, stock compensation expense totaling $656,600 were recorded.
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Preferred Stock Beneficial Convertible Feature – 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 have recorded the intrinsic value of this beneficial conversion feature(“BCF”).
In according to ASC 470-20-30-6 Intrinsic value shall be calculated at the commitment date as the differences between the conversion price and the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares into which the security is convertible. In according to ASC 470-20-30-8, if the intrinsic value of the beneficial conversion feature is greater than the proceeds allocated to the convertible instrument, the amount of the discount assigned to the beneficial conversion feature shall be limited to the amount of the proceeds allocated to the convertible instrument. Since all the preferred stocks are issued on different date, we calculate the intrinsic value for each individual preferred stock issuance based on stock issuance date. If the intrinsic value exceeds actual proceeds we received, actual proceeds will be BCF, otherwise, the intrinsic value is the BCF.
New Accounting Pronouncements – Upon issuance of final pronouncements, we review the new accounting literature to determine its relevance, if any, to our business. The Company is in the progress of evaluating the following accounting updates:
In May 2017, the FASB issued ASU NO. 2017-09 Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, Effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance.
In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”. The amendments add further guidance on identifying performance obligations and also to improve the operability and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”. The amendments, among other things: (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The effective date of these amendments is at the same date that Topic 606 is effective. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”. The amendments in ASU 2016-20 affect narrow aspects of the guidance issued in ASU 2014-09 including Loan Guarantee Fees, Contract Costs, Provisions for Losses on Construction-Type and Production-Type Contracts, Disclosure of Remaining Performance Obligations, Disclosure of Prior Period Performance Obligations, Contract Modifications, Contract Asset vs. Receivable, Refund Liabilities, Advertising Costs, Fixed Odds Wagering Contracts in the Casino Industry, and Costs Capitalized for Advisors to Private Funds and Public Funds. The effective date of these amendments are at the same date that Topic 606 is effective. Topic 606 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based on current information.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation. These reclassifications had no effect on previously reported net income or shareholders’ equity.
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3. Stockholders’ Equity:
As of February 28, 2018 and May 31, 2017, the Company was authorized to issue 80,000,000 shares of common stock, $0.001 par value per share. In addition, 20,000,000 shares of $.001 par value preferred stock were authorized. All common stock shares have full dividend rights. However, it is not anticipated that the Company will be declaring distributions in the foreseeable future.
During the year ended May 31, 2016, the Company bought back 62,500 shares of company stock from former COO Brett Roper, those shares has been returned as of February 28, 2018.
During the nine months period ended February 28, 2018, the shareholders of preferred stock series 2012 converted 150,000 shares of preferred stock for 187,500 of common stock shares at a conversion rate of 1 share of preferred stock series 2012 for 1.25 shares of common stock.
During the nine months period ended February 28, 2018 the shareholders of preferred stock series A-2014 converted 1,064,000 shares of preferred stock for 2,660,000 of common stock shares at a conversion rate of 1 share of preferred stock series A-2014 for 2.50 shares of common stock.
During the nine months period ended February 28, 2018, the shareholders of preferred stock series C-2016 converted 3,977,085 shares of preferred stock for 11,931,255 of common stock shares at a conversion rate of 1 share of preferred stock series C-2016 for 3.00 shares of common stock.
During the nine months period ended February 28, 2018, the company received $5,933,050 proceeds from the sales of preferred stock series D-2017. The shareholders of preferred stock series D-2017 converted 50,000 shares of preferred stock for 100,000 of common stock shares at a conversion rate of 1 share of preferred stock series C-2016 for 2.00 shares of common stock.
During the nine months period ended February 28, 2018, the Company granted 1,420,000 shares of restricted common stock for compensation. The stock was valued from $0.49 to $0.87 per share based on the market price at the grant date. The compensation and consulting expense was recorded as general and administrative expenses for the period ended February 28, 2018.
Series 2012 Convertible Preferred Stock
During the third quarter of fiscal year 2013, effective February 29, 2012, the Company issued 2,003,776 shares of preferred stock as Series 2012 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 nine months from the date of issuance. The holders of shares of preferred stock were entitled to receive a dividend of $0.06 per share per annum for the first two years from the issuance of the instruments. The Company maintained the right to suspend the dividend at its discretion if it is deemed necessary.
Series A-2014 Convertible Preferred Stock
In the years ended May 31, 2016 and 2015 the Company issued 720,000 and 1,885,000 shares of preferred stock as Series A-2014 convertible preferred stock for total proceeds of $2,605,000. The terms of the preferred stock allow the holder to convert each share of preferred stock into 2.5 shares of common stock at any time after nine months from the date of issuance. The holders of shares of preferred stock shall have the right to one vote for each share of common stock into which such preferred stock could convert. The holders of shares of preferred stock are entitled to receive a dividend of $0.06 per share per annum for the first two years from the issuance of the instruments, which has been recorded as an accrued dividend on the liabilities section of the balance sheet. The Company maintained the right to suspend the dividend at its discretion if it is deemed necessary.
Series C-2016 Convertible Preferred Stock
In December 2016, the Company issued 5,000,043 shares of its Series C-2016 Preferred Stock at a price of $1.00 per share for total proceeds of $5,000,043. The terms of the preferred stock allow the holder to convert each share of preferred stock into 3 shares of common stock at any time after nine months from the date of issuance. The holders of shares of preferred stock are entitled to receive a dividend of $0.06 per share per annum for the first year from the issuance of the instruments, which has been recorded as an accrued dividend on the liabilities section of the balance sheet. The Company maintained the right to suspend the dividend at its discretion if it is deemed necessary.
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We calculated the BCF of the Series C-2016 Preferred Stock as $4,930,143. The BCF would be recorded as paid-in capital with an offsetting debit to convertible preferred stock. The discount attributable to the BCF, however, is amortized as a deemed dividend over the period from issuance to the date the convertible preferred stock becomes convertible. In our case, preferred stock-series C-2016 is convertible after six months from the date of issuance. We then amortize the BCF over six months period, we recorded $3,685,520 as deemed dividend that reduce accumulated deficit as of May 31, 2017, and we recorded the remaining $1,244,622 as deemed dividend that increases accumulated deficit for the period ending August 31, 2017.
Series D-2017 Convertible Preferred Stock
For the nine month period ended February 28, 2018, the Company issued 5,933,050 shares of its Series D-2017 Preferred Stock at a price of $1.00 per share for total proceeds of $5,933,050. The terms of the preferred stock allow the holder to convert each share of preferred stock into 2 shares of common stock at any time from the date of issuance. The holders of shares of preferred stock are entitled to receive a dividend of $0.06 per share per annum for the first two years from the issuance of the instruments, which has been recorded as an accrued dividend on the liabilities section of the balance sheet. The Company maintained the right to suspend the dividend at its discretion if it is deemed necessary.
We calculated the BCF of the preferred shares as $3,924,243. The BCF would be recorded as paid-in capital with an offsetting debit to convertible preferred stock. The discount attributable to the BCF, however, is amortized as a deemed dividend over the period from issuance to the date the convertible preferred stock becomes convertible. In our case, preferred stock-series D-2017 is convertible at any time from the date of issuance. We recorded $3,924,243 as deemed dividend that increases accumulated deficit as of February 28, 2018.
4. Property and Equipment:
Property and equipment are recorded at cost, net of accumulated depreciation and are comprised of the following:
| February 28, 2018 | May 31, 2017 | |||||||
| Furniture & Fixtures | $ | 302,907 | $ | 126,486 | ||||
| Leasehold Improvements | 32,061 | 32,061 | ||||||
| 334,968 | 158,547 | |||||||
| Less: Accumulated Depreciation | (131,812 | ) | (105,515 | ) | ||||
| $ | 203,156 | $ | 53,032 | |||||
Depreciation on equipment is provided on a straight-line basis over their expected useful lives at the following annual rates.
| Computer equipment | 3 years | |
| Furniture & fixtures | 3 years | |
| Leasehold improvements | Term of the lease |
Depreciation expense for the nine months ending February 28, 2018 and 2017 was $26,296 and $3,097, respectively.
5. Intangible Assets:
Intangible assets are comprised of the following:
| February 28, 2018 | May 31, 2017 | |||||||
| Website development | $ | 217,138 | $ | 187,544 | ||||
| Less: Accumulated Amortization | (113,584 | ) | (105,857 | ) | ||||
| $ | 103,554 | $ | 81,687 | |||||
Amortization is calculated over a straight-line basis using the economic life of the asset. Amortization expense for the nine months ended February 28, 2018 and 2017 was $7,728 and $7,418 respectively.
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6. Commitments and Concentrations:
Office Lease – Shanghai – The Company entered into a lease for new office space in Shanghai, China. The lease period started October 1, 2013 and the initial term ended on September 30, 2016. In August 2016, the Company renewed this lease at $5,400 per month to September 30, 2019, resulting in the following future commitments:
| 2018 fiscal year | $ | 16,200 | ||
| 2019 fiscal year | $ | 64,800 | ||
| 2020 fiscal year | $ | 21,600 |
Office Lease – San Gabriel, California – The Company entered a lease for executive office space in San Gabriel, California. The lease period started April 30, 2015 and was terminated on August 1, 2016. On June 2016, the Company renewed the contract for another 3 years to July 31, 2019, the current monthly rent is $5,432, resulting in the following future commitments:
| 2018 fiscal year | $ | 16,766 | ||
| 2019 fiscal year | $ | 67,064 | ||
| 2020 fiscal year | $ | 11,177 |
The Company entered another lease for retail store in San Gabriel, California. The lease period started February 1, 2017 to July 31, 2019, the current monthly rent is $3,426, resulting in the following future commitments:
| 2018 fiscal year | $ | 10,277 | ||
| 2019 fiscal year | $ | 41,106 | ||
| 2020 fiscal year | $ | 6,851 |
Office Lease – New York, New York – The Company entered a lease for executive office space in New York, New York. The lease period started February 1, 2018 and will be terminated on January 31, 2019, the current monthly rent is $4,300, resulting in the following future commitments:
| 2018 fiscal year | $ | 12,900 | ||
| 2019 fiscal year | $ | 34,400 |
Concentrations – During the periods ending February 28, 2018 and 2017, the majority of the Company’s revenue was derived from its operations in PRC from individual subscribers, 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 involved in any legal proceedings.
7. Subsequent event:
The Company is currently in the process of offering up to 10,000,000 shares at $1 per share total $10,000,000 of its Series D-2017 Convertible Preferred Stock. Each share of Series D-2017 Preferred Stock is convertible into 2 shares of the Company’s common stock. The Series D-2017 Convertible Preferred Stock will pay at least two years of dividends at the rate of 6% per year on the original investment of $1 per share of Series D-2017 Convertible Preferred Stock. As of the filling date, the Company received $5,933,050 proceeds from sales of series D-2017 convertible preferred stock, 5,913,050 of those preferred shares has been recorded with stock transfer agent as of February 28, 2018, the rest are in the process of recording with transfer agent.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
ChineseInvestors.com, Inc. and subsidiaries. (“the Company”, “we” or “us”) endeavors to be an innovative company, specializing in (a) providing real-time market commentary, analysis, and educational related endeavors in Chinese language character sets (traditional and simplified), (b) providing support services to our various partners wishing to have a Chinese language communications component, (c) providing consultative services to smaller private companies considering becoming a public company, (d) providing various advertising as well as public relation support services, and (e) other services we may identify having the potential to create value or partnership opportunity with our existing services.
The Company continued to develop its investor relations business. These clients represent companies whose shares are traded in various public markets including the OTCBB, NASDAQ, and NYSE exchanges.
In an effort to expand its media products, as the first quarter of fiscal year 2018 came to a close, the Company announced that it would be working with Wall Street Multimedia (“WSM”), an independent news agency located in the NYSE to product a daily cryptocurrency video newscast in Chinese, providing timely information and exclusive analysis regarding all aspects of the emerging digital currency world, including specific cryptocurrencies, such as “Bitcoin” and “Ethereum,” industry trends, price movement, blockchain technology, sector-related stocks and ETFs, etc. As of the date of this filing the Company has begun airing its cryptocurrency video newscasts.
XiBiDi Biotechnology Co., Ltd.
In March 2017, the Company established and registered XiBiDi Biotechnology Co., Ltd. (“CBD Biotechnology Co., Ltd”) in the Pudong Free-Trade Area in Shanghai, established as a wholly owned foreign enterprise. The Chinese character “XiBiDi” is homophonic to “CBD” in English. In April, CIIX appointed XiangYang Yun as chief executive officer (CEO) of this wholly owned foreign enterprise. XiBiDi Biotechnology Co. Ltd.’s primary focus is online, retail and direct sales of hemp-based health products in China. Yun’s initial focus in the Company’s first quarter has been the launch of the XiBiDi Magic Hemp Series (“CBD Magic Hemp Series”) cosmetics line which included the registration and approval process with the Chinese FDA for the line’s three initial products. As of the date of this filing the Company completed the registration and approval process with the Chinese FDA for the initial three products in the line and made a key hire to influence the market and assist with marketing and branding in China. The CBD Magic Hemp Series line is different from other skin care lines currently available in China because the products are infused with hemp extract, A catalogue provided by the CFDA entitled “Catalogue of Cosmetics Raw Materials in Use (2015)” includes Cannabis Sativa Leaf Extract.
In November 2017, CBD Biotechnology Co. Ltd., teamed up with Chinese beauty influencer, The Godfather of Beauty, for the launch of its “CBD Magic Hemp Series” skincare line on China’s largest e-commerce retailer Alibaba. The Company’s flagship store, the "CBD Enterprise Store," is on Alibaba’s Taobao Platform. The Godfather of Beauty is an Internet celebrity with years of experience in live, online marketing on the Taobao Platform.
In November 2017, CBD Biotechnology Co. Ltd. announced the expansion of its consumer division to enter the lucrative liquor (baijiu) market in China. On November 7, 2017, CBD Biotechnology was issued Wholesale Alcohol License from the ShangHai Wine Monopoly Bureau effective October 24, 2107 for a three-year term, which allows CBD Biotechnology to act as a distributor of the baijiu. CBD Biotechnology entered into a wholesale agreement with China GuiZhou HanTai Wine, Inc. to distribute its baijiu, Yantai 1985, and kicked off its sales and marketing plan by partnering with Jinri Toutiao (translation: Today’s Headlines), a popular Chinese mobile application. The Company announced plans to spin off CBD Biotechnology at the end of February 2018; however, the Company’s Board of Directors has recently approved postponing the spin-off until the Company’s fiscal year end, May 31, 2018.
ChineseHempOil.com, Inc.
In April 2017, the Company established ChineseHempOil.com, Inc. dba “Chinese Wellness Center” a Delaware corporation, as a subsidiary of the Company. ChineseHempOil.com, Inc. is responsible for the development and operation of the online and retail sales of non-industrial hemp-based health products in the United States. Chinese Wellness Center is the retail store located in the predominantly Chinese community of San Gabriel, California, located next to the Company’s headquarters. The Company’s first product line OptHemp, is a premium, private label oil, made from full-spectrum, Colorado grown, GMO-Free, non-industrial hemp, manufactured using a CO2 Extraction process.
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In November 2017, ChineseHempOil.com, Inc. launched its OptHemp product line on Amazon.com kicking off a multi-channel campaign geared to both the US and Chinese-American markets during the 9th annual Singles Day Celebration. This launch commenced the e-commerce marketplace initiative that the Company set into motion in early June through a strategic partnership with a top 100 platinum level partner seller on Amazon Marketplace that agreed to include the OptHemp product line in its limited catalog for resale through the Amazon Channel. This partnership brings to the OptHemp product line, the full weight and power of a national sales and marketing agency that specializes in providing business solutions including headquarter sales services, analytics, insights and intelligence, retail services, marketing, digital technology and business process outsourcing. The Company announced plans to spin off ChineseHempOil.com, Inc. at the end of February 2018; however, the Company’s Board of Directors has recently approved postponing the spin-off until the Company’s fiscal year end, May 31, 2018.
Business Environment and Trends
The global marketplace has been gradually recovered. We understand that our business is dependent upon the health of the financial markets as well as the financial health of the participants in those markets. With the recovery of the financial market, more market participants willing to subscribe our financial market analysis programs and public companies eager to spend more on increasing media exposure and developing investor relations.
For three and nine months ended February 28, 2018 compared to three and nine months ended February 28, 2017
Quarterly Revenues and Expenses
Subscription Revenue: For the three months ended February 28, 2018 and 2017, revenues were $214,506 and $196,520 respectively. For the nine months ended February 28, 2018 and 2017, subscription revenues were $530,102 and $677,843 respectively, the decrease in revenue was due to lesser renewal from existing subscriber and lesser new subscriber.
Investor Relations-advertisement Revenue: For the three months ended February 28, 2018 and 2017, revenues were $196,627 and $301,367 respectively. The decrease of $104,740 is due to the Company provided more services to clients for three months period ended February 28, 2017 which generated more revenue. For the nine months ended February 28, 2018 and 2017, revenues were $701,660 and $670,529 respectively, the increase of $31,131 is due to the Company hired more professionals in US to service public company clients and increased the service qualities.
Other Revenue: For the three months ended February 28, 2018 and 2017, revenues were $201,986 and $0 respectively. For the nine months ended February 28, 2018 and 2017, other revenues were $206,741 and $3,419 respectively, for an increase of $203,322 comes from referral commission.
Sales of Products: For the three months ended February 28, 2018 and 2017, revenues were $183,185 and $0 respectively. For the nine months ended February 28, 2018 and 2017, revenues were $240,753 and $0 respectively. The increase was due to the Company started to sell Hemp-related and Baijiu products.
Cost of Revenue: Cost of services for the three months ended February 28, 2018 and 2017 were $367,301 and $565,236 respectively, for a decrease of $197,935 over the same period in 2017. For the nine months ended February 28, 2018 and 2017 were $1,025,519 and $1,014,632 respectively, for an increase of $10,887 over the same period in 2017 the increases were due to its operations in the People’s Republic of China was increased. Cost of products for the three months ended February 28, 2018 and 2017 were $79,092 and $0 respectively. For the nine months ended February 28, 2018 and 2017 were $91,462 and $0 respectively. Both increases were due to the Company started to sell Hemp-related and Baijiu products.
Gross profit margin: The Company’s gross profit margin on service revenue increased to 40% ($245,818 on $613,119 of revenue) in the three months ending February 28, 2018 from (14%) ($67,349 on $497,887 of revenue) in the three months ending February 28, 2017. The Company’s gross profit margin on service revenue increased to 29% ($412,984 on $1,438,503 of revenue) in the nine months ending February 28, 2018 from 25% ($337,159 on $1,351,791 of revenue) in the nine months ending February 28, 2017. Both increase due to the commission income generated from referrals of the cryptocurrency purchase. The Company’s gross profit margin on product sales is 57% ($104,093 on $183,185 of revenue) for the three months ending February 28, 2018. The Company’s gross profit margin on product sales is 62% ($149,291 on $240,753 of revenue) for the nine months ending February 28, 2018.
General & Administrative Expenses: For the three months ended February 28, 2018 and 2017, expenses were $1,844,826 and $1,122,287, respectively for an increase of $722,539 which was related to additional staff and contractors. For the nine months ended February 28, 2018 and 2017, expenses were $4,962,210 and $3,175,765, respectively for an increase of $1,786,445 which was related to additional staff and professional service expenses for the company’s operation.
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Advertising Expenses: For the three months ended February 28, 2018 and 2017, expenses were $301,073 and $133,783 respectively. The increase is due to the Company increased adverting news coverage in many different cities and different languages. For the nine months ended February 28, 2018 and 2017, expenses were $830,292 and $495,350 respectively. These expenses are generally related to outside advertising costs and various other related expenses.
Net realized gain (loss) on marketable securities: For the three months ended February 28, 2018 and 2017, expenses were $0 and $35,151 respectively. For the nine months ended February 28, 2018 and 2017, expenses were $0 and $1,669,835 respectively. There is no liquidation of the Companies holdings in Medicine Man Technologies, Inc. stock.
Liquidity
The Company is currently addressing its liquidity concerns by building upon its revenue generating subscription service products, increasing its advertising based revenues, increasing its offerings of other consulting services, and sale of Hemp related products. 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. In the last two years the Company raised $5,000,043 through the issuance of its Series C-2016 convertible preferred stock. The Company is currently engaged in a private placement of its Series D-2017 convertible preferred stock, the Company has received $5,933,050 from various investors. 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. In addition, the Company liquidated most of its holdings in Medicine Man Technologies (MDCL) stock generating approximately $3,300,000 cash. As of February 28, 2018, the Company still held 41,238 shares of MDCL stock representing $85,774 of value based upon the closing market price of $2.08.
Plan of Continued Operations
The Company plans to continue to meet all of its obligations as well as conform with all of the requirements of remaining a fully reporting a public company while increasing its market presence as well as services offering spectrum.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information required by this item is included in Part I Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Item 4. 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 Interim Report on Form 10-Q, 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.
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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.
Not required for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
There have been no defaults upon senior securities.
Item 4. Mine Safety Disclosures
Not applicable.
None.
| 101.INS | XBRL Instance Document | ||
| 101.SCH | XBRL Schema Document | ||
| 101.CAL | XBRL Calculation Linkbase Document | ||
| 101.DEF | XBRL Definition Linkbase Document | ||
| 101.LAB | XBRL Label Linkbase Document | ||
| 101.PRE | XBRL Presentation Linkbase Document |
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Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
| ChineseInvestors.com, Inc. | |||
| (Registrant) | |||
| Date: April 16, 2018 | By: | /s/ Paul Dickman | |
| Paul Dickman | |||
| Chief Financial Officer | |||
| Date: April 16, 2018 | By: | /s/ Wei Wang | |
| Wei Wang | |||
| Chief Executive Officer | |||
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