During the three and six months
ended November 30, 2017, the company received various stocks valued (FMV) at $422,200 and $1,006,575, respectively, for
providing one to twelve months of investor relations (“IR”) services.
During the three and six months ended
November 30, 2016, the company received various stock valued (FMV) at $134,000 and $280,000, respectively, for providing one
to twelve months of investor relations (“IR”) services.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
Organization and Nature of Operations
:
Business Description
Chineseinvestors.com
, Inc. (the
“Company”) was incorporated on June 15, 1999 in the State of California. The Company is a provider of Chinese language
web-based real-time financial information. The Company’s operations had been located in California until September 2002 at
which time the operations were relocated to Shanghai, in the People’s Republic of China (PRC). The Company relocated part
of the operations in California starting fiscal year 2017.
During May 2000, the Company entered into
an agreement with MAS Financial Corp. (“MASF”) whereby MASF agreed to transfer control of a public shell corporation
to the Company and perform certain consulting services for a fee of $30,000.
During June 2000, the Company completed
reorganization with MAS Acquisition LII Corp. (“MASA”) with no operations or significant assets. Pursuant to the terms
of the agreement, the Company acquired approximately 96% of the issued and outstanding common shares of MASA in exchange for all
of its issued and outstanding common stock. MASA issued 8,200,000 shares of its restricted common stock for all of the issued and
outstanding common shares of the Company. This reorganization was accounted for as though it were a recapitalization of the Company
and sale by the Company of 319,900 shares of common stock in exchange for the net assets of MASA. In conjunction with the reorganization
MASA changed its name to Chineseinvestors.com, Inc.
The Company is now incorporated as a C
corporation in the State of Indiana as of June 1, 1997.
In March 2017, the Company established
and registered XiBiDi Biotechnology Co., Ltd. (“CBD Biotechnology Co., Ltd”) in the Pudong Free-Trade Area in Shanghai,
established as a wholly owned foreign enterprise. In April, CIIX appointed XiangYang Yun as chief executive officer (CEO) of this
wholly owned foreign enterprise. XiBiDi Biotechnology Co. Ltd.’s primary focus is online, retail and direct sales of hemp-based
health products in China. Yun’s initial focus was the launch of the XiBiDi Magic Hemp Series (“CBD Magic Hemp Series”),
a cosmetics line which included three initial products, namely, the CBDBIO TECH Brightening and Refreshing Moisturizer, the CBDBIO
TECH Perfecting Shield Primer, and the CBDBIO TECH Peptide Collagen Solution.
In November 2017, CBD Biotechnology Co.
Ltd., teamed up with Chinese beauty influencer,
The Godfather of Beauty
, for the launch of its “CBD Magic Hemp Series”
skincare line on China’s largest e-commerce retailer Alibaba. The Company’s flagship store, the "CBD Enterprise
Store," is on Alibaba’s Taobao Platform.
The Godfather of Beauty
is an Internet celebrity with years of experience
in live, online marketing on the Taobao Platform.
In November 2017, CBD
Biotechnology Co. Ltd. also announced the expansion of its consumer division to enter the lucrative liquor (baijiu) market in
China. On November 7, 2017, CBD Biotechnology was issued Wholesale Alcohol License from the ShangHai Wine Monopoly Bureau
effective October 24, 2107 for a three year term, which allows CBD Biotechnology to act as a distributor of the baijau.
CBD Biotechnology entered into a wholesale agreement with China GuiZhou HanTai Wine, Inc. to distribute its baijui, Yantai
1985, and kicked off its sales and marketing plan by partnering with Jinri Toutiao (translation: Today’s Headlines),
a popular Chinese mobile application. The Company announced plans to spin off CBD Biotechnology Co. Ltd. at the end of
February 2018; however, the Company’s Board of Directors has recently approved postponing the spin-off until the
Company’s fiscal year end May 31, 2018.
In April 2017, the Company
established ChineseHempOil.com, Inc. dba “Chinese Wellness Center” a Delaware corporation, as a subsidiary of the
Company. ChineseHempOil.com, Inc. is responsible for the development and operation of the online and retail sales of
non-industrial hemp-based health products in the United States. Chinese Wellness Center is the retail store located in the
predominantly Chinese community of San Gabriel, California, located next to the Company’s headquarters. In addition,
ChineseInvestors.com, Inc. announced the release of its first hemp oil product line, OptHemp, a premium, private label oil,
made from full-spectrum, Colorado grown, GMO-Free, non-industrial hemp, manufactured using a CO 2 Extraction
process.
In November 2017, ChineseHempOil.com,
Inc. launched its OptHemp product line on Amazon.com kicking off a multi-channel campaign geared to both the US and
Chinese-American markets during the 9th annual Singles Day Celebration. This launch commenced the e-commerce marketplace
initiative that the Company set into motion in early June through a strategic partnership with a top 100 platinum level
partner seller on Amazon Marketplace that agreed to include the OptHemp product line in its limited catalog for resale
through the Amazon Channel. This partnership brings to the OptHemp product line the full weight and power of a national sales
and marketing agency that specializes in providing business solutions including headquarter sales services, analytics,
insights and intelligence, retail services, marketing, digital technology and business process outsourcing. The Company
announced plans to spin off ChineseHempOil.com, Inc at the end of February 2018; however, the Company’s Board of Directors has recently approved postponing the spin-off until the
Company’s fiscal year end May 31, 2018.
In an effort to expand its media products,
as the first quarter of fiscal year 2018 came to a close, the Company announced that it would be working with Wall Street Multimedia
(“WSM”), an independent news agency located in the NYSE to produce a daily cryptocurrency video newscast in Chinese,
providing timely information and exclusive analysis regarding all aspects of the emerging digital currency world, including specific
cryptocurrencies, such as “Bitcoin” and “Ethereum,” industry trends, price movement, blockchain technology,
sector-related stocks and ETFs, etc.
1. Liquidity and Capital Resources:
Cash Flows
–
During the six months ended November 30, 2017, the Company primarily generated cash and cash equivalents, from issuances of
its common and preferred stock to fund its operations. The Company received $2,750,000 of proceeds from the sale of Series “D-2017” preferred stock by November 30, 2017. Except $100,000 was received in the year ended May 31, 2017, the
remaining was received during the six months ended November 30, 2017.
Cash flows provided by (used in) operations
for the six months ended November 30, 2017 and 2016 were $(3,142,888) and $(1,695,491), respectively. The increased cash used
in operations were due to increased general and administrative expenses used in operation.
Capital Resources
–
As of November 30, 2017, the Company had cash and cash equivalents of $1,547,361 as compared to cash and cash equivalents of $1,770,729
as of May 31, 2017.
Since inception in 1997, the Company has
primarily relied upon proceeds from private placements of its equity securities to fund its operations. The Company anticipates
continuing to rely on sales of our securities in order to continue to fund business operations. Issuances of additional shares
will result in dilution to its existing stockholders. There is no assurance that the Company will be able to complete any additional
sales of our equity securities or that it will be able arrange for other financing to fund our planned business activities.
Going Concern
– The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. There is potential
that the Company will not continue as a going concern. The recoverability of recorded property and equipment, intangible assets,
and other asset amounts shown in the accompanying financial statements is dependent upon the Company’s ability to continue
as a going concern and to achieve a level of profitability. The Company intends on financing its future activities and its working
capital needs largely from the sale of equity securities until such time that funds provided by operations are sufficient to fund
working capital requirements. However, there can be no assurance that the Company will be successful in its efforts. The financial
statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets,
or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
2. Critical Accounting Policies and
Estimates
:
Basis of Presentation
–
These accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United
States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission for
annual financial statements.
Principles
of Consolidation
- The accompanying consolidated financial statements are prepared in accordance with generally accepted
accounting principles in the United States of America.
The consolidated
financial statements include the accounts of Chineseinvestors.com Inc and its subsidiaries (collectively the “Company”).
The Company’s subsidiaries include 100% of ChineseHempOil.com Inc, XiBiDi Biotechnology Co, Ltd, Hemp Logic and CIIX Online.
Intercompany accounts
and transactions have been eliminated upon consolidation.
Foreign Currency
–
The Company has operations in the People’s Republic of China (“PRC”), however the functional and reporting currency
is in U.S. dollars. To come to this conclusion, the Company considered the direction of ASC section 830-10-55.
Selling Price and Market
– As a representative office is located in the PRC, the Company is not allowed to sell directly to PRC based customers. Over
90% of its customers are in the United States and 100% of all sales are paid in U.S. dollars. This indicates the functional currency
is U.S. dollars.
Financing
– The
Company’s financing has been generated exclusively in U.S. dollars from the United States. This indicates the functional
currency is U.S. dollars.
Expenses
– The majority
of expense are paid in U.S. dollars. The expenses generated in PRC are paid by a monthly or weekly cash transfer from the U.S.
when the expenses are due, resulting in very little foreign currency exposure. This indicates the functional currency is U.S. dollars.
Numerous Intercompany Transactions
– The Company has multiple transactions each month between the U.S. and Chinese representative office. This indicates the
functional currency is U.S. dollars.
Beside the above,
one subsidiary XiBiDi Biotechnology Co Ltd's functional currency is the Chinese Renminbi (RMB). The reporting currency is that of
the US Dollar. Assets and liabilities are translated at the exchange rates as of the balance sheet date. Owners’ contribution
is translated at historical rate. Income and expenditures are translated at the average exchange rate of the period. The RMB is
not freely convertible into foreign currency and all foreign currency exchange transactions must take place through authorized
institutions. No representation is made that the RMB amounts could have been, or could be, converted into US dollar at the rates
used in translation.
XiBiDi Biotechnology
Co Ltd was not established until March 2017, therefore there is no translation for statement of comprehensive (loss) and income
for three-month period end November 30, 2016 and six-month period end November 30, 2016. The exchange rates used to translate amounts
in RMB into USD for the purposes of preparing the financial statements were as follows:
November 30, 2017
|
|
Balance sheet
|
RMB 6.60 to US $1.00
|
Statement of comprehensive (loss) and income-three-month period
|
RMB 6.62 to US $1.00
|
Statement of comprehensive (loss) and income-six-month period
|
RMB 6.67 to US $1.00
|
May 31, 2017
|
|
Balance sheet
|
RMB 6.80 to US $1.00
|
Revenue
recognition
— Revenue was derived from five different sources:
The Company recognizes
revenue pursuant to revenue recognition principles presented in SAB Topic 13. First, persuasive evidence of an arrangement. Second,
deliver has occurred or services have been rendered, thirdly the seller’s price to the buyer is fixed or determinable and
lastly collectability is reasonably assured.
1. Fees from banner
advertisement, webpage hosting and maintenance, on-line promotion and translation services, advertising and promotion fees for
customers in the Company’s Chinese Investment Guides, sponsorship fees from investment seminars, road shows, and forums.
The sales prices of these services are fixed and determinable at the time the contracts are signed and there are no provisions
for refunds contained in the contracts. These revenues are recognized when all significant contractual obligations have been satisfied
and collection of the resulting receivable is reasonably assured.
2. Fees from membership
subscriptions: these revenues are recognized over the term of the subscription. Subscription terms are generally between 3 and
12 months but can occasionally be as short as 1 month or as long as 60 months. Long term deferred revenues are recognized from
subscriptions over 12 months.
3. Fees related
to setting up and providing ongoing administrative and translation support for currency trading accounts are in association with
Forex. These fees are recognized when earned.
4. Investor
relations income is earned by the Company in return for delivering current, publicly available information related to our
client companies. These revenues are prepaid by the client company and as such are initially recorded as an asset with an
offsetting unearned revenue liability. 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 fair market value of the
client company’s stock closing price at contract date multiplied by the numbers of shares earned. 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 revenue is recognized over the term of the service period.
5. The Company
recognizes revenue for product sales upon transfer of title to the customer. Customer purchase orders and/or contracts are generally
used to determine the existence of an arrangement. Shipping documents and terms and the completion of any customer acceptance requirements,
when applicable, are used to verify product delivery. The Company assesses whether a price is fixed or determinable based upon
the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company has
no product returns or sales discounts and allowances because goods delivered and accepted by customers are normally not returnable.
Costs of
Services/Products Sold
– Costs of services provided are the total direct cost of the Company’s operations
in Shanghai. Cost of goods sold includes cost of inventory sold during the period, net of discounts and inventory allowances, freight
and shipping costs, warranty and rework costs.
Website Development Costs
– The Company accounts for its Development Costs in accordance with ASC 350-50, “Accounting for Website Development
Costs.” The Company’s website comprises multiple features and offerings that are currently developed with ongoing refinements.
In connection with the development of its products, the Company has incurred external costs for hardware, software, and consulting
services, and internal costs for payroll and related expenses of its technology employees directly involved in the development.
All hardware costs are capitalized as fixed assets. Purchased software costs are capitalized in accordance with ASC codification
350-50-25 related to accounting for the costs of computer software developed or obtained for internal use. All other costs are
reviewed to determine whether they should be capitalized or expensed.
Cash and Cash Equivalents
– The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents.
At certain times, cash in bank may exceed the amount covered by FDIC insurance. At November 30, 2017 and May 31, 2017 there were
deposit balances in a United States bank of $1,413,341 and $1,716,138 respectively. In addition, the Company maintains cash balance
in The Bank of China, which is a government owned bank. The full balance of the deposits in China is secured by the Chinese government.
Accounts Receivable and Concentration
of Credit Risk
– The Company extends unsecured credit to its customers in the ordinary course of business. Accounts
receivable related to subscription revenue is recorded at the time the credit card transaction is completed, and is completed when
the merchant bank deposits the cash to the Company bank account. Revenues related to advertising and Forex are regularly collected
within 30 days of the time of services being rendered. However, since these are ongoing contracts, there has been no instance of
failure to pay.
The Company evaluates the need for an allowance
for doubtful accounts on a regular basis. As of November 30, 2017 and May 31, 2017, the Company determined that an allowance was
not needed.
The operations of the Company are located
in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the
political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy.
Investments, available for
sale, in affiliate
– The Company invested in an affiliate, Medicine Man Technologies, Inc.
(“MDCL”), in April 2014, implemented the equity method of accounting. The Company received its ownership in
return for supporting the company during its formational stage and no cash, as such the stock received had a value of zero
and the affiliate generated a loss through May 31, 2014. The Company has no further commitment to fund losses; therefore,
management has deemed it proper to discontinue applying the equity method for the investment as defined by Accounting
Standards Codification (“ASC”) 323-10-35-20 for the year ended May 31, 2014. In 2015 the affiliate company issued
additional stock, diluting the Company’s position and restructured the management of the entity causing the Company to
determine that it no longer had “significant influence” over its operations. The Company then started accounting
for the stock owned as an available for sale security. As there was a public market for MDCL stock at November 30, 2017 and
May 31, 2017, the Company recognized the stock as a Level 1 financial instrument. The Company has liquidated most of
its holdings in MDCL stock generating approximately $0 and $1,896,939 cash during the six months period ended November 30,
2017 and 2016, respectively. At November 30, 2017, the Company still held 41,238 shares of MDCL stock representing $69,691 of
value based upon the closing market price of $1.69. At May 31, 2017, the Company held 41,238 shares of MDCL stock
representing $72,166 of value based upon the closing market price of $1.75.
Investments available for sale
Investments available for sale is comprised of publicly traded stock received in return for providing investor relations services
to client companies. The investor relations services range from one month to a year, from the inception of the contract. The Company
considers the securities to be liquid and convertible to cash in under a year. The Company has the ability and intent to liquidate
any security that the Company holds to fund operations over the next twelve months, if necessary, and as such has classified all
of its marketable securities as short-term.
The Company followed the guidance of ASC
320-10-30 to determine the initial measure of value based on the quoted price of an otherwise identical unrestricted security of
the same issuer, adjusted for the effect of the restriction, in accordance with the provisions of topic 820-10-15-5, which states
that an equity security has a readily determinable fair value if it meets the condition of having a “sales prices or bid-and-asked
quotations which are currently available on a securities exchange registered with the U.S. Securities and Exchange Commission (SEC)
or in the over-the-counter market, provided that those prices or quotations for the over-the-counter market are publicly reported
by the National Association of Securities Dealers Automated Quotation systems or by the OTC Markets Group Ins. Restricted stock
meets that definition if the restriction terminates within one year.” These shares were classified as available for sale
securities in accordance with ASC 948-310-40-1 as the Companies intention is to sell them in the near-term (less than one year).
In compliance with ASC 320-10-35-1, equity securities that have readily determinable fair values that are classified as available-for-sale
shall be measured subsequently at fair value in the statement of financial position. Unrealized holding gains and losses
for Available-for-sale securities (including those classified as current assets) shall be excluded from earnings and reported in
other comprehensive income until realized.
As these shares will be earned over the
term of the contracts, the Company will defer the recognition of the earnings of the revenue over the period the services are performed.
The value recorded will be determined by multiplying the average of the closing price on the last day of the month for the period
being reported based on closing market price per share.
Upon receipt, these shares were recorded
as an asset on the Companies financials as "Investments, available for sale". The Company will also record a corresponding
contra-asset account titled "Unearned Revenue paid in stock".
Inventories
–
Inventory is valued at the lower of cost or net realizable value. Cost is determined using weighted average cost method.
There is no write-off as of November 30, 2017 and May 31, 2017.
Other Current Assets
–
Other current assets consist of deposits in Chinese Renminbi on building space under an operating lease and are stated at the current
exchange rate at year end. Security deposits of office rent in United States, purchase deposits to vendors for the Hemp oil purchase,
prepaid expenses in both United States and Shanghai, details as below:
|
|
November 30,
|
|
|
May 31,
|
|
|
|
2017
|
|
|
2017
|
|
Purchase deposit
|
|
$
|
–
|
|
|
$
|
66,125
|
|
Prepaid expense
|
|
|
138,605
|
|
|
|
151,238
|
|
Security deposit-rent
|
|
|
40,536
|
|
|
|
43,909
|
|
Other current assets
|
|
|
125,361
|
|
|
|
10,084
|
|
|
|
$
|
304,502
|
|
|
$
|
271,401
|
|
Investment-affiliate
–
The Company made investment of $250,000 to Breakwater MB LLC in March 2017, a cannabis-focused investment and consulting company,
formed by the Company’s board member and CFO, Paul Dickman, as a means to invest capital in and provide consulting services
to private, cannabis-focused companies as they transition into the public market. The Company’s equity position in Breakwater
MB, LLC will be approximately 12.5%. The Company adopt cost method for this investment.
Property and Equipment
–
Property and equipment are stated at cost. Depreciation and amortization of property and equipment is provided using the straight-line
method over estimated useful lives ranging from three to five years. Leasehold improvements are amortized over the life of the
lease. Depreciation and amortization expense was $12,947 and $6,855 for the six months ended November 30, 2017 and 2016, 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 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 November
30, 2017 and 2016
.
Accrued dividend & interest
–
The accrued dividend balance represents dividend payable related to the Series A-2014 preferred stock Series C-2016 preferred
stock and Series D-2017 preferred stock. Accrued dividend was $155,539 and $150,831 for the period ended November 30, 2017
and May 31, 2017 respectively. The accrued interest balance represents interest payable for short term debt outstanding.
Accrued interest was $2,950 and $16,857 for the period ended November 30, 2017 and May 31, 2017 respectively.
Accrued Liabilities
– Accrued liabilities
are comprised of the following:
|
|
November 30, 2017
|
|
|
May 31, 2017
|
|
China Employees' Salaries and Commissions Accrual
|
|
$
|
6,799
|
|
|
$
|
6,799
|
|
Other Accruals
|
|
|
126,780
|
|
|
|
60,983
|
|
|
|
$
|
133,579
|
|
|
$
|
67,782
|
|
Unearned revenue, revenue paid in
stock
– For the six months ended November 30, 2017 and during fiscal year ended May 31, 2017, the Company received
shares of stock and warrants, as payment for investor relations work that the Company will be providing through July 2018. As the
Company earns the fee for this work, this balance will be reduced to reflect the portion still to be earned.
Deferred revenue
–
The Company receives payment for subscription revenues in advance before the subscription service is granted. The company recognizes
the revenue as being earned as the services are deliver. The amount paid for which services have not yet been delivered related
to subscription revenues is recorded as a liability in the current or long-term portion of the liabilities section of the balance
sheet.
Short-term
debt, secured by stock
In September 2016,
the Company obtained short-term debt of $410,000 from various individuals. Based on the original lending agreements, the loan was
to have been secured by shares of the stocks in the following companies.
Company name
|
Shares Secured for Loan
|
Sino-Global Shipping America LTD (SINO)
|
80,000.00
|
Recon Technology LTD (RCON)
|
60,000.00
|
Nengfa Weiye Energy (NFEC)
|
185,000.00
|
SGOCO Group LTD (SGOC)
|
28,333.33
|
When entering
the loan agreement, the Company believed that the contract would be executed and SINO shares would be delivered upon signing the
contract. However, such IR service agreement was not executed due to a disagreement among SINO’s management, as a result,
the Company did not obtain the SINO shares as of November 30, 2017. For NFEC, the Company obtained 100,000 shares at the time of
entering the contract, and the remaining shares were fully received by the end of year 2016. For RCON, the Company obtained 50,000
shares at the time entering the contract, but the agreement called for collateral of 60,000 RCON shares, the collateral is now
short by 10,000 shares of RCON common stock. The loan agreements are still valid after renegotiating the terms with the private
lenders. These notes are due on September 2017. The lenders received a 20% of the deemed increase in value of these secured shares
(“Incentive Feature”) at the maturity of the short-term note.
It has been determined
that these notes were not properly collateralized as the ownership of the collateral did not transfer from the Company to the collateral
agent. All notes that were not properly collateralized have been repaid or renegotiated into new notes, which themselves have not
been collateralized. The Company paid back principal and interest to borrowers for a total of $343,051. The reminder of the principal
and interest represented by the notes were rolled over to new notes with an outstanding principle balance totaling $116,669.
In November 2017,
the Company obtained short-term debt of $965,140 from various individuals. Of the $965,140, $116,669 was rolled over from previous
debt. The loans were to be secured by shares of the stocks in the following companies:
Company name
|
Shares Secured for Loan
|
Nemaura Medical, Inc (NMRD)
|
104,000.00
|
Recon Technology LTD (RCON)
|
49,999.00
|
Solbright Group Inc. (SBRT)
|
195,122.00
|
Nengfa Weiye Energy (NFEC)
|
170,702.00
|
SGOCO Group LTD (SGOC)
|
29,412.00
|
The new notes have not been secured by the pledge of those
securities.
Use of Estimates
–
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The financial statements include some amounts
that are based on management's best estimates and judgments. The most significant estimates relate to depreciation and useful lives,
and contingencies. These estimates may be adjusted as more current information becomes available, and any adjustment could be significant.
Fair Value of Financial Instruments
– The Company has adopted the provisions of ASC Topic 820, Fair Value Measurements, which defines fair value, establishes
a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any
new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify
the source of the information. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs)
and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
•
|
|
Level one – Quoted market prices in active markets for identical assets or liabilities;
|
•
|
|
Level two – Inputs other than level one inputs that are either directly or indirectly observable; and
|
•
|
|
Level three – Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
|
Much of the Company’s financial instruments
are level one and are carried at market value, requiring no adjustment to book value. The financial instruments classified as level
one were deemed to qualify as that classification because their value was determined by the price of identical instruments traded
on an active exchange.
Level one instruments are based upon stated
balance of financial institution or calculated based upon stock trading in the public market. Level two instruments are calculated
based upon the sale of stock through a private placement at arms-length where our shares were an insignificant amount of the total
volume of stock sold in the issuer. Level three financial instruments were valued by a professional independent appraiser hired
by the Company to determine the valuation. The level three valuation calculation includes discounted cash flow models and market
based models as appropriately utilized by a professional valuation firm. The inputs they used included the entities past financial
performance, projected budgets, prior private stock sale history and comparable company valuations.
The following table summarizes the assets we are carrying and
the fair value category in which they are currently classified:
|
|
November 30, 2017
|
|
|
May 31, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash
|
|
|
1,547,361
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,770,729
|
|
|
|
–
|
|
|
|
–
|
|
Investments
|
|
|
1,418,382
|
|
|
|
250,000
|
|
|
|
–
|
|
|
|
729,075
|
|
|
|
250,000
|
|
|
|
–
|
|
Total Financial Instruments
|
|
|
2,965,743
|
|
|
|
250,000
|
|
|
|
–
|
|
|
|
2,499,804
|
|
|
|
250,000
|
|
|
|
–
|
|
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 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.
Other Revenue
– Other
revenue is comprised of revenue related to Forex service fees, rent generated through office space sublease revenue and other miscellaneous
service revenues generated which is recognized over the period the term of the lease for the period ended November 30, 2017 and
2016.
Advertising Costs
–
Advertising costs are expensed when incurred.
Earnings (Loss) Per Share
– Earnings (loss) per share is computed using the weighted average number of common shares outstanding during the period.
The Company has adopted ASC 260 “Earnings Per Share”. Fully diluted loss per share are not calculated and presented
on the financial statements as the calculation would be antidilutive.
Stock Based Compensation
– The Company accounts for share-based payments pursuant to ASC 718, “Stock Compensation” and, accordingly, the
Company records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options
and restricted stock awards using the Black-Scholes option pricing model.
Stock compensation expense for stock options
is recognized over the vesting period of the award or expensed immediately under ASC 718 and EITF 96-18 when stock or options are
awarded for previous or current service without further recourse. The Company issued stock options to contractors and external
companies that had been providing services to the Company upon their termination of services. Under ASC 718 and EITF 96-18 these
options were recognized as expense in the period issued because they were given as a form of payment for services already rendered
with no recourse.
On July 14, 2017, the Company awarded and
issued a restricted stock award to a service provider 30,000 shares in total, and the fair market value at the grant date was $0.80
per share. All these shares were fully vested at grant date, stock compensation expense totaling $24,120 were recorded.
On August 7, 2017, the Company awarded
and issued a restricted stock award to a service provider 50,000 shares in total, and the fair market value at the grant date was
$0.87 per share. All these shares were fully vested at grant date, stock compensation expense totaling $43,500 were recorded.
On October 31, 2017, the Company awarded
restricted stock awards to various employees 1,340,000 shares in total, and the fair market value at the grant date was $0.49 per
share. All these shares were fully vested at grant date, stock compensation expense totaling $656,600 were recorded.
Preferred
Stock Beneficial Convertible Feature
–
Upon
issuance of preferred stock convertible into shares of common stock at a price lower than the fair market value of common
stock on the date of issuance, in accordance with the guidance provided in ASC 505-10-50 and Emerging Issues Task Force
(“EITF”) No. 00-27, we have recorded the intrinsic value of this beneficial conversion
feature(“BCF”)
.
In according to
ASC 470-20-30-6 Intrinsic value shall be calculated at the commitment date as the differences between the conversion price and
the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares
into which the security is convertible. In according to ASC 470-20-30-8, if the intrinsic value of the beneficial conversion feature
is greater than the proceeds allocated to the convertible instrument, the amount of the discount assigned to the beneficial conversion
feature shall be limited to the amount of the proceeds allocated to the convertible instrument. Since all the preferred stocks
are issued on different date, we calculate the intrinsic value for each individual preferred stock issuance based on stock issuance
date. If the intrinsic value exceeds actual proceeds we received, actual proceeds will be BCF, otherwise the intrinsic value is
the BCF.
New Accounting
Pronouncements
– Upon issuance of final pronouncements, we review the new accounting literature to determine
its relevance, if any, to our business. The Company is in the progress of evaluating the following accounting updates:
In May
2017, the FASB issued ASU NO. 2017-09 Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,
Effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15,
2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting
periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which
financial statements have not yet been made available for issuance.
In April 2016,
the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and
Licensing”. The amendments add further guidance on identifying performance obligations and also to improve the operability
and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance
in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition
requirements in Topic 606. The Company is currently in the process of evaluating the impact of the adoption on its consolidated
financial statements. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope
Improvements and Practical Expedients”. The amendments, among other things: (1) clarify the objective of the collectability
criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and
other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception;
(4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before
the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining
the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify
that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized
under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance
in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of
adoption. The effective date of these amendments is at the same date that Topic 606 is effective. The Company is currently in
the process of evaluating the impact of the adoption on its consolidated financial statements. In December 2016, the FASB issued
ASU 2016-20,
“Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”.
The
amendments in ASU 2016-20 affect narrow aspects of the guidance issued in ASU 2014-09 including Loan Guarantee Fees, Contract
Costs, Provisions for Losses on Construction-Type and Production-Type Contracts, Disclosure of Remaining Performance Obligations,
Disclosure of Prior Period Performance Obligations, Contract Modifications, Contract Asset vs. Receivable, Refund Liabilities,
Advertising Costs, Fixed Odds Wagering Contracts in the Casino Industry, and Costs Capitalized for Advisors to Private Funds and
Public Funds. The effective date of these amendments are at the same date that Topic 606 is effective. Topic 606 is effective
for public entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein
(i.e., January 1, 2018, for a calendar year entity). The Company is currently in the process of evaluating the impact of the adoption
on its consolidated financial statements.
The Company has considered all new accounting pronouncements and has concluded that there
are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based
on current information.
3. Stockholders’ Equity:
As of November 30, 2017 and May 31, 2017,
the Company was authorized to issue 80,000,000 shares of common stock, $0.001 par value per share. In addition, 20,000,000 shares
of $.001 par value preferred stock were authorized. All common stock shares have full dividend rights. However, it is not anticipated
that the Company will be declaring distributions in the foreseeable future.
During the year ended May 31, 2016, the
Company bought back 62,500 shares of company stock from former COO Brett Roper, but those shares has not been returned as of November
30, 2017. The Company has communicated with Mr. Brett Roper, confirmed shares will be returned soon and recorded with transfer
agent.
During the six months period ended November
30, 2017, the shareholders of preferred stock series 2012 converted 150,000 shares of preferred stock for 187,500 of common stock
shares at a conversion rate of 1 share of preferred stock series 2012 for 1.25 shares of common stock.
During the six months period ended November
30, 2017 the shareholders of preferred stock series A-2014 converted 994,000 shares of preferred stock for 2,485,000 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 six months period ended November
30, 2017, the shareholders of preferred stock series C-2016 converted 2,908,085 shares of preferred stock for 8,724,255 of common
stock shares at a conversion rate of 1 share of preferred stock series C-2016 for 3.00 shares of common stock.
During the six months period ended November
30, 2017, the company received $2,750,000 proceeds from the sale of preferred stock series D-2017.
During the six months period ended
November 30, 2017, the Company granted and issued 1,420,000 shares of restricted common stock for compensation. Of
the 1,420,000 shares, 1,340,000 were not distributed and recorded as stock compensation payable on balance sheet. The stock
was valued from $0.49 to $0.87 per share based on the market price at the grant date. The compensation and consulting expense
was recorded as general and administrative expenses for the period ended November 30, 2017.
Series 2012 Convertible Preferred Stock
During the third quarter of fiscal
year 2013, effective February 29, 2012, the Company issued 2,003,776 shares of preferred stock as Series 2012 convertible
preferred stock for total proceeds of $2,003,776. The terms of the preferred stock allow the holder to convert each share of
preferred stock into 1.25 shares of common stock at any time after nine months from the date of issuance. The holders of
shares of preferred stock were entitled to receive a dividend of $0.06 per share per annum for the first two years from the
issuance of the instruments. The Company maintained the right to suspend the dividend at its discretion if it is deemed
necessary.
Series A-2014 Convertible Preferred
Stock
In the years ended May 31, 2016 and 2015
the Company issued 720,000 and 1,885,000 shares of preferred stock as Series A-2014 convertible preferred stock for total proceeds of
$2,605,000. The terms of the preferred stock allow the holder to convert each share of preferred stock into 2.5 shares of common
stock at any time after six months from the date of issuance. The holders of shares of preferred stock shall have the right to
one vote for each share of common stock into which such preferred stock could convert. The holders of shares of preferred stock
are entitled to receive a dividend of $0.06 per share per annum for the first two years from the issuance of the instruments, which
has been recorded as an accrued dividend on the liabilities section of the balance sheet. The Company maintained the right to suspend
the dividend at its discretion if it is deemed necessary.
Series C-2016
Convertible Preferred Stock
In December 2016,
the Company issued 5,000,043 shares of its Series C-2016 Preferred Stock at a price of $1.00 per share for total proceeds of $5,000,043.
The terms of the preferred stock allow the holder to convert each share of preferred stock into 3 shares of common stock at any
time after six 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 stock as $4,930,143. The BCF would be recorded as paid-in capital with an
offsetting debit to convertible preferred stock. The discount attributable to the BCF, however, is amortized as a
deemed dividend over the period from issuance to the date the convertible preferred stock becomes convertible. In our
case, preferred stock-series C-2016 is convertible after six months from the date of issuance. We then amortize the BCF over
six months period, we recorded $3,685,520 as deemed dividend that reduce accumulated deficit as of May 31, 2017, and we
recorded the remaining $1,244,622 as deemed dividend that increases accumulated deficit for the period ending August 31,
2017.
Series D-2017
Convertible Preferred Stock
In October 2017,
the Company issued 2,750,000 shares of its Series D-2017 Preferred Stock at a price of $1.00 per share for total proceeds of $2,750,000.
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 as $1,803,720. 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
from the date of issuance. We then amortize the BCF over six months period, we recorded $1,803,720 as deemed dividend that increases
accumulated deficit as of November 30, 2017.
4. Property and Equipment
:
Property and equipment are recorded at cost, net of accumulated
depreciation and are comprised of the following:
|
|
November 30, 2017
|
|
|
May 31, 2017
|
|
Furniture & Fixtures
|
|
$
|
127,763
|
|
|
$
|
126,486
|
|
Leasehold Improvements
|
|
|
32,061
|
|
|
|
32,061
|
|
|
|
$
|
159,824
|
|
|
$
|
158,547
|
|
Less: Accumulated Depreciation
|
|
|
(113,310
|
)
|
|
|
(105,515
|
)
|
|
|
$
|
46,514
|
|
|
$
|
53,032
|
|
Depreciation on equipment is provided on a straight-line basis
over their expected useful lives at the following annual rates.
Computer equipment
|
|
3 years
|
Furniture & fixtures
|
|
3 years
|
Leasehold improvements
|
|
Term of the lease
|
Depreciation expense for the six months ending November 30,
2017 and 2016 was $7,795 and $1,901, respectively.
5. Intangible Assets
:
Intangible assets are comprised of the following:
|
|
November 30, 2017
|
|
|
May 31, 2017
|
|
Website development
|
|
$
|
212,842
|
|
|
$
|
187,544
|
|
Less: Accumulated Amortization
|
|
|
(111,009
|
)
|
|
|
(105,857
|
)
|
|
|
$
|
101,833
|
|
|
$
|
81,687
|
|
Amortization is calculated over a straight-line
basis using the economic life of the asset. Amortization expense for the six months ended November 30, 2017 and 2016 was $5,152
and $4,954 respectively.
6. Commitments and Concentrations:
Office Lease – Shanghai
– The Company entered into a lease for new office space in Shanghai, China. The lease period started October 1, 2013 and
the initial term ended on September 30, 2016. In August 2016, the Company renewed this lease at $5,400 per month to September 30,
2019, resulting in the following future commitments:
2018 fiscal year
|
|
$
|
32,400
|
|
2019 fiscal year
|
|
$
|
64,800
|
|
2020 fiscal year
|
|
$
|
21,600
|
|
Office Lease – San Gabriel, California
– The Company entered a lease for executive office space in San Gabriel, California. The Lease period started April 30, 2015
and was terminated on August 1, 2016. On June 2016, the Company renewed the contract for another 3 years to July 31, 2019, the
current monthly rent is $5,432, resulting in the following future commitments:
2018 fiscal year
|
|
$
|
33,532
|
|
2019 fiscal year
|
|
$
|
67,064
|
|
2020 fiscal year
|
|
$
|
11,177
|
|
The Company entered another lease for retail
store in San Gabriel, California. The lease period started February 1, 2017 to July 31, 2019, the current monthly rent is $3,243,
resulting in the following future commitments:
2018 fiscal year
|
|
$
|
19,462
|
|
2019 fiscal year
|
|
$
|
38,924
|
|
2020 fiscal year
|
|
$
|
6,487
|
|
Concentrations
– During
the periods ending November 30, 2017 and 2016, the majority of the Company’s revenue was derived from its operations in PRC
from individual subscribers, primarily in the United States and Canada.
Litigation
– The Company
is involved in legal proceedings from time to time in the ordinary course of its business. As of the date of this filing, the Company
is not involved in any legal proceedings.
7. Subsequent event
:
The
Company is currently in the process of offering up to 10,000,000 shares at $1 per share total $10,000,000 of its
Series D-2017 Convertible Preferred Stock. Each share of Series D-2017 Preferred Stock is convertible into 2 shares of
the Company’s common stock. The Series D-2017 Convertible Preferred Stock will pay at least two years of dividends at
the rate of 6% per year on the original investment of $1 per share of Series D-2017 Convertible Preferred Stock. As of the
filing date, the Company received $5,358,050 proceeds from sales of Series D-2017 convertible preferred stock, $2,605,000 of
these preferred stock has been recorded with stock-transfer agent as of November 30,2017, the rest are in the process of
recording with the transfer agent.