UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A-1

(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, 2014

 

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)

 

13791 East Rice Place, Suite #107 Aurora, CO 80015

Brett Roper, Director of Administrative Services - (303) 481-4416

 

Copies to: Michael E. Shaff, Esq., Irvine Venture Law Firm, LLP

17901 Von Karman Avenue, Suite 500, Irvine, CA 92614 Telephone (949) 660-7700

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  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		o		Accelerated filer		o
Non-accelerated filer		o  (Do not check if a smaller reporting company)		Smaller reporting company		x

 

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

 

As of April 14, 2014, there were outstanding 6,868,055 shares of the issuer’s common stock, par value $0.001 per share and 1,525,000 shares of the issuer’s preferred stock, par value $0.001 per share.

 

 

 EXPLANATORY NOTE

 

The purpose of this Amendment No. 1 to the Quarterly Report of Chineseinvestors.com, Inc. (the “Company”) on Form 10-Q for the quarterly period ended February 28, 2014, filed with the Securities and Exchange Commission on April 14, 2014 (the “Form 10-Q”), is to amend the earnings per share calculation and earnings presentation of the income statement for the three and nine month periods ended February 28, 2014.

 

This amendment does not reflect events occurring after the original filing except as noted above. Except for the foregoing amended information, this form 10-Q/A continues to speak as of the date of the original filing and the Company has not otherwise updated disclosures contained therein or herein to reflect events that occurred at a later date

 

 

ChineseInvestors.COM, Inc.

 

FORM 10-Q for the Quarter Ended February 28, 2014

 

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	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 4.	Controls and Procedures	15
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	16
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Mine Safety Disclosures	16
Item 5.	Other Information	16
Item 6.	Exhibits	16
Signatures		17

 

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

Chineseinvestors.com, Inc.

 

BALANCE SHEETS

 

(Expressed in U.S. Dollars)

 

		(Unaudited) February 28, 2014				(Audited) May 31, 2013
		$				$
ASSETS
Current assets
Cash and cash equivalents [note 1]			511,242				211,442
Accounts receivable, net [note 1]			3,344				3,667
Investments, available for sale [note 1]			2,686,733				652,021
Other current assets [note 1]			19,381				33,795
Total current assets			3,220,700				900,925
Property & equipment, net [note 4]			19,868				32,705
Website development, net [note 5]			69,198				66,945
Total assets			3,309,766				1,000,575
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable			7,223				5,361
Deferred revenue [note 1]			371,219				394,679
Unearned revenue paid in stock [note 1]			466,351				306,079
Short-term debt			440,000				–
Accrued interest [note 1]			62,872				60,114
Commissions payable, due in stock			99,702				–
Other accrued liabilities [note 1]			77,479				51,936
Total current liabilities			1,524,846				818,169
Long-term deferred revenue [note 3]			42,791				6,584
Total liabilities			1,567,637				824,753
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 2,003,776 share Issued and outstanding (2013 – 2,003,776) preferred shares			1,525				2,004
Common stock Authorized 80,000,000 common shares with a par value of $0.001 per 5,969,585 share Issued and outstanding (2013 – 5,969,585) common shares			6,568				5,970
Additional paid-in capital			10,320,583				10,320,823
Foreign currency gain			1,306				1,306
Unrealized gain on securities			549,241				75,166
Retained (Deficit)			(9,137,094	)			(10,229,447	)
Total stockholders’ equity/(deficit)			1,742,129				175,822
Total liabilities and stockholders’ equity (deficit)			3,309,766				1,000,575

 

See accompanying notes

 

Chineseinvestors.Com, Inc.

 

STATEMENTS OF OPERATIONS AND (LOSS)

(UNAUDITED)

 

(Expressed in U.S. Dollars)

 

		Three months ended February 28,								Nine months ended February 28,
		2014				2013				2014				2013
Operating revenues
Binary option service provider fees		$	–			$	130,278			$	–			$	711,793
Subscription revenue			189,391				125,358				533,816				318,655
Investor relations revenue			1,174,105				52,826				2,165,599				116,047
Other revenue			2,056				3,450				11,125				51,127
Total revenue			1,365,552				311,912				2,710,540				1,197,622
Cost of services sold			232,905				186,788				622,104				677,230
Gross Profit			1,132,647				125,124				2,088,436				520,392
General & administrative expenses			399,495				345,887				954,989				1,129,250
Advertising expenses			52,940				96,013				143,680				202,114
Net profit/(loss) from operations			680,212				(316,776	)			989,767				(810,972	)
Other income/(expenses)
Interest expense			(29,916	)			(30,057	)			(104,818	)			(90,171	)
Realized gain on available for sale securities sold			207,404				–				207,404				–
Net income/(loss) available to common shareholders			857,700				(346,833	)			1,092,353				(901,143	)
Earnings per share attributable to common shareholders:
Basic			0.14				(0.06	)			0.18				(0.15	)
Diluted			0.10				(0.06	)			0.13				(0.15	)
Weighted average shares outstanding
Basic			6,268,820				4,934,991				6,169,075				4,900,269
Diluted			8,661,631				4,934,991				8,561,886				4,900,269
Net income			857,000				(346,833	)			1,092,353				(901,143	)
Other comprehensive loss
Unrealized gain on available for sale securities			538,673				13,501				474,075				11,959
Comprehensive gain/(loss) for the period			1,396,373				(333,332	)			1,566,428				(889,184	)
Weighted average number of common shares outstanding – basic and diluted			6,268,820				4,934,991				6,169,075				4,900,269
Earnings/(loss) per share – basic			0.22				(0.07	)			0.25				(0.17	)

 

 

See accompanying notes

 

 

Chineseinvestors.Com, Inc.

 

STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

(Expressed in U.S. Dollars)

 

		Nine months ended February 28,
		2014				2013
OPERATING ACTIVITIES
Net gain/(loss) for the nine month period		$	1,092,353			$	(901,143	)
Adjustment to reconcile net income/(loss) to net cash used in operating activities:
Available for sale securities received for services provided			(1,695,721	)			(73,506	)
Expenses paid through transfer of third party stock			99,581
Gain on sale of securities			207,404
Depreciation & amortization			19,266				24,960
Changes in operating activities and liabilities
Other current assets			14,414				(44,611	)
Accounts receivable			323				15,819
Accounts payable			1,862				(40,718	)
Unearned revenue			12,747				95,316
Deferred interest			2,758				30,057
Other accrued liabilities			(186,446	)			(14,640	)
Net cash (used in) operating activities			(431,459	)			(908,466	)
INVESTING ACTIVITIES
Purchase of equipment			(8,682	)			(55,818	)
Proceeds from the sale of common stock			299,941				–
			291,259				(55,818	)
FINANCING ACTIVITIES
Proceeds from private placement of common stock			–				125,000
Cash used to retire debt			(440,000	)			–
Cash raised by issuance of debt			880,000				–
Net cash provided by financing activities			440,000				125,000
(Decrease) in cash and cash equivalents			299,800				(839,284	)
Cash and cash equivalents, beginning of period			211,442				1,065,564
Cash and cash equivalents, end of period			511,242				226,280
Supplemental disclosure of cash flow information
Cash paid for interest			104,818				60,114
Cash paid for income taxes			–				–
Cash paid for China representative office tax			37,568				33,986
Non-cash investing and financing activities
Unrealized (loss) on investments			474,075				11,959

 

See accompanying notes

 

 

NOTES TO THE FINANCIAL STATEMENTS

(UNAUDITED)

 

Organization and Nature of Operations:

 

Business Description Chinseinvestors.com, Inc. (the Company) was incorporated on June 15, 1999 in the State of California. 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.

 

ChineseInvestors.com, Inc. 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, (c) providing consultative services to smaller private companies considering becoming a public company, (d) providing various advertising as well as public relation support services, (e) providing various programming in China relative to the US Financial Marketplace via cable television and our various relationship and (f) other services we may identify having the potential to create value or partnership opportunity with our existing services.

 

The Company remains incorporated as a C corporation in good standing as of this filing date with the State of Indiana (as of June 1, 1997).

 

1.	Liquidity and Capital Resources:

 

Cash Flows — During the quarter ending February 28, 2014, the Company primarily utilized cash, cash equivalents and proceeds from a series of loans guaranteed by securities it holds to fund its operations.

 

Cash flows used in operations for the period ended February 28, 2014 and 2013 were $431,459 and $908,466, respectively.

 

Capital Resources — As of February 28, 2014, the Company had cash and cash equivalents of $511,242 as compared to cash and cash equivalents of $211,442 as of May 31, 2013.

 

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 lending or sales of our securities in order to continue to fund business operations. The potential issuances of additional shares will result in dilution to our 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 — The 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.

 

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 Company’s financing has been generated exclusively in US dollars from the United States. This indicates the functional currency is US dollars.

 

 

Expenses – The majority of expenses are paid in US dollars. The expenses generated in PRC are paid by a monthly cash transfer from the US when the expenses are due, resulting in very little foreign currency exposure. This indicates that the functional currency is US dollars.

 

Numerous Intercompany Transactions – The Company has multiple transactions each month between the US and Chinese representative offices. This indicates that 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 period’s financial statements have been reclassified to conform to the current quarter’s presentation and to correct prior period errors.

 

Revenue recognition — Revenues are derived from six different sources:

 

The Company recognizes revenue pursuant to the revenue recognition principles presented in SAB Topic 13. First, via persuasive evidence of an arrangement. Second, delivery has occurred or services have been rendered. Third, the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured.

 

1. Fees from banner advertisement, webpage hosting and maintenance, translation services, web based advertising and promotion fees for customers. These revenues are recognized within the corresponding quarter and finalized 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. It should be noted at this time that such fees represent approximately one (1%) percent of the overall revenues as represented and, as such, are included in the general business services category.

 

4. Binary option fees were earned through various efforts supporting Option World, a Chinese based binary option trading platform for which the company had a contract with Krisworld Limited of Hong Kong. In March of 2013, the Company severed its relationship with Krisworld Limited of Hong Kong, due to lack of response to their clients for which the Company had responsibility for coordinating, lack of payment on existing billings for services that resulted in a significant write off for the Company in Fiscal Year 2013, and for general lack of response to the Company’s repeated inquiries on behalf of Krisworld Limited of Hong Kong related clients.

 

5. Consulting revenues as associated with various pre-public company services, as well as assistance in the development of general corporate strategies having to do with becoming a public company on various publically traded exchanges.

 

6. 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, in stock and/or cash, and as such are initially recorded as an asset with an offsetting unearned revenue liability. This revenue is recognized over the term of the services period while the services are being provided. The value of the revenue earned is recognized every quarter based upon the client company’s stock closing price multiplied by the numbers of shares earned within that specific accounting period. By recognizing the revenue incrementally we are following the guidelines of SAB Topic 13, in that we are only recognizing revenue once the value of the revenue received is fixed and determinable. In addition we are 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 number of shares earned is a function of the time period for which services are provided over the contract period in relation to the price of the shares at the time of the services being delivered, added to the value of cash received if any, then recognized as revenue in the period the services were delivered.

 

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

 

 

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

 

Cash and Cash Equivalents - The Company considers all highly liquid instruments with an original maturity of nine months or less to be cash equivalents. At certain times, cash in bank may exceed the amount covered by FDIC insurance. At February 28, 2014 and May 31, 2013, there were deposit balances in a US bank of $496,797 and $210,000, 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 February 28, 2014 and May 31, 2013, there were deposits of $14,445 and $1,442, 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. 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. Revenue related to the binary option revenue and Krisworld start-up support are paid with a one month lag, noting this relationship was severed in March of 2013. As of February 28, 2014 and May 31, 2013, the Company had accounts receivable of $3,344 and $3,667, respectively.

 

The Company evaluates the need for an allowance for doubtful accounts on a regular basis. As of February 28, 2014 and May 31, 2013, the Company determined that, based on historically having no bad debts, an allowance was not needed.

 

The operations of the Company (Representative Office status for general back of the house support) are partially 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.

 

Investments available for sale – Investments available for sale (IAS) is comprised of publicly traded stock and private company stock received in return for providing various levels of corporate messaging support and certain investor relation services to a variety of unrelated companies with service contracts ranging from one week to twenty-four months, starting in August 2012. The Company considers the securities to be liquid and convertible to cash, based upon the specific holding period requirements of Rule 144, in consideration of the corporate structure of the issuing entity. The Company has the ability and intent to liquidate or leverage 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."

 

When the shares will be earned over a term longer than within the current reporting period, the Company has deferred the recognition of the earnings of the revenue over the period the services are performed. The value recorded is determined by multiplying the closing price on the last day of the month for the period being reported on, based on quotes from a reliable quotation source. Upon receipt, these shares are recorded as an asset on the Company’s financials as "Available for sale securities". The Company also record a corresponding contra-asset account titled "Unearned Revenue" until the revenue is earned.

 

Since all securities held were received in exchange for service they were delivered with a standard rule 144 restriction (restricts them from sale for six months from date certificate is issued). All current certificates will be free trading at various times starting in December of 2013 with the last certificate being freely trading by May 31, 2014. It should be noted that most of the stock owned by the company would be classified a “penny stock” and therefore is generally volatile in nature. There is no guarantee that the cash received will equal the current carrying value of the stock at February 28, 2014, when it is sold.

 

Other Current Assets — Other current assets are comprised primarily of deposits in Chinese RMB on building space under an operating lease and are stated at the current exchange rate at quarter end.

 

 

Other current assets were $19,381 and $33,795 at February 28, 2014 and May 31, 2013, 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 $19,266 and $24,960 for the nine months ended February 28, 2014 and 2013, respectively.

 

Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Gains and losses from retirement or replacement are included in operations.

 

Impairment of Long-life Assets — In accordance with ASC Topic 360, the Company reviews its long-lived assets, including property, plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There was no impairment as of February 28, 2014 and May 31, 2013.

 

Accrued Liabilities— Accrued liabilities are comprised of the following:

 

		February 28,				May 31,
		2014				2013
China Employees’ Salaries and Commissions Accrual		$	56.423			$	36,956
Representative Office Tax Accrual			11,863				9,198
Other Accruals			9,193				5,782
		$	77,479			$	51,936

 

Accrued interest— Accrued interest is comprised of the following:

 

		February 28,				May 31,
		2014				2013
Interest due to preferred stock share holders		$	60,114			$	60,114
Interest due on notes payable secured by stock			2,758				–
		$	62,872			$	60,114

 

Unearned revenue, investor relations work – The Company has received total shares of stock with a value of $3,194,078, at February 28, 2014 as payment for investor relations work that the Company has provided and will continue to provide over a period starting August 1, 2012 and going through December 31, 2016. At February 28, 2014 the stock held by the Company that had not yet been earned was valued at $466,351. As the Company earns the fee for this work, this balance will be reduced to reflect the portion still to be earned.

 

Short-term debt, secured by stock – The Company obtained short term debt of $440,000 from various individuals, secured by 100,000 shares of the company owned stock in Nova Lifestyles, Inc. These notes were repaid during the quarter ending February 28. The Company then obtained an additional $440,000 in short term debt from various individuals, secured by 50,000 shares of common stock of Nova Lifestyle, Inc and 40,000 shares of Dehaier Medical Systems Ltd. These notes currently have an interest rate of a minimum of 9% annually, but may increase.

 

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.

 

The majority 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. It should be noted that 67,500 shares of the stock earned for consulting work, currently being held qualifies as a Level two instrument and has a book value of $67,500. The Company determined that the instrument was Level two because the market for this instrument was less active, as it was currently being distributed through a private placement memorandum, and was not a freely trading public stock. The value of the stock has been verified to be consistent with the carrying value and, therefore, not requiring an adjustment. 

 

The following table summarizes the assets we are carrying and the fair value category in which they are currently classified:

 

		February 28, 2014								May 31, 2013
		Level 1				Level 2				Level 1				Level 2
Cash			511,242				–				211,442				–
Investments			2,619,233				67,500				592,021				60,00
Total Financial Instruments			3,104,092				67,500				803,463				60,000

 

 

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, 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 $143,680 and $202,114 for the nine months ended February 28, 2014 and 2013, respectively.

 

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 (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.

 

Share based expense paid to outside companies is expensed 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, 2012			389,035				0.48
Granted			–			$	–
Exercised			–				–
Forfeited or expired			–				–
Balance at May 31, 2013			389,035			$	0.48
Granted			–			$	–
Exercised			–				–
Forfeited or expired			–				–
Balance at February 28, 2014			389,035			$	0.48

 

The following table presents information regarding options outstanding and exercisable as of February 28, 2014:

 

Weighted average contractual remaining term — options outstanding			.94 years
Aggregate intrinsic value — options outstanding		$	381,254
Options exercisable			291,563
Weighted average exercise price — options exercisable		$	0.56
Aggregate intrinsic value — options exercisable		$	285,732
Weighted average contractual remaining term — options exercisable			1.63 years

 

As of February 28, 2014, 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%

 

3.	Stockholders’ Equity:

 

At February 28, 2014 and May 31, 2013, 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.

 

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. This registration statement was cleared by the SEC in June of 2012.

 

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 4, 2011, when the shares were issued, the most recent shares sold at the market rate of $0.96, 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 nine 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 fiscal year 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 financial statements are retroactively adjusted at this ratio.

 

Series A Convertible Preferred Stock:

 

During the third 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 nine 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 $0.06 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 $0.80 effective conversion rate of $0.26 per share. $0.26 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 $0.80 per share of common stock.

 

4.	Property and Equipment:

 

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

 

		February 28,				May 31,
		2014				2013
Furniture & fixtures		$	70,711			$	70,711
Leasehold improvements			13,405				13,405
			84,116				84,116
Less: accumulated depreciation			(64,248	)			(51,411	)
		$	19,868			$	32,705

 

Depreciation on equipment is provided on a straight line basis over its expected useful lives at the following annual rates:

 

Computer equipment	3 years
Furniture & fixtures	3 years
Leasehold improvements	Term of the lease

 

Depreciation expense for the nine months ended February 28, 2014 and 2013 was $12,828 and $14,762, respectively.

 

5.	Intangible Assets:

 

Intangible assets are comprised of the following:

 

		February 28,				May 31,
		2014				2013
Website development costs		$	139,906			$	134,118
Less: accumulated amortization			(70,708	)			(67,173	)
		$	69,198			$	66,945

 

Amortization is calculated over a straight-line basis using the economic life of the asset. Amortization expense for the nine months ended February 28, 2014 and 2013 was $6,438 and $10,198, respectively.

 

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 2013, the Company signed a new office lease in Shanghai for a one year period ending September 30, 2014, resulting in future lease commitments of $37,450, based on the exchange rate at February 28, 2014.

 

Concentrations — During the period’s ending February 28, 2014 and 2013, the majority of the Company’s revenue was derived from its operations in PRC from individuals, primarily in the United States and Canada. During the period ended February 28, 2014, the majority of the Company’s accounts receivable were due from one company.

 

 

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

 

7.	Subsequent Events:

 

In a Board of Directors meeting held on Tuesday March 4, 2014, the Board, including its independent director, voted unanimously to approve the issuance of 100,000 shares of the Company’s common stock to our Chief Executive Officer, Warren Wang, and 50,000 shares of the Company’s common stock to Brett Roper, our Chief Operating Officer and 150,000 shares to various other individuals. The Company issued these Shares at the close of the OTCBB market on March 19, 2014 when the price of the Company’s stock was $.79. The result of this transaction will be a $237,000 expense recognized in the Company’s fourth quarter.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

ChineseInvestors.COM, Inc. (CIIX), founded in 1999 became a public company in early 2011 and endeavors to maintain its innovative stance by providing (a) real-time financial market commentary, analysis, and educational related services related to the various equity and globally positioned markets in Chinese language character sets (traditional and simplified), (b) delivery of support and back of the house related services on behalf of and to our various partners, (c) consultative services to smaller private companies considering their public company options, (d) advertising and public company related support services (IR Lite), and (e) other services we may identify having the potential to create value or partnership opportunity that blend efficiently with our existing skills and services. As an example of these other services, the Company is currently working with Medicine Man Denver in the creation of a new intellectual property and industry experience based corporate entity that will provide licensing and consulting services within the emerging Cannabis sector. Our subscriber base (free and pay member) is primarily located in the US and Canada (95%) noting the services as described are generally delivered to US public and private companies as well as US residents and citizens. For further information email us at info@chinesefn.com or visit our website at www.chinesefn.com

 

Business Environment and Trends

 

We have previously noted our exit (March 2013) from providing support services to Krisworld Limited of Hong Kong (Binary Options Provider) noting this revenue category has been extinguished.

 

Our growing Investor Relation Services (IR Lite) category as noted in the financial statement has been attracting strong attention due to our ability to perform support duties for our clients in a manner than can actually provide physical proof of results in that our Client base is very specialized. These clients represent various public markets including the OTCBB, NASDAQ, and NYSE exchanges. As of the date of this filing the Company has ten (16) active Service Provider Agreements represented on various public exchanges including three (2) NASDAQ Companies, one (1) NYSE Company, twelve (12) OTCQB Companies, and one (1) OTCPK Company(s).

 

With our growing publicly traded company client base we have been able to substantially expand our subscription services business by attracting new Chinese based Clients (the vast majority of which are located here in the US and Canada) to become subscribers based upon the general success of such related support.

 

Three months ended February 28, 2014 compared to three months ended February 28, 2013.

 

Quarterly Revenues

 

Binary Option Service Provider Fees: Company ceased providing support for Krisworld Limited of Hong Kong (a Binary Options Provider) in March of 2013.

 

Subscription Revenue: There was an increase in subscription revenues from $125,358 in the three months ended February 28, 2013 to $189,391 in the three months ended February 28, 2014. This increase was due to the continued efforts of the company to increase sales of subscription related services and the substantial increase in our Investor Relations (IR Lite) client base allowing us to provide a broader base of coverage as it related to this ever increasing base of public company clients. Please note that the values of these subscriptions are recognized over the period that the subscription is active and the services are delivered. There are accruals for the values of subscriber services not as yet delivered in the current period as noted in our balance sheet statement.

 

 

Business Services Revenue: The Company continues to experience extraordinary growth in this new revenue generation category noting earnings of $52,826 in the three months ended February 28, 2013 as compared to $1,174,105 in the three months ended February 28, 2014. Payment for this revenue sources was received in stock of $957,061 and cash of $217,044. While this increase in revenues is significant, it nonetheless comes with a deferred conversion to cash time lag of at least six (6) months that while positively impacting the Company’s bottom line; has a significant impact to the Company’s cash flow during any interim period in which this stock is not liquid. It is also noteworthy that one year earlier (February 28, 2013) we only had two clients in this service provider category while as of the end of this quarter we have seventeen (17) active clients.

 

Other Revenues: The slight variance in other revenue earned in the quarter ended February 28, 2013 of $3,450 to $2,056 in the quarter ended February 28, 2014, is consistent with variance in prior periods and is primarily determined by timing variance when the minor work is performed.

 

Cost of Services Sold: The cost of services sold increased from $186,788 to $232,905 in the three months of operations related to the quarter ended February 28, of 2013 in comparison to the same quarter in 2014. These expenses increased relative to the general costs of commissions due to increasing sales activities and other expenses as they related to the operations of our Representative offices in Shanghai, China and support of the Company’s overall service provider platform. This office currently employs approximately forty (40) FTEs.

 

General & Administrative Expenses: The Company’s general and administrative expenses increased from $345,887 to $399,495. This increase was driven by a substantial increase in the costs of commissions related to the sales of our Investor Relations (IT Lite) services by our contract sales team but overall the percentage of these costs continue to drop as we become more effective in managing this new aspect of our service provider based business model. Additionally, while the Company pays an approximate twenty five (25%) percent commission rate in the generation of this new business, it does enjoy a substantially reduced commission cost when the CEO and COO are able to generate these sales directly noting in the past nine months these two persons generated just over 70% of all sales in the Investor Relations category.

 

Advertising Expenses: These costs increased as the Company turned its focus back to the acquisition of new subscribers and as it began to invest in new methodology for such sourcing (Google Ad Words, etc.). As noted in our financial, there has been a corresponding increase in our Subscription Revenues as expenses in this category related to the three months of operations ending on February 28^th decreased from $96,013 in 2013 to $52,940 in 2014 due to a smarter deployment of our dollars into proven methods we have been developing over the past year.

 

Net profit margin (Operations): The Company’s net profit margins (Operations) crossed over to profitability in the quarter ending February 28, 2014 to showing a $680,212 profit over losses in the prior year that for that same quarter ending February 28, 2013 of ($316,766) providing the Company with a swing in this category for the quarter year on year of approximately $1,000,000. The primary driver behind this improvement was the company’s continued focus our new service provider elements related to investor relation and subscription based services.

 

Other comprehensive loss: The Company owned approximately $2,686,733 in public and private corporations as of February 28, 2014 as compared to $652,021 as of May 31, 2013. Each reporting period the Company recognizes the increase or decrease in current value in the other comprehensive gain/loss. As the companies we hold have increased in value in the quarter ending February 28, 2014 the impact is significant in relation to the unrealized gains growing $549,241 representing an increase of approximately $450,000 over the prior quarter’s balance (November 30, 2013). This variance is a natural byproduct of holding investment stock and will continue to fluctuate in each reporting period.

 

Comprehensive Gain/Loss for the Period: The Company’s performance for the quarter ending February 28, 2014 in this category was $1,396,373 in comparison to a loss position of ($333,332) as noted for the quarter ending February 28, 2013. This represents a very positive swing of approximately $1,750,000 in comparison.

 

Nine months ended February 28, 2014 compared to nine months ended February 28, 2013.

 

Binary Option Service Provider Fees: Company ceased providing support for Krisworld Limited of Hong Kong (a Binary Options Provider) in March of 2013.

 

Subscription Revenue: There was an increase in subscription revenues from $318,655 in the nine months ended February 28, 2013 to $533,816 in the nine months ended February 28, 2014. This represents a 167% increase in this revenue category.

 

Business Services Revenue: There was an increase in this revenue category seeing growth from $116,047 in the nine months ended February 28, 2013 to a value $2,165,599 in the nine months ended February 28, 2014. This represents an 1866% increase in this revenue category.

 

Cost of Services Sold: There was a decrease in this cost category noting a reduction from $677,230 in the nine months ended February 28, 2013 to a value $622,104 in the nine months ended February 28, 2014. This represents an 8% decrease in this expense category.

 

 

General & Administrative Expenses: There was a decrease in this cost category noting a reduction from $1,129,250 in the nine months ended February 28, 2013 to a value $954,989 in the nine months ended February 28, 2014. This represents an 18% decrease in this expense category.

 

Advertising Expenses: There was a decrease in this cost category noting a reduction from $202,114 in the nine months ended February 28, 2013 to a value $143,680 in the nine months ended February 28, 2014. This represents a 25% decrease in this expense category.

 

Net profit margin (Operations): There was substantial improvement in this general category seeing the Company go from generating losses in the 1^st nine months of operations related to FY 2013 of <$810,972> to profitability of $989,767 in the 1^st nine months ended February 28, 2014. This represents a swing of over $1.8M in this performance category.

 

Comprehensive Gain/Loss for the Period: The Company’s performance for the 1^st nine month ending February 28, 2014 in this category was $474,075 in comparison to a loss position of <$11,959> as noted for the quarter ending February 28, 2013.

 

General financial performance in the nine months ending February 28, 2013 in comparison with the performance in the nine months ending February 28, 2014 has been remarkable going from losses in the Comprehensive category of <$889,184> to gains of $1,566,428.

 

Equity and debt

 

The Company has secured $440,000 in financing based upon the value of certain marketable securities having various maturity dates starting late November of 2014 to December of 2014 and will be selling marketable securities over time as they become freely transferable in nature to repay this debt.

 

It is likely that the Company will continue to use this type of revolving debt for its operating cost needs in the near future as it works to reach a point of future cash flow sustainability related to the timing of liquidity of marketable securities conversion.

 

Liquidity

 

The Company is currently addressing its liquidity issues by continually building upon subscription service products, increasing its advertising based revenues, and by seeking investment capital through private placement of common stock and short-term debt. Since inception, the Company has at times relied primarily upon proceeds from private placements and sales of shares of its equity securities to fund its operations.

 

We anticipate continuing to rely on sales of our securities as well as increasing our subscriptions services revenues in order to continue to fund our business operations. It should be noted that the Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will be able to complete all of the additional sales of our equity securities as planned and noted herein or that we will be able arrange for other financing to fund our planned business activities.

 

In reviewing the sources of capital available to the Company to address the liquidity issue we find there are three avenues we have chosen to pursue. The first would be to increase our current revenues as they relate to existing services noting this effort will require the expenditure of some additional capital but should increase our ability to remain profitable based upon our experience over the past nine (9) months. The second would be to liquidate a portion of our available for sale securities as they become freely trading. The third would be to raise capital through the private placements of our stock or Private Investment in Private Enterprise (PIPE) devices through a point of being able to achieve a sustainable profit as well as positive cash flow for the Company. We should note that in July of 2012 the Company was successful in setting up a stock purchase agreement (as already disclosed in SEC filings) that would allow us to access up to $1,225,000 in tranches of up to $500,000 each. For further information on this arrangement please see the related SEC filings filed July 5, 2012. To date we have accessed $275,000 of the original $1,500,000 value of this line.

 

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.

 

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

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

 

Item 1A. Risk Factors.

 

Not required for smaller reporting companies.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

There have been no defaults upon senior securities.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

Exhibit 31.1	Certification of the Chief Executive Officer pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of Chief Financial Officer pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	Certification pursuant to Section 906 Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

 

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

 

 

 

 

 

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: May 28, 2014	By:	/s/ Paul Dickman
		Paul Dickman
		Chief Financial Officer
Date: May 28, 2014	By:	/s/ Wei Wang
		Wei Wang
		Chief Executive Officer