Quarterly Report (10-q)

Date : 04/15/2019 @ 9:27PM
Source : Edgar (US Regulatory)
Stock : Chineseinvestors.com, Inc. (QB) (CIIX)
Quote : 0.19  -0.01 (-5.00%) @ 9:32PM

Quarterly Report (10-q)

 

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 February 28, 2019

 

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 every Interactive Data File required to be submitted 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 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.

 

Large accelerated filer     Accelerated filer  
       
Non-accelerated filer   ☒    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 February 28, 2019 there were outstanding 41,006,497 shares of the issuer’s common stock, par value $0.001 per share, 445,000 shares of the issuer’s Series 2012 convertible preferred stock, par value $0.001 per share, 356,000 shares of the issuer’s Series A-2014 convertible preferred stock, par value $0.001 per share, 363,000 shares of the issuer’s Series C-2016 convertible preferred stock, par value $0.001 per share, and 6,572,050 shares of the Series D-2017 convertible preferred stock, par value $0.001 per share.

 

 

 

     

 

 

CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES

 

FORM 10-Q for the Quarter Ended February 28, 2019

 

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     24  
             
Item 3.   Quantitative and Qualitative Disclosures About Market Risk     27  
             
Item 4.   Controls and Procedures     27  
             
PART II - OTHER INFORMATION
             
Item 1.   Legal Proceedings     28  
             
Item 2.   Unregistered Sale of Equity Securities and Use of Proceeds     28  
             
Item 3.   Defaults Upon Senior Securities     28  
             
Item 4.   Mine Safety Disclosures     28  
             
Item 5.   Other Information     28  
             
Item 6.   Exhibits     28  
             
Signatures     29  

 

 

 

 

 

 

 

 

 

 

  2  

 

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

 

CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

Expressed in U.S. Dollars

 

    February 28,     May 31,  
    2019     2018  
Assets                
Current assets                
Cash and cash equivalents   $ 2,287,965     $ 1,390,258  
Accounts receivable, net     28,012       9,815  
Marketable equity securities     927,443       1,230,754  
Inventories     152,283       130,679  
Due from related party           87,379  
Other current assets     1,092,183       331,628  
Total current assets     4,487,886       3,180,513  
                 
Non-current assets                
Long-term investments     175,000       250,000  
Property and equipment, net     113,118       65,250  
Website development, net     166,155       104,278  
Other assets     50,230       76,271  
Total non-current assets     504,503       495,799  
                 
Total assets   $ 4,992,389     $ 3,676,312  
Liabilities and Stockholders’ Equity                
Current liabilities                
Accounts payable   $ 250,683     $ 359,597  
Short-term notes     4,311,114       1,058,084  
Deferred revenue, current     746,811       787,557  
Other current liabilities     495,426       430,538  
Total current liabilities     5,804,034       2,635,776  
                 
Non-current liabilities                
Long-term deferred revenue     133,218       114,875  
Total Non-current Liabilities     133,218       114,875  
                 
Total liabilities     5,937,252       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 February 28, 2019 and May 31, 2018, respectively     445       445  
Preferred stock, series A-2014, $0.001 par value 20,000,000 authorized, 356,000 and 606,000 were issued and outstanding at February 28, 2019 and May 31, 2018, respectively     356       606  
Preferred stock, series C-2016, $0.001 par value 20,000,000 authorized, 363,000 and 622,958 were issued and outstanding at February 28, 2019 and May 31, 2018, respectively     363       623  
Preferred stock, series D-2017, $0.001 par value 20,000,000 authorized, 6,572,050 and 6,643,050 were issued and outstanding at February 28, 2019 and May 31, 2018, respectively     6,572       6,643  
Common stock $0.001 par value 80,000,000 authorized 41,006,497 and 29,520,560 were issued and outstanding February 28, 2019 and May 31, 2018, respectively     41,007       29,522  
Additional paid-in capital     42,745,256       36,651,070  
Accumulated deficit     (43,729,798 )     (35,268,062 )
Accumulated other comprehensive income (loss)     (9,064 )     (495,186 )
Total Shareholders' equity     (944,863 )     925,661  
                 
Total liabilities and shareholders’ equity   $ 4,992,389     $ 3,676,312  

 

See accompanying notes to the financial statements

 

  3  

 

 

CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) 

For the Three and Nine Months Ended February 28, 2019 and 2018

Expressed in U.S. Dollars

 

   

Three Months Ended

February 28,

   

Nine Months Ended

February 28,

 
    2019     2018     2019     2018  
Operating revenues                                
Investor relations services   $ 147,664     $ 196,627     $ 546,251     $ 701,660  
Subscriptions     229,220       214,506       680,119       530,102  
Sales CBD/hemp products     1,061,318       183,185       1,493,939       240,753  
Other     6,620       201,986       97,447       206,741  
Total revenue     1,444,822       796,304       2,817, 756        1,679,256  
                                 
Cost of revenue                                
Services     253,135       367,301       1,106,084       1,025,519  
Products     759,369       79,092       958,198       91,462  
      1,012,504       446,393       2,064,282       1,116,981  
                                 
Gross profit (loss)     432,318       349,911       753,474       562,275  
                                 
Operating Expenses                                
General and administrative expenses     3,273,479       1,844,826       7,850,987       4,962,210  
Advertising expenses     298,297       301,073       977,431       830,292  
Total operating expenses     3,571,776       2,145,899       8,828,418       5,792,502  
                                 
Net loss from operations     (3,139,458 )     (1,795,988 )     (8,074,944 )     (5,230,227 )
                                 
Other income/(expense)                                
Other income     (209 )     1,279       5,693       10,153  
Interest income (expense)     (146,283 )     (17,186 )     (195,194 )     (31,719 )
Net realized (loss) gain on investments     1,881,159             1,612,559        
Unrealized (loss) gain on equity securities     (1,957,422 )           18,814        
Unrealized (loss) gain on cryptocurrencies     1,610             (36,724 )      
Total other income (expense)     (221,145 )     (15,907 )     1,405,148       (21,566 )
                                 
Loss before income taxes     (3,360,603 )     (1,811,895 )     (6,669,796 )     (5,251,793 )
Income tax expenses                        
Net loss   $ (3,360,603 )   $ (1,811,895 )   $ (6,669,796 )   $ (5,251,793 )
                                 
Deemed dividend for the beneficial conversion of convertible preferred stock     (25,600 )     (2,120,523 )     (992,700 )     (5,168,865 )
Preferred stock dividends     (98,420 )     (89,047 )     (312,454 )     (244,586 )
Net loss attributable to common shareholders     (3,484,623 )     (4,021,465 )     (7,974,950 )     (10,665,244 )
                                 
Other comprehensive income (loss)                                
Unrealized investment (loss)           (144,399 )           (236,666 )
Foreign currency translation loss     (6,211 )           (665 )      
                                 
Comprehensive loss attributable to common shareholders   $ (3,490,834 )   $ (4,165,864 )   $ (7,975,615 )   $ (10,901,910 )
                                 
Loss per share-basic and diluted   $ (0.08 )   $ (0.15 )   $ (0.22 )   $ (0.52 )
Weighted average number of shares outstanding - basic & diluted     43,332,692       26,100,627       35,623,585       20,387,616  

 

 

See accompanying notes to the financial statements

 

  4  

 

 

CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Cash Flows

For the Nine Months Ended February 28, 2019 and 2018

Expressed in U.S. Dollars

 

    2019     2018  
Cash flows from operating activities                
Net loss   $ (6,669,796 )   $ (5,251,793 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities                
Non-cash revenue received as available for sale securities     (395,023 )     (611,657 )
Investment loss (gain) on marketable securities     (1,612,559 )      
Unrealized loss (gain) on equity securities     (18,814 )      
Unrealized loss on cryptocurrencies     36,724        
Stock compensation expenses     882,273       724,220  
Depreciation and amortization     46,407       34,024  
Changes in operating assets and liabilities                
Accounts receivable     (9,270 )     (16,734 )
Inventory     (23,937 )     (110,802 )
Other current assets     (655,224 )     (224,995 )
Accounts payable     (109,053 )     (109,798 )
Accrued interest     135,485       (18,000 )
Deferred revenue     (104,118 )     319,311  
Customer deposit     97,421       3,008  
Other accrued liabilities     740       99,109  
Net cash (used in) operating activities     (8,398,744 )     (5,164,107 )
                 
Cash flows from investing activities                
Purchase of equipment     (139,241 )     (206,016 )
Sale of investments     75,000        
Proceeds from sale of marketable securities     2,313,734        
Net cash provided by (used in) investing activities     2,249,493       (206,016 )
                 
Cash flows from financing activities                
Proceeds of issuance of common stock     610,450        
Proceeds of issuance of preferred stock, series D-2017     3,578,000       5,933,050  
Payments made for preferred stock dividends     (393,502 )     (306,627 )
Investor deposits           (210,100 )
Repayments of debts     (995,140 )     (410,000 )
Proceeds of issuance of new debts     4,259,800       995,140  
Net cash provided by financing activities     7,059,608       6,001,463  
                 
Effects of currency translation on cash and cash equivalents     (12,650 )     11,079  
                 
Net increase in cash and cash equivalents     897,707       642,419  
Cash and cash equivalents - beginning of period     1,390,258       1,770,729  
Cash and cash equivalents - end of period   $ 2,287,965     $ 2,413,148  
                 
Supplemental cash flow disclosures                
Cash paid for interest   $ 59,708     $ 47,217  
Cash paid for income taxes   $     $  

 

Supplemental disclosure of non-cash activity

 

During the three and nine months ended February 28, 2019, the Company received one stock valued (FMV) at $116,250 and $379,050, respectively, for investor relations (“IR”) services to be performed within one year.

 

During the three and nine months ended February 28, 2018, the Company received various stocks valued (FMV) at $0 and $1,006,575 respectively, for various IR service agreements with terms ranging from one to twelve months.

 

 

See accompanying notes to the financial statements

 

 

  5  

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

 

 

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, the Company 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 news and 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 of the web portal has improved as the Company continues to derive a material portion of its income from the various subscription services it offers to its customers, which provide investment education, news and analysis on the US Equity and Financial Markets 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 accounts for our most significant revenue source.

 

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 to increase the client’s stock price, to increase awareness of the clients and their stock or to help 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 also provides other services intended to increase awareness and knowledge of its clients’ businesses and stocks within the Chinese American community.

 

The registrant generally receives a fee consisting of cash, the client’s securities, or a combination of the two for the services. The securities 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 services. We also have a leased office presence in San Gabriel, California, New York City, NY and Flushing, NY and Richmond, British Columbia.

 

 

 

  6  

 

 

In 2010, the Company filed a Form 10 registration statement 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.

  

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

 

As of February 28, 2019, the Company employed twenty-six (26) 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 focus is online and retail sales of industrial hemp-infused skincare products and other complimentary products in PRC. The initial focus of CBD Biotech was the launch of CBD Magic Hemp Series, a hemp-infused skincare 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. In December 2018, the Company announced that it had retained Boustead Securities, LLC as underwriter for the planned Initial Public Offering (“IPO”) of CBD Biotech concurrently with a listing on a national securities exchange.

 

As of February 28, 2019, CBD Biotech employed twelve (12) people in its Shanghai Office in a variety of administrative and operational capacities. All are employed full time.

 

ChineseHempOil.com, Inc.

 

In April 2017, the Company established ChineseHempOil.com, Inc. dba “Chinese Wellness Center,” a Delaware corporation, as a wholly owned subsidiary of the Company. ChineseHempoil.com, Inc. is responsible for the development and operation of online and retail sales of industrial hemp-based products in the United States. Chinese Wellness Center is the Company’s retail store located in the predominantly Chinese community of San Gabriel, California, next to the Company’s headquarters. ChineseInvestors.com, Inc. announced the release of its first industrial 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. In or about February 2018, the Company announced its plans to spin off ChineseHempOil.com, Inc., which was later postponed. In December 2018, the Company announced that it had retained Boustead Securities, LLC as underwriter for the planned Initial Public Offering (“IPO”) of CBD Biotech, concurrently with a listing on a national securities exchange. ChineseHempOil.com, Inc. will no longer be part of this planned spin-off.

 

As of February 28, 2019, ChineseHempOil.com, Inc. employed six (6) full time employees in the United States.

 

CBD Biotechnology, Inc.

 

In June 2017, the Company formed CBD Biotechnology, Inc. (“CBD Canada”), incorporated in the Province of British Columbia, as a WOFE, which is intended to focus on the sales of industrial hemp consumer products similar to those marketed by the Company’s other subsidiaries via online and other distribution channels.

 

Newcoins168.com Ltd

 

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

 

As of February 28, 2019, NewCoins168 employed one (1) person in its Shanghai Office in a variety of administrative and operational capacities.

 

 

 

  7  

 

 

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 education in July 2018.

 

CIIX Online LTD

 

In August 2018, the Company formed CIIX Online Ltd. (“CIIX Online”), a corporation incorporated in the Province of British Columbia, which is anticipated to focus on the sales of the Company’s subscription service to consumers.

 

As of February 28, 2019, CIIX Online employed one (1) person in its Canada Office in a variety of administrative and operational capacities.

 

Blue Ocean Capital Holding LLC

 

On November 11, 2018, the Company established Blue Ocean Capital Holding LLC (“Blue Ocean”), a Delaware limited liability company, as a 90% owned subsidiary of the Company. Blue Ocean is in the process of acquiring AMC International Securities LLC, a registered broker-dealer that is to be a wholly owned subsidiary of Blue Ocean, which is intended operate as a security business as a member of the Financial Industry Regulatory Authority (“FINRA”), a self-regulatory organization under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In that regard, the Company deposited $75,000 into William W. Uchimoto Law’s escrow account as of February 28, 2019.

 

2. Liquidity and Capital Resources:

 

Cash Flows – During the nine months ended February 28, 2019, 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 $10,371,050 of proceeds from the issuance of Series “D-2017” convertible preferred stock as of February 28, 2019, $6,793,050 of which was received for the year ended May 31, 2018 and $3,578,000 of which was received for the nine months ended February 28, 2019.

 

Cash flows used in operations for the nine months ended February 28, 2019 and 2018 were $8,398,744 and $5,164,107, respectively. The increased cash used in operations was due to increased general and administrative expenses used in operations.

 

Capital Resources – As of February 28, 2019, the Company had cash and cash equivalents of $2,287,965 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.

 

 

 

  8  

 

 

3. Critical Accounting Policies and Estimates :

 

Basis of Presentation The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete audited consolidated financial statement s. The accompanying unaudited financial information should be read in conjunction with the audited consolidated financial statements, including the notes thereto, as of and for the year ended May 31, 2018, included in our 2018 Annual Report on Form 10-K filed with the SEC. The information furnished in this report reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for each period presented. The results of operations for the nine months ended February 28, 2019 are not necessarily indicative of the results for the year ending May 31, 2019 or for any future period.

 

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 Digital Media Technology Ltd. (Shanghai), Bitcoin Trading Academy LLC and CIIX Online Ltd.

 

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.

 

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 clients.

 

  a. Identify contracts with clients. The Company enters into service agreements with clients. The Company always discloses the nature of the contract including the contact price.

 

  b. Identify performance obligations in the contract. Many of our investor-relations service contracts contain multiple performance obligations, including presentation of clients’ information on Chinesefn.com, translation of client 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.

 

 

 

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  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 are one year or less.

 

  d. The service contract amount is valued based upon the fair market value of the clients’ stock closing price at the contract date multiplied by the numbers of shares earned when the service is paid by clients’ common stocks other than cash. For the performance obligations, such as the availability of our clients’ 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-based income earned through banner advertisements, webpage hosting and maintenance, on-line promotion and translation services, advertising and promotion fees on the Company’s website, sponsorship fees from investment seminars, road shows, forums on the Company’s website, and referral fees from cryptocurrency referrals. 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 these contracts. These revenues are recognized when all significant performance obligations have been satisfied and collection of the resulting receivable is reasonably assured.

 

The Company recognized revenue pursuant to revenue recognition principles presented in SAB Topic 13 prior to May 31, 2018. First, persuasive evidence of an arrangement. Second, delivery has occurred, or services have been rendered. Third the seller’s price to the buyer is fixed or determinable. And last 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.

 

 

 

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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 nine months ended February 28, 2019 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 February 28, 2019 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 February 28, 2019 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 People’s Republic of China (“PRC”). Should any bank holding cash become insolvent, or if the Company is otherwise unable to withdraw funds, the Company would lose the cash deposited 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 February 28, 2019 and May 31, 2018, the Company had $306,429 and $780,726 cash balances uninsured, respectively.

 

Major customers and vendors - For the nine-month period ended February 28, 2019, two customers accounted for 26% of total service revenue of the Company with no accounts receivable outstanding as of February 28, 2019. One customer accounted for 34% of the total service revenue of the Company for the nine months ended February 28, 2018 without accounts receivable outstanding as of February 28, 2018.

 

There was no vendor concentration for the Company as of and for the nine months period ended February 28, 2019 and February 28, 2018.

 

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 clients. 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.

 

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 marketable 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 marketable securities 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 operation and comprehensive income (loss) under loss before income taxes.

 

 

 

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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 February 28, 2019 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” slated to provide a platform of information and analysis for Chinese-speaking investors in the PRC and US.

 

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 February 28, 2019 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 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.

 

 

 

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Impairment of Long-life Assets – In accordance with ASC 360, the Company reviews its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There was no impairment for the periods ended February 28, 2019 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 IR services provided. The fair market value of the stocks and warrants on the contract date are amortized and recognized as IR revenue over term of the contracts. When these services are prepaid by clients, the amount of the prepayment is initially recorded as an asset with an offsetting unearned revenue liability.

 

As of February 28, 2019 and May 31, 2018, the deferred revenue compromised as following:

  

    February 28,
2019
    May 31,
2018
 
Deferred subscriptions   $ 610,493     $ 587,194  
Unearned IR revenues     269,536       315,238  
Total     880,029       902,432  
Current     (746,811 )     (787,557 )
Noncurrent   $ 133,218     $ 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, marketable equity securities, accounts receivable, due from related party, other current assets, accounts payable, and short-term notes 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 financial instruments as of February 28, 2019:

  

    Fair Value     Carrying  
    Level 1     Level 2     Level 3     Value  
Assets -                        
Cash and cash equivalent   $ 2,287,965     $     $     $ 2,287,965  
Marketable equity securities     927,443                   927,443  
Cryptocurrency     47,027                   47,027  
Liability -                                
Short-term notes   $     $ 4,311,114     $     $ 3,944,563  

 

 

 

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

 

    Fair Value     Carrying
    Level 1     Level 2     Level 3     Value
Assets -                  
Cash and cash equivalent           $ 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 February 28, 2019 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.

  

Other Revenue – Other revenue is comprised of revenue related to Forex service fees, referral fees and other miscellaneous service revenues generated which are recognized over the term the services are to be provided. For the three-month periods ended February 28, 2019 and 2018 details as below:

 

    February 28,
2019
    February 28,
2018
 
Misc. service revenues   $ 6,620     $  
Bitcoin trading class revenues            
Referral fees           201,986  
Total   $ 6,620     $ 201,986  

 

For the nine-month periods ended February 28, 2019 and 2018 details as below:

 

    February 28,
2019
    February 28,
2018
 
Misc. service revenues   $ 64,549     $ 4,755  
Bitcoin trading class revenues     32,898        
Referral fees           201,986  
Total   $ 97,447     $ 206,741  

 

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 products 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.

 

 

 

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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.

 

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”).

 

According to ASC 470-20-30-6 intrinsic value shall be calculated at the commitment date as the difference 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 have been issued on different dates, 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.

 

 

 

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Foreign Currency – The Company has operations in the PRC as a representative office in the 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”). The functional currency of the subsidiary operated in Canada, CIIX Online Ltd. is the Canadian Dollar (“CAD”). Assets and liabilities are translated at the exchange rates as of the balance sheet date. Shareholders’ 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:

 

February 28, 2019    
Spot rate   RMB 6.69 to US $1.00
Average rate for the three months ended February 28, 2019   RMB 6.85 to US $1.00
Average rate for the nine months ended February 28, 2019   RMB 6.81 to US $1.00
     
Spot rate   CAD 1.32 to US $1.00
Average rate for the three months ended February 28, 2019   CAD 1.32 to US $1.00
Average rate for the nine months ended February 28, 2019   CAD 1.32 to US $1.00
     
May 31, 2018    
Spot rate   RMB 6.32 to US $1.00
Average rate for the three months ended February 28, 2018   RMB 6.40 to US $1.00
Average rate for the nine months ended February 28, 2018   RMB 6.58 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.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, for public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact will have on its consolidated financial statements and associated disclosures.

 

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, Effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company is currently evaluating the impact will have on its consolidated financial statements and associated disclosures.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. Effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date . The Company is currently evaluating the impact will have on its consolidated financial statements and associated disclosures.

 

 

 

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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.

 

4. Stockholders’ Equity:

 

As of February 28, 2019 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 nine months period ended February 28, 2019, the shareholders of preferred stock series-2012 converted 0 shares of preferred stock. During the nine months period ended February 28, 201 8, the shareholders of preferred stock Series 2012 converted 150,000 shares of preferred stock for 187,500 shares of common stock shares at a conversion rate of 1 share of Series 2012 preferred stock 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 nine months period ended February 28, 2019, the shareholders of preferred stock series A-2014 converted 250,000 shares of preferred stock for 625,000 of common stock shares at a conversion rate of 1 share of preferred stock series A-2014 for 2.50 shares of common stock. During the nine months period ended February 28, 2018 the shareholders of preferred stock Series A-2014 converted 1,064,000 shares of preferred stock for 2,660,000 of common stock shares at a conversion rate of 1 share of Series A-2014 preferred stock 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 Series C-2016 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 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.

 

 

 

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During the nine months period ended February 28, 2019, the shareholders of preferred stock series C-2016 converted 259,958 shares of preferred stock for 779,874 of common stock shares at a conversion rate of 1 share of preferred stock series C-2016 for 3.00 shares of common stock. During the nine months period ended February 28, 2018, the shareholders of preferred stock C-2016 converted 3,977,085 shares of preferred stock for 11,931,255 of common stock shares at a conversion rate of 1 Series C-2016 share of preferred stock for 3.00 shares of common stock.  

 

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 nine months ended February 28, 2019, the Company issued shares of its Series D-2017 Preferred Stock at a price of $1.00 per share for total proceeds of $3,578,000. The terms of the Series D-2017 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 nine-month ended February 28, 2019 as $992,700. 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 $992,700 as deemed dividend that increased accumulated deficit as of February 28, 2019.

 

During the nine months period ended February 28, 2019, the shareholders of preferred stock series D-2017 converted 3,649,000 shares of preferred stock for 7,298,000 of common stock shares at a conversion rate of 1 share of preferred stock series D-2017 for 2 shares of common stock.

 

Common stock

 

In October 2018, the Company issued 1,109,818 shares of the Company’s common stock at $0.55 per share to accredited investors for total proceeds of $610,450.

 

Stock compensation and stock payable

 

On July 26, 2018, the Company entered into a Consulting Agreement with Regal Consulting, LLC (“Regal”). The agreement had a five-month term ending January 2, 2019, pursuant to which Regal received 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. $67,000 in share-based compensation expense has been recorded associated with the award for the nine months ended February 28, 2019.

 

 

 

  18  

 

 

On August 9, 2018, the Company entered into a Services Agreement with IRTH Communications LLC (“IRTH”) for 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. $58,333 in share-based compensation expense has been recorded associated with the award for the nine months ended February 28, 2019.

 

On August 9, 2018, the Company entered into a Consulting Agreement with Axis Partners, Inc. (“Axis”). The agreement was for a six-month term, pursuant to which Axis received 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 services to be provided during the term of the agreement. $100,500 share-based compensation expense has been recorded associated with the award for the nine months ended February 28, 2019.

 

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 nine months ended February 28, 2019.

 

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

 

On December 19, 2018, the Company awarded various employees stock compensation total 1,147,000 shares of common stock. 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. $619,440 share-based compensation expense was recorded associated with the award for the nine months ended February 28, 2019.

 

There is no stock compensation payable as of February 28, 2019 and May 31, 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 CBD product purchase, prepaid expenses in both United States and Shanghai, details as below:

 

    February 28,     May 31,  
    2019     2018  
Prepaid expenses   $ 378,340     $ 79,822  
Purchase deposits     560,438       145,376  
Cryptocurrency on hands     47,027       31,479  
Other current assets     106,378       74,951  
    $ 1,092,183     $ 331,628  

 

6. Long-term investments

 

Long-term investments include: 1) investment at Breakwater MB, LLC accounted as equity investment without readily available fair value since the Company does not have the significant influence on management, and 2) investment at Sino-U.S. Finance accounted for on the equity method (see Note 3).

 

 

 

  19  

 

 

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 Company’s former CFO and a former 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 was to be 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 8.75% and 12.5% as of February 28, 2019 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.

 

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 provided 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 February 28, 2019, the Company had received the $75,000 payment but not the $25,000 payment due September 15, 2018. The redemption agreement will be amended to reflect the payment by Breakwater MB, LLC in the amount of $75,000 only. The Company’s equity position in Breakwater MB, LLC currently stands at 8.75% as of February 28, 2019.

 

7. Property and Equipment :

 

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

 

   


February 28,

2019

    May 31,
2018
 
Furniture & Fixtures   $ 177,574     $ 154,748  
Leasehold Improvements     98,663       35,176  
      276,237       189,924  
Less: Accumulated Depreciation     (163,119 )     (124,674 )
    $ 113,118     $ 65,250  

 

Depreciation expense for the nine months ended February 28, 2019 and 2018 was $38,445 and $26,296, respectively.

 

8. Website development, net :

 

Website development is comprised of the following:

 

    February 28,
2019
   


May 31,

2018

 
Website development   $ 290,823     $ 220,598  
Less: Accumulated Amortization     (124,668 )     (116,320 )
    $ 166,155     $ 104,278  

 

Amortization is calculated over a straight-line basis using the economic life of the asset. Amortization expense for the nine months ended February 28, 2019 and 2018 was $8,348 and $7,728 respectively.

 

 

 

  20  

 

 

9. Short-term notes:

 

On October 2017, the Company issued one-year promissory notes (the “2017 Notes”) totaling of $995,140 to various individual lenders. The interest rate for the 2017 Notes was 6% annum. Of the $995,140 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 February 28, 2019, 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. The $995,140 in short term 2017 Notes were repaid, including all principal and interest pursuant to the note terms. As of February 28, 2019, the Company paid $995,140 loan principle and interest.

 

Pursuant to the 2017 Notes, the Company/Borrower, at its sole discretion, could at any time during the term of the 2017 Notes, sell the above referenced stocks, or in the case of the 2017 Notes properly secured by shares in NMRD, instruct the Collateral Agent to sell the above reference stocks, at which time the principal and accrued interest under the 2017 Notes would be accelerated and would become due and owing, and in addition, an incentive would be due and owing to the lenders collectively secured by NMRD in the total amount equal to 20% of the appreciation, if any, of the pledged collateral/stocks sold. None of the respective stocks/pledged collateral was sold during the term of the 2017 Notes, and as noted above, the 2017 Notes were paid full according to their terms and the 2017 Notes were effectively cancelled; therefore, no incentives are due and owing to any of these Lenders. As of February 28, 2019, the Company paid $995,140 of the total $995,140 short term 2017 Notes.

 

On August 2018, the board of directors of the Company approved the Company to offer unsecured one-year term notes (the “2018 Notes-10%”) to individual lenders for a maximum $3,000,000 with 10% annual interest rate. As of February 28, 2019, the Company has issued 2018 Notes-10% in the total amount of $3,030,000 from various individual lenders.

 

On October 2018, the board of directors of the Company approved the Company to offer unsecured one-year term notes (the “2018 Notes-8%”) to individual lenders for a maximum $3,000,000 with 8% annual interest rate. At the time the Notes were executed, the Company held 220,000 shares of NF Energy Savings Corporation (“NFEC”) (the “Securities”). As of February 28, 2019, the Company had issued 2018 Notes-8% in the total amount of $1,154,800 to various individual lenders. The 2018 Notes – 8% included an incentive based on the NFEC share value of $10.38 per share (the “Base Value”). As provided for in the 2018 Notes – 8%, the Company/ Borrower agreed that if Borrower, at its sole discretion, sold any of the Securities, all of the Lenders in the Class would be entitled to receive in the aggregate, twenty percent (20%) of the excess of the sales proceeds of such Securities over the Base Value(the “Incentive Payment”). The Lender’s share of the Incentive Payment would be determined by the fraction of the total loan to all loans in the class, not exceed $3,000,000. As of February 28, 2019, the Company sold all holdings in NEFC and accrued incentives totaling $51,314 incentive payable to the lenders.

 

On February 2019, the board of directors of the Company approved the Company offering unsecured one-year term notes (the “2019 Notes-10%”) to individual lenders for a maximum $5,000,000 with 10% annual interest rate. As of February 28, 2019, the Company has issued 2019 Notes-10% in the total amount of $75,000 from various individual lenders.

 

 

  21  

 

 

As of February 28, 2019 and May 31, 2018, the short-term notes are compromised as follows:

  

    February 28,
2019
    May 31,
2018
 
Short-term 2017 notes                
Secured short term notes, due on October 2018, 6% annual interest rate   $     $ 635,140  
Debt incentive to the secured short-term notes above           41,539  
Short term notes, due on April and May 2018, 6% annual interest rate           360,000  
Debt incentive related to the short-term notes above           21,405  
Total short-term 2017 notes   $     $ 1,058,084  
                 
Short-term 2018 notes-annual interest rate 10% due August to October 2019   $ 3,030,000     $  
                 
Short-term 2018 notes-annual interest rate 8% due December 2019   $ 1,154,800     $  
Debt incentive related to the short-term notes above     51,314        
Total short-term 2018 notes-annual interest rate 8%   $ 1,206,114     $  
                 
Short-term 2019 notes-annual interest rate 10% due February 2020   $ 75,000     $  
                 
Total Short-term notes   $ 4,311,114     $ 1,058,084  

 

10. Other Current Liabilities:

 

Other current liabilities compromise as following:

 

    February
28, 2019
    May 31,
2018
 
Accrued dividends   $ 98,170     $ 179,218  
Accrued interests and others     181,777       32,721  
Accrued payroll and taxes     215,479       218,599  
Total   $ 495,426     $ 430,538  

 

Accrued dividends as of February 28, 2019 are comprised of dividends payable to the preferred stock holders, Series D-2017 in the amount of $98,170. 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 February 28, 2019 represents interest payable for the 2018 Notes and 2019 Notes. Accrued interest as of May 31, 2018 represents interest payable on the 2017 Notes.

 

11. Commitments and Contingencies:

 

Operating Leases

 

The Company currently maintains leased space in Shanghai, China San Gabriel, California, New York City, NY, Flushing, NY and Richmond British Columbia Canada. It also maintains a correspondence address in Arcadia, California on a month to month basis.

 

 

 

  22  

 

 

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

 

Future minimum lease commitments for office facilities as of February 28, 2019 are as follows:

 

For the fiscal years ending May 31,      
2019 (3 months)   $ 129,101  
2020     360,966  
2021     176,989  
2022      
    $ 667,056  

 

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

 

On September 1, 2016, the Company entered into a Service Provider Agreement with SINO-GLOBAL SHIPPING AMERICA LTD (“SINO”) to perform investor relations services for SINO in exchange for 60,000 shares of SINO Rule of 144 restricted stock. When entering the 2016 Note Agreements, the Company believed that the SINO shares would be delivered as provided for in the agreement. However, the shares were not delivered purportedly due to a disagreement among SINO’s management, and as a result, the Company has not obtained the SINO shares as of February 28, 2019. On January 9, 2018, the Company filed a lawsuit in 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 with arbitration to commence in the coming months.

 

12. Related Party Transactions:

 

The Company made a long-term investment of $250,000 to Breakwater MB LLC in March 2017 formed by the Company’s former board member and former CFO, Paul Dickman. In September 2018, Breakwater MB LLC returned $75,000 of investment to the Company. The Company’s equity position in Breakwater MB, LLC stands at 8.75% as of February 28, 2019. Refer to Note 6 for investment details.

 

Mrs. Lan Jiang is the spouse of the Company’s CEO, Mr. Warren Wang. During the three months ended February 28, 2019 and 2018, she received salary compensation of $45,000 and $92,000, respectively. During the nine months ended February 28, 2019 and 2018, she received salary compensation of $135,000 and $220,000, respectively.

 

The Company purchased the shares of Medicine Man Technologies, Inc. (“MDCL”) in April 2014 using the equity method of accounting initially and accounted 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. The Company received 31,250 shares of MDCL stock for IR services which will be provided for a period of six months starting January 15, 2019. As of February 28, 2019 and May 31, 2018, the Company still held 72,488 shares of MDCL stock representing $139,902 and $76,496, respectively, of value based upon the closing market price of $1.93 and $1.86, respectively.

 

13. Subsequent event :

 

On February 2019, the board of directors of the Company approved the Company offering unsecured one-year term notes (the “2019 Notes-10%”) to individual lenders for a maximum $5,000,000 with 10% annual interest rate. As of March 31, 2019, the Company has received 2019 Notes-10% in the total amount of $250,000 from various individual lenders.

 

There is no other subsequent event after February 28, 2019 through the date of issuance of these unaudited consolidated financial statements.

 

 

 

  23  

 

 

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 continues 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 WOFE. CBD Biotech’s primary focus is online and retail sales of industrial hemp skincare 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. In December 2018, the Company announced that it retained Boustead Securities, LLC as underwriter for the planned IPO of CBD Biotech, concurrently with a listing on a national securities exchange.

 

ChineseHempOil.com, Inc.

 

In April 2017, the Company established ChineseHempOil.com, Inc. dba “Chinese Wellness Center” a Delaware corporation, as wholly owned subsidiary of the Company. ChineseHempoil.com, Inc. is responsible for the development and operation of online and retail sales of industrial hemp consumer 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. 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 also announced its plans to spin off ChineseHempOil.com, Inc. in February 2018, which was later postponed. In December 2018, the Company announced that it had retained Boustead Securities, LLC as underwriter for the planned IPO of CBD Biotech, concurrently with a listing on a national securities exchange. ChineseHempOil.com, Inc. will no longer be part of this planned spin-off.

 

CBD Biotechnology Co. Inc.

 

In June 2017, the Company formed CBD Biotechnology Inc. (“CBD Canada”), incorporated in the Province of British Columbia as a WOFE which is anticipated to focus on the sales of industrial hemp infused skincare products, 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 Digital Media Technology Ltd.

 

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

 

 

 

  24  

 

 

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.

 

CIIX Online LTD

 

In August 2018, the Company formed CIIX Online Ltd. (“CIIX Online”), a corporation incorporated in the Province of British Columbia, which is anticipated to focus on the sales of the Company’s subscription service to consumers.

 

Blue Ocean Capital Holding LLC

 

On November 11, 2018, the Company established Blue Ocean Capital Holding LLC (“Blue Ocean”), a Delaware limited liability company, as a 90% owned subsidiary of the Company. Blue Ocean is in the process of acquiring AMC International Securities LLC, a registered broker-dealer that is to be a wholly owned subsidiary of Blue Ocean and which is intended to operate as a security business as a member of the FINRA, a self-regulatory organization under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company deposited $75,000 into William W. Uchimoto Law’s escrow account as of February 2018, 2019.

 

Business Environment and Trends

 

The global marketplace has been gradually recovered. We understand that our business is dependent upon the health of the financial markets as well as the financial health of the participants in those markets. With the recovery of the financial market, more market participants willing to subscribe our financial market analysis programs and public companies eager to spend more on increasing media exposure and developing investor relations.

 

For three and nine months ended February 28, 2019 compared to three and nine months ended February 28, 2018

 

Quarterly Revenues and Expenses

 

Subscription Revenues: For the three months ended February 28, 2019 and 2018, revenues were $229,220 and $214,506, respectively. For the nine months ended February 28, 2019 and 2018, subscription revenues were $680,119 and $530,102 respectively. Both increases were due to the Company’s increased marketing expenses to attract more individual customers.

 

Investor Relations-Service Revenues: For the three months ended February 28, 2019 and 2018, revenues were $147,664 and $196,627 respectively. For the nine months ended February 28, 2019 and 2018, revenues were $546,251 and $701,660 respectively. The decreases were attributable to a decrease in investor relations clients.

 

Other Revenues: For the three months ended February 28, 2019 and 2018, revenues were $6,620 and $201,986 respectively. The decrease of $195,366 was due to the lack of referral fees generated from cryptocurrency referrals for three months ended February 2018. For the nine months ended February 28, 2019 and 2018, other revenues were $97,447 and $206,741 respectively, for a decrease of $109,294. The income generated in nine months ended February 28, 2019 was attributed to bitcoin trading education programs offered by the Company and mining revenue generated from cryptocurrencies. The income generated in nine months ended February 28, 2019 was attributed to referral fees earned from cryptocurrency referrals.

 

 

 

  25  

 

 

Sales of CBD/Hemp Products: For the three months ended February 28, 2019 and 2018, revenues were $1,061,318 and $183,185 respectively, for an increase of $878,133. For the nine months ended February 28, 2019 and 2018, revenues were $1,493,939 and $240,753 respectively, for an increase of $1,253,186. Both increases were due to the increased sales of the Company’s industrial hemp products and baijiu liquor products.

 

Cost of Revenue: Cost of services for the three months ended February 28, 2019 and 2018 were $253,135 and $367,301 respectively, for a decrease of $114,166 over the same period in 2018. Cost of services for the nine months ended February 28, 2019 and 2018 were $1,106,084 and $1,025,519 respectively, for an increase of $80,565 over the same period in 2018. Cost of products for the three months ended February 28, 2019 and 2018 were $759,369 and $79,092 respectively for an increase of $680,277. Cost of products for the nine months ended February 28, 2019 and 2018 were $958,198 and $91,462 respectively for an increase of $866,736. This significant increase was due to the Company’s sale of its industrial hemp and baijiu liquor products.

 

Gross profit (loss) and gross margin: The Company’s gross margin on service revenue decreased to 34% (gross profit $130,369 on $383,504 of revenue) in the three months ending February 28, 2019 from 40% (gross profit $245,818 on $613,119 of revenue) in the three months ended February 28, 2018. The Company’s gross margin on service revenue decreased to 16% ($217,733 on $1,323,817 of revenue) in the nine months ending February 28, 2019 from 29% ($412,984 on $1,438,503 of revenue) in the nine months ended February 28, 2018. The gross margin decrease for service revenue is due to increased personnel expenses related to the service revenues generated. The Company’s gross margin on product sales decreased to 28% ($301,949 on $1,061,318 of revenue) in the three months ended February 28, 2019 from 57% ($104,093 on $183,185 of revenue) in the three months ended February 28, 2018. The Company’s gross margin on product sales decreased to 36% ($535,741 on $1,493,939 of revenue) in the nine months ending February 28, 2019 from 62% ($149,291 on $240,753 of revenue) in the nine months ended February 28, 2018. The decrease in gross margin for product sales was due to price reductions offered on industrial hemp products and increased sales expenses related to baijiu liquor product sales.

 

General & Administrative Expenses: For the three months ended February 28, 2019 and 2018, expenses were $3,273,479 and $1,844,826, respectively for an increase of $1,428,653 which was related to the addition of staff and independent contractors. For the nine months ended February 28, 2019 and 2018, expenses were $7,850,987 and $4,962,210, respectively for an increase of $2,888,777 attributable to the addition of staff and expenses related to the China subsidiaries.

 

Advertising Expenses: For the three months ended February 28, 2019 and 2018, expenses were $298,297 and $301,073 respectively. For the nine months ended February 28, 2019 and 2018, expenses were $977,431 and $830,292 respectively. The increase is due to the Company’s increased advertising and news coverage in several different cities and in different languages.

 

Interest Income (expenses): For the three months ended February 28, 2019 and 2018, interest expense was $146,283 and $17,186, respectively for an increase of $129,097 attributable to the one-year notes issued to various individual lenders (refer to short-term notes for details). For the nine months ended February 28, 2019 and 2018, interest expenses were $195,194 and $31,719 respectively for an increase of $163,475 attributable to one-year notes issued to various individual lenders by the Company (refer to short-term notes for details).

 

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 industrial hemp 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 and $10,371,050 through the issuance of its Series D-2017 convertible preferred stock. 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.

 

 

 

  26  

 

 

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 our annual report on Form 10-K for the year ended May 31, 2018 PART II Item 9A Controls and Procedures.

 

 

 

 

 

 

 

 

 

  27  

 

 

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.

 

See Section 4. Stockholder’s Equity, page 18.

 

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

 

 

 

 

 

 

  28  

 

 

 

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: April 15, 2019 By: /s/ Patrick Leung                                 
          Patrick Leung
          Chief Financial Officer
   
Date: April 15, 2019 By: /s/ Wei Wang                                      
         Wei Wang
         Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  29  

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