Attached files

file filename
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

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended August 31, 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  ☒    No  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth 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  
   
Emerging growth company   

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

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

 

As of August 31, 2018 there were outstanding 33,576,560 shares of the issuer’s common stock, par value $0.001 per share and 445,000 shares of the issuer’s Series 2012 preferred stock, par value $0.001 per share and 406,000 shares of the issuer’s Series A-2014 preferred stock, par value $0.001 per share and 532,958 shares of the issuer’s Series C-2016 preferred stock, par value $0.001 per share and 6,845,050 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 August 31, 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     23  
             
Item 3.   Quantitative and Qualitative Disclosures About Market Risk     25  
             
Item 4.   Controls and Procedures     25  
             
PART II - OTHER INFORMATION
             
Item 1.   Legal Proceedings     26  
             
Item 2.   Unregistered Sale of Equity Securities and Use of Proceeds     26  
             
Item 3.   Defaults Upon Senior Securities     26  
             
Item 4.   Mine Safety Disclosures     26  
             
Item 5.   Other Information     26  
             
Item 6.   Exhibits     26  
             
Signatures     27  

 

 

 

 i 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES

BALANCE SHEETS

Expressed in U.S. Dollars

 

   (Unaudited)     
   August 31,   May 31, 
   2018   2018 
Assets          
Current assets          
Cash and cash equivalents  $2,998,221   $1,390,258 
Accounts receivable, net   22,524    9,815 
Marketable equity securities   1,837,278    1,230,754 
Inventory   98,570    130,679 
Due from related party   81,293    87,379 
Other current assets   414,341    331,628 
Total current assets   5,452,227    3,180,513 
           
Non-current assets          
Long-term investments   250,000    250,000 
Property and equipment, net   137,029    65,250 
Website development, net   113,688    104,278 
Other assets   35,230    76,271 
Total non-current assets   535,947    495,799 
           
Total assets  $5,988,174   $3,676,312 
           
Liabilities and Stockholders’ Equity          
Current liabilities          
Accounts payable  $296,910   $359,597 
Short-term notes   3,399,402    1,058,084 
Deferred revenue, current   453,088    787,557 
Stock compensation payable   88,733     
Other current liabilities   434,138    430,538 
Total current liabilities   4,672,271    2,635,776 
           
Non-current Liabilities          
Long-term deferred revenue   126,826    114,875 
Total Non-current Liabilities   126,826    114,875 
           
Total liabilities   4,799,097    2,750,651 
           
Commitments and Contingencies (Note 11)          
Shareholders’ equity          
Preferred stock, series 2012, $0.001 par value 20,000,000 authorized, 445,000 and 445,000 were issued and outstanding at August 31, 2018 and May 31, 2018, respectively   445    445 
Preferred stock, series A-2014, $0.001 par value 20,000,000 authorized, 406,000 and 606,000 were issued and outstanding at August 31, 2018 and May 31, 2018, respectively   406    606 
Preferred stock, series C-2016, $0.001 par value 20,000,000 authorized, 532,958 and 622,958 were issued and outstanding at August 31, 2018 and May 31, 2018, respectively   533    623 
Preferred stock, series D-2017, $0.001 par value 20,000,000 authorized, 6,845,050 and 6,643,050 were issued and outstanding at August 31, 2018 and May 31, 2018, respectively   6,845    6,643 
Common stock $0.001 par value 80,000,000 authorized 33,576,560 and 29,520,560 were issued and outstanding August 31, 2018 and May 31, 2018, respectively   33,577    29,522 
Additional paid-in capital   38,665,003    36,651,070 
Accumulated deficit   (37,493,101)   (35,268,062)
Accumulated other comprehensive income(loss)   (24,631)   (495,186)
Total Shareholders' equity   1,189,077    925,661 
           
Total liabilities and shareholders’ equity  $5,988,174   $3,676,312 

 

See accompanying notes to the financial statements

 

 3 

 

 

CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES

STATEMENT OF COMPREHENSIVE (LOSS) AND INCOME

For the Three Months Ended August 31, 2018 and 2017

(Unaudited)

Expressed in U.S. Dollars

 

   Three Months Ended August 31, 
   2018   2017 
Operating revenues          
Investor relations service  $271,248   $258,366 
Subscription   226,312    136,263 
Sales of products   141,764    17,966 
Other   73,036    5,031 
Total revenue   712,360    417,626 
           
Cost of revenue          
Products   72,745    4,902 
Services   391,817    272,630 
Total cost of revenues   464,562    277,532 
           
Gross profit   247,798    140,094 
           
Operating Expenses          
General and administrative expense   1,889,241    1,173,482 
Advertising expense   317,291    225,243 
Total operating expenses   2,206,532    1,398,725 
           
Net loss from operations   (1,958,734)   (1,258,631)
           
Other income (expense)          
Other income, net   12,898    7,031 
Interest expense   (112,833)   (6,841)
Loss from security investment   (268,600)    
Unrealized gain on equity securities   875,124     
Unrealized loss on cryptocurrencies   (8,145)    
Total other income, net   498,444    190 
           
Loss before income taxes   (1,460,290)   (1,258,441)
Income tax expense        
Net loss  $(1,460,290)  $(1,258,441)
           
Deemed dividend for beneficial conversion of convertible preferred stock   (169,400)   (1,244,622)
Preferred stock dividends   (108,560)   (74,256)
Net loss attributable to common shareholders  $(1,738,250)  $(2,577,319)
           
Other comprehensive income (loss)          
Unrealized investment (loss)       (89,082)
Foreign currency translation loss   (16,232)    
           
Comprehensive loss attributable to common shareholders  $(1,754,482)  $(2,666,401)
           
Loss per share attributable to common shareholders:          
Loss per share - basic and diluted  $(0.06)  $(0.19)
           
Weighted average number of shares outstanding          
Weighted average number of shares outstanding - basic & diluted   30,462,930    13,258,553 

 

 

See accompanying notes to the financial statements

 

 

 

 4 

 

 

CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES

STATEMENT OF CASH FLOWS

For the Three Months Ended August 31, 2018 and 2017

(Unaudited)

Expressed in U.S. Dollars

 

   2018   2017 
Cash flows from operating activities          
Net loss  $(1,460,290)  $(1,258,441)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities          
Non-cash revenue received as available for sale securities   (186,248)   (233,366)
Investment loss on marketable securities   268,600     
Unrealized gain on equity securities   (875,124)    
Unrealized loss on cryptocurrencies   8,145     
Stock compensation expenses   92,233    24,120 
Depreciation and amortization   11,706    6,465 
Changes in operating assets and liabilities          
Accounts receivable   (3,717)   (2,718)
Inventory   27,862    (74,375)
Other current assets   (64,943)   99,856 
Accounts payable   (60,986)   (67,685)
Accrued interest   112,833    6,841 
Deferred revenue   (136,477)   33,902 
Customer deposit   1,782     
Other accrued liabilities   50,057    18,023 
Net cash (used in) operating activities   (2,214,567)   (1,447,378)
           
Cash flows from investing activities          
Purchase of equipment   (86,510)   (4,993)
Net cash used in investing activities   (86,510)   (4,993)
           
Cash flows from financing activities          
Proceeds of issuance of preferred stock, series D-2017   1,845,000     
Payments made for preferred stock dividends   (179,375)   (150,831)
Investor deposit       1,914,900 
Proceeds of issuance of new debts   2,255,000     
Net cash provided by financing activities   3,920,625    1,764,069 
           
Effects of currency translation on cash and cash equivalents   (11,585)   2,400 
           
Net increase in cash and cash equivalents   1,607,963    314,098 
Cash and cash equivalents - beginning of period   1,390,258    1,770,729 
Cash and cash equivalents - end of period  $2,998,221   $2,084,827 
           
Supplemental cash flow disclosures          
Cash paid for interest  $   $ 
Cash paid for income taxes  $   $ 

 

Supplemental disclosure of non-cash activity

 

During the three months ended August 31, 2018, the Company did not receive stocks for investor relations (“IR”) services.

 

During the three months ended August 31, 2017, the company received various stocks valued (FMV) at $359,375 for investor relations (“IR”) services which will be performed over one year.

 

See accompanying notes to the financial statements

 

 

 

 5 

 

 

NOTES TO THE FINANCIAL STATEMENTS

(UNAUDITED)

 

1. Organization and Nature of Operations:

 

Business Description

 

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

 

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

 

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

 

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

 

The registrant’s investor relations agreements typically obligate the registrant to provide translations of the client’s releases into English from Mandarin or from English into Mandarin, to feature advertisements about the client on the www.chinesefn.com website, and otherwise to assist the client in achieving its goals, which may be increasing the client’s stock price, increasing awareness of the clients and its stock or helping the client to move from pink sheets to an established public securities market. Not all of those goals are shared by every client. Promotions geared to the Chinese American market is the underlying common thread, generally in the form of advertisements on the chinesefn.com website. The registrant provides other services intended to increase awareness and knowledge of its clients’ businesses and stock within the Chinese American community.

 

The registrant generally receives a fee consisting of cash and the client’s securities for its services. The securities clearly offer success incentives and align the interests of the registrant and the client.

 

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

 

We established a Representative Office business presence in leased office space in Shanghai, China in late 2000 from which we fulfill most of our support types of service and also have a leased office presence in San Gabriel, California, New York City, NY and Flushing, NY and most recently in Richmond, British Columbia.

 

In 2010, the Company filed a Form 10 registration statement for us to become a public reporting company under the Exchange Act of 1934 in order to facilitate the Company’s ability to raise capital on the public market. In particular, we have retained the firm of B F Borgers CPA PC to be our independent auditor.

 

We selected Glendale Securities who has offices in Sherman Oaks, California as the market maker for our common stock, the price of which is quoted on the OTC:QB marketplace.

 

 

 

 6 

 

 

As of August 31, 2018, the Company employed twenty-four (24) people in its Shanghai Office in a variety of administrative and operational capacities. All are employed full time. The Company also has approximately thirty-six (36) full-time employees and approximately eight (8) independent contractors in the US.

 

XiBiDi (“CBD”) Biotechnology Co., Ltd.

 

In March 2017, the Company established and registered XiBiDi Biotechnology Co. Ltd. (“CBD Biotech”) in Pudong Free-Trade Area in Shanghai, PRC as a wholly owned foreign enterprise (“WOFE”). CBD Biotech’s primary engages at online and retail sales of hemp-based health products and other complimentary products in PRC. The initial focus of CBD Biotech was the launch of CBDMagic Hemp Series, a hemp-infused cosmetics line.

 

CBD Biotech obtained Wholesale Alcohol License in November 2017 from ShangHai Wine Monopoly Bureau effective October 24, 2017 for a three-year term, which allows CBD Biotech to act as a liquor distributor. CBD Biotech entered into a wholesale agreement with China GuiZhou HanTai Wine, Inc. to distribute its liquor product - Yantai 1985. The Company announced its plans to spin off CBD Biotech in February 2018, which was later postponed to after May 31, 2018, the actual date has not been determined.

 

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. responsible for the development and operation of the online and retail sales of hemp-based 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, hemp, manufactured using a CO2 Extraction process. The Company announced its plans to spin off ChineseHempOil.com, Inc. in February 2018, which was later postponed until after May 31, 2018; the actual date has not been determined.

   

CBD Biotechnology Co. Ltd.

 

In June 2017, the Company formed CBD Biotechnology Ltd. (“CBD”), a corporation incorporated in the Province of British Columbia, which is anticipated to focus on the sales of hemp-infused consumer products similar to those marketed by the Company’s other subsidiaries via online and other distribution channels.

 

Newcoins168.com Inc.

 

In April 2018, the Company established a wholly owned foreign enterprise, NewCoins168.com Digital Media Technology Ltd (Shanghai), registered in China Free Trade Zone with registered capital of 10 million RMB.

 

Bitcoin Trading Academy LLC 

 

In or about March 2018, the Company established Bitcoin Trading Academy, LLC, a California limited liability company, formerly known as Stock Surge Momentum. LLC, a California limited liability company, with Warren (Wei) Wang, the Company’s CEO, as its sole managing member. Mr. Wang has transferred all of his interest in Bitcoin Trading Academy, LLC to the Company for $1 consideration. Bitcoin Trading Academy LLC began offering in person and on-line courses on cryptocurrency investment and trading in July 2018.

 

2. Liquidity and Capital Resources:

 

Cash Flows – During the three months ended August 31, 2018, the Company primarily generated cash and cash equivalents, from issuances of its common and preferred stock to fund its operations. The Company received total proceeds of $8,638,050 of proceeds from the issuance of Series “D-2017” preferred stock by August 31, 2018 of which $6,793,050 was received for the year ended May 31, 2018 and $1,845,000 was received for the three months ended August 31, 2018.

 

 

 

 7 

 

 

Cash flows (used in) provided by operations for the three months ended August 31, 2018 and 2017 were ($2,214,567) and ($1,447,378), respectively. The increased cash used in operations was due to increased general and administrative expenses used in operations.

 

Capital Resources – As of August 31, 2018, the Company had cash and cash equivalents of $2,998,221 as compared to cash and cash equivalents of $1,390,258 as of May 31, 2018.

 

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 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.

 

3. Critical Accounting Policies and Estimates:

 

Basis of Presentation – These accompanying consolidated 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 interim financial information.

 

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, Inc., CIIX Online, Inc., Newcoins168.com Inc. and Bitcoin Trading Academy LLC.

 

Intercompany accounts and transactions have been eliminated upon consolidation.

 

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.

 

 

 

 8 

 

Recently Adopted Accounting Pronouncements:

 

Revenue from Contracts with Customers

 

On June 1, 2018, the Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2014-09, with regard to FASB ASC 606 Revenue from Contracts with Customers, and have revised certain related accounting policies in connection with revenue recognition and deferred costs, as follows:

 

The Company’s revenue was mainly derived from four sources:

 

1.Investor-relations service income

 

Investor-relations service income is earned by the Company in return for delivering current, publicly available information related to our customers.

 

a.Identify contracts with customers. The Company sign service agreements with customer.

 

b.Identify performance obligations in the contract. Many of our investor-relations service contracts contain multiple performance obligations. For these contracts, the performance obligations include presentation of customers’ information on Chinesefn.com, translation of all materials to be released, and monthly presentation in the newsletter the Company sends to its registered members. We account for individual performance obligations separately if they are distinct. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

 

c.Determine the transaction price. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. Judgment is required to determine the standalone selling price for each distinct performance obligation. We typically have more than one standalone selling price for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we determine the standalone selling price based on our overall pricing objectives, taking into consideration contract term, industry relevance and other factors. Fees are fixed based on rates specified in the service provided agreements, which do not provide for any refunds or adjustments. In determining the transaction price, the effects of the time value of money is not accounted as the normal term of our service provider agreements is one year or less.

 

d.The service contract amount is valued based upon the fair market value of the client’s stock closing price at the contract date multiplied by the numbers of shares earned when the service is paid by customers’ common stocks other than cash. For the performance obligations, such as the availability of our customer’s information in our website, the revenue is recognized over the term of the services period while the services are being provided.

 

  e. For the performance obligations will be surrendered at a point of time, the revenue is recognized after the service is provided. 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.

 

There is no significant adjustment from the implementation of ASU 2014-09.

 

2.Subscription income is recognized over the term of the subscription membership. Subscription fees for our registered members are charged on a per-month basis. Our customers do not have rights to the underlying software code of our solutions, and accordingly, we recognize subscription revenue over time on a straight-line basis over the contract term beginning on the date that our service is made available to the customer. Subscription terms are generally between one to three years but can occasionally be as short as one month or as long as 60 months. Long term deferred revenues are recognized from subscriptions over twelve months.

 

  3. The Company recognizes revenue of product sales of hemp-related products and liquor distribution upon transfer of title to the customer. Customer purchase orders and/or contracts are generally used to determine the existence of contract. Shipping documents and terms and the completion of any customer acceptance requirements, when applicable, are used to verify product delivery, or to satisfy the performance obligation. The Company determines and allocates the transaction price 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.

 

  4. Other revenues include various fee income earned through banner advertisement, webpage hosting and maintenance, on-line promotion and translation services, advertising and promotion fees in the Company’s website, sponsorship fees from investment seminars, road shows, forums at the Company’s website, and referral fee from cryptocurrency transactions. 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 performance  obligations have been satisfied and collection of the resulting receivable is reasonably assured.

 

 

 

 9 

 

 

The Company recognizes revenue pursuant to revenue recognition principles presented in SAB Topic 13 prior to May 31, 2018. 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. We adopted ASU 2014-09, or ASC 606, on June 1, 2018 and it did not have a material impact on our financial position or results of operations. The guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

 

Financial Instruments – Recognition and Measurement

 

Recognition and measurement of financial assets and financial liabilities- In January 2016, the FASB issued ASU 2016-01 amending various aspects of the recognition, measurement, presentation, and disclosure requirements for financial instruments. The changes mainly relate to the requirement to measure equity investments in unconsolidated subsidiaries, other than those accounted for under the equity method of accounting, at fair value with changes in fair value recognized in earnings. However, this ASU permits entities to elect to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This ASU is effective for the Company as of June 1, 2018.

 

As a result of the adoption of this ASU, the Company reclassified $486,789 in the net unrealized losses, net of tax, on equity securities previously classified as available-for-sale, from accumulated other comprehensive loss to accumulated deficit. In addition, changes in value due to the revaluation of equity securities are recorded in unrealized gain on equity securities, net in the consolidated statement of comprehensive (loss) and income.

 

The equity investment without readily determinable fair value held by the Company is the long-term investment at Breakwater MB, LLC. The Company elects to measure the equity investment using measurement alternative and records the investment at cost minus impairment, if any, plus or minus changes resulting from qualifying observable prices changes. In addition, the existing impairment model has been replaced with a new one-step qualitative impairment model. No initial adoption adjustment was recorded for these instruments since the guidance is required to be applied prospectively for securities measured using the measurement alternative. There is no adjustment to the cost of the equity investment in Breakwater MB, LLC for the three months ended August 31, 2018 as no impairment indicator observed by management.

 

Cash and Cash Equivalents – The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. There were no cash equivalents as of August 31, 2018 and May 31, 2018.

 

Accounts Receivable, Net – The Company extends unsecured credit to its customers in the ordinary course of business. Accounts receivable are reported at their outstanding unpaid principal balances net of allowances for uncollectible accounts. The Company provides for allowances for uncollectible receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible.

 

As of August 31, 2018 and May 31, 2018, the Company determined that an allowance was not needed.

 

Concentration of Credit Risk – The Company maintains cash at banks in the United States and PRC. Should any bank holding cash become insolvent, or if the Company is otherwise unable to withdraw funds, the Company would lose the cash with that bank; however, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts. In the PRC, a depositor has up to RMB 500,000 insured by the People’s Bank of China Financial Stability Bureau (“FSD”), whereas the standard insurance amount is $250,000 per depositor in a bank insured by the Federal Deposit Insurance Corporation (“FDIC”) in the United States. As of August 31, 2018 and May 31, 2018, the Company has $2,329,336 and $780,726 cash balances uninsured, respectively.

 

 

 

 

 10 
 

 

For the three-month period ended August 31, 2018, one customer accounted for 11% of total sales for the Company with no accounts receivable outstanding as of August 31, 2018. One customer accounted for 54% of the total sales of the Company for the three months ended August 31, 2017 without accounts receivable outstanding as of August 31, 2017.

 

There was no vendor concentration for the Company as of and for the three months period ended August 31, 2018 and August 31, 2017.

 

The Company has operations 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.

 

Marketable equity Securities – Marketable equity securities is comprised of publicly traded stocks received in return for providing investor relations services to the Company’s customers. The service terms range from one month to a year. 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.

 

Prior to June 1, 2018, 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 320-10-25-1 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. The Company has adopted ASU 2016-01 from June 1, 2018, and as a result, unrealized holding gains and losses for marketable equity securities (including those classified as current assets) shall be reported as unrealized gain(loss) in the consolidated statement of comprehensive (Loss) and Income under loss before income taxes.

 

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.

 

Inventories – Inventories include Hemp-related finished products and liquor, stated at the lower of cost or net realizable value using the weighted average cost method. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually and records a reserve against the inventory and additional cost of goods sold when the carrying value exceeds net realizable value. There was no reserve needed for inventory obsolescence and slow-moving as of August 31, 2018 and May 31, 2018.

 

Equity Method Investment – Under equity method, the Company records its proportionate share of the investee’s profit or loss based on the specified profit and loss percentage. Distributions received from equity method investees are accounted for as returns on investment and classified as cash inflows from operating activities, unless the Company’s cumulative distributions received less distributions received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings recognized by the Company. When such an excess occurs, the current year distribution up to this excess would be considered a return of investment and classified as cash inflows from investing activities.

 

In September 2017, the Company entered a letter of intent to invest $60,000 (44.45% of ownership) to jointly operate Beijing New Sino-North America Financial Information Co., Ltd and its subsidiaries (“Sino-U.S. Finance”) with three Chinese individuals to operate a mobile application under the name of “Sino-U.S. Finance” which will provide a platform of information and analysis for Chinese-speaking investors in the PRC and US.

 

 

 

 

 

 11 
 

 

The Company started to account the investment under equity method in the year ended May 31, 2018  and the proportional operation losses picked up for the year ended of May 31, 2018 was $93,562, higher than the $60,000 investment amount. According to ASC 323-10-35-19, if the carrying amount of the investment is reduced to zero, and there are no other investments in the investee, the equity method normally is discounted, and investee losses are no longer reported on the income statement. Thus, the Company recorded $60,000 investment loss for Sino-U.S. Finance for the year ended May 31, 2018 and with $0 balance under long-term investment as of August 31, 2018 and May 31, 2018.

 

Property and Equipment, net – 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.

 

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.

 

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

 

Website Development, Net – 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.

 

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 August 31, 2018 and May 31, 2018.

 

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.

 

The Company also receives shares of stocks and warrants as means of payments for the investor relationship (“IR”) service provided. The fair market value of the stocks and warrants on the contract date are amortized and recognized as IR revenue over the contract terms. When these services are prepaid by customers, the amount of the prepayment is initially recorded as an asset with an offsetting unearned revenue liability.

 

 

 

 

 

 12 
 

 

As of August 31, 2018 and May 31, 2018, the deferred revenue compromised as following:

 

   August 31, 2018   May 31, 2018 
Deferred subscription  $510,924   $587,194 
Unearned IR revenue   68,990    315,238 
Total   579,914    902,432 
Current   (453,088)   (787,557)
Noncurrent  $126,826   $114,875 

 

Fair Value of Financial Instruments – Fair value accounting establishes a framework for measuring fair value and expands disclosure about fair value measurements. Fair value, which is defined as an exit price or the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

 

  · 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 carrying amount of cash and cash equivalents, investments available for sale, accounts receivable, due from related party, inventories, other current assets, accounts payable, deferred revenue (current and noncurrent), short-term notes and other current liabilities approximates fair value because of the short-term nature of these instruments and the fair values close to its carrying value for the non-current deferred revenue.

 

The following table summarizes the fair value and carrying value of the Company’s assets and liabilities as of August 31, 2018:

 

   Fair Value   Carrying 
   Level 1   Level 2   Level 3   Value 
Assets -                
Cash  $2,998,221   $   $   $2,998,221 
Marketable equity securities   1,837,278            1,837,278 
Cryptocurrency   22,368            22,368 
Liability -                    
Short-term notes  $   $3,121,893   $   $3,399,402 

 

The following table summarizes the fair value and carrying value of the Company’s assets and liabilities as of May 31, 2018:

 

   Fair Value   Carrying 
   Level 1   Level 2   Level 3   Value 
Assets -                
Cash  $1,390,258   $   $   $1,390,258 
Marketable equity securities   1,230,754            1,230,754 
Cryptocurrency   31,479            31,479 
Liability -                    
Short-term notes  $   $998,192   $   $1,058,084 

 

Short-term notes - The fair value of such notes payable had been determined based on 10% and 6% annual interest rates and the proximity to the issuance date as of August 31, 2018 and May 31, 2018, respectively.

 

The Company uses Level 1 of the fair value hierarchy to measure the fair value of digital currencies and revalues its digital currencies at every reporting period and recognizes gains or losses in the consolidated statements of operations that are attributable to the change in the fair value of the cryptocurrencies.

  

 

 

 

 13 
 

 

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 periods ended August 31, 2018 and August 31, 2017. Details as below:

 

  

August 31, 2018

  

August 31, 2017

 
Misc. service revenue  $45,638   $5,031 
Bitcoin trading class revenue   27,398     
Total  $73,036   $5,031 

 

Costs of Services/Products Sold – Costs of services provided are the total direct cost of the Company’s operations in Shanghai and the US. 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.

  

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 corporate Alternative Minimum Tax (“AMT”).

 

In connection with the analysis of the impact of the TCJA, the Company determined that it does not have any impact on the financial statements.

 

The Company considers the earnings of the non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs.

  

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 when stock or options are awarded for previous or current service without further recourse.

 

We periodically issue shares of our common stock to non-employees in non-capital raising transactions for fees and services. We account for stock issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees, whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.

 

 

 

 14 
 

 

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, 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.

 

Foreign Currency – The Company has operations in the People’s Republic of China (“PRC”) as a representative office in PRC, the functional and reporting currency is in U.S. dollars.

 

The functional currency of the two subsidiaries operated in PRC, CBD Biotech and Newcoins168, is the Chinese Renminbi (“RMB”). 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. 

 

The exchange rates used were as follows:

 

August 31, 2018  
Spot rate RMB 6.82 to US $1.00
Average rate for the three months ended August 31, 2018 RMB 6.67 to US $1.00
May 31, 2018  
Spot rate RMB 6.40 to US $1.00
Average rate for the three months ended August 31, 2017 RMB 6.65 to US $1.00

 

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 February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either operating or financing, with such classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the impact ASU 2016-02 will have on its consolidated financial statements and associated disclosures.

 

Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have material impact on the unaudited condensed consolidated financial position, statements of operations and cash flows.

 

 

 

 

 

 15 
 

 

4. Stockholders’ Equity:

 

As of August 31, 2018 and May 31, 2018, 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 $0.001 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.

 

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.

 

During the three months period ended August 31, 2018, the shareholders of preferred stock series-2012 converted 0 shares of preferred stock. During the three months period ended August 31, 2017, the shareholders of preferred stock Series 2012 converted 50,000 shares of preferred stock for 62,500 shares of common stock shares at a conversion rate of 1 preferred stock A for 1.25 shares of common stock.

  

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.

 

During the three months period ended August 31, 2018, the shareholders of preferred stock series A-2014 converted 200,000 shares of preferred stock for 500,000 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 three months period ended August 31, 2017 the shareholders of preferred stock Series A 2014 converted 690,000 shares of preferred stock for 1,725,000 of common stock shares at a conversion rate of 1 preferred stock B for 2.50 shares of common stock.

 

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.

 

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 and recorded $1,244,622 and $3,685,520 as deemed dividend that increased accumulated deficit for the periods ended May 31, 2018 and 2017, respectively.

 

During the three months period ended August 31, 2018, the shareholders of preferred stock series C-2016 converted 90,000 shares of preferred stock for 270,000 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 three months period ended August 31, 2017, the shareholders of preferred stock C-2016 converted 1,857,085 shares of preferred stock for 5,571,255 of common stock shares at a conversion rate of 1 Series C-2016 share of preferred stock for 3.00 shares of common stock.

 

 

 

 

 16 
 

 

Series D-2017 Convertible Preferred Stock

 

For the year ended May 31, 2018, the Company issued 6,793,050 shares of its Series D-2017 Convertible Preferred Stock at a price of $1.00 per share for total proceeds of $6,793,050. 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, 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 $3,933,443. 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 $3,933,443 as deemed dividend that increases accumulated deficit as of May 31, 2018. During the year ended May 31, 2018, 150,000 shares of Series D-2017 Convertible Preferred Stock were converted into common stocks.

 

For the three months ended August 31, 2018, the Company issued shares of its Series D-2017 Preferred Stock at a price of $1.00 per share for total proceeds of $1,845,000. 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 issued during the three-month ended in August 31, 2018 as $169,400. 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 $169,400 as deemed dividend that increased accumulated deficit as of August 31, 2018.

 

During the three months period ended August 31, 2018, the shareholders of preferred stock series D-2017 converted 1,643,000 shares of preferred stock for 3,286,000 of common stock shares at a conversion rate of 1 share of preferred stock series D-2017 for 2.00 shares of common stock.

 

Stock compensation and stock payable

 

On July 26, 2018, the Company entered into a Consulting Agreement with Regal Consulting, LLC (“Regal”). The agreement has a five-month term ending January 2, 2019, pursuant to which Regal will receive 20,000 shares of the Company’s common stock per month for the term of the Agreement for a total of 100,000 shares, in addition to other compensation. $13,400 share-based compensation expense has been recorded associated with the award for the three months ended August 31, 2018.

 

On or about August 9, 2018, the Company entered into a Services Agreement with IRTH Communications LLC (“IRTH”). The agreement has a one year term, pursuant to which ITRH was to receive $100,000 worth of shares of the Company’s common stock in addition to other compensation. On August 22, 2018, the Company adopted a resolution authorizing the issuance of 226,245 shares of the Company’s common stock to IRTH for its professional services to be provided during the term of the agreement. $8,333 share-based compensation expense has been recorded associated with the award for the three months ended August 31, 2018.

 

On or about August 9, 2018, the Company entered into a Consulting Agreement with Axis Partners, Inc. (“Axis”). The agreement is for a six month term, pursuant to which Axis is to receive 150,000 shares of the Company’s common stock for the term of the agreement. On August 22, 2018, the Company adopted a resolution authorizing the issuance of 150,000 shares of the Company’s common stock to Axis for its professional service to be provided during the term of the agreement. $33,500 share-based compensation expense has been recorded associated with the award for the three months ended August 31, 2018.

 

 

 

 

 

 17 
 

 

On August 24, 2018, the Board adopted a resolution ratifying the award to Melissa Armstrong of an additional 50,000 shares of common stock, for a total award of 100,000 shares, effective October 26, 2016. All services to be performed in conjunction with this award have been fully performed and the shares were fully vested as of the effective date of the award. $33,500 share-based compensation expense was recorded associated with the award for the three months ended August 31, 2018.

 

The stock compensation payable as of August 31, 2018 is summarized as below, and there is no stock compensation payable as of May 31, 2018.

 

   August 31,   May 31, 
   2018   2018 
Regal Consulting LLC  $13,400   $ 
IRTH Communications LLC   8,333     
Axis Partners, Inc   33,500     
Melissa Armstrong   33,500     
   $88,733   $ 

 

On September 11, 2018, the Company issued stock certificates total 526,245 shares for the stock compensation granted to service providers in August 2018.

 

5. 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 period 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:

 

   August 31,   May 31, 
   2018   2018 
Prepaid expense  $245,513   $79,822 
Purchase deposit   72,868    145,376 
Cryptocurrency on hands   22,368    31,479 
Other current assets   73,592    74,951 
   $414,341   $331,628 

 

6. Long-term investments

 

Long-term investments include: 1) investment at Breakwater MB, LLC accounted for cost method since the Company does not have the significant influence, and 2) investment at Sino-U.S. Finance accounted for equity method (see Note 3).

 

In March 2017, the Company made a $250,000 investment in Breakwater MB, LLC, a cannabis-focused investment and consulting company, formed by Paul Dickman, the CFO and board member of ChineseInvestors.com, Inc., as a means to invest capital in and provide consulting services to private, cannabis-focused companies as they transition into the public market. The invested capital will primarily be used to cover the costs of becoming a publicly traded company, a strategy the Company expects will provide significant investment appreciation and opportunity for liquidity. All opportunities will be evaluated by the investment committee comprised of ChineseInvestors.com, Inc.’s CEO Warren Wang, Medicine Man Technologies CEO Andy Williams, and Paul Dickman. Mr. Dickman is the managing member of Breakwater MB, LLC and Warren Wang serves as an advisor receiving no compensation for his services.

 

Breakwater MB, LLC completed its planned raise of $1,000,000 for 50% of Breakwater MB, LLC’s equity by December 2017. The Company’s equity position in Breakwater MB, LLC stands at 12.5% as of August 31, 2018 and May 31, 2018, respectively. ChineseInvestors.com, Inc.’s board reviewed and approved the investment with Mr. Dickman abstaining from voting. Mr. Dickman held 30% of the equity of Breakwater MB LLC as of May 31, 2018 after a $5,000 cash investment in equity in addition to the services that Mr. Dickman renders to Breakwater MB, LLC.

 

 

 

 

 

 18 
 

 

Subsequently in August 23, 2018, the Company entered into a Redemption Agreement and Mutual Release with Mr. Dickman to liquidate 40% of the Company’s investment in Breakwater MB, LLC. Mr. Dickman agreed to pay an aggregate purchase price of $100,000 ($75,000 at the closing and $25,000 no later than September 15, 2018) to redeem the portion of equity (the “Redemption Agreement”) The Redemption Agreement provides for a mutual release and waiver with regard to any claims the parties to the Redemption Agreement ever had, owned or held, or now have, own or hold, as against one another resulting from, arising out of or in any manner relating to or based on the Company’s investment in Breakwater MB LLC, the redemption, or otherwise relating to CIIX’s relationship with Breakwater MB LLC. As of August 31, 2018, no payment has been received. The Company’s equity position in Breakwater MB, LLC currently stands at 12.5% as of August 31, 2018.

 

7. Property and Equipment:

 

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

 

   August 31,
2018
  


May 31,

2018

 
Furniture & Fixtures  $166,709   $154,748 
Leasehold Improvements   103,893    35,176 
    270,602    189,924 
Less: Accumulated Depreciation   (133,573)   (124,674)
   $137,029   $65,250 

 

Depreciation expense for the three months ending August 31, 2018 and 2017 was $8,947 and $3,898, respectively.

 

8. Website development, net:

 

Website development is comprised of the following:

 

   August 31,
2018
  


May 31,

2018

 
Website development  $232,766   $220,598 
Less: Accumulated Amortization   (119,078)   (116,320)
   $113,688   $104,278 

 

Amortization is calculated over a straight-line basis using the economic life of the asset. Amortization expense for the three months ended August 31, 2018 and 2017 was $2,759 and $2,567 respectively.

 

 

 

 

 

 19 
 

 

9. Short-term notes:

 

On October 2017, the Company issued additional one-year promissory notes (the “2017 Notes”) totaling of $995,140 to various individuals. The interest rate for the 2017 Notes is 6% annum. Of the $995,140, as noted above, $116,669 was rolled over from the 2016 Notes with renegotiated terms. The 2017 Notes were to be secured by the stocks of the following companies held by the Company:

 

Company name Shares Secured for Loan
Nemaura Medical, Inc (NMRD) 100,000  
Recon Technology LTD (RCON) 49,999  
Solbright Group Inc. (SBRT) 195,122  
Nengfa Weiye Energy (NFEC) 218,779  
SGOCO Group LTD (SGOC) 29,412  

 

As of August 31, 2018, the Company transferred NMRD shares held to the Collateral Agent. It was determined that with the exception of 2017 Notes secured by NMRD shares, the remaining 2017 Notes were not properly secured. The Company offered the lenders of the unsecured 2017 Notes the option to either rescind the notes or allow the notes to remain in place as unsecured notes in April 2018. $360,000 out of the total $620,000 unsecured 2017 Notes were rescinded for which the principle and interest became due immediately, and the remaining $260,000 2017 Notes remain unsecured. The $360,000 in short term 2017 Notes has not been repaid.

 

For 2017 Notes, the lenders also received an incentive equal to 20% of appreciation of the value of the collateralized shares between the note issuance date and the date the shares are liquidated, if at all. As of August 31, 2018 and May 31, 2018, the debt incentive was $149,262 and $62,944, respectively.

 

On August 2018, the board of directors of the Company approved the Company to offer unsecured one-year term notes (the “2018 Notes”) to individual investors for a maximum $3,000,000 with 10% annum interest rate. As of August 31, 2018, the Company has issued 2018 Notes in the total amount of $2,255,000 from various individual lenders.

 

As of August 31, 2018 and May 31, 2018, the short-term notes are compromised as follows:

 

   August 31, 2018   May 31, 2018 
Short-term 2017 notes          
Secured short term notes, due on October 2018, 6% annum interest rate  $635,140   $635,140 
Debt incentive to the secured short-term notes above   98,808    41,539 
Short term notes, due on April and May 2018, 6% annum interest rate   360,000    360,000 
Debt incentive related to the short-term notes above   50,454    21,405 
Total short-term 2017 notes  $1,144,402   $1,058,084 
           
Short-term 2018 notes  $2,255,000   $ 
           
Total Short-term notes  $3,399,402   $1,058,084 

 

 

 

 

 

 20 
 

 

10. Other Current Liabilities:

 

Other current liabilities compromise as following:

 

   August 31, 2018   May 31, 2018 
Accrued dividends  $108,403   $179,218 
Accrued interests and others   61,901    32,721 
Accrued payroll and taxes   263,834    218,599 
Total  $434,138   $430,538 

 

Accrued dividends as of August 31, 2018 are comprised of dividends payable to the preferred stock holders, Series D-2017 in the amount of $108,403. Accrued dividends as of May 31, 2018 are comprised of dividends payable to the preferred stock holders, Series C-2016 and Series D-2017, in the amount of $14,981 and $164,237, respectively.

 

Accrued interest as of August 31, 2018 and May 31, 2018 represents interest payable for the 2018 Notes and 2017 Notes, respectively.

 

11. Commitments and Contingencies:

 

Operating Leases

 

The Company currently maintains leased space in Shanghai, China (as described in the Financials) as well as an office presence in San Gabriel, California, New York City, NY and Flushing, NY. It also maintains a correspondence address in Arcadia, California on a month to month basis.

 

On September 4, 2018, the Company enter a lease agreement in New York at 40 Wall St. Room 2877, New York, NY 10005 as support office. The lease term is 24 months and monthly rent at $7,500.

 

Future minimum lease commitments for office facilities as of August 31, 2018 are as follows: 

 

For the fiscal years ended May 31,     
 2019 (9 months)   $345,989 
 2020    270,966 
 2021    131,989 
 2022     
     $748,944 

 

Litigation – The Company is involved in legal proceedings from time to time in the ordinary course of its business.  

 

When entering the 2016 Note Agreements, the Company believed that the SINO contract would be executed, and SINO shares would be delivered upon signing the IR service contract. However, the service contract was not executed due to a disagreement among SINO’s management, and as a result, the Company has not obtained the SINO shares as of May 31, 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.  Currently the case is pending assignment to an arbitrator.

 

 

 

 21 

 

 

12. Related Party Transactions:

 

As of August 31, 2018, the Company advanced $81,293 to the CEO, Mr. Warren Wang for daily operation purpose.

 

The Company made a long-term investment of $250,000 to Breakwater MB LLC in March 2017 formed by the Company’s board member and CFO, Paul Dickman. The Company’s equity position in Breakwater MB, LLC stands at 12.5%. Refer to Long-term investments for investment details.

 

Mrs. Lan Jiang is the spouse of the Company’s CEO, Mr. Warren Wang. During the three months ended August 31, 2018 and 2017, she received salary compensation of $45,000 and $39,000, respectively.

 

The Company purchased the shares of Medicine Man Technologies, Inc. (“MDCL”) in April 2014 using equity method of accounting initially and started to account for the ownership as an investment available for sale as of May 31, 2015 as the Company no longer had “significant influence” over MDCL as a result of shares issuance. The Company liquidated 1,306,378 shares of MDCL for $1,996,939 cash during the year ended May 31, 2017. As of August 31, 2018 and May 31, 2018, the Company still held 41,238 shares of MDCL stock representing $72,578 and $76,496, respectively, of value based upon the closing market price of $1.76 and $1.86, respectively.

 

13. Subsequent event:

 

The Company is continuing to offer (up to 10,000,000 shares) 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 September 30, 2018, the Company received $9,983,050 proceeds from sales of series D-2017 convertible preferred stock.

 

On August 7, the Company began offering on a best efforts basis (“Offering”), a maximum of $3,000,000 in original issue price (“Maximum Offering”) of its 10% one-year term notes (the “Notes”). As of the September 30, 2018 we have received the notes in the total amount of $3,030,000. Of the $3,030,000, there are $2,255,000 notes are received by August 31, 2018, $775,000 are received after August 31, 2018.

  

 

 

 

 

 22 

 

 

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.

 

XiBiDi Biotechnology Co., Ltd.

 

In March 2017, the Company established and registered XiBiDi Biotechnology Co. Ltd. (“CBD Biotech”) in Pudong Free-Trade Area in Shanghai, PRC as a wholly owned foreign enterprise (“WOFE”). CBD Biotech’s primary engages at online and retail sales of hemp-based health products and other complimentary products in PRC. The initial focus of CBD Biotech was the launch of CBD Magic Hemp Series.

 

CBD Biotech obtained Wholesale Alcohol License in November 2017 from ShangHai Wine Monopoly Bureau effective October 24, 2017 for a three-year term, which allows CBD Biotech to act as a liquor distributor. CBD Biotech entered into a wholesale agreement with China GuiZhou HanTai Wine, Inc. to distribute its liquor product - Yantai 1985. The Company announced its plans to spin off CBD Biotech in February 2018, which was later postponed to after May 31, 2018, the actual date has not been determined.

 

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. responsible for the development and operation of the online and retail sales of 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, hemp, manufactured using a CO2 Extraction process. The Company announced its plans to spin off ChineseHempOil.com, Inc. in February 2018, which was later postponed until after May 31, 2018; the actual date has not been determined.

 

CBD Biotechnology Co. Ltd.

 

In June 2017, the Company formed CBD Biotechnology Ltd. (“CBD”), a corporation incorporated in the Province of British Columbia, which is anticipated to focus on the sales of hemp infused skin care products infused with hemp extract, via online and other distribution channels. The consumer product line may expand to other types of products as the Company sees fit in the future.

 

Newcoins168.com Inc.

 

In April 2018, the Company established a wholly owned foreign enterprise, NewCoins168.com Digital Media Technology Ltd (Shanghai), registered in China Free Trade Zone with registered capital of 10 million RMB.

 

 

 

 23 

 

 

Bitcoin Trading Academy LLC

 

In or about March 2018, the Company established Bitcoin Trading Academy, LLC, a California limited liability company, formerly known as Stock Surge Momentum. LLC, a California limited liability company, with Warren (Wei) Wang, the Company’s CEO, as its sole managing member. Mr. Wang has transferred all of his interest in Bitcoin Trading Academy, LLC to the Company for $1 consideration. Bitcoin Trading Academy LLC began offering in person and on-line courses on cryptocurrency investment and trading in July 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 months ended August 31, 2018 compared to three months ended August 31, 2017

 

Quarterly Revenues and Expenses

 

Subscription Revenue: For the three months ended August 31, 2018 and 2017, revenues were $226,312 and $136,263, respectively.

 

Investor Relations-Service Revenue: For the three months ended August 31, 2018 and 2017, revenues were $271,248 and $258,366 respectively. The increase of $12,882 is attributable to the Company providing more services to clients for three months ended August 31, 2018 which generated more revenue.

 

Other Revenue: For the three months ended August 31, 2018 and 2017, revenues were $73,036 and $5,031 respectively. The increase of $68,005 is due to the bitcoin trading class revenues of $27,398 generated from July 2018 and $46,100 in consulting revenues generated by Newcoins168.com.

 

Sales of Products: For the three months ended August 31, 2018 and 2017, revenues were $141,764 and $17,966 respectively. The increase of $123,798 was due to the sale of the Company’s Hemp-related and Baijiu liquor products.

 

Cost of Revenue: Cost of services for the three months ended August 31, 2018 and 2017 were $391,817 and $272,630 respectively, for a increase of $119,187 over the same period in 2017. Cost of products for the three months ended August 31, 2018 and 2017 were $72,745 and $4,902 respectively. The increase was due to the Company’s sale of its Hemp-related and Baijiu liquor products.

 

Gross profit margin: The Company’s gross profit margin on service revenue decreased to 31% ($178,779 on $570,596 of revenue) in the three months ending August 31, 2018 from 32% ($127,030 on $399,660 of revenue) in the three months ended August 31, 2017. The Company’s gross profit margin on product sales decreased to 49% ($69,019 on $141,764 of revenue) in the three months ending August 31, 2018 from 73% ($13,064 on $17,966 of revenue) in the three months ended August 31, 2017.

 

General& Administrative Expenses: For the three months ended August 31, 2018 and 2017, expenses were $1,889,241 and $1,173,482, respectively for an increase of $715,759 which was related to the addition staff and independent contractors.

 

Advertising Expenses: For the three months ended August 31, 2018 and 2017, expenses were $317,291 and $225,243 respectively. The increase is due to the Company’s increased adverting and news coverage in several different cities and in different languages.

 

Interest Expenses: For the three months ended August 31, 2018 and 2017, expense were $112,833 and $6,841 respectively. The increase is due to the Company issued two one-year notes to investors (refer to short-term notes for details).

 

 

 24 

 

 

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 and liquor products. Since its 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 $8,638,050 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.

 

On January 22, 2014, the Company entered into a Service Provider Agreement with Financial Buzz Media Networks LLC (“Financial Buzz”) beginning on February 6, 2014 and ending on May 5, 2014. In conjunction with the Agreement, Financial Buzz was issued 100,000 shares of the Company’s common stock. All services to be performed in conjunction with this discretionary bonus have been fully performed.

 

Plan of Continued Operations

 

The Company plans to continue to meet all of its obligations as well as conform to 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. Refer to 10K for year ended May 31, 2018 PART II Item 9A Controls and Procedures.

 

 

 

 25 

 

 

 

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

 

 

 

 26 

 

 

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: October 15, 2018 By: /s/ Paul Dickman  
    Paul Dickman  
    Chief Financial Officer  
       
Date: October 15, 2018 By: /s/ Wei Wang  
    Wei Wang  
    Chief Executive Officer  

 

 

 

 

 

 

 

 

 

 

 27