During the three months ended August 31,
2018, the Company did not receive stocks for investor relations (“IR”) services.
During the three months ended August 31,
2017, the company received various stocks valued (FMV) at $359,375 for investor relations (“IR”) services which will
be performed over one year.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Nature of Operations
:
Business Description
Chineseinvestors.com, Inc.
(the
“Company”) was incorporated on January 6, 1997 in the State of Indiana under the corporate name “MAS Acquisition
LII Corp.” Prior to June 12, 2000, the Company was a ‘blank check’ company seeking a business combination with
an unidentified business.
On June 12, 2000, we acquired 8,200,000
shares of common stock, representing 100% of the outstanding shares of Chineseinvestors.com, Inc., which was incorporated in the
State of California on June 15, 1999. In connection with this acquisition, Aaron Tsai, our former sole officer and director, was
replaced by Chineseinvestors.com, Inc.’s officers and directors.
The stockholders of Chineseinvestors.com,
Inc. were issued 8,200,000 shares of our common stock, or approximately 96% of our total outstanding common shares. After giving
effect to the acquisition, Chineseinvestors.com, Inc. became a wholly owned subsidiary and we changed our name to Chineseinvestors.com,
Inc. Immediately prior to the acquisition of Chineseinvestors.com, Inc., MAS Capital Inc. returned 8,200,000 shares of common stock
for cancellation without any consideration.
Chineseinvestors.com, Inc. was established
as an ‘in language’ (Chinese) financial information web portal, offering various levels of information relative to
the US Equity and Financial Markets, as well as certain other specific financial markets (including China A Shares, FOREX, etc.).
Over the years, various informational components have been added and the general content improved as the Company continues to derive
a material portion of its income from various subscription services it offers to its customers. We offer subscription services
to provide education about investing and news and analysis on the stock market as well as news about particular stocks that we
are following. Nevertheless, we do not provide our subscribers with individualized investment advice and never have investment
discretion over any subscribers’ or site visitors’ funds. As described below, providing investor relations services
for other companies, especially those requiring Mandarin language support, now account for our most significant revenue sources.
The registrant’s investor relations
agreements typically obligate the registrant to provide translations of the client’s releases into English from Mandarin
or from English into Mandarin, to feature advertisements about the client on the www.chinesefn.com website, and otherwise to assist
the client in achieving its goals, which may be increasing the client’s stock price, increasing awareness of the clients
and its stock or helping the client to move from pink sheets to an established public securities market. Not all of those goals
are shared by every client. Promotions geared to the Chinese American market is the underlying common thread, generally in the
form of advertisements on the chinesefn.com website. The registrant provides other services intended to increase awareness and
knowledge of its clients’ businesses and stock within the Chinese American community.
The registrant generally receives a fee
consisting of cash and the client’s securities for its services. The securities clearly offer success incentives and align
the interests of the registrant and the client.
Chineseinvestors.com, Inc. has been in
continuous operation since July 1999 using the web domains (uniform resource locators) of www.chineseinvestors.com and www.chinesefn.com.
We established a Representative Office
business presence in leased office space in Shanghai, China in late 2000 from which we fulfill most of our support types of service
and also have a leased office presence in San Gabriel, California, New York City, NY and Flushing, NY and most recently in Richmond,
British Columbia.
In 2010, the Company filed a Form 10 registration
statement for us to become a public reporting company under the Exchange Act of 1934 in order to facilitate the Company’s
ability to raise capital on the public market. In particular, we have retained the firm of B F Borgers CPA PC to be our independent
auditor.
We selected Glendale Securities who has
offices in Sherman Oaks, California as the market maker for our common stock, the price of which is quoted on the OTC:QB marketplace.
As of August 31, 2018, the Company employed
twenty-four (24) people in its Shanghai Office in a variety of administrative and operational capacities. All are employed full
time. The Company also has approximately thirty-six (36) full-time employees and approximately eight (8) independent contractors
in the US.
XiBiDi (“CBD”) Biotechnology
Co., Ltd.
In March 2017, the Company established
and registered XiBiDi Biotechnology Co. Ltd. (“CBD Biotech”) in Pudong Free-Trade Area in Shanghai, PRC as a wholly
owned foreign enterprise (“WOFE”). CBD Biotech’s primary engages at online and retail sales of hemp-based health
products and other complimentary products in PRC. The initial focus of CBD Biotech was the launch of CBDMagic Hemp Series, a hemp-infused
cosmetics line.
CBD Biotech obtained Wholesale Alcohol
License in November 2017 from ShangHai Wine Monopoly Bureau effective October 24, 2017 for a three-year term, which allows CBD
Biotech to act as a liquor distributor. CBD Biotech entered into a wholesale agreement with China GuiZhou HanTai Wine, Inc. to
distribute its liquor product -
Yantai 1985
. The Company announced its plans to spin off CBD Biotech in February 2018, which
was later postponed to after May 31, 2018, the actual date has not been determined.
ChineseHempOil.com, Inc.
In April 2017, the Company established
ChineseHempOil.com, Inc. dba “Chinese Wellness Center” a Delaware corporation, as a subsidiary of the Company. ChineseHempoil.com,
Inc. responsible for the development and operation of the online and retail sales of hemp-based products in the United States.
Chinese Wellness Center is the retail store located in the predominantly Chinese community of San Gabriel, California, located
next to the Company’s headquarters. In addition, ChineseInvestors.com, Inc. announced the release of its first hemp oil product
line, OptHemp, a premium, private label oil, made from full-spectrum, Colorado grown, GMO-Free, hemp, manufactured using a CO2
Extraction process. The Company announced its plans to spin off ChineseHempOil.com, Inc. in February 2018, which was later postponed
until after May 31, 2018; the actual date has not been determined.
CBD Biotechnology Co. Ltd.
In June 2017, the Company formed CBD Biotechnology
Ltd. (“CBD”), a corporation incorporated in the Province of British Columbia, which is anticipated to focus on the
sales of hemp-infused consumer products similar to those marketed by the Company’s other subsidiaries via online and other
distribution channels.
Newcoins168.com Inc.
In April 2018, the Company established
a wholly owned foreign enterprise, NewCoins168.com Digital Media Technology Ltd (Shanghai), registered in China Free Trade Zone
with registered capital of 10 million RMB.
Bitcoin Trading Academy LLC
In or about March 2018, the Company established
Bitcoin Trading Academy, LLC, a California limited liability company, formerly known as Stock Surge Momentum. LLC, a California
limited liability company, with Warren (Wei) Wang, the Company’s CEO, as its sole managing member. Mr. Wang has transferred
all of his interest in Bitcoin Trading Academy, LLC to the Company for $1 consideration. Bitcoin Trading Academy LLC began offering
in person and on-line courses on cryptocurrency investment and trading in July 2018.
2. Liquidity and Capital Resources:
Cash Flows
– During
the three months ended August 31, 2018, the Company primarily generated cash and cash equivalents, from issuances of its common
and preferred stock to fund its operations. The Company received total proceeds of $8,638,050 of proceeds from the issuance of
Series “D-2017” preferred stock by August 31, 2018 of which $6,793,050 was received for the year ended May 31, 2018
and $1,845,000 was received for the three months ended August 31, 2018.
Cash flows (used in) provided by operations
for the three months ended August 31, 2018 and 2017 were ($2,214,567) and ($1,447,378), respectively. The increased cash used
in operations was due to increased general and administrative expenses used in operations.
Capital
Resources
– As of August 31, 2018, the Company had cash and cash equivalents of $2,998,221 as compared to cash and
cash equivalents of $1,390,258 as of May 31, 2018.
Since inception in 1997, the Company has
primarily relied upon proceeds from private placements of its equity securities to fund its operations. The Company anticipates
continuing to rely on sales of our securities in order to continue to fund business operations. Issuances of additional shares
will result in dilution to its existing stockholders. There is no assurance that the Company will be able to complete any additional
sales of our equity securities or that it be able arrange for other financing to fund our planned business activities.
Going Concern
– The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. There is potential
that the Company will not continue as a going concern. The recoverability of recorded property and equipment, intangible assets,
and other asset amounts shown in the accompanying financial statements is dependent upon the Company’s ability to continue
as a going concern and to achieve a level of profitability. The Company intends on financing its future activities and its working
capital needs largely from the sale of equity securities until such time that funds provided by operations are sufficient to fund
working capital requirements. However, there can be no assurance that the Company will be successful in its efforts. The financial
statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets,
or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
3. Critical Accounting Policies and
Estimates
:
Basis of Presentation
–
These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission
for interim financial information.
The consolidated financial statements include
the accounts of Chineseinvestors.com Inc. and its subsidiaries (collectively the “Company”). The Company’s subsidiaries
include 100% of ChineseHempOil.com Inc, XiBiDi Biotechnology Co, Ltd.,, Hemp Logic, Inc., CIIX Online, Inc., Newcoins168.com Inc.
and Bitcoin Trading Academy LLC.
Intercompany accounts
and transactions have been eliminated upon consolidation.
Use of Estimates
–
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The financial statements include some
amounts that are based on management's best estimates and judgments. The most significant estimates relate to depreciation and
useful lives, and contingencies. These estimates may be adjusted as more current information becomes available, and any adjustment
could be significant.
Recently
Adopted Accounting Pronouncements:
Revenue from Contracts with Customers
On June 1, 2018, the Company adopted Financial
Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2014-09, with regard to FASB
ASC 606
Revenue from Contracts with Customers
, and have revised certain related accounting policies in connection
with revenue recognition and deferred costs, as follows:
The
Company’s revenue was mainly derived from four sources:
|
1.
|
Investor-relations service income
|
Investor-relations service income is earned by the Company in return for delivering current, publicly available information related to our customers.
|
a.
|
Identify contracts with customers. The Company sign service
agreements with customer.
|
|
b.
|
Identify performance obligations in the contract. Many
of our investor-relations service contracts contain multiple performance obligations. For these contracts, the performance obligations
include presentation of customers’ information on Chinesefn.com, translation of all materials to be released, and monthly
presentation in the newsletter the Company sends to its registered members. We account for individual performance obligations
separately if they are distinct. Determining whether products and services are considered distinct performance obligations that
should be accounted for separately versus together may require significant judgment.
|
|
c.
|
Determine the transaction price. The transaction price
is allocated to each performance obligation on a relative standalone selling price basis. Judgment is required to determine the
standalone selling price for each distinct performance obligation. We typically have more than one standalone selling price for
individual products and services due to the stratification of those products and services by customers and circumstances. In these
instances, we determine the standalone selling price based on our overall pricing objectives, taking into consideration contract
term, industry relevance and other factors. Fees are fixed based on rates specified in the service provided agreements, which
do not provide for any refunds or adjustments. In determining the transaction price, the effects of the time value of money is
not accounted as the normal term of our service provider agreements is one year or less.
|
|
d.
|
The service contract amount is valued based upon the fair
market value of the client’s stock closing price at the contract date multiplied by the numbers of shares earned when the
service is paid by customers’ common stocks other than cash. For the performance obligations, such as the availability of
our customer’s information in our website, the revenue is recognized over the term of the services period while the services
are being provided.
|
|
e.
|
For the performance obligations will be surrendered at a point of time, the revenue is recognized after the service is provided. In addition, the Company is applying the definition of readily determinable fair value presented at Accounting Standards Codification 820-10-15-5 in assessing the amount to recognize in each accounting period.
|
There is no significant adjustment from the implementation of ASU 2014-09.
|
2.
|
Subscription income is recognized
over the term of the subscription membership. Subscription fees for our registered members are charged on a per-month basis. Our
customers do not have rights to the underlying software code of our solutions, and accordingly, we recognize subscription revenue
over time on a straight-line basis over the contract term beginning on the date that our service is made available to the customer.
Subscription terms are generally between one to three years but can occasionally be as short as one month or as long as 60
months. Long term deferred revenues are recognized from subscriptions over twelve months.
|
|
3.
|
The Company recognizes revenue of product sales of hemp-related products and liquor distribution upon transfer of title to the customer. Customer purchase orders and/or contracts are generally used to determine the existence of contract. Shipping documents and terms and the completion of any customer acceptance requirements, when applicable, are used to verify product delivery, or to satisfy the performance obligation. The Company determines and allocates the transaction price based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company has no product returns or sales discounts and allowances because goods delivered and accepted by customers are normally not returnable.
|
|
4.
|
Other revenues include various fee income earned through banner advertisement, webpage hosting and maintenance, on-line promotion and translation services, advertising and promotion fees in the Company’s website, sponsorship fees from investment seminars, road shows, forums at the Company’s website, and referral fee from cryptocurrency transactions. The sales prices of these services are fixed and determinable at the time the contracts are signed and there are no provisions for refunds contained in the contracts. These revenues are recognized when all significant performance obligations have been satisfied and collection of the resulting receivable is reasonably assured.
|
The Company recognizes
revenue pursuant to revenue recognition principles presented in SAB Topic 13 prior to May 31, 2018. First, persuasive evidence
of an arrangement. Second, deliver has occurred, or services have been rendered, thirdly the seller’s price to the buyer
is fixed or determinable and lastly collectability is reasonably assured. We adopted ASU 2014-09, or ASC 606, on June 1,
2018 and it did not have a material impact on our financial position or results of operations. The guidance requires an entity
to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services.
Financial Instruments – Recognition
and Measurement
Recognition and
measurement of financial assets and financial liabilities- In January 2016, the FASB issued ASU 2016-01 amending various
aspects of the recognition, measurement, presentation, and disclosure requirements for financial instruments. The changes mainly
relate to the requirement to measure equity investments in unconsolidated subsidiaries, other than those accounted for under the
equity method of accounting, at fair value with changes in fair value recognized in earnings. However, this ASU permits entities
to elect to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus
or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the
same issuer. This ASU is effective for the Company as of June 1, 2018.
As a result of
the adoption of this ASU, the Company reclassified $486,789 in the net unrealized losses, net of tax, on equity securities previously
classified as available-for-sale, from accumulated other comprehensive loss to accumulated deficit. In addition, changes
in value due to the revaluation of equity securities are recorded in unrealized gain on equity securities, net in the consolidated
statement of comprehensive (loss) and income.
The equity investment
without readily determinable fair value held by the Company is the long-term investment at Breakwater MB, LLC. The Company elects
to measure the equity investment using measurement alternative and records the investment at cost minus impairment, if any, plus
or minus changes resulting from qualifying observable prices changes. In addition, the existing impairment model has been replaced
with a new one-step qualitative impairment model. No initial adoption adjustment was recorded for these instruments since the guidance
is required to be applied prospectively for securities measured using the measurement alternative. There is no adjustment to the
cost of the equity investment in Breakwater MB, LLC for the three months ended August 31, 2018 as no impairment indicator observed
by management.
Cash and Cash Equivalents
– The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents.
There were no cash equivalents as of August 31, 2018 and May 31, 2018.
Accounts Receivable,
Net
– The Company extends unsecured credit to its customers in the ordinary course of business. Accounts
receivable are reported at their outstanding unpaid principal balances net of allowances for uncollectible accounts. The
Company provides for allowances for uncollectible receivables based on management’s estimate of uncollectible amounts
considering age, collection history, and any other factors considered appropriate. The Company writes off accounts receivable
against the allowance for doubtful accounts when a balance is determined to be uncollectible.
As of August 31, 2018 and May 31, 2018,
the Company determined that an allowance was not needed.
Concentration
of Credit Risk
– The Company maintains cash at banks in the United States and PRC. Should any bank holding cash
become insolvent, or if the Company is otherwise unable to withdraw funds, the Company would lose the cash with that bank; however,
the Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash
in bank accounts. In the PRC, a depositor has up to RMB 500,000 insured by the People’s Bank of China Financial Stability
Bureau (“FSD”), whereas the standard insurance amount is $250,000 per depositor in a bank insured by the Federal Deposit
Insurance Corporation (“FDIC”) in the United States. As of August 31, 2018 and May 31, 2018, the Company has $2,329,336
and $780,726 cash balances uninsured, respectively.
For the three-month
period ended August 31, 2018, one customer accounted for 11% of total sales for the Company with no accounts receivable outstanding
as of August 31, 2018. One customer accounted for 54% of the total sales of the Company for the three months ended August 31, 2017
without accounts receivable outstanding as of August 31, 2017.
There was no
vendor concentration for the Company as of and for the three months period ended August 31, 2018 and August 31, 2017.
The Company has
operations in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced
by the political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy.
Marketable
equity Securities
– Marketable equity securities is comprised of publicly traded stocks received in return for
providing investor relations services to the Company’s customers. The service terms range from one month to a year. The
Company considers the securities to be liquid and convertible to cash in under a year. The Company has the ability and intent
to liquidate any security that the Company holds to fund operations over the next twelve months, if necessary, and as such
has classified all of its marketable securities as short-term.
Prior to June
1, 2018, the Company followed the guidance of ASC 320-10-30 to determine the initial measure of value based on the quoted price
of an otherwise identical unrestricted security of the same issuer, adjusted for the effect of the restriction, in accordance with
the provisions of topic 820-10-15-5, which states that an equity security has a readily determinable fair value if it meets the
condition of having a “sales prices or bid-and-asked quotations which are currently available on a securities exchange registered
with the U.S. Securities and Exchange Commission (SEC) or in the over-the-counter market, provided that those prices or quotations
for the over-the-counter market are publicly reported by the National Association of Securities Dealers Automated Quotation systems
or by the OTC Markets Group Ins. Restricted stock meets that definition if the restriction terminates within one year.” These
shares were classified as available for sale securities in accordance with ASC 320-10-25-1 as the Companies intention is to sell
them in the near-term (less than one year). In compliance with ASC 320-10-35-1, equity securities that have readily determinable
fair values that are classified as available-for-sale shall be measured subsequently at fair value in the statement of financial
position. The Company has adopted ASU 2016-01 from June 1, 2018, and as a result, unrealized holding gains and losses for marketable
equity securities (including those classified as current assets) shall be reported as unrealized gain(loss) in the consolidated
statement of comprehensive (Loss) and Income under loss before income taxes.
As these shares
will be earned over the term of the contracts, the Company will defer the recognition of the earnings of the revenue over the
period the services are performed. The value recorded will be determined by multiplying the average of the closing price on the
last day of the month for the period being reported based on closing market price per share.
Inventories
– Inventories
include Hemp-related finished products and liquor, stated at the lower of cost or net realizable value using the weighted
average cost method. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually
and records a reserve against the inventory and additional cost of goods sold when the carrying value exceeds net realizable value.
There was no reserve needed for inventory obsolescence and slow-moving as of August 31, 2018 and May 31, 2018.
Equity Method Investment
–
Under equity method, the Company records its proportionate share of the investee’s profit or loss based on the specified
profit and loss percentage. Distributions received from equity method investees are accounted for as returns on investment and
classified as cash inflows from operating activities, unless the Company’s cumulative distributions received less distributions
received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings recognized by
the Company. When such an excess occurs, the current year distribution up to this excess would be considered a return of investment
and classified as cash inflows from investing activities.
In September 2017, the Company entered
a letter of intent to invest $60,000 (44.45% of ownership) to jointly operate Beijing New Sino-North America Financial Information
Co., Ltd and its subsidiaries (“Sino-U.S. Finance”) with three Chinese individuals to operate a mobile application
under the name of “Sino-U.S. Finance” which will provide a platform of information and analysis for Chinese-speaking
investors in the PRC and US.
The Company started to account the investment
under equity method in the year ended May 31, 2018 and the proportional operation losses picked up for the year ended of
May 31, 2018 was $93,562, higher than the $60,000 investment amount. According to ASC 323-10-35-19, if the carrying amount of the
investment is reduced to zero, and there are no other investments in the investee, the equity method normally is discounted, and
investee losses are no longer reported on the income statement. Thus, the Company recorded $60,000 investment loss for Sino-U.S.
Finance for the year ended May 31, 2018 and with $0 balance under long-term investment as of August 31, 2018 and May 31, 2018.
Property and Equipment, net
– Property and equipment are stated at cost. Depreciation and amortization of property and equipment is provided using the
straight-line method over estimated useful lives ranging from three to five years. Leasehold improvements are amortized over the
life of the lease.
Expenditures for major renewals and betterments
that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to
expense as incurred. Gains and losses from retirement or replacement are included in operations.
Depreciation on equipment is provided on a straight-line basis
over their expected useful lives at the following annual rates.
Computer equipment
|
|
3 years
|
Furniture & fixtures
|
|
3 years
|
Leasehold improvements
|
|
Term of the lease
|
Website Development, Net
–
The Company accounts for its development costs in accordance with ASC 350-50, “Accounting for Website Development
Costs.” The Company’s website comprises multiple features and offerings that are currently developed with ongoing
refinements. In connection with the development of its products, the Company has incurred external costs for hardware, software,
and consulting services, and internal costs for payroll and related expenses of its technology employees directly involved in
the development. All hardware costs are capitalized as fixed assets. Purchased software costs are capitalized in accordance with
ASC codification 350-50-25 related to accounting for the costs of computer software developed or obtained for internal use. All
other costs are reviewed to determine whether they should be capitalized or expensed.
Impairment of Long-life Assets
– In accordance with ASC Topic 360, the Company reviews its long-lived assets, including property and equipment, for impairment
whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If the
total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for
the difference between the fair value and carrying amount of the asset. There was no impairment for the periods ended August 31,
2018 and May 31, 2018
.
Deferred
Revenue
– The Company receives payment for subscription revenues in advance before the subscription service is granted.
The company recognizes the revenue as being earned as the services are delivered. The amount paid for which services have not yet
been delivered related to subscription revenues is recorded as a liability in the current or long-term portion of the liabilities
section of the balance sheet.
The Company also
receives shares of stocks and warrants as means of payments for the investor relationship (“IR”) service provided.
The fair market value of the stocks and warrants on the contract date are amortized and recognized as IR revenue over the contract
terms. When these services are prepaid by customers, the amount of the prepayment is initially recorded as an asset with an offsetting
unearned revenue liability.
As of August 31,
2018 and May 31, 2018, the deferred revenue compromised as following:
|
|
August 31, 2018
|
|
|
May 31, 2018
|
|
Deferred subscription
|
|
$
|
510,924
|
|
|
$
|
587,194
|
|
Unearned IR revenue
|
|
|
68,990
|
|
|
|
315,238
|
|
Total
|
|
|
579,914
|
|
|
|
902,432
|
|
Current
|
|
|
(453,088
|
)
|
|
|
(787,557
|
)
|
Noncurrent
|
|
$
|
126,826
|
|
|
$
|
114,875
|
|
Fair Value of Financial Instruments
– Fair value accounting establishes a framework for measuring fair value and expands disclosure about fair value measurements.
Fair value, which is defined as an exit price or the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. This framework provides a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
|
·
|
Level one – Quoted market prices in active markets for identical assets or liabilities;
|
|
·
|
Level two – Inputs other than level one inputs that are either directly or indirectly observable; and
|
|
·
|
Level three – Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
|
The carrying amount
of cash and cash equivalents, investments available for sale, accounts receivable, due from related party, inventories, other current
assets, accounts payable, deferred revenue (current and noncurrent), short-term notes and other current liabilities approximates
fair value because of the short-term nature of these instruments and the fair values close to its carrying value for the non-current
deferred revenue.
The following
table summarizes the fair value and carrying value of the Company’s assets and liabilities as of August 31, 2018:
|
|
Fair Value
|
|
|
Carrying
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
|
|
Assets -
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,998,221
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
2,998,221
|
|
Marketable equity securities
|
|
|
1,837,278
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,837,278
|
|
Cryptocurrency
|
|
|
22,368
|
|
|
|
–
|
|
|
|
–
|
|
|
|
22,368
|
|
Liability -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term notes
|
|
$
|
–
|
|
|
$
|
3,121,893
|
|
|
$
|
–
|
|
|
$
|
3,399,402
|
|
The following table summarizes the
fair value and carrying value of the Company’s assets and liabilities as of May 31, 2018:
|
|
Fair Value
|
|
|
Carrying
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
|
|
Assets -
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,390,258
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,390,258
|
|
Marketable equity securities
|
|
|
1,230,754
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,230,754
|
|
Cryptocurrency
|
|
|
31,479
|
|
|
|
–
|
|
|
|
–
|
|
|
|
31,479
|
|
Liability -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term notes
|
|
$
|
–
|
|
|
$
|
998,192
|
|
|
$
|
–
|
|
|
$
|
1,058,084
|
|
Short-term notes
- The fair value of such notes payable had been determined based on 10% and 6% annual interest rates and the proximity to the issuance
date as of August 31, 2018 and May 31, 2018, respectively.
The Company uses
Level 1 of the fair value hierarchy to measure the fair value of digital currencies and revalues its digital currencies at every
reporting period and recognizes gains or losses in the consolidated statements of operations that are attributable to the change
in the fair value of the cryptocurrencies.
Other Revenue
– Other
revenue is comprised of revenue related to Forex service fees, referral commissions and other miscellaneous service revenues generated
which is recognized over the period the term of the service term for the periods ended August 31, 2018 and August 31, 2017. Details
as below:
|
|
August
31, 2018
|
|
|
August
31, 2017
|
|
Misc. service revenue
|
|
$
|
45,638
|
|
|
$
|
5,031
|
|
Bitcoin trading class revenue
|
|
|
27,398
|
|
|
|
–
|
|
Total
|
|
$
|
73,036
|
|
|
$
|
5,031
|
|
Costs
of Services/Products Sold
– Costs of services provided are the total direct cost of the Company’s
operations in Shanghai and the US. Cost of goods sold includes cost of inventory sold during the period, net of discounts and
inventory allowances, freight and shipping costs, warranty and rework costs.
Income Taxes
– Income taxes are accounted for under the asset and liability method of ASC 740. Deferred tax assets and liabilities are
recognized for net operating loss and other credit carry forwards and the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the tax effect of
transactions are expected to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in the statements of operations in the year that includes the enactment date.
Deferred tax assets
are reduced by a full valuation allowance since it is more likely than not that the amount will not be realized. Deferred tax assets
and liabilities are classified as current or noncurrent based on the classification of the underlying asset or liability giving
rise to the temporary difference or the expected date of utilization of the carry forwards.
On December 22,
2017, the Tax Cuts and Jobs Act (the “TCJA”) passed that significantly reforms the Internal Revenue Code of 1986, as
amended (the “Internal Revenue Code”). The TCJA, among other things, contains significant changes to corporate taxation,
including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, effective as of January 1,
2018; limitation of the tax deduction for interest expense; limitation of the deduction for net operating losses to 80% of current
year taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning
after December 31, 2017 (though any such tax losses may be carried forward indefinitely); and repeal of the federal corporate Alternative
Minimum Tax (“AMT”).
In connection
with the analysis of the impact of the TCJA, the Company determined that it does not have any impact on the financial statements.
The Company considers
the earnings of the non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that
future domestic cash generation will be sufficient to meet future domestic cash needs.
Advertising Costs
–
Advertising costs are expensed when incurred.
Earnings (Loss) Per Share
– Earnings (loss) per share is computed using the weighted average number of common shares outstanding during the period.
The Company has adopted ASC 260 “Earnings Per Share”. Fully diluted loss per share are not calculated and presented
on the financial statements as the calculation would be antidilutive.
Stock Based Compensation
– The Company accounts for share-based payments pursuant to ASC 718, “Stock Compensation” and, accordingly, the
Company records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options
and restricted stock awards using the Black-Scholes option pricing model.
Stock compensation expense for stock options
is recognized over the vesting period of the award or expensed immediately under ASC 718 when stock or options are awarded for
previous or current service without further recourse.
We periodically issue shares of our common stock to non-employees
in non-capital raising transactions for fees and services. We account for stock issued to non-employees in accordance with ASC
505-50,
Equity-Based Payments to Non-Employees
, whereas the value of the stock compensation is based upon the measurement
date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary
performance to earn the equity instruments is complete.
Preferred
Stock Beneficial Convertible Feature
– Upon issuance of preferred stock convertible in shares of common stock at
a price lower than the fair market value of common stock on the date of issuance, in accordance with the guidance provided in
ASC 505-10-50, we have recorded the intrinsic value of this beneficial conversion feature (“BCF”).
In according to
ASC 470-20-30-6 Intrinsic value shall be calculated at the commitment date as the differences between the conversion price and
the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares
into which the security is convertible. In according to ASC 470-20-30-8, if the intrinsic value of the beneficial conversion feature
is greater than the proceeds allocated to the convertible instrument, the amount of the discount assigned to the beneficial conversion
feature shall be limited to the amount of the proceeds allocated to the convertible instrument. Since all the preferred stocks
are issued on different date, we calculate the intrinsic value for each individual preferred stock issuance based on stock issuance
date. If the intrinsic value exceeds actual proceeds we received, actual proceeds will be BCF, otherwise, the intrinsic value is
the BCF.
Foreign Currency
–
The Company has operations in the People’s Republic of China (“PRC”) as a representative office in PRC, the
functional and reporting currency is in U.S. dollars.
The functional
currency of the two subsidiaries operated in PRC, CBD Biotech and Newcoins168, is the Chinese Renminbi (“RMB”). Assets
and liabilities are translated at the exchange rates as of the balance sheet date. Owners’ contribution is translated at
historical rate. Income and expenditures are translated at the average exchange rate of the period. The RMB is not freely convertible
into foreign currency and all foreign currency exchange transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into US dollar at the rates used in translation.
The exchange rates
used were as follows:
August 31, 2018
|
|
Spot rate
|
RMB 6.82 to US $1.00
|
Average rate for the three months ended August 31, 2018
|
RMB 6.67 to US $1.00
|
May 31, 2018
|
|
Spot rate
|
RMB
6.40 to US $1.00
|
Average rate for the three months ended August 31, 2017
|
RMB 6.65 to US $1.00
|
New
Accounting Pronouncements
– Upon issuance of final pronouncements, we review the new accounting literature to determine
its relevance, if any, to our business. The Company is in the progress of evaluating the following accounting updates:
In February
2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, to increase transparency and comparability among organizations
by recognizing a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12
months. Leases will be classified as either operating or financing, with such classification affecting the pattern of expense
recognition in the income statement. ASU 2016-02 is effective for fiscal years and interim periods within those years
beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the impact ASU
2016-02 will have on its consolidated financial statements and associated disclosures.
Except for the
above-mentioned pronouncements, there are no new recent issued accounting standards that will have material impact on the unaudited
condensed consolidated financial position, statements of operations and cash flows.
4. Stockholders’ Equity:
As of August 31, 2018 and May 31, 2018,
the Company was authorized to issue 80,000,000 shares of common stock, $0.001 par value per share. In addition, 20,000,000 shares
of $0.001 par value preferred stock were authorized. All common stock shares have full dividend rights. However, it is not anticipated
that the Company will be declaring distributions in the foreseeable future.
Series 2012 Convertible Preferred Stock
During the third quarter of fiscal year
2013, effective February 29, 2012, the Company issued 2,003,776 shares of preferred stock as Series 2012 convertible preferred
stock for total proceeds of $2,003,776. The terms of the preferred stock allow the holder to convert each share of preferred stock
into 1.25 shares of common stock at any time after nine months from the date of issuance. The holders of shares of preferred stock
were entitled to receive a dividend of $0.06 per share per annum for the first two years from the issuance of the instruments.
The Company maintained the right to suspend the dividend at its discretion if it is deemed necessary.
During the three months period ended August
31, 2018, the shareholders of preferred stock series-2012 converted 0 shares of preferred stock.
During
the three months period ended August 31, 2017, the shareholders of preferred stock Series 2012 converted 50,000 shares of preferred
stock for 62,500 shares of common stock shares at a conversion rate of 1 preferred stock A for 1.25 shares of common stock.
Series A-2014 Convertible Preferred
Stock
In the years ended May 31, 2016 and 2015
the Company issued 720,000 and 1,885,000 shares of preferred stock as Series A-2014 convertible preferred stock for total proceeds
of $2,605,000. The terms of the preferred stock allow the holder to convert each share of preferred stock into 2.5 shares of common
stock at any time after nine months from the date of issuance. The holders of shares of preferred stock shall have the right to
one vote for each share of common stock into which such preferred stock could convert. The holders of shares of preferred stock
are entitled to receive a dividend of $0.06 per share per annum for the first two years from the issuance of the instruments, which
has been recorded as an accrued dividend on the liabilities section of the balance sheet. The Company maintained the right to suspend
the dividend at its discretion if it is deemed necessary.
During the three months period ended August
31, 2018, the shareholders of preferred stock series A-2014 converted 200,000 shares of preferred stock for 500,000 of common
stock shares at a conversion rate of 1 share of preferred stock series A-2014 for 2.50 shares of common stock.
During
the three months period ended August 31, 2017 the shareholders of preferred stock Series A 2014 converted 690,000 shares of preferred
stock for 1,725,000 of common stock shares at a conversion rate of 1 preferred stock B for 2.50 shares of common stock.
Series C-2016
Convertible Preferred Stock
In December 2016,
the Company issued 5,000,043 shares of its Series C-2016 Preferred Stock at a price of $1.00 per share for total proceeds of $5,000,043.
The terms of the preferred stock allow the holder to convert each share of preferred stock into 3 shares of common stock at any
time after nine months from the date of issuance. The holders of shares of preferred stock are entitled to receive a dividend of
$0.06 per share per annum for the first year from the issuance of the instruments, which has been recorded as an accrued dividend
on the liabilities section of the balance sheet. The Company maintained the right to suspend the dividend at its discretion if
it is deemed necessary.
We calculated the BCF of the Series C-2016 Preferred Stock as $4,930,143. The BCF would be recorded as
paid-in capital with an offsetting debit to convertible preferred stock. The discount attributable to the BCF, however, is amortized
as a deemed dividend over the period from issuance to the date the convertible preferred stock becomes convertible. In our case,
preferred stock-series C-2016 is convertible after six months from the date of issuance. We then amortize the BCF over six months
period and recorded $1,244,622
and $3,685,520
as deemed dividend that increased accumulated deficit for the periods ended May 31, 2018 and 2017, respectively.
During the three
months period ended August 31, 2018, the shareholders of preferred stock series C-2016 converted 90,000 shares of preferred stock
for 270,000 of common stock shares at a conversion rate of 1 share of preferred stock series C-2016 for 3.00 shares of common
stock.
During the three months period ended August 31, 2017, the shareholders of preferred
stock C-2016 converted 1,857,085 shares of preferred stock for 5,571,255 of common stock shares at a conversion rate of 1 Series
C-2016 share of preferred stock for 3.00 shares of common stock.
Series D-2017
Convertible Preferred Stock
For the year ended
May 31, 2018, the Company issued 6,793,050 shares of its Series D-2017 Convertible Preferred Stock at a price of $1.00 per share
for total proceeds of $6,793,050. The terms of the preferred stock allow the holder to convert each share of preferred stock into
2 shares of common stock at any time from the date of issuance. The holders of shares of preferred stock are entitled to receive
a dividend of $0.06 per share per annum for the first two years from the issuance, which has been recorded as an accrued dividend
on the liabilities section of the balance sheet. The Company maintained the right to suspend the dividend at its discretion if
it is deemed necessary.
We calculated
the BCF of the preferred shares as $3,933,443. The BCF would be recorded as paid-in capital with an offsetting debit to convertible
preferred stock. The discount attributable to the BCF, however, is amortized as a deemed dividend over the period from issuance
to the date the convertible preferred stock becomes convertible. In our case, preferred stock-series D-2017 is convertible at
any time from the date of issuance. We recorded $3,933,443 as deemed dividend that increases accumulated deficit as of May 31,
2018.
During the year ended May 31, 2018, 150,000 shares of Series D-2017 Convertible Preferred
Stock were converted into common stocks.
For the three
months ended August 31, 2018, the Company issued shares of its Series D-2017 Preferred Stock at a price of $1.00 per share for
total proceeds of $1,845,000. The terms of the preferred stock allow the holder to convert each share of preferred stock into 2
shares of common stock at any time from the date of issuance. The holders of shares of preferred stock are entitled to receive
a dividend of $0.06 per share per annum for the first two years from the issuance of the instruments, which has been recorded as
an accrued dividend on the liabilities section of the balance sheet. The Company maintained the right to suspend the dividend at
its discretion if it is deemed necessary.
We calculated the BCF of the preferred
shares issued during the three-month ended in August 31, 2018 as $169,400. The BCF would be recorded as paid-in capital with an
offsetting debit to convertible preferred stock. The discount attributable to the BCF, however, is amortized as a deemed dividend
over the period from issuance to the date the convertible preferred stock becomes convertible. In our case, preferred stock-series
D-2017 is convertible at any time from the date of issuance. We recorded $169,400 as deemed dividend that increased accumulated
deficit as of August 31, 2018.
During the three
months period ended August 31, 2018, the shareholders of preferred stock series D-2017 converted 1,643,000 shares of preferred
stock for 3,286,000 of common stock shares at a conversion rate of 1 share of preferred stock series D-2017 for 2.00 shares of
common stock.
Stock compensation
and stock payable
On July 26, 2018,
the Company entered into a Consulting Agreement with Regal Consulting, LLC (“Regal”). The agreement has a five-month
term ending January 2, 2019, pursuant to which Regal will receive 20,000 shares of the Company’s common stock per month for
the term of the Agreement for a total of 100,000 shares, in addition to other compensation. $13,400 share-based compensation expense
has been recorded associated with the award for the three months ended August 31, 2018.
On or about August 9, 2018, the
Company entered into a Services Agreement with IRTH Communications LLC (“IRTH”). The agreement has a one year
term, pursuant to which ITRH was to receive $100,000 worth of shares of the Company’s common stock in addition to other
compensation. On August 22, 2018, the Company adopted a resolution authorizing the issuance of 226,245 shares of the
Company’s common stock to IRTH for its professional services to be provided during the term of the agreement. $8,333
share-based compensation expense has been recorded associated with the award for the three months ended August 31, 2018.
On or about August 9, 2018, the Company
entered into a Consulting Agreement with Axis Partners, Inc. (“Axis”). The agreement is for a six month term, pursuant
to which Axis is to receive 150,000 shares of the Company’s common stock for the term of the agreement. On August 22, 2018,
the Company adopted a resolution authorizing the issuance of 150,000 shares of the Company’s common stock to Axis for its
professional service to be provided during the term of the agreement. $33,500 share-based compensation expense has been recorded
associated with the award for the three months ended August 31, 2018.
On
August 24, 2018
, the Board adopted a resolution ratifying
the award to Melissa Armstrong of an additional 50,000 shares of common stock, for a total award of 100,000 shares, effective October
26, 2016. All services to be performed in conjunction with this award have been fully performed and the shares were fully vested
as of the effective date of the award. $33,500 share-based compensation expense was recorded associated with the award for the
three months ended August 31, 2018
.
The stock compensation
payable as of August 31, 2018 is summarized as below, and there is no stock compensation payable as of May 31, 2018.
|
|
August 31,
|
|
|
May 31,
|
|
|
|
2018
|
|
|
2018
|
|
Regal Consulting LLC
|
|
$
|
13,400
|
|
|
$
|
–
|
|
IRTH Communications LLC
|
|
|
8,333
|
|
|
|
–
|
|
Axis Partners, Inc
|
|
|
33,500
|
|
|
|
–
|
|
Melissa Armstrong
|
|
|
33,500
|
|
|
|
–
|
|
|
|
$
|
88,733
|
|
|
$
|
–
|
|
On September 11, 2018, the Company issued
stock certificates total 526,245 shares for the stock compensation granted to service providers in August 2018.
5. Other Current Assets
:
Other current assets consist of deposits
in Chinese Renminbi on building space under an operating lease and are stated at the current exchange rate at period end. Security
deposits of office rent in United States, purchase deposits to vendors for the Hemp oil purchase, prepaid expenses in both United
States and Shanghai, details as below:
|
|
August 31,
|
|
|
May 31,
|
|
|
|
2018
|
|
|
2018
|
|
Prepaid expense
|
|
$
|
245,513
|
|
|
$
|
79,822
|
|
Purchase deposit
|
|
|
72,868
|
|
|
|
145,376
|
|
Cryptocurrency on hands
|
|
|
22,368
|
|
|
|
31,479
|
|
Other current assets
|
|
|
73,592
|
|
|
|
74,951
|
|
|
|
$
|
414,341
|
|
|
$
|
331,628
|
|
6. Long-term investments
Long-term investments include: 1) investment at Breakwater
MB, LLC accounted for cost method since the Company does not have the significant influence, and 2) investment at Sino-U.S. Finance
accounted for equity method (see Note 3).
In March 2017, the Company made a $250,000
investment in Breakwater MB, LLC, a cannabis-focused investment and consulting company, formed by Paul Dickman, the CFO and board
member of ChineseInvestors.com, Inc., as a means to invest capital in and provide consulting services to private, cannabis-focused
companies as they transition into the public market. The invested capital will primarily be used to cover the costs of becoming
a publicly traded company, a strategy the Company expects will provide significant investment appreciation and opportunity for
liquidity. All opportunities will be evaluated by the investment committee comprised of ChineseInvestors.com, Inc.’s CEO
Warren Wang, Medicine Man Technologies CEO Andy Williams, and Paul Dickman. Mr. Dickman is the managing member of Breakwater MB,
LLC and Warren Wang serves as an advisor receiving no compensation for his services.
Breakwater MB, LLC completed
its planned raise of $1,000,000 for 50% of Breakwater MB, LLC’s equity by December 2017. The Company’s equity
position in Breakwater MB, LLC stands at 12.5% as of August 31, 2018 and May 31, 2018, respectively. ChineseInvestors.com,
Inc.’s board reviewed and approved the investment with Mr. Dickman abstaining from voting. Mr. Dickman held 30% of the
equity of Breakwater MB LLC as of May 31, 2018 after a $5,000 cash investment in equity in addition to the services that Mr.
Dickman renders to Breakwater MB, LLC.
Subsequently in August 23, 2018, the Company
entered into a Redemption Agreement and Mutual Release with Mr. Dickman to liquidate 40% of the Company’s investment in Breakwater
MB, LLC. Mr. Dickman agreed to pay an aggregate purchase price of $100,000 ($75,000 at the closing and $25,000 no later than September
15, 2018) to redeem the portion of equity (the “Redemption Agreement”) The Redemption Agreement provides for a mutual
release and waiver with regard to any claims the parties to the Redemption Agreement ever had, owned or held, or now have, own
or hold, as against one another resulting from, arising out of or in any manner relating to or based on the Company’s investment
in Breakwater MB LLC, the redemption, or otherwise relating to CIIX’s relationship with Breakwater MB LLC. As of August 31,
2018, no payment has been received. The Company’s equity position in Breakwater MB, LLC currently stands at 12.5% as of August
31, 2018.
7. Property and Equipment
:
Property and equipment are recorded at cost, net of accumulated
depreciation and are comprised of the following:
|
|
August 31,
2018
|
|
|
May 31,
2018
|
|
Furniture & Fixtures
|
|
$
|
166,709
|
|
|
$
|
154,748
|
|
Leasehold Improvements
|
|
|
103,893
|
|
|
|
35,176
|
|
|
|
|
270,602
|
|
|
|
189,924
|
|
Less: Accumulated Depreciation
|
|
|
(133,573
|
)
|
|
|
(124,674
|
)
|
|
|
$
|
137,029
|
|
|
$
|
65,250
|
|
Depreciation expense for the three months ending August 31,
2018 and 2017 was $8,947 and $3,898, respectively.
8. Website development, net
:
Website
development
is comprised of the following:
|
|
August 31,
2018
|
|
|
May 31,
2018
|
|
Website development
|
|
$
|
232,766
|
|
|
$
|
220,598
|
|
Less: Accumulated Amortization
|
|
|
(119,078
|
)
|
|
|
(116,320
|
)
|
|
|
$
|
113,688
|
|
|
$
|
104,278
|
|
Amortization is calculated over a straight-line
basis using the economic life of the asset. Amortization expense for the three months ended August 31, 2018 and 2017 was $2,759
and $2,567 respectively.
9. Short-term
notes:
On October 2017,
the Company issued additional one-year promissory notes (the “2017 Notes”) totaling of $995,140 to various individuals.
The interest rate for the 2017 Notes is 6% annum. Of the $995,140, as noted above, $116,669 was rolled over from the 2016 Notes
with renegotiated terms. The 2017 Notes were to be secured by the stocks of the following companies held by the Company:
Company name
|
Shares Secured for Loan
|
Nemaura Medical, Inc (NMRD)
|
100,000
|
|
Recon Technology LTD (RCON)
|
49,999
|
|
Solbright Group Inc. (SBRT)
|
195,122
|
|
Nengfa Weiye Energy (NFEC)
|
218,779
|
|
SGOCO Group LTD (SGOC)
|
29,412
|
|
As of August 31, 2018, the Company transferred
NMRD shares held to the Collateral Agent. It was determined that with the exception of 2017 Notes secured by NMRD shares, the remaining
2017 Notes were not properly secured. The Company offered the lenders of the unsecured 2017 Notes the option to either rescind
the notes or allow the notes to remain in place as unsecured notes in April 2018. $360,000 out of the total $620,000 unsecured
2017 Notes were rescinded for which the principle and interest became due immediately, and the remaining $260,000 2017 Notes remain
unsecured. The $360,000 in short term 2017 Notes has not been repaid.
For 2017 Notes, the lenders also received
an incentive equal to 20% of appreciation of the value of the collateralized shares between the note issuance date and the date
the shares are liquidated, if at all. As of August 31, 2018 and May 31, 2018, the debt incentive was $149,262 and $62,944, respectively.
On August 2018,
the
board of directors of the Company approved the Company to offer unsecured one-year term notes (the “2018 Notes”)
to individual investors for a maximum $3,000,000 with 10% annum interest rate. As of August 31, 2018, the Company has issued 2018
Notes in the total amount of $2,255,000 from various individual lenders.
As of August 31, 2018 and May 31, 2018,
the short-term notes are compromised as follows:
|
|
August 31, 2018
|
|
|
May 31, 2018
|
|
Short-term 2017 notes
|
|
|
|
|
|
|
|
|
Secured short term notes, due on October 2018, 6% annum interest rate
|
|
$
|
635,140
|
|
|
$
|
635,140
|
|
Debt incentive to the secured short-term notes above
|
|
|
98,808
|
|
|
|
41,539
|
|
Short term notes, due on April and May 2018, 6% annum interest rate
|
|
|
360,000
|
|
|
|
360,000
|
|
Debt incentive related to the short-term notes above
|
|
|
50,454
|
|
|
|
21,405
|
|
Total short-term 2017 notes
|
|
$
|
1,144,402
|
|
|
$
|
1,058,084
|
|
|
|
|
|
|
|
|
|
|
Short-term 2018 notes
|
|
$
|
2,255,000
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
Total Short-term notes
|
|
$
|
3,399,402
|
|
|
$
|
1,058,084
|
|
10. Other Current
Liabilities:
Other current
liabilities compromise as following:
|
|
August 31, 2018
|
|
|
May 31, 2018
|
|
Accrued dividends
|
|
$
|
108,403
|
|
|
$
|
179,218
|
|
Accrued interests and others
|
|
|
61,901
|
|
|
|
32,721
|
|
Accrued payroll and taxes
|
|
|
263,834
|
|
|
|
218,599
|
|
Total
|
|
$
|
434,138
|
|
|
$
|
430,538
|
|
Accrued dividends
as of August 31, 2018 are comprised of dividends payable to the preferred stock holders, Series D-2017 in the amount of $108,403.
Accrued dividends as of May 31, 2018 are comprised of dividends payable to the preferred stock holders, Series C-2016 and Series
D-2017, in the amount of $14,981 and $164,237, respectively.
Accrued interest as of August 31, 2018
and May 31, 2018 represents interest payable for the 2018 Notes and 2017 Notes, respectively.
11. Commitments and Contingencies:
Operating Leases
The Company currently
maintains leased space in Shanghai, China (as described in the Financials) as well as an office presence in San Gabriel, California,
New York City, NY and Flushing, NY. It also maintains a correspondence address in Arcadia, California on a month to month basis.
On September
4, 2018, the Company enter a lease agreement in New York at 40 Wall St. Room 2877, New York, NY 10005 as support office. The lease
term is 24 months and monthly rent at $7,500.
Future
minimum lease commitments for office facilities as of August 31, 2018 are as follows:
For the fiscal years ended May 31,
|
|
|
|
|
|
2019
(9
months)
|
|
|
$
|
345,989
|
|
|
2020
|
|
|
|
270,966
|
|
|
2021
|
|
|
|
131,989
|
|
|
2022
|
|
|
|
–
|
|
|
|
|
|
$
|
748,944
|
|
Litigation
– The Company is involved in legal proceedings from time to time in the ordinary course of its business.
When
entering the 2016 Note Agreements, the Company believed that the SINO contract would be executed, and SINO shares would be delivered
upon signing the IR service contract. However, the service contract was not executed due to a disagreement among SINO’s management,
and as a result, the Company has not obtained the SINO shares as of May 31, 2018. On January 9, 2018, the Company filed a lawsuit
on the Los Angeles County Superior Court, Case No. EC067692 for breach of contract and common counts against SINO-GLOBAL SHIPPING
AMERICA LTD. Currently the case is pending assignment to an arbitrator.
12. Related Party Transactions:
As of August 31,
2018, the Company advanced $81,293 to the CEO, Mr. Warren Wang for daily operation purpose.
The Company
made a long-term investment of $250,000 to Breakwater MB LLC in March 2017 formed by the Company’s board member and
CFO, Paul Dickman. The Company’s equity position in Breakwater MB, LLC stands at 12.5%. Refer to
Long-term
investments
for investment details.
Mrs.
Lan Jiang is the spouse of the Company’s CEO, Mr. Warren Wang. During the three months ended August 31, 2018 and 2017, she
received salary compensation of $45,000 and $39,000, respectively.
The Company purchased the shares of Medicine
Man Technologies, Inc. (“MDCL”) in April 2014 using equity method of accounting initially and started to account for
the ownership as an investment available for sale as of May 31, 2015 as the Company no longer had “significant influence”
over MDCL as a result of shares issuance. The Company liquidated 1,306,378 shares of MDCL for $1,996,939 cash during the year
ended May 31, 2017. As of August 31, 2018 and May 31, 2018, the Company still held 41,238 shares of MDCL stock representing $72,578
and $76,496, respectively, of value based upon the closing market price of $1.76 and $1.86, respectively.
13. Subsequent event
:
The Company is
continuing to offer (up to 10,000,000 shares) of its Series D-2017 Convertible Preferred Stock. Each share of Series D-2017 preferred
stock is convertible into 2 shares of the Company’s common stock. The Series D-2017 Convertible Preferred Stock will pay
at least two years of dividends at the rate of 6% per year on the original investment of $1 per share of Series D-2017 Convertible
Preferred Stock. As of September 30, 2018, the Company received $9,983,050 proceeds from sales of series D-2017 convertible preferred
stock.
On August 7, the
Company began offering on a best efforts basis (“Offering”), a maximum of $3,000,000 in original issue price (“Maximum
Offering”) of its 10% one-year term notes (the “Notes”). As of the September 30, 2018 we have received the notes
in the total amount of $3,030,000. Of the $3,030,000, there are $2,255,000 notes are received by August 31, 2018, $775,000 are
received after August 31, 2018.