Quarterly Report (10-q)

Date : 10/15/2019 @ 7:55PM
Source : Edgar (US Regulatory)
Stock : Chineseinvestors.com, Inc. (QB) (CIIX)
Quote : 0.23  0.01 (4.55%) @ 6:18PM

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 August 31, 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 August 31, 2019, there were outstanding 48,738,497 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, 193,000 shares of the issuer’s Series C-2016 convertible preferred stock, par value $0.001 per share, and 5,522,050 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 August 31, 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     28  
             
PART II - OTHER INFORMATION
             
Item 1.   Legal Proceedings     29  
             
Item 2.   Unregistered Sale of Equity Securities and Use of Proceeds     29  
             
Item 3.   Defaults Upon Senior Securities     29  
             
Item 4.   Mine Safety Disclosures     29  
             
Item 5.   Other Information     29  
             
Item 6.   Exhibits     29
             
Signatures     30  

 

 

 

 

 

 

 

  2  

 

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

 

CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

Expressed in U.S. Dollars

 

    August 31,     May 31,  
    2019     2019  
Assets                
Current assets                
Cash and cash equivalents   $ 756,478     $ 1,311,984  
Accounts receivable, net     976,950       635,874  
Marketable equity securities     1,006,304       1,133,256  
Inventories     197,065       189,397  
Due from related party     4,828       606  
Other current assets     726,135       471,120  
Total current assets     3,667,760       3,742,237  
                 
Non-current assets                
Long-term investments     308,799       323,603  
Property and equipment, net     85,508       98,250  
Website development, net     146,667       148,361  
Operating lease right of use assets     891,371        
Other assets     111,357       111,357  
Total non-current assets     1,543,702       681,571  
                 
Total assets   $ 5,211,462     $ 4,423,808  
Liabilities and Stockholders’ Equity                
Current liabilities                
Accounts payable   $ 357,838     $ 487,090  
Short-term notes     7,421,632       5,873,709  
Deferred revenue, current     858,460       518,570  
Current portion of operating lease liabilities     423,282        
Other current liabilities     740,507       638,248  
Total current liabilities     9,801,719       7,517,617  
                 
Non-current liabilities                
Operating lease liabilities-long term     502,534        
Long-term deferred revenue     222,147       122,329  
Total Non-current Liabilities     724,681       122,329  
                 
Total liabilities     10,526,400       7,639,946  
                 
Commitments and Contingencies (Note 11)                
Shareholders’ equity                
Preferred stock, series 2012, $0.001 par value 20,000,000 authorized, 445,000 and 445,000 were issued and outstanding at August 31, 2019 and May 31, 2019, respectively     445       445  
Preferred stock, series A-2014, $0.001 par value 20,000,000 authorized, 356,000 and 356,000 were issued and outstanding at August 31, 2019 and May 31, 2019, respectively     356       356  
Preferred stock, series C-2016, $0.001 par value 20,000,000 authorized, 193,000 and 193,000 were issued and outstanding at August 31, 2019 and May 31, 2019, respectively     193       193  
Preferred stock, series D-2017, $0.001 par value 20,000,000 authorized, 5,522,050 and 6,037,050 were issued and outstanding at August 31, 2019 and May 31, 2019, respectively     5,522       6,037  
Common stock $0.001 par value 80,000,000 authorized 48,738,497 and 45,486,497 were issued and outstanding August 31, 2019 and May 31, 2019, respectively     48,740       45,488  
Additional paid-in capital     45,116,143       44,118,980  
Accumulated deficit     (50,428,082 )     (47,348,927 )
Accumulated other comprehensive income (loss)     (58,255 )     (38,710 )
Total Shareholders' equity     (5,314,938 )     (3,216,138 )
                 
Total liabilities and shareholders’ equity   $ 5,211,462     $ 4,423,808  

 

See accompanying notes to the financial statements

 

  3  

 

 

CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

 

  Three Months ended August 31, 2018  
  Common Stock   Preferred Stock, series 2012   Preferred Stock, series A   Preferred Stock, series C  
  Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount  
                                 
Balance at May 31, 2018   29,520,560   $ 29,522     445,000   $ 445     606,000   $ 606     622,958   $ 623  
                                                 
Stock compensation                                
Preferred Stock issued for cash, series D                                
Deemed dividend associated with preferred stock issuance, series D                                
Preferred stocks conversion, series A   500,000     500             (200,000 )   (200 )        
Preferred stocks conversion, series C   270,000     270                     (90,000 )   (90 )
Preferred stocks conversion, series D   3,286,000     3,286                          
Preferred Stock dividends, series D                                
Unrealized investment loss                                
Net (loss) for the period                                
Foreign currency                                
                                                 
Balance at August 31, 2018   33,576,560   $ 33,577     445,000   $ 445     406,000   $ 406     532,958   $ 533  

 

 

  Three Months Ended August 31, 2018  
  Preferred Stock, series D  

Additional

Paid in

  Stockholders'  

Accumulated

Other Comprehensive

     
  Shares   Amount   Capital   Deficit   Income (loss)   Total  
Balance at May 31, 2018   6,643,050   $ 6,643   $ 36,651,070   $ (35,268,062 ) $ (495,186 ) $ 925,661  
                                     
Stock compensation           3,500     (3,500 )        
Preferred Stock issued for cash, series D   1,845,000     1,845     1,843,155             1,845,000  
Deemed dividend associated with preferred stock issuance, series D           169,400     (169,400 )        
Preferred stocks conversion, series A           (300 )            
Preferred stocks conversion, series C           (180 )            
Preferred stocks conversion, series D   (1,643,000 )   (1,643 )   (1,643 )            
Preferred Stock dividends, series D               (108,560 )       (108,560 )
Unrealized investment loss               (486,787 )   486,787      
Net (loss) for the period               (1,456,790 )       (1,456,790 )
Foreign currency                           (16,232 )   (16,232 )
                                     
Balance at August 31, 2018   6,845,050   $ 6,845   $ 38,665,003   $ (37,493,101 ) $ (24,631 ) $ 1,189,077  

 

 

See accompanying notes to the financial statements

 

 

 

  4  

 

 

CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (continued)

 

 

  Three Months ended August 31, 2019  
  Common Stock   Preferred Stock, series 2012   Preferred Stock, series A   Preferred Stock, series C  
  Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount  
Balance at May 31, 2019   45,486,497   $ 45,488     445,000   $ 445     356,000   $ 356     193,000   $ 193  
                                                 
Stock compensation   2,222,000     2,222                          
Preferred stocks conversion, series D   1,030,000     1,030                          
Preferred Stock dividends, series D                                
Net (loss) for the period                                
Foreign currency                                
                                                 
Balance at August 31, 2019   48,738,497   $ 48,740     445,000   $ 445     356,000   $ 356     193,000   $ 193  

 

 

 

  Three Months Ended August 31, 2019  
  Preferred Stock, series D   Additional
Paid in
  Stockholders'   Accumulated
Other Comprehensive
     
  Shares   Amount   Capital   Deficit   Income (loss)   Total  
Balance at May 31, 2019   6,037,050   $ 6,037   $ 44,118,980   $ (47,348,927 ) $ (38,710 ) $ (3,216,138 )
                                     
Stock compensation           997,678             999,900  
Preferred stocks conversion, series D   (515,000 )   (515 )   (515 )            
Preferred Stock dividends, series D               (83,458 )       (83,458 )
Net (loss) for the period               (2,995,697 )       (2,995,697 )
Foreign currency                           (19,545 )   (19,545 )
                                     
Balance at August 31, 2019   5,522,050   $ 5,522   $ 45,116,143   $ (50,428,082 ) $ (58,255 ) $ (5,314,938 )

 

See accompanying notes to the financial statements

 

 

 

  5  

 

 

CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES

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

For the Three Months Ended August 31, 2019 and 2018

Expressed in U.S. Dollars  

 

   

Three Months Ended

August 31,

 
    2019     2018  
Operating revenues                
Investor relations services   $ 821,361     $ 271,248  
Subscriptions     186,452       226,312  
Sales CBD/hemp products     948,751       141,764  
Other     396       73,036  
Total revenue     1,956,960       712,360  
                 
Cost of revenue                
Services     424,657       391,817  
Products     812,614       72,745  
      1,237,271       464,562  
                 
Gross profit (loss)     719,689       247,798  
                 
Operating Expenses                
General and administrative expenses     2,986,902       1,889,241  
Advertising expenses     378,504       317,291  
Total operating expenses     3,365,406       2,206,532  
                 
Net loss from operations     (2,645,717 )     (1,958,734 )
                 
Other income/(expense)                
Other income     212       12,898  
Interest income (expense)     (158,543 )     (112,833 )
Net realized (loss) gain on investments     (49,120 )     (268,600 )
Loss from security investments     (6,054 )      
Unrealized (loss) gain on equity securities     (201,053 )     875,124  
Unrealized (loss) gain on cryptocurrencies     64,578       (8,145 )
Total other income (expense)     (349,980 )     498,444  
                 
Loss before income taxes     (2,995,697 )     (1,460,290 )
Income tax expenses            
Net loss   $ (2,995,697 )   $ (1,460,290)  
                 
Deemed dividend for the beneficial conversion of convertible preferred stock           (169,400 )
Preferred stock dividends     (83,458 )     (108,560 )
Net loss attributable to common shareholders     (3,079,155 )     (1,738,250 )
                 
Other comprehensive income (loss)                
Foreign currency translation gain(loss)     (19,545 )     (16,232 )
                 
Comprehensive loss attributable to common shareholders   $ (3,098,700 )   $ (1,754,482 )
                 
Loss per share-basic and diluted   $ (0.06 )   $ (0.06 )
Weighted average number of shares outstanding - basic & diluted     48,294,193       30,462,930  

 

 

See accompanying notes to the financial statements

 

 

  6  

 

 

CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

For the Three Months Ended August 31, 2019 and 2018

Expressed in U.S. Dollars

 

    2019     2018  
Cash flows from operating activities                
Net loss   $ (2,995,697 )   $ (1,460,290 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities                
Non-cash revenue received as available for sale securities     (576,432 )     (186,248 )
Investment loss (gain) on marketable securities     49,186       268,600  
Equity in loss from equity method investments     6,054        
Unrealized loss (gain) on equity securities     201,053       (875,124 )
Unrealized loss (gain) on cryptocurrencies     (64,578 )     8,145  
Bad debt expenses     6,763        
Stock compensation expenses     999,900       92,233  
Depreciation and amortization     15,167       11,706  
Changes in operating assets and liabilities                
Accounts receivable     288,463       (3,717 )
Inventory     (13,744 )     27,862  
Other current assets     (894,540 )     (64,943 )
Accounts payable     (125,143 )     (60,986 )
Accrued interest     77,602       112,833  
Deferred revenue     137,437       (136,477 )
Customer deposit     56,749       1,782  
Other accrued liabilities     735,626       50,057  
Net cash (used in) operating activities     (2,096,134 )     (2,214,567 )
                 
Cash flows from investing activities                
Purchase of equipment     (3,623 )     (86,510 )
Proceeds from sale of marketable securities     66,080        
Loan to related party     (65,347 )      
Net cash provided by (used in) investing activities     (2,890 )     (86,510 )
                 
Cash flows from financing activities                
Proceeds of issuance of preferred stock, series D-2017           1,845,000  
Payments made for preferred stock dividends           (179,375 )
Proceeds of issuance of new debts     1,547,923       2,255,000  
Net cash provided by financing activities     1,547,923       3,920,625  
                 
Effects of currency translation on cash and cash equivalents     (4,405 )     (11,585 )
                 
Net increase (decrease) in cash and cash equivalents     (555,506 )     1,607,963  
Cash and cash equivalents - beginning of period     1,311,984       1,390,258  
Cash and cash equivalents - end of period   $ 756,478     $ 2,998,221  
                 
Supplemental cash flow disclosures                
Cash paid for interest   $ 80,942     $  
Cash paid for income taxes   $     $  

 

Supplemental disclosure of non-cash activity

During the three months ended August 31, 2019, the Company received various stocks valued (FMV) at $417,798 for providing one to twelve months of investor relations (“IR”) services.

 

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

 

 

See accompanying notes to the financial statements

 

 

 

 

  7  

 

 

CHINESEINVESTORS.COM, INC. AND SUBSIDIARIES

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, the Company’s 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 common stock, or approximately 96% of the Company’s total outstanding common shares. After giving effect to the acquisition, Chineseinvestors.com, Inc. became a wholly owned subsidiary and the name was changed 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, the Company does not provide subscribers with individualized investment advice and never has investment discretion over any subscribers’ or site visitors’ funds. In addition, the Company provides investor relations services for other companies, especially those requiring Mandarin language support, which now accounts for one of the Company’s most significant revenue sources. These services typically include translating client releases into English from Mandarin or vice versa, featuring client advertisements on the www.chinesefn.com website, and assisting clients to achieve goals which may be to increase stock price, to increase awareness about clients and their stock, or to helping clients 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 are the underlying common thread, generally in the form of advertisements on the chinesefn.com website. In exchange for services provided, the Company generally receives fees consisting of cash, client securities, or a combination of cash and equity.

 

Chineseinvestors.com, Inc. has been in continuous operation since July 1999 using the web domains (uniform resource locators) www.chineseinvestors.com and www.chinesefn.com. The Company has representative offices in leased office space in Shanghai, China, where most support services are fulfilled, San Gabriel, California, New York City, NY and Flushing, NY and Richmond, British Columbia.

 

In March 2017, the Company established and registered XiBiDi Biotechnology Co. Ltd./CBD 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 cosmetics and liquor in PRC.

 

Earlier this year, in February 2019, CBD Biotech formed CBD Biotech, Inc., an exempted company with limited liability incorporated in the Cayman Islands (“CBD Biotech Cayman”) which is solely owned by Wei Wang, CEO of ChineseInvestors.com, Inc. and Alex Hamilton, Chairman and Chief Financial Officer of CBD Biotech.

 

In April 2017, the Company established ChineseHempOil.com, Inc. dba “Chinese Wellness Center” a Delaware corporation, as a subsidiary of the Company in San Gabriel, California. CHO is responsible for the development and operation of the online and retail sales of industrial hemp products in the United States.

 

The Company also incorporated two subsidiaries - Hemp Logic, Inc. and CIIX Online, Inc., Delaware companies in April 2017. The two wholly owned subsidiaries have not operated since the inceptions.

 

 

 

  8  

 

 

In June 2017, the Company formed CBD Biotechnology Ltd. (“CBD Canada”), a corporation incorporated in the Province of British Columbia, which is slated to focus on the sales of industrial hemp- products, via online and other distribution channels. CBD Canada has not generated any revenue as of August 31, 2019.

 

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.

 

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.

 

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.

 

On November 11, 2018, the Company established Blue Ocean Capital Holding LLC (“BO”), a Delaware limited liability company. On January 23, 2019, BO entered into an Equity Transfer Agreement (“ETA”) with The Connell Company (“CC”) whereby CC will sell its 100% ownership stake in Connell Securities LLC (“CS”) to BO. CS is a registered broker-dealer and member of FINRA. BO is a Delaware limited liability company with two members — Wei Wang, the Company’s chief executive officer, who owns 10% of the issued and outstanding member units and CIIX which owns 90% of the issued and outstanding member units. Pursuant to the ETA, the purchase price of CS is $75,000 and is subject to review and approval of FINRA before the sale can be consummated. In accordance with the ETA, BO’s $75,000 purchase price is held in escrow and will be disbursed to CC upon closing or returned to BO if no closing occurs.

 

Donald Capital, LLC, is a Delaware limited liability company established on May 7, 2018. In exchange for capital contributions totaling $160,000 from ChineseInvestors.com, Inc., the Company received a 24.99% interest in Donald Capital LLC. The remaining 75.1% is held equally by Hamilton Strategy Group, Inc. and McDonald Global Enterprises LLC. Alex Hamilton is the CFO of CBD Biotech Cayman and is the President of Donald Capital LLC. Mr. Hamilton is also the owner of Hamilton Global Strategy. Donald Capital LLC is a registered broker dealer approved by FINRA effective May 14, 2019.

  

  

2. Liquidity and Capital Resources:

 

Cash Flows – During the three months ended August 31, 2019, the Company primarily generated cash from issuances of its debts to fund its operations. The Company received total proceeds of $1,547,923 of proceeds from the issuance of unsecured promissory notes which accrue interest at the rate of 10% per annum.

 

Cash flows used in operations for the three months ended August 31, 2019 and 2018 were $2,096,134 and $2,214,567, respectively. The decreased cash   used in operations was due to increased general and administrative expenses used in operations.

 

Capital Resources – As of August 31, 2019, the Company had cash and cash equivalents of $756,478 as compared to cash and cash equivalents of $1,311,984 as of May 31, 2019.

 

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.

 

 

 

  9  

 

 

3. Critical Accounting Policies and Estimates:

 

Basis of PresentationThe 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 statements. 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, 2019, included in our 2019 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 three months ended August 31, 2019 are not necessarily indicative of the results for the year ending May 31, 2020 or for any future period.

 

These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The consolidated financial statements include the operations of Chineseinvestors.com Inc. and its subsidiaries. The Company’s wholly owned subsidiaries include ChineseHempOil.com Inc, CBD Biotechnology Co. Ltd.,CBD Biotech, Inc., Hemp Logic, CIIX Online, NewCoins168.com Digital Media Technology Ltd., Bitcoin Trading Academy LLC, CIIX Online Ltd and Blue Ocean Capital Holding LLC. Intercompany accounts and transactions have been eliminated upon consolidation.

 

Certain reclassifications have been made to the consolidated financial statements for prior years to the current year’s presentation. Such reclassifications have no effect on net income as previously reported.

 

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:

 

Lease

 

The Company adopted Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), as of June 1, 2019, using a modified retrospective transition method and as a result, the consolidated balance sheet prior to June 1, 2019 was not restated, continues to be reported under ASC Topic 840, Leases, or ASC 840. For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease.

 

The lease liability is based on the present value of the remaining minimum lease payments, determined under ASC 842, discounted using our incremental borrowing rate at the effective date of June 1, 2019, using the original lease term as the tenor. As permitted under the transition guidance, we elected several practical expedients that permit us to not reassess (1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. The application of the practical expedients did not have a significant impact on the measurement of the operating lease liability. Adoption of the new standard resulted in the recording of operating right of use assets and the related lease liabilities of approximately $891,371 and $925,816, respectively, as of June 1, 2019. The difference between the additional lease assets and lease liabilities was $34,445. The standard did not materially impact our consolidated operating results and had no impact on cash flows. Please see Note 11.

 

 

 

  10  

 

 

Stock Compensation

 

The Company adopted 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.

  

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.

 

  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.

 

 

 

  11  

 

 

  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.

 

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, 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 August 31, 2019 and May 31, 2019.

 

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, 2019 and May 31, 2019, the Company determined that an allowance was not needed. The Company recorded $6,763 bad debt expense for the three months ended August 31, 2019.

 

 

 

  12  

 

 

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 August 31, 2019 and May 31, 2019, the Company had $255,469 and $608,908 cash balances uninsured, respectively.

 

Major customers and vendors- For the three months ended August 31, 2019, one customer accounted for 38% of total revenue of the Company with no accounts receivable outstanding as of August 31, 2019. One customer accounted for 11% of the total revenue of the Company for the three months ended August 31, 2018 without accounts receivable outstanding as of August 31, 2018.

 

There is one vendor accounted 91% of the total purchase of the Company for the three months ended August 31, 2019. There is no vendor concentration for the Company for the three months ended August 31, 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.

 

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 industrial hemp 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, 2019 and May 31, 2019.

 

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.

 

 

 

  13  

 

 

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 August 31, 2019 and May 31, 2019.

 

Property and Equipment, net – Property and equipment are stated at cost net of accumulated depreciation and amortization, and accumulated impairment, if any. 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.

 

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.

 

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 August 31, 2019 and May 31, 2019.

 

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 August 31, 2019 and May 31, 2019, the deferred revenue compromised as following:

  

    August 31,
2019
    May 31,
2019
 
Deferred subscriptions   $ 710,915     $ 503,644  
Unearned IR revenues     369,692       137,255  
Total     1,080,607       640,899  
Current     (858,460 )     (518,570 )
Noncurrent   $ 222,147     $ 122,329  

 

 

 

  14  

 

 

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 August 31, 2019:

  

    Fair Value     Carrying  
    Level 1     Level 2     Level 3     Value  
Assets -                        
Cash and cash equivalent   $ 756,478     $     $     $ 756,478  
Marketable equity securities     1,006,304                   1,006,304  
Cryptocurrency     107,245                   107,245  
Liability -                                
Short-term notes   $     $ 6,843,598     $     $ 7,421,632  

 

The following table summarizes the fair value and carrying value of the Company’s financial instruments as of May 31, 2019:

 

    Fair Value     Carrying  
    Level 1     Level 2     Level 3     Value  
Assets -                        
Cash and cash equivalent   $ 1,311,984     $     $     $ 1,311,984  
Marketable equity securities     1,133,256                   1,133,256  
Cryptocurrency     67,420                   67,420  
Liability -                                
Short-term notes   $     $ 5,387,609     $     $ 5,873,709  

 

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, 2019 and May 31, 2019, 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 August 31, 2019 and 2018 details as below:

 

    August 31,
2019
    August 31,
2018
 
Misc. service revenues   $ 396     $ 45,638  
Bitcoin trading class revenues           27,398  
Total   $ 396     $ 73,036  

 

 

 

  15  

 

 

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.

 

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 ASU 2018-07, Equity-Based Payments to Non-Employees, Nonemployee share-based payment awards nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.

 

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”).

 

 

 

  16  

 

 

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. 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.

 

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:

 

August 31, 2019    
Spot rate   RMB 7.15 to US $1.00
Average rate for the three months ended August 31, 2019   RMB 6.93 to US $1.00
Spot rate   CAD 1.33 to US $1.00
Average rate for the three months ended August 31, 2019   CAD 1.33 to US $1.00
     
May 31, 2019    
Spot rate   RMB 6.90 to US $1.00
Average rate for the three months ended August 31, 2018   RMB 6.79 to US $1.00
Spot rate   CAD 1.35 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 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. Subsequently, the FASB announced certain codification improvements including ASU 2018-19, ASU-2019-04 and ASU 2019-05. The Company is currently evaluating the impact 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 balance sheets, statements of stockholders’ equity(deficit), statements of operations and comprehensive income(loss) and statements of cash flows.

 

 

4. Stockholders’ Equity:

 

As of August 31, 2019 and May 31, 2019, 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.

 

 

 

  17  

 

 

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. The Company has paid off all the dividends for the Series 2012 Convertible Preferred Stock and the holders of this preferred stock no longer entitle to dividends.

 

During the three month period ended August 31, 2019 and 2018, the shareholders of preferred stock series-2012 did not convert any shares of preferred 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. The Company has paid off all the dividends for the Series A- 2014 Convertible Preferred Stock and the holders of this preferred stock no longer entitle to dividends.

 

During the three month period ended August 31, 2019, the shareholders of preferred stock series A-2014 converted 0 shares of preferred stock. 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 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 Convertible 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, and the Company maintained the right to suspend the dividend at its discretion if it is deemed necessary. The Company paid total $232,449 dividends to Series C-2016 Convertible Preferred Stock and the holders of this preferred stock no longer entitle to dividends.

 

We calculated the BCF (defined below, the beneficial conversion feature) of the Series C-2016 Convertible 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, we recorded $3,685,520 as deemed dividend as of May 31, 2018, and we recorded the remaining $1,244,622 as deemed dividend that increases accumulated deficit for the period ended August 31, 2017.

 

During the three month period ended August 31, 2019, the shareholders of preferred stock series C-2016 converted 0 shares of preferred stock. During the three months period ended August 31, 2018, the shareholders of preferred stock C-2016 converted 90,000 shares of preferred stock for 270,000 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. For the year ended May 31, 2019, the Company issued 3,578,000 shares of its Series D-2017 Convertible Preferred Stock at a price of $1.00 per share for total proceeds of $3,578,000. 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, 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.

 

 

 

  18  

 

 

We calculated the BCF of the preferred shares as $992,700 and $3,933,443 for the year ended May 31, 2019 and 2018, respectively. 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 and $3,933,443 as deemed dividend as of May 31, 2019 and 2018, respectively.

 

During the three months ended August 31, 2019, the shareholders of preferred stock series D-2017 converted 515,000 shares of preferred stock for 1,030,000 of common stock shares at a conversion rate of 1 share of preferred stock series D-2017 for 2.00 shares of common stock. During the three months 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 June 4, 2019, the Company awarded various employees and contractors stock compensation total 2,222,000 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. $999,900 share-based compensation expense was recorded associated with the award for the three months ended August 31, 2019.

 

As part of the above award Melissa N. Armstrong, Esq. was awarded 250,000 shares of the Company’s 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.

 

There is no stock compensation payable as of August 31, 2019 and May 31, 2019.

  

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:

 

    August 31,     May 31,  
    2019     2019  
Prepaid expenses   $ 307,344     $ 314,707  
Purchase deposits     193,914       49,773  
Cryptocurrencies on hands     107,245       67,420  
Other current assets     117,632       39,220  
    $ 726,135     $ 471,120  

 

 

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, and 2) investment at Sino-U.S. Finance and Donald Capital LLC are accounted for equity method since the Company has the ability to exercise significant influence over the investee, under which 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.

 

Since the Company’s investments include privately held companies where quoted market prices are not available and as a result, the cost method, combined with other intrinsic information, is used to assess the fair value of the investment. If the carrying value is above the fair value of an investment at the end of any reporting period, the investment is reviewed to determine if the impairment is other than temporary. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established.

 

 

 

  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 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% with carrying value $140,000 and 12.5% with carrying value of $250,000 as of May 31, 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.

 

On 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 August 31, 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 August 31, 2019.

 

For the year ended May 31, 2019, Breakwater transferred 400,000 shares of its stock holding in Grow Flow Inc to the Company as a dividend distribution. Those shares were valued at $35,000 based on 20% of the Company’s invested equity holding of $175,000 in Breakwater MB, LLC.

 

In September 2017, the Company entered a letter of intent for investment cooperation to invest $60,000 (44.45% of ownership) to jointly operate Sino-U.S. Finance. The investee was to operate a mobile application under the name of “Sino-U.S. Finance” to provide the platform of information and analysis for Chinese investors in the PRC and US. The Company started to account the investment under equity method for the quarter May 31, 2018 and the proportional operation losses picked up for the year ended of May 31, 2018 were $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, with $0 balance under long-term investment as of August 31, 2019.

 

In April 2019, the Company made a $160,000 investment for 24.9% of Donald Capital LLC a Delaware Corporation’s equity. The remaining 75.1% is held equally by Hamilton Strategy Group, Inc. and McDonald Global Enterprises LLC. Alex Hamilton is the CFO of CBD Biotech Cayman and is the President of Donald Capital LLC. Mr. Hamilton is also the owner of Hamilton Global Strategy. Donald Capital is a boutique investment bank, approved by FINRA and the SEC on May 14, 2019. As of August 31, 2019, the Company’s equity position in Donald Capital LLC currently stands at 24.9%. The Company recorded $6,054 investment loss for Donald Capital LLC for the three months ended August 31, 2019 and with $133,799 balance under long-term investment as of August 31, 2019.

 

 

7. Property and Equipment:

 

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

 

   


August 31,

2019

    May 31,
2019
 
Furniture & Fixtures   $ 179,574     $ 179,337  
Leasehold Improvements     94,554       96,718  
      274,128       276,055  
Less: Accumulated Depreciation     (188,620 )     (177,805 )
    $ 85,508     $ 98,250  

 

Depreciation expense for the three months ended August 31, 2019 and 2018 was $12,090 and $8,947, respectively.

 

 

 

  20  

 

 

8. Website development, net:

 

Website development is comprised of the following:

 

    August 31
2019
   


May 31,

2019

 
Website development   $ 278,448     $ 276,861  
Less: Accumulated Amortization     (131,781 )     (128,500 )
    $ 146,667     $ 148,361  

 

Amortization is calculated over a straight-line basis using the economic life of the asset. Amortization expense for the three months ended August 31, 2019 and 2018 was $3,077 and $2,759, respectively.

 

 

9. Short-term 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. The Company has issued 2018 Notes-10% in the total amount of $3,030,000 from various individual lenders. As of August 31, 2019, some lenders of 2018 Notes-10% rolled over their principle and interest totaling $1,387,026 to 2019 Note-10%. $885,000 of the 2018 Note-10% are in default and $795,000 will be due in September 2019.

 

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 August 31, 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 August 31, 2019, the Company paid incentives totaling $51,314 incentive 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 August 31, 2019, the Company has issued 2019 Notes-10% in the total amount of $4,586,832 from various individual lenders. Of the $4,586,832, $1,387,026 are rollover from 2018-10% notes in August 2019.

 

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

  

    August 31,
2019
    May 31,
2019
 
             
Short-term 2018 notes-annual interest rate 10% due August to October 2019   $ 1,680,000     $ 3,030,000  
                 
Short-term 2018 notes-annual interest rate 8% due December 2019   $ 1,154,800     $ 1,154,800  
                 
Short-term 2019 notes-annual interest rate 10% due February 2020   $ 4,586,832     $ 1,688,909  
                 
Total Short-term notes   $ 7,421,632     $ 5,873,709  

 

 

10. Other Current Liabilities:

 

Other current liabilities compromise as following:

 

    August 31, 2019     May 31,
2019
 
Accrued dividends   $ 279,012     $ 195,554  
Accrued interests and others     226,561       143,377  
Accrued payroll and taxes     234,934       299,317  
Total   $ 740,507     $ 638,248  

 

 

 

  21  

 

 

Accrued dividends as of August 31, 2019 and May 31, 2019 are comprised of dividends payable to the preferred stockholders, Series D-2017 in the amount of $279,012 and $195,554, respectively.

 

Accrued interest as of August 31, 2019 represents interest payable for the 2018 Notes and 2019 Notes. Accrued interest as of May 31, 2019 represents interest payable for the 2018-10% Notes, 2018-8% Notes and 2019-10% 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.

 

We lease certain office space from third parties. For leases beginning in June 1, 2019 and later, at the inception of a contract we assess whether the contract is, or contains, a lease. Our assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether we have the right to direct the use of the asset. At inception of a lease, we allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.

 

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one year or more. The exercise of lease renewal options is at our sole discretion. Our leases do not include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term. Certain of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. All our leases are operating lease.

 

As of August 31, 2019, our operating lease right of use assets and operating lease liability are approximately $891,371 and $925,816, respectively. The rent expense for the three months ended August 31, 2019 is $89,190.

 

Future minimum lease commitments for office facilities as of August 31, 2019 are as follows:

 

For the fiscal years ending May 31,      
2020 (nine months)     382,316  
2021     310,411  
2022     161,322  
2023     38,767  
    $ 892,816  

 

  

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 August 31, 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. The dispute was ultimately arbitrated by the American Arbitration Association in May 2019 and the parties reached a settlement whereby SINO will issue 40,000 shares of its Rule 144 restricted Common Stock to the Company. The Settlement Agreement was recently executed by the parties and the Company is awaiting receipt of the settlement shares.

 

 

 

  22  

 

 

In or about October 9, 2018, a former employee filed an administrative claim with the U.S. Equal Employment Commission. In or about June 2019, the former employee and the Company entered into a “no fault” Confidential Settlement Agreement pursuant to which all claims and controversies were fully and finally settled.

 

 

12. Related Party Transactions:

 

As of August 31, 2019, the Company advanced $3,414 to the CEO, Mr. Warren Wang for daily operation.

 

Mrs. Lan Jiang is the spouse of the Company’s CEO, Mr. Warren Wang. During the three months ended August 31, 2019 and 2018, she received salary compensation of $45,000 and $45,000, 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 August 31, 2019 and May 31, 2019, the Company still held 72,488 shares of MDCL stock representing $209,200 and $260,232, respectively, of value based upon the closing market price of $2.89 and $3.59, respectively.

 

13. Subsequent event:

 

On or about September 26, 2019, Blue Ocean, LLC terminated the Equity Transfer Agreement dated January 23, 2019. On September 29, 2019, the escrow deposit of $75,000 was returned to the Company, less agreed upon approved fees. The total amount of $69,422 was returned to the Company.

 

 

 

  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 Biotechnology Co. Ltd. (“CBD Biotech”) in Pudong Free-Trade Area in Shanghai, Peoples Republic of China, founded as a wholly owned foreign enterprise (“WOFE”) of ChineseInvestors.com Inc. CBD Biotech’s primary focus is online and retail sales of industrial hemp-infused skincare products and liquor in the PRC. CBD Biotech’s first product launch was CBD Magic Hemp Series, an industrial hemp-infused skincare line.

 

Thereafter in November 2017, CBD Biotech obtained Wholesale Alcohol License from the 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 plans to spin off CBD Biotech in February 2018, which was later postponed. Thereafter, in December 2018, the Company announced that it had retained an underwriter for the planned Initial Public Offering (“IPO”) of CBD Biotech concurrently with a listing on a national securities exchange.

 

On or about February 27, 2019, CBD Biotech, Inc., an exempted company with limited liability incorporated in the Cayman Islands, was formed (“CBD Biotech Cayman”). CBD Biotech Cayman is solely owned by Wei Wang, ChineseInvestors.com, Inc.’s Chief Executive Officer, and Alex Hamilton, Chairman and Chief Financial Officer of CBD Biotech. Currently, ChineseInvestors.com, Inc. is in the process of entering into a Share Exchange Agreement with CBD Biotech and the shareholders of CBD Biotech Cayman (the “Share Exchange Agreement”). Under the terms of the proposed Share Exchange Agreement, the Company will transfer all of its shares of CBD Biotech, which represents 100% of CBD Biotech’s outstanding shares to CBD Biotech Cayman (the “Share Exchange”). In exchange for the transfer of the CBD Biotech shares, CBD Biotech Cayman will issue 2,521,739 shares of its Class A Ordinary Shares and 2,320,000 of its Class B Ordinary Shares to the Company. Following the Share Exchange, CBD Biotech will become a wholly owned subsidiary of CBD Biotech Cayman. Following the Share Exchange, pre-initial public offering (“IPO”) Company will own approximately 71.6% of CBD Biotech Cayman’s Class A shares and 86.3% of the class B shares. Post-IPO, the Company will own 65.4% of CBD Biotech Cayman’s Class A shares and 48.6% of the Class B shares. All operations will be conducted through CBD Biotech and CBD Biotech will continue to operate two business lines, cosmetics and liquor.

 

As of August 31, 2019, CBD Biotech employed sixteen (16) full-time employees in its Shanghai Office in a variety of administrative and operational capacities. Its CFO, Alex Hamilton, is based in the Company’s New York office.

 

ChineseHempOil.com, Inc.

 

In April 2017, the Company established ChineseHempOil.com, Inc. dba “Chinese Wellness Center,” a Delaware corporation (“CHO”), as a wholly owned subsidiary of the Company. CHO is responsible for online and retail sales of industrial hemp 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. In or about February 2018, the Company announced its plans to spin off CHO, which was later postponed. In December 2018, the Company announced that it had retained an underwriter for the planned Initial Public Offering (“IPO”) of CBD Biotech, concurrently with a listing on a national securities exchange. CHO will no longer be part of this planned spin-off.

 

 

 

  24  

 

 

As of August 31, 2019, ChineseHempOil.com, Inc. employed three (3) full-time employees in the United States.

 

CBD Biotechnology Co. Ltd.

 

In June 2017, the Company formed CBD Biotechnology Ltd. (“CBD Canada”), a corporation incorporated in the Province of British Columbia, which is anticipated to focus on the sales of industrial hemp- products, via online and other distribution channels. CBD Canada has not generated any income as of August 31, 2019.

 

Newcoins168.com LTD

 

On or about January 25, 2018, a certificate of incorporation was filed with the Registrar in St. Vincent and the Grenadines establishing Newcoins168.com, LTD (“Newcoins Grenadine”). Pursuant to the Certificate of Incumbency, issued on May 28, 2018, the Registered Office for Newcoins Grenadine is Suite 305, Griffith Corporate Centre, Beachmont, P.O. Box 15 1 O, Kingstown. Saint Vincent and the Grenadines. All of Newcoins Grenadine’s registered shares, 1000 shares, were issued to ChineseInvestors.com, Inc.’s CEO, Wei Wang. Wei Wang holds these shares as agent for ChneseInvestors.com, Inc. Newcoins Grenadine’s total authorized capital is $1,000,000.

 

Newcoins Grenadine was established to develop a full-service retail Forex and CFD platform that connects with one of the market’s leading trading platforms to provide customers with Forex/CFD market trading service, as well as offering education, market information, and insights for customers related to the Forex/CFD market. The platform has 992 subscribers in the Philippines, Malaysia, Indonesia, Russia, Hong Kong, Brunei and India It does not have registered users in the US. As of August 19, 2019, none of these registered users have deposited funds in their accounts.

 

In that regard on or about February 27, 2019 Newcoins Grenadine entered into a Technology Solution Agreement with Match-Trade Technologies (“MTT”), pursuant to which MTT agreed to provide Newcoins Grenadine with a trading infrastructure (integrated electronic systems and software) designed to offer a platform to Newcoins Grenadine’s clients for the trading of financial products, i.e., Forex and/or CFDs and/or other financial instruments offered to Newcoins Grenadine’s clients. In or about March 2019, Newcoins Grenadine entered into an agreement with Forexstreet S.L. (“FS”) pursuant to which FS agreed to provide daily news feeds and updates. Newcoins Grenadine platform has not generated any revenues to date. Given the platform’s target audience is outside of the US and China, it has been challenging to convert leads generated as a result of advertising and marketing efforts into account deposits that will lead to trading due to the significant language barrier. The Company has determined that the expense that would be required to hire and trains native speakers to assist the platform’s potential account holders/traders would outweigh the potential gain and has decided to focus its efforts on the Company’s core, traditional business lines. In an effort to reduce fixed costs associated with the platform, the Company has cancelled these service agreements and has discontinued the platform as of August 31, 2019.

 

Newcoins168.com Digital Media Technology Ltd.

 

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. As of August 31, 2019, NewCoins168 employed two (2) full-time employees in its Shanghai Office in a variety of administrative and operational capacities.

 

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 (“BTA LLC”), with Warren (Wei) Wang, the Company’s CEO, as its sole managing member. Mr. Wang has transferred all of his interest in BTA LLC to the Company for $1 consideration. BTA LLC began offering in person and on-line courses on cryptocurrency investment and trading in July 2018. BTA LLC has since ceased to offer its cryptocurrency news and courses due to decreased consumer demand, presumably related to the 2018 Cryptocurrency Crash. Although the cryptocurrency market is slowly rebounding, currently, the Company does not have short-term plans to resume these programs.

 

 

 

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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 August 31, 2019, CIIX Online employed two (2) full-time employees 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 (“BO”), a Delaware limited liability company. On January 23, 2019, BO entered into an Equity Transfer Agreement (“ETA”) with The Connell Company (“CC”) whereby CC will sell its 100% ownership stake in Connell Securities LLC (“CS”) to BO. CS is a registered broker-dealer and member of FINRA. BO is a Delaware limited liability company with two members — Wei Wang, the Company’s chief executive officer, who owns 10% of the issued and outstanding member units and CIIX, which owns 90% of the issued and outstanding member units. Pursuant to the ETA, the purchase price of CS is $75,000 and is subject to review and approval of FINRA before the sale can be consummated. In accordance with the ETA, BO’s $75,000 purchase price is held in escrow and will be disbursed to CC upon closing or returned to BO if no closing occurs. Prior to the ETA in or about August 2017 the Company explored purchasing a broker-dealer, Global Emerging Capital Group, LLC fka Radnor Research & Trading (“GEC”). Claudette Burgess-Gay was the CEO, CCO, CFO, FINOP for GEC. With regard to this transaction, GEC was represented by William Uchimoto, Esq. The Company declined to proceed with the acquisition of GEC. Thereafter, on or about October 1, 2018, the Company entered into a compensation agreement with Ms. Burgess-Gay, pursuant to which Ms. Burgess-Gay was to receive compensation in the amount of $5,000/month in exchange for her efforts to locate a full-service broker-dealer being offered for sale, to assist in negotiating the terms with the seller for acquisition of 100% of the broker-dealer and to ensure full compliance with all broker-dealer requisites. Mr. Uchimoto represents the Company’s subsidiary, BO, with regard to its efforts to purchase CS. Following closing of the purchase of CS, Ms. Burgess-Gay is to be the President, Chief Compliance Officer, Chief Anti-Money Laundering Officer and Financial and Operations Principal of the broker-dealer that will be renamed AMC International Securities LLC. In September 2019, the Company reconsidered its decision to acquire CC and revoked the ETA. The escrow agent returned the deposit, less fees of $5,578, for a refund of $69,422.

 

Donald Capital, LLC 

 

Donald Capital, LLC, is a Delaware limited liability company established on May 7, 2018. In exchange for capital contributions totaling $160,000 from ChineseInvestors.com, Inc., the Company received a 24.9% interest in Donald Capital LLC. The remaining 75.1% is held equally by Hamilton Strategy Group, Inc. and McDonald Global Enterprises LLC. Alex Hamilton is the CFO of CBD Biotech Cayman and is the President of Donald Capital LLC. Mr. Hamilton is also the owner of Hamilton Strategy Group. Donald Capital LLC is a registered broker dealer approved by FINRA effective May 14, 2019. Donald Capital LLC will serve clients around the globe in the private, micro, small and middle capitalization arenas through pre-capital raise and strategic advisory, capital raise and other services that will be offered through network partners.

 

Business Environment and Trends

 

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

 

For three months ended August 31, 2019 compared to three months ended August 31, 2018

 

Quarterly Revenues and Expenses

 

Subscription Revenues: For the three months ended August 31, 2019 and 2018, revenues were $186,452 and $226,312, respectively. The decline in revenues was due to a decrease in the Company’s subscribers to such services.

 

 

 

  26  

 

 

Investor Relations-Service Revenues: For the three months ended August 31, 2019 and 2018, revenues were $821,361 and $271,248 respectively. The increases were attributable to an increase in investor relations clients.

 

Other Revenues: For the three months ended August 31, 2019 and 2018, revenues were $396 and $73,036 respectively. The decrease of $72,640 was due to the lack of referral fees generated from cryptocurrency referrals for three months ended August 31, 2018.

 

Sales of CBD/Hemp Products: For the three months ended August 31, 2019 and 2018, revenues were $948,751 and $141,764 respectively, for an increase of $806,987. The 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 August 31, 2019 and 2018 were $424,657 and $391,817 respectively, for an increase of $32,840 over the same period in 2018. Cost of products for the three months ended August 31, 2019 and 2018 were $812,614 and $72,745 respectively for an increase of $739,869. 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 increased to 58% (gross profit $583,552 on $1,008,209 of revenue) in the three months ended August 31, 2019 from 31% (gross profit $178,779 on $570,596 of revenue) in the three months ended August 31, 2018. The gross margin increase for service revenue is due to increased investor relations clients related to the service revenues generated. The Company’s gross margin on product sales decreased to 14% ($136,137 on $948,751 of revenue) in the three months ended August 31, 2019 from 49% ($69,019 on $141,764 of revenue) in the three months ended August 31, 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 August 31, 2019 and 2018, expenses were $2,986,902 and $1,889,241, respectively for an increase of $1,097,661 which was related to the addition of staff and independent contractors.

 

Advertising Expenses: For the three months ended August 31, 2019 and 2018, expenses were $378,504 and $317,291 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 August 31, 2019 and 2018, interest expense was $158,543 and $112,833, respectively for an increase of $45,710 attributable to the one-year notes issued to various individual lenders (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. 

 

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.

 

 

 

  27  

 

 

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, 2019, PART II Item 9A Controls and Procedures.

 

 

 

 

 

 

 

 

 

 

  28  

 

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

On or about September 19, 2019 a lawsuit entitled J. Jim Ye v. ChineseInvestors.com, Inc. and Warren Wei Wang, was filed in Los Angeles County Superior Court, Glendale Courthouse, as Case No. 19GDCV01195, alleging causes of action for rescission of purchase of securities due to fraud, violation of Cal. Buss. & Prof. Code Section 17200, et seq., and fraudulent concealment. It is the Company’s position that the Plaintiff’s claims have no merit and the Company intends to retain counsel to defend the action. The Company’s response to the action is due on October 31, 2019.

 

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

 

 

 

 

 

 

 

 

  29  

 

 

Signatures

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  ChineseInvestors.com, Inc.
  (Registrant)
   
Date: October 15, 2019 By: /s/ King Fai Leung                                 
          King Fai Leung
          Chief Financial Officer
   
Date: October 15, 2019 By: /s/ Wei Wang                                      
         Wei Wang
         Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

  30  

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