UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
FORM 10-K/A
(Mark one)
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended May 31, 2017 |
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period to |
Commission File Number: 0-28599
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)808-8771
Copies to: Michael E. Shaff, Esq., Irvine Venture Law Firm, LLP
19900 MacArthur Boulevard, Suite 1150, Irvine, CA 92612 Telephone (949) 660-7700
Securities registered pursuant to Section 12(g) of the Act:
Title of each class | Name of exchange on which registered | |
Common Stock, $0.001 par value | None |
Securities registered pursuant to Section 12(g) of the Act: All Common Stock $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | o | Accelerated filer | o |
Non-accelerated filer | o (Do not check if a smaller reporting company) | Smaller reporting company | þ |
Emerging growth company | o |
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 þ
The aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates of the registrant on May 31, 2017, the last business day of the registrant’s most recently completed fiscal quarter, computed by reference to the last sale price of the registrant’s common stock as reported by The NASDAQ Global Select Market on such date, was approximately $10,946,291 . This computation assumes that all executive officers, directors and persons known to the registrant to be the beneficial owners of more than ten percent of the registrant’s common stock are affiliates of the registrant. Such assumption should not be deemed conclusive for any other purpose.
As of August 29, 2017 , there were outstanding 12,696,805 shares of our common stock, par value $0.001 per share and 565,000 shares of the Company’s Series A 2012 preferred stock, par value $0.001 per share, 1,300,000 shares of the Company’s Series B-2014 preferred stock, par value $0.001 per share and 5,000,043 shares of the Company’s Series C-2016 preferred stock, par value $0.001.
Documents incorporated by reference: None
EXPLANATORY NOTE
This Amendment No. 2 to the Annual Report on Form 10-K is being filed solely to furnish the Interactive Data files as Exhibit 101, in accordance with Rule 405 of Regulation S-T.
The aggregate market value as of May 31, 2017 was correct as reported on the cover page on the original filing. The cover page to this amended 10-K/A has been updated to reflect the correct valuation.
No other changes have been made to the Form 10-K, as originally filed on August 29, 2017.
2 |
PART II - OTHER INFORMATION
Item 15. Exhibits
101.INS* | XBRL Instance Document |
101.SCH* | XBRL Schema Document |
101.CAL* | XBRL Calculation Linkbase Document |
101.DEF* | XBRL Definition Linkbase Document |
101.LAB* | XBRL Label Linkbase Document |
101.PRE* | XBRL Presentation Linkbase Document |
* Pursuant to Rule 406T of Regulation S-T, the interactive files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
3 |
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
ChineseInvestors.com, Inc. | |||
(Registrant) | |||
Date: August 31, 2017 | By: | /s/ Wei Wang | |
Wei Wang | |||
Chief Financial Officer | |||
Date: August 31, 2017 | By: | /s/ Wei Wang | |
Wei Wang | |||
Chief Executive Officer |
23 |
Document and Entity Information - USD ($) |
12 Months Ended | |
---|---|---|
May 31, 2017 |
Aug. 29, 2017 |
|
Document And Entity Information | ||
Entity Registrant Name | Chineseinvestors.com, Inc. | |
Entity Central Index Key | 0001459482 | |
Document Type | 10-K/A | |
Document Period End Date | May 31, 2017 | |
Amendment Flag | true | |
Current Fiscal Year End Date | --05-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Public Float | $ 10,946,291 | |
Entity Common Stock, Shares Outstanding | 12,696,805 | |
Document Fiscal Period Focus | FY | |
Document Fiscal Year Focus | 2017 | |
Amendment description | Company float corrected |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
May 31, 2017 |
May 31, 2016 |
---|---|---|
Stockholders' equity [note 3] | ||
Common stock par value | $ 0.001 | $ 0.001 |
Common stock authorized | 80,000,000 | 80,000,000 |
Common stock issued | 11,446,805 | 7,661,805 |
Common stock outstanding | 11,446,805 | 7,661,805 |
Preferred Class A [Member] | ||
Stockholders' equity [note 3] | ||
Preferred stock par value | $ 0.001 | $ 0.001 |
Preferred stock authorized | 20,000,000 | 20,000,000 |
Preferred stock issued | 615,000 | 905,000 |
Preferred stock outstanding | 615,000 | 905,000 |
Preferred Class B [Member] | ||
Stockholders' equity [note 3] | ||
Preferred stock par value | $ 0.001 | $ 0.001 |
Preferred stock authorized | 20,000,000 | 20,000,000 |
Preferred stock issued | 1,770,000 | 2,605,000 |
Preferred stock outstanding | 1,770,000 | 2,605,000 |
Preferred Class C [Member] | ||
Stockholders' equity [note 3] | ||
Preferred stock par value | $ 0.001 | $ 0.001 |
Preferred stock authorized | 20,000,000 | 20,000,000 |
Preferred stock issued | 5,000,043 | 0 |
Preferred stock outstanding | 5,000,043 | 0 |
Consolidated Statements of Stockholders' Equity (Deficiency) - USD ($) |
Common Stock |
Preferred Stock "A" |
Preferred Stock "B" |
Preferred Stock "C" |
Additional Paid-In Capital |
Foreign Currency Gain (Loss) |
Unrealized Gain on Securities |
Stockholders' Deficit |
Total |
---|---|---|---|---|---|---|---|---|---|
Beginning balance, shares at May. 31, 2015 | 7,724,305 | 905,000 | 1,885,000 | 0 | |||||
Beginning balance, value at May. 31, 2015 | $ 7,725 | $ 905 | $ 1,885 | $ 0 | $ 13,971,170 | $ 536 | $ 531,631 | $ (12,917,373) | $ 1,596,479 |
Stock issued for cash, shares issued | 720,000 | ||||||||
Stock issued for cash, value | $ 720 | 719,820 | 720,000 | ||||||
Deemed dividend associated with preferred stock issuance | 51,625 | (51,625) | |||||||
Preferred stock dividend | (148,300) | (148,300) | |||||||
Stock repurchased and retired, shares | (62,500) | ||||||||
Stock repurchased and retired, value | $ (62) | (6,187) | (6,249) | ||||||
Unrealized foreign currency gain/loss | (1,174) | (1,174) | |||||||
Unrealized investment gain/loss | 1,582,539 | 1,582,539 | |||||||
Net (loss) for the period | (1,981,006) | (1,981,006) | |||||||
Ending balance, shares at May. 31, 2016 | 7,661,805 | 905,000 | 2,605,000 | 0 | |||||
Ending balance, value at May. 31, 2016 | $ 7,663 | $ 905 | $ 2,605 | $ 0 | 14,735,888 | (638) | 2,114,170 | (15,098,304) | 1,762,288 |
Stock issued for cash, shares issued | 5,000,043 | ||||||||
Stock issued for cash, value | $ 5,000 | 4,995,043 | 5,000,043 | ||||||
Deemed dividend associated with preferred stock issuance | 3,685,520 | (3,685,520) | |||||||
Preferred stock dividend | (228,794) | (228,794) | |||||||
Unrealized foreign currency gain/loss | 638 | 638 | |||||||
Unrealized investment gain/loss | (2,321,062) | (2,321,062) | |||||||
Stock based compensation, shares | 1,335,000 | ||||||||
Stock based compensation, value | $ 1,335 | 513,615 | 514,950 | ||||||
Stock converted, shares issued | 2,450,000 | ||||||||
Stock converted, value issued | $ 2,450 | ||||||||
Stock converted, shares converted | (290,000) | (835,000) | |||||||
Stock converted, value converted | $ (290) | $ (835) | (1,325) | ||||||
Unamortized beneficial conversion feature | 1,244,622 | 1,244,622 | |||||||
Preferred stock discount | (1,244,622) | (1,244,622) | |||||||
Net (loss) for the period | (3,336,761) | (3,336,761) | |||||||
Ending balance, shares at May. 31, 2017 | 11,446,805 | 615,000 | 1,770,000 | 5,000,043 | |||||
Ending balance, value at May. 31, 2017 | $ 11,448 | $ 615 | $ 1,770 | $ 5,000 | $ 23,928,741 | $ 0 | $ (206,892) | $ (223,493,879) | $ 1,391,303 |
Organization and Nature of Operations |
12 Months Ended |
---|---|
May 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Nature of Operations |
Business Description – Chinseinvestors.com, Inc. (the “Company”) was incorporated on June 15, 1999 in the State of California. The Company is a provider of Chinese language web-based real-time financial information. The Company’s operations had been located in California until September 2002 at which time the operations were relocated to Shanghai, in the People’s Republic of China (PRC).
During May, 2000, the Company entered into an agreement with MAS Financial Corp. (“MASF”) whereby MASF agreed to transfer control of a public shell corporation to the Company and perform certain consulting services for a fee of $30,000.
During June, 2000, the Company completed reorganization with MAS Acquisition LII Corp. (“MASA”) with no operations or significant assets. Pursuant to the terms of the agreement, the Company acquired approximately 96% of the issued and outstanding common shares of MASA in exchange for all of its issued and outstanding common stock. MASA issued 8,200,000 shares of its restricted common stock for all of the issued and outstanding common shares of the Company. This reorganization was accounted for as though it were a recapitalization of the Company and sale by the Company of 319,900 shares of common stock in exchange for the net assets of MASA. In conjunction with the reorganization MASA changed its name to Chineseinvestors.com, Inc.
The Company is now incorporated as a C corporation in the State of Indiana as of June 1, 1997. |
1. Liquidity and Capital Resources |
12 Months Ended |
---|---|
May 31, 2017 | |
Cash and Cash Equivalents [Abstract] | |
Liquidity and Capital Resources |
Cash Flows – During the year ending May 31, 2017, the Company primarily utilized cash and cash equivalents and proceeds from issuances of its common and preferred stock to fund its operations. The Company received $5,000,043 of proceeds from the sale of Class “C” preferred stock during the years ended May 31, 2017.
Cash flows used in operations for the years ended May 31, 2017 and 2016 were $4,588,908 and $2,904,663, respectively. The increase of cash used in operations was primarily caused by the net loss offset by increase in cash raised through financing activities.
Capital Resources – As of May 31, 2017, the Company had cash and cash equivalents of $1,770,729 as compared to cash and cash equivalents of $197,231 as of May 31, 2016.
Going Concern – The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. There is potential that the Company will not continue as a going concern. The recoverability of recorded property and equipment, intangible assets, and other asset amounts shown in the accompanying financial statements is dependent upon the Company’s ability to continue as a going concern and to achieve a level of profitability. The Company intends on financing its future activities and its working capital needs largely from the sale of equity securities until such time that funds provided by operations are sufficient to fund working capital requirements. However, there can be no assurance that the Company will be successful in its efforts. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. |
2. Critical Accounting Policies and Estimates |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Critical Accounting Policies and Estimates |
Basis of Presentation – These accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission for annual financial statements.
Foreign Currency – The Company has operations in the PRC, however the functional and reporting currency is in US dollars. To come to this conclusion the Company considered the direction of ASC section 830-10-55.
Selling Price and Market – As a representative office is located in the PRC, the Company is not allowed to sell directly to PRC based customers. Over 90% of its customers are in the United States and 100% of all sales are paid in US dollars. This indicates the functional currency is US dollars.
Financing – The Company’s financing has been generated exclusively in US dollars from the United States. This indicates the functional currency is US dollars.
Expenses – The majority of expense are paid in US dollars. The expenses generated in PRC are paid by a monthly or weekly cash transfer from the US when the expenses are due, resulting in very little foreign currency exposure. This indicates the functional currency is US dollars.
Numerous Intercompany Transactions – The Company has multiple transactions each month between the US and Chinese representative office. This indicates the functional currency is US dollars
Due to the functional and reporting currency both being in US dollars, ASC 830-10-45-17 states that a currency translation is not necessary.
Revenue recognition — Revenue was derived from five different sources:
The Company recognizes revenue pursuant to revenue recognition principles presented in SAB Topic 13. First, persuasive evidence of an arrangement. Second, deliver has occurred or services have been rendered, thirdly the seller’s price to the buyer is fixed or determinable and lastly collectability is reasonably assured.
1. Fees from banner advertisement, webpage hosting and maintenance, on-line promotion and translation services, advertising and promotion fees for customers in the Company’s Chinese Investment Guides, sponsorship fees from investment seminars, road shows, and forums. The sales prices of these services are fixed and determinable at the time the contracts are signed and there are no provisions for refunds contained in the contracts. These revenues are recognized when all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured.
2. Fees from membership subscriptions: these revenues are recognized over the term of the subscription. Subscription terms are generally between 3 and 12 months but can occasionally be as short as 1 month or as long as 60 months. Long term deferred revenues are recognized from subscriptions over 12 months.
3. Fees related to setting up and providing ongoing administrative and translation support for currency trading accounts are in association with Forex. These fees are recognized when earned.
4. Investor relations income is earned by the Company in return for delivering current, publicly available information related to our client companies. These revenues are prepaid by the client company and as such are initially recorded as an asset with an offsetting unearned revenue liability. This revenue is recognized over the term of the services period while the services are being provided. The value of the revenue earned is recognized every quarter based upon the client company’s stock closing price multiplied by the numbers of shares earned within that specific accounting period. By recognizing the revenue incrementally, we are following the guidelines of SAB Topic 13, in that we are only recognizing revenue once the value of the revenue received is fixed and determinable. In addition, we are applying the definition of readily determinable fair value presented at Accounting Standards Codification 820-10-15-5 in assessing the amount to recognize in each accounting period. The number of shares earned is a function of the time period for which services are provided over the contract period in relation to the price of the shares at the time of the services being delivered, added to the value of cash received if any, then recognized as revenue in the period the services were delivered.
5. The Company recognizes revenue for product sales upon transfer of title to the customer. Customer purchase orders and/or contracts are generally used to determine the existence of an arrangement. Shipping documents and terms and the completion of any customer acceptance requirements, when applicable, are used to verify product delivery. The Company assesses whether a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company has no product returns or sales discounts and allowances because goods delivered and accepted by customers are normally not returnable.
Costs of Services/Products Sold – Costs of services provided are the total direct cost of the Company’s operations in Shanghai. Cost of goods sold includes cost of inventory sold during the period, net of discounts and inventory allowances, freight and shipping costs, warranty and rework costs.
Website Development Costs – The Company accounts for its Development Costs in accordance with ASC 350-50, “Accounting for Website Development Costs.” The Company’s website comprises multiple features and offerings that are currently developed with ongoing refinements. In connection with the development of its products, the Company has incurred external costs for hardware, software, and consulting services, and internal costs for payroll and related expenses of its technology employees directly involved in the development. All hardware costs are capitalized as fixed assets. Purchased software costs are capitalized in accordance with ASC codification 350-50-25 related to accounting for the costs of computer software developed or obtained for internal use. All other costs are reviewed to determine whether they should be capitalized or expensed.
Cash and Cash Equivalents – The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. At certain times, cash in bank may exceed the amount covered by FDIC insurance. At May 31, 2017 and 2016 there were deposit balances in a United States bank of $1,716,138 and $195,669 respectively. In addition, the Company maintains cash balance in The Bank of China, which is a government owned bank. The full balance of the deposits in China is secured by the Chinese government. At May 31, 2017 and 2016 there were deposits of $4,591 and $1,562, respectively, in The Bank of China. The Company also maintains cash balance in Shanghai Pudong Development Bank, at May 31, 2017 and 2016 there were deposits of $50,000 and $0, respectively.
Accounts Receivable and Concentration of Credit Risk – The Company extends unsecured credit to its customers in the ordinary course of business. Accounts receivable related to subscription revenue is recorded at the time the credit card transaction is completed, and is completed when the merchant bank deposits the cash to the Company bank account. Revenues related to advertising and Forex are regularly collected within 30 days of the time of services being rendered. However, since these are ongoing contracts, there has been no instance of failure to pay.
The Company evaluates the need for an allowance for doubtful accounts on a regular basis. As of May 31, 2017 and 2016, the Company determined the uncollectible are $3,216 and $126,915, respectively, and all write-offs that have occurred were not of the recurring nature.
The operations of the Company are located in the People’s Republic of China (“PRC”). Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy.
Investments, available for sale, in affiliate – The Company invested in an affiliate, Medicine Man Technologies, Inc. (“MDCL”), in April 2014, implemented the equity method of accounting. The Company received its ownership in return for supporting the company during its formational stage and no cash, as such the stock received had a value of zero and the affiliate generated a loss through May 31, 2014. The Company has no further commitment to fund losses; therefore, management has deemed it proper to discontinue applying the equity method for the investment as defined by Accounting Standards Codification (“ASC”) 323-10-35-20 for the year ended May 31, 2014. In 2015 the affiliate company issued additional stock, diluting the Company’s position and restructured the management of the entity causing the Company to determine that it no longer had “significant influence” over its operations. The Company then started accounting for the stock owned as an available for sale security. As there was a public market for MDCL stock at May 31, 2017 and 2016, the Company recognized the stock as a Level 1 financial instrument. The Company has liquidated a portion of its holdings in MDCL stock generating approximately $1,996,939 and $1,334,304 cash during the twelve months ended May 31, 2017 and 2016, respectively. At May 31, 2017, the Company still held 41,238 shares of MDCL stock representing $72,166 of value based upon the closing market price of $1.75. At May 31, 2016, the Company held 1,347,616 shares of MDCL stock representing $2,425,709 of value based upon the closing market price of $1.80.
Investments available for sale – Investments available for sale is comprised of publicly traded stock received in return for providing investor relations services to client companies. The investor relations services range from one month to a year, from the inception of the contract. The Company considers the securities to be liquid and convertible to cash in under a year. The Company has the ability and intent to liquidate any security that the Company holds to fund operations over the next twelve months, if necessary, and as such has classified all of its marketable securities as short-term.
The Company followed the guidance of ASC 320-10-30 to determine the initial measure of value based on the quoted price of an otherwise identical unrestricted security of the same issuer, adjusted for the effect of the restriction, in accordance with the provisions of topic 820-10-15-5, which states that an equity security has a readily determinable fair value if it meets the condition of having a “sales prices or bid-and-asked quotations which are currently available on a securities exchange registered with the U.S. Securities and Exchange Commission (SEC) or in the over-the-counter market, provided that those prices or quotations for the over-the-counter market are publicly reported by the National Association of Securities Dealers Automated Quotation systems or by the OTC Markets Group Ins. Restricted stock meets that definition if the restriction terminates within one year.” These shares were classified as available for sale securities in accordance with ASC 948-310-40-1 as the Companies intention is to sell them in the near-term (less than one year). In compliance with ASC 320-10-35-1, equity securities that have readily determinable fair values that are classified as available-for-sale shall be measured subsequently at fair value in the statement of financial position. “Unrealized holding gains and losses for available-for-sale securities (including those classified as current assets) shall be excluded from earnings and reported in other comprehensive income until realized.”
As these shares will be earned over the term of the contracts, the Company will defer the recognition of the earnings of the revenue over the period the services are performed. The value recorded will be determined by multiplying the average of the closing price on the last day of the month for the period being reported based on closing market price per share.
Upon receipt, these shares were recorded as an asset on the Companies financials as "Investments, available for sale". The Company will also record a corresponding contra-asset account titled "Unearned Revenue paid in stock".
Inventories - Inventory is valued at the lower of cost or market. Cost is determined using weighted average cost method.
Prepaid taxes –A percentage of the Company’s aggregate gross amount of reportable payment transactions settled through one of the Company’s merchant banks were withheld and remitted to the Internal Revenue Service (IRS) under IRS regulation Section 6050W. The Company has filed the tax returns to request a refund the withholdings as management does not believe the Company’s revenue transactions fall within the rules of Section 605W. Management expected to receive a full refund of the entire $33,165 as of May 31, 2015 however, due to difficulty and expected cost of securing the refunds the Company wrote off the balance receivable in the period ended May 31, 2016.
Other Current Assets – Other current assets consist of deposits in Chinese Renminbi on building space under an operating lease and are stated at the current exchange rate at year end. Security deposits of office rent in United States, Purchase deposits to vendors for the Hemp oil purchase, prepaid expenses in both United States and Shanghai, details as below:
Property and Equipment – Property and equipment are stated at cost. Depreciation and amortization of property and equipment is provided using the straight-line method over estimated useful lives ranging from three to five years. Leasehold improvements are amortized over the life of the lease. Depreciation and amortization expense was $16,410 and $20,071 for the years ended May 31, 2017 and 2016, respectively.
Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Gains and losses from retirement or replacement are included in operations.
Impairment of Long-life Assets – In accordance with ASC Topic 360, the Company reviews its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There is no impairment of long-lived assets as of May 31, 2017 and May 31, 2016.
Unearned revenue, revenue paid in stock – During fiscal year 2014, the Company received shares of stock and warrants as payment for investor relations work that the Company will be providing through May 2016. The stock that had not been earned was valued at $90,278 as of May 31, 2016 based on active market prices at the time of service contract being completed. During fiscal year 2017, the Company received additional shares of stock as payment for investor relation work total at $480,000 valued at contract dates that company will be providing through August 2017. The stock that had not been earned was valued at $231,945. As the Company earns the fee for this work, this balance will be reduced to reflect the portion still to be earned.
Accrued dividend & interest – The accrued dividend balance represents dividend payable related to the Series B-2014 preferred stock and Series C-2016 preferred stock. Accrued dividend was $150,831 and $2,575 for the year ended May 31, 2017 and 2016 respectively. The accrued interest balance represents interest payable for short term debt outstanding. Accrued interest was $16,857 and $23,954 for the year ended May 31, 2017 and 2016 respectively.
Accrued Liabilities – Accrued liabilities are comprised of the following:
Short-term Debt - During 2016, the Company obtained short term debt of $660,000 from various individuals, secured by 660,000 shares of the Company owned stock in MDCL. The lender received an incentive of 30% appreciation of the stock value for MDCL at the maturity of the short-term notes, 15 months after inception or the date when the Company liquidates its MDCL stock, whichever is earlier. Short-term debt secured 660,000 shares of MDCL common stock were sold at $1.2 per share, the incentive feature was $39,600. In January 2017, the Company paid off the principal of the loan of $660,000 plus interest and incentives.
In September 2016, the Company obtained short-term debt of $410,000 from various individuals. Based on the original lending agreements, the loan is secured by shares of the stocks in the following companies.
When entering the loan agreement, the Company believed that the contract would be executed and SINO shares would be delivered upon signing the contract. However, such IR service agreement was not executed due to the disagreement among SINO’s management, as a result, the Company did not obtain the SINO shares as of May 31, 2017. For NFEC, the Company obtained 100,000 shares at the time of entering the contract, and the remaining shares were fully received by the end of year 2016. For RCON, the Company obtained 50,000 shares at the time entering the contract, but the agreement called for collateral of 60,000 RCON shares. The collateral is now short by 10,000 shares of RCON common stock so the RCON shares are short by 10,000. The loan agreements are still valid after renegotiating the terms with the private lenders. These notes are due on September 2017. The lenders received a 20% of the deemed increase in value of these secured shares (“Incentive Feature”) at the maturity of the short-term note. We estimate the value of the Incentive Feature of the common stock collateralizing the debt using the fair market value as of May 31, 2017. We recorded the estimated value of the Incentive Feature as and increase to the debt liability and interest expense. As of May 31, 2017, the Incentive Feature of $23,520 was recorded.
Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The financial statements include some amounts that are based on management's best estimates and judgments. The most significant estimates relate to depreciation and useful lives, and contingencies. These estimates may be adjusted as more current information becomes available, and any adjustment could be significant.
Fair Value of Financial Instruments – The Company has adopted the provisions of ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
Much of the Company’s financial instruments are level one and are carried at market value, requiring no adjustment to book value. The financial instruments classified as level one were deemed to qualify as that classification because their value was determined by the price of identical instruments traded on an active exchange. It should be noted that 60,000 shares of the stock earned for consulting work from Clear Current, was held qualifies as a Level two instrument and has a book value of $67,500 as of May 31, 2016. In year ended May 31, 2017, the Company determined Clear Current failed to meet investment goals and investment was no longer worth what it paid. The Company write-off this investment as of May 31, 2017.
Level one instruments were based upon stated balance of financial institution or calculated based upon stock trading in the public market. Level two instruments were calculated based upon the sale of stock through a private placement at arms-length where our shares were an insignificant amount of the total volume of stock sold in the issuer. Level three financial instruments were valued by a professional independent appraiser hired by the Company to determine the valuation. The level three valuation calculation included discounted cash flow models and market based models as appropriately utilized by a professional valuation firm. The inputs they used included the entities past financial performance, projected budgets, prior private stock sale history and comparable company valuations.
The following table summarizes the assets we are carrying and the fair value category in which they are currently classified:
Income Taxes – Income taxes are accounted for under the asset and liability method of ASC 740. Deferred tax assets and liabilities are recognized for net operating loss and other credit carry forwards and the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the tax effect of transactions are expected to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the year that includes the enactment date.
Deferred tax assets are reduced by a full valuation allowance since it is more likely than not that the amount will not be realized. Deferred tax assets and liabilities are classified as current or noncurrent based on the classification of the underlying asset or liability giving rise to the temporary difference or the expected date of utilization of the carry forwards.
Other Revenue – For the year ended May 31, 2017, other revenue is comprised of revenue related to Forex service fees, interest income generated from bank and other miscellaneous income. For the year ended May 31, 2016, other revenue is comprised of revenue related to Forex service fees and rent generated through office space sublease revenue which is recognized over the period the term of the lease, the sublease ended as of May 31, 2016.
Uncollectable account write-off – Uncollectable account write-off was comprised of an expense recognized due to recognizing that a receivable would not be collected. This was determined to be a nonrecurring incident and not something that required an ongoing allowance for doubtful account.
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 (formerly SFAS128), “Earnings Per Share”. Fully diluted loss per share are not calculated and presented on the financial statements as the calculation would be antidilutive.
Stock Based Compensation – The Company accounts for share-based payments pursuant to ASC 718, “Stock Compensation” and, accordingly, the Company records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options and restricted stock awards using the Black-Scholes option pricing model.
Stock compensation expense for stock options is recognized over the vesting period of the award or expensed immediately under ASC 718 and EITF 96-18 when stock or options are awarded for previous or current service without further recourse. The Company issued stock options to contractors and external companies that had been providing services to the Company upon their termination of services. Under ASC 718 and EITF 96-18 these options were recognized as expense in the period issued because they were given as a form of payment for services already rendered with no recourse.
On October 2016, the Company declared restricted stock award to its eligible employees and contractors. Total shares awarded were 1,035,000, and the fair market price at grant date was $0.37 per share. All these shares were fully vested at grant date, total stock compensation expense totaling $382,950 were recorded. 985,000 shares were issued on February 28, 2017, 50,000 shares were not recorded with transfer agent as of the filling date of the report.
On December 15, 2016, the Company awarded and issued restricted stock award to corporate counsel and former COO and secretary 100,000 shares in total, and the fair market price at the grant date was $0.44 per share. All these shares were fully vested at grant date, total stock compensation expense totaling $44,000 were recorded.
On December 15, 2016, the Company awarded and issued restricted stock award to various contractors and service provides 200,000 shares in total, and the fair market price at the grant date was $0.44 per share. All those shares were fully vested at grant date, total stock compensation expense totaling $88,000 were recorded. 200,000 shares were issued on December 15, 2016.
Stock option activity was as follows (converted post reverse split):
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 March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which modifies certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards, and classification in the statement of cash flows. The Company will adopt ASU 2016-09 in its first quarter of 2018. Currently, excess tax benefits or deficiencies from the Company's equity awards are recorded as additional paid-in capital in its Consolidated Balance Sheets. Upon adoption, the Company will record any excess tax benefits or deficiencies from its equity awards in its Consolidated Statements of Operations in the reporting periods in which vesting occurs. As a result, subsequent to adoption the Company's income tax expense and associated effective tax rate will be impacted by fluctuations in stock price between the grant dates and vesting dates of equity awards. The Company is still in progress of evaluating future impact of adopting this standard. In May 2017, the FASB issued ASU NO. 2017-09 Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, Effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance.
In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”. The amendments add further guidance on identifying performance obligations and also to improve the operability and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”. The amendments, among other things: (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The effective date of these amendments is at the same date that Topic 606 is effective. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”. The amendments in ASU 2016-20 affect narrow aspects of the guidance issued in ASU 2014-09 including Loan Guarantee Fees, Contract Costs, Provisions for Losses on Construction-Type and Production-Type Contracts, Disclosure of Remaining Performance Obligations, Disclosure of Prior Period Performance Obligations, Contract Modifications, Contract Asset vs. Receivable, Refund Liabilities, Advertising Costs, Fixed Odds Wagering Contracts in the Casino Industry, and Costs Capitalized for Advisors to Private Funds and Public Funds. The effective date of these amendments are at the same date that Topic 606 is effective. Topic 606 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements
The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based on current information. |
3. Stockholders' Equity |
12 Months Ended |
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May 31, 2017 | |
Equity [Abstract] | |
Stockholders' Equity |
As of May 31, 2017 and 2016, the Company was authorized to issue 80,000,000 shares of common stock, $0.001 par value per share. In addition, 20,000,000 shares of $.001 par value preferred stock were authorized. All common stock shares have full dividend rights. However, it is not anticipated that the Company will be declaring distributions in the foreseeable future.
During the year ended May 31, 2016, the company bought back 62,500 shares of company stock former COO Brett Roper, but those shares has not been returned as of May 31, 2017. The Company has communicated with Mr. Brett Roper, confirmed shares will be returned soon and recorded with transfer agent.
During the year ended May 31, 2017, the Company converted 290,000 shares of Series A preferred stock for 362,500 of common stock shares at a conversion rate of $1.25 per share of preferred stock.
During the year ended May 31, 2017, the Company converted 835,000 shares of Series B preferred stock for 2,087,500 of common stock shares at a conversion rate of $2.50 per share of preferred stock.
During the year ended May 31, 2017, the Company granted 1,335,000 shares of restricted common stock or compensation. The stock was valued from $0.44 to $0.47 per share. The compensation and consulting expense was recorded as general and administrative expenses for the year ended May 31, 2017.
Series A Convertible Preferred Stock
During the third quarter, effective February 29, 2012, the Company issued 2,003,776 shares of preferred stock as Series A convertible preferred stock for total proceeds of $2,003,776. The terms of the preferred stock allow the holder to convert each share of preferred stock into 1.25 shares of common stock at any time after nine months from the date of issuance. The holders of shares of preferred stock were entitled to receive a dividend of $0.06 per share per annum for the first two years from the issuance of the instruments. The Company maintained the right to suspend the dividend at its discretion if it is deemed necessary.
Series B 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 B convertible preferred stock for total proceeds of $2,605,000. The terms of the preferred stock allow the holder to convert each share of preferred stock into 2.5 shares of common stock at any time after six months from the date of issuance. The holders of shares of preferred stock shall have the right to one vote for each share of common stock into which such preferred stock could convert. The holders of shares of preferred stock are entitled to receive a dividend of $0.06 per share per annum for the first two years from the issuance of the instruments, which has been recorded as an accrued dividend on the liabilities section of the balance sheet. The Company maintained the right to suspend the dividend at its discretion if it is deemed necessary.
Series C Convertible Preferred Stock
In December 2016, the Company issued 5,000,043 shares of its Series C-2016 Preferred Stock at a price of $1.00 per share for total proceeds of $5,000,043. The terms of the preferred stock allow the holder to convert each share of preferred stock into 3 shares of common stock at any time after six months from the date of issuance. The holders of shares of preferred stock are entitled to receive a dividend of $0.06 per share per annum for the first year from the issuance of the instruments, which has been recorded as an accrued dividend on the liabilities section of the balance sheet. The Company maintained the right to suspend the dividend at its discretion if it is deemed necessary.
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 and Emerging Issues Task Force (“EITF”) No. 00-27, we have recorded the intrinsic value of this beneficial conversion feature(“BCF”).
In according to ASC 470-20-30-6 Intrinsic value shall be calculated at the commitment date as the differences between the conversion price and the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares into which the security is convertible. In according to ASC 470-20-30-8, if the intrinsic value of the beneficial conversion feature is greater than the proceeds allocated to the convertible instrument, the amount of the discount assigned to the beneficial conversion feature shall be limited to the amount of the proceeds allocated to the convertible instrument. Since all the preferred stocks are issued on different date, we calculate the intrinsic value for each individual preferred stock issuance based on stock issuance date. If the intrinsic value exceeds actual proceed we received, actual proceeds will BCF, otherwise, the intrinsic value is BCF. Therefore, we got the BCF of the preferred shares 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 is convertible after six months from the date of issuance. We then amortize the BCF over six months period, and record $3,685,520 as deemed dividend that reduce accumulated deficit and the remaining $1,244,622 as preferred stock discount on the balance sheet as contra account to additional paid-in-capital preferred stock. |
4. Property and Equipment |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment |
Property and equipment are recorded at cost, net of accumulated depreciation and are comprised of the following:
Depreciation on equipment is provided on a straight-line basis over its expected useful lives at the following annual rates.
Depreciation expense for the years ended May 31, 2017 and 2016 was $6,452 and $9,903, respectively. |
5. Intangible Assets |
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May 31, 2017 | |||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
Intangible Assets |
Intangible assets are comprised of the following:
Amortization is calculated over a straight-line basis using the economic life of the asset. Amortization expense for the twelve months ended May 31, 2017 and 2016 was $9,958 and $10,166 respectively. |
6. Commitments and Concentrations |
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May 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Concentrations |
Office Lease – Shanghai – The Company entered into a lease for new office space in Shanghai, China. The lease period started October 1, 2013 and will terminate September 31, 2016. On August 2016, the Company renewed this lease at $5,400 per month to September 30, 2019, resulting in the following future commitments:
Office Lease – Denver, Colorado – The Company entered a lease for office space in Denver, Colorado. The original lease period started June 1, 2015 and was to terminate May 31, 2018. The monthly lease payment was $3,333. On June 2016, the Company and landlord mutually agreed to terminate this contract on August 15, 2016 and the security deposit was converted to two months of rent at that time.
Office Lease – New York – The Company entered a lease for executive office space in New York, NY. The original lease period started April 21, 2015 and was terminated on July 31, 2016. On January 2016, the Company renewed the lease at $2,167 per month to February 28, 2017. The lease agreement was terminated on February 28, 2017.
Office Lease – San Gabriel, California – The Company entered a lease for executive office space in San Gabriel, California. The Lease period started April 30, 2015 and was terminated on August 1, 2016. On June 2016, the Company renewed the contract for another 3 years to July 31, 2019, the current monthly rent is $5,304, resulting in the following future commitments:
The Company entered another lease for retail store in San Gabriel, California. The lease period started February 1, 2017 to July 31, 2019, the current monthly rent is $3,243, resulting in the following future commitments:
Office Lease – Irwindale, California – On October 2015, the Company entered a lease for executive office space in Irwindale, California. The Lease is one-year lease at $5,000 per month and that terminates on November 10, 2016. On November 11, 2016, the company renewed the lease at $4,000 per month to February 10, 2017. The Company is on month to month rent at this location, and the rent is $4,000 per month as of May 31, 2017. The lease was terminated on June 15, 2017.
Concentrations – During the periods ending May 31, 2017 and 2016, the majority of the Company’s revenue was derived from its operations in PRC from individuals, primarily in the United States and Canada. Due to nature of individuals sales being fairly small there was no concentration of revenue on an individual level.
Litigation – The Company is involved in legal proceedings from time to time in the ordinary course of its business. As of the date of this filing, the Company is a party to an investigation which, in the opinion of management, upon consideration of corporate counsel advice, it believes it is reasonably likely to not have an adverse effect on the financial condition, results of operation or cash flow of the Company in the future. |
7. Related Party |
12 Months Ended |
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May 31, 2017 | |
Related Party Transactions [Abstract] | |
Related Party |
Mrs. Lan Jiang is the spouse of the Company’s CEO, Mr. Warren Wang. During the year ended May 31, 2017, she received 200,000 shares of the Company’s stock compensation with the fair market value $74,000 as of grant date. Those 200,000 shares of the Company’s stock was issued and delivery on February 28, 2017.
The Company also made investment of $250,000 to Breakwater MB LLC, a cannabis-focused investment and consulting company, formed by the Company’s board member and former CFO, Paul Dickman, as a means to invest capital in and provide consulting services to private, cannabis-focused companies as they transition into the public market. |
8. Income Taxes |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes |
The Company recorded no income tax provision or benefit for the years ended May 31, 2017 and 2016, because the Company believes it is more likely than not that these will not be utilized in the near future due to net losses. The Company generated no taxable income. The income tax provision (benefit) differs from the amount computed by applying the U.S. Federal income tax rate of 34% plus applicable state rates to the loss before income taxes due to the unrecognized benefit resulting from the Company’s valuation allowance, as well as due to nondeductible expenses.
For income tax reporting purposes, the Company has approximately $10 million of net operating loss carry forwards as of May 31, 2017, and $8 million of net operating loss carry forwards as of May 31, 2016. Tax Reform Act of 1986 contains provisions that may limit the net operating loss carry forwards and tax credits available to be used in any given year if certain events occur, including significant changes in ownership interests. Realization of net operating loss and tax credit carry forwards is dependent on generating sufficient taxable income prior to their expiration dates.
As of May 31, 2017 and 2016, the Company had approximately $3.4 million and $2.7 million, respectively, of net deferred tax assets, comprised primarily of the potential future tax benefits from net operating loss carry forwards. Based upon the level of historical taxable income and projections for future taxable income over the period in which the deferred tax assets are deductible, management could not conclude that realization of the deferred tax assets as of May 31, 2017 and 2016, was more likely than not, and therefore, the Company has recorded a valuation allowance to reduce the net deferred tax assets to zero. The amount of deferred tax assets considered realizable could be adjusted in the near term if future taxable income is generated.
The Company’s effective tax rate differs from the statutory rate due to the following (expressed as a percentage of pre-tax income):
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9. Correction of Immaterial Error |
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Accounting Changes and Error Corrections [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Correction of Immaterial Error |
Subsequent to November 30, 2016, the Company discovered a couple of prior period accounting transactions and one preferred stock sale that were not properly recorded. These were comprised of two transactions related to service revenue paid in stocks which were not reported to the accounting department. Second, when the Company raised $70,000 from selling 70,000 shares of Series B-2014 preferred stock was inadvertently recorded as IR-revenue. Due to these errors, the Company’s revenue was understated by $45,200 for the year ended May 31, 2016. On balance sheet as of May 31, 2016, total assets were understated by $171,600, total liabilities was understated by $2,575 and total shareholders’ equity were understated by $169,025.
The Company assessed the materiality of the errors considering both quantitatively and qualitatively effect in accordance with Staff Accounting Bulletin No. 99, Materiality and determined that the errors are not material to the decision making to a reasonable investor. Accordingly, the Company has revised its balance sheet as of May 31, 2016. The Company intends to revise its financial statements for certain quarterly periods through subsequent periodic filings. The effect of recording this immaterial correction in the balance sheet as of May 31, 2016, and for financial statements in subsequent periods filings are as follows:
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10. Subsequent Events |
12 Months Ended |
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May 31, 2017 | |
Subsequent Events [Abstract] | |
Subsequent Events |
The Company is currently in the process of offering up to 10,000,000 shares of its Series D-2017 Convertible Preferred Stock. Each share of Series D-2017 Preferred Stock is convertible into 2 shares of the Company’s common stock. The Series D-2017 Convertible Preferred Stock will pay at least two years of dividends at the rate of 6% per year on the original investment of $1 per share of Series D-2017 Convertible Preferred Stock. |
2. Critical Accounting Policies and Estimates (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation |
Basis of Presentation – These accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission for annual financial statements. |
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Foreign Currency |
Foreign Currency – The Company has operations in the PRC, however the functional and reporting currency is in US dollars. To come to this conclusion the Company considered the direction of ASC section 830-10-55.
Selling Price and Market – As a representative office is located in the PRC, the Company is not allowed to sell directly to PRC based customers. Over 90% of its customers are in the United States and 100% of all sales are paid in US dollars. This indicates the functional currency is US dollars.
Financing – The Company’s financing has been generated exclusively in US dollars from the United States. This indicates the functional currency is US dollars.
Expenses – The majority of expense are paid in US dollars. The expenses generated in PRC are paid by a monthly or weekly cash transfer from the US when the expenses are due, resulting in very little foreign currency exposure. This indicates the functional currency is US dollars.
Numerous Intercompany Transactions – The Company has multiple transactions each month between the US and Chinese representative office. This indicates the functional currency is US dollars
Due to the functional and reporting currency both being in US dollars, ASC 830-10-45-17 states that a currency translation is not necessary. |
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Revenue recognition |
Revenue recognition — Revenue was derived from five different sources:
The Company recognizes revenue pursuant to revenue recognition principles presented in SAB Topic 13. First, persuasive evidence of an arrangement. Second, deliver has occurred or services have been rendered, thirdly the seller’s price to the buyer is fixed or determinable and lastly collectability is reasonably assured.
1. Fees from banner advertisement, webpage hosting and maintenance, on-line promotion and translation services, advertising and promotion fees for customers in the Company’s Chinese Investment Guides, sponsorship fees from investment seminars, road shows, and forums. The sales prices of these services are fixed and determinable at the time the contracts are signed and there are no provisions for refunds contained in the contracts. These revenues are recognized when all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured.
2. Fees from membership subscriptions: these revenues are recognized over the term of the subscription. Subscription terms are generally between 3 and 12 months but can occasionally be as short as 1 month or as long as 60 months. Long term deferred revenues are recognized from subscriptions over 12 months.
3. Fees related to setting up and providing ongoing administrative and translation support for currency trading accounts are in association with Forex. These fees are recognized when earned.
4. Investor relations income is earned by the Company in return for delivering current, publicly available information related to our client companies. These revenues are prepaid by the client company and as such are initially recorded as an asset with an offsetting unearned revenue liability. This revenue is recognized over the term of the services period while the services are being provided. The value of the revenue earned is recognized every quarter based upon the client company’s stock closing price multiplied by the numbers of shares earned within that specific accounting period. By recognizing the revenue incrementally, we are following the guidelines of SAB Topic 13, in that we are only recognizing revenue once the value of the revenue received is fixed and determinable. In addition, we are applying the definition of readily determinable fair value presented at Accounting Standards Codification 820-10-15-5 in assessing the amount to recognize in each accounting period. The number of shares earned is a function of the time period for which services are provided over the contract period in relation to the price of the shares at the time of the services being delivered, added to the value of cash received if any, then recognized as revenue in the period the services were delivered.
5. The Company recognizes revenue for product sales upon transfer of title to the customer. Customer purchase orders and/or contracts are generally used to determine the existence of an arrangement. Shipping documents and terms and the completion of any customer acceptance requirements, when applicable, are used to verify product delivery. The Company assesses whether a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company has no product returns or sales discounts and allowances because goods delivered and accepted by customers are normally not returnable. |
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Costs of Services/Products Sold |
Costs of Services/Products Sold – Costs of services provided are the total direct cost of the Company’s operations in Shanghai. Cost of goods sold includes cost of inventory sold during the period, net of discounts and inventory allowances, freight and shipping costs, warranty and rework costs. |
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Website Development Costs |
Website Development Costs – The Company accounts for its Development Costs in accordance with ASC 350-50, “Accounting for Website Development Costs.” The Company’s website comprises multiple features and offerings that are currently developed with ongoing refinements. In connection with the development of its products, the Company has incurred external costs for hardware, software, and consulting services, and internal costs for payroll and related expenses of its technology employees directly involved in the development. All hardware costs are capitalized as fixed assets. Purchased software costs are capitalized in accordance with ASC codification 350-50-25 related to accounting for the costs of computer software developed or obtained for internal use. All other costs are reviewed to determine whether they should be capitalized or expensed. |
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Cash and Cash Equivalents |
Cash and Cash Equivalents – The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. At certain times, cash in bank may exceed the amount covered by FDIC insurance. At May 31, 2017 and 2016 there were deposit balances in a United States bank of $1,716,138 and $195,669 respectively. In addition, the Company maintains cash balance in The Bank of China, which is a government owned bank. The full balance of the deposits in China is secured by the Chinese government. At May 31, 2017 and 2016 there were deposits of $4,591 and $1,562, respectively, in The Bank of China. The Company also maintains cash balance in Shanghai Pudong Development Bank, at May 31, 2017 and 2016 there were deposits of $50,000 and $0, respectively. |
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Accounts Receivable and Concentration of Credit Risk |
Accounts Receivable and Concentration of Credit Risk – The Company extends unsecured credit to its customers in the ordinary course of business. Accounts receivable related to subscription revenue is recorded at the time the credit card transaction is completed, and is completed when the merchant bank deposits the cash to the Company bank account. Revenues related to advertising and Forex are regularly collected within 30 days of the time of services being rendered. However, since these are ongoing contracts, there has been no instance of failure to pay.
The Company evaluates the need for an allowance for doubtful accounts on a regular basis. As of May 31, 2017 and 2016, the Company determined the uncollectible are $3,216 and $126,915, respectively, and all write-offs that have occurred were not of the recurring nature.
The operations of the Company are located in the People’s Republic of China (“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. |
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Investments, available for sale, in affiliate |
Investments, available for sale, in affiliate – The Company invested in an affiliate, Medicine Man Technologies, Inc. (“MDCL”), in April 2014, implemented the equity method of accounting. The Company received its ownership in return for supporting the company during its formational stage and no cash, as such the stock received had a value of zero and the affiliate generated a loss through May 31, 2014. The Company has no further commitment to fund losses; therefore, management has deemed it proper to discontinue applying the equity method for the investment as defined by Accounting Standards Codification (“ASC”) 323-10-35-20 for the year ended May 31, 2014. In 2015 the affiliate company issued additional stock, diluting the Company’s position and restructured the management of the entity causing the Company to determine that it no longer had “significant influence” over its operations. The Company then started accounting for the stock owned as an available for sale security. As there was a public market for MDCL stock at May 31, 2017 and 2016, the Company recognized the stock as a Level 1 financial instrument. The Company has liquidated a portion of its holdings in MDCL stock generating approximately $1,996,939 and $1,334,304 cash during the twelve months ended May 31, 2017 and 2016, respectively. At May 31, 2017, the Company still held 41,238 shares of MDCL stock representing $72,166 of value based upon the closing market price of $1.75. At May 31, 2016, the Company held 1,347,616 shares of MDCL stock representing $2,425,709 of value based upon the closing market price of $1.80. |
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Investments available for sale |
Investments available for sale – Investments available for sale is comprised of publicly traded stock received in return for providing investor relations services to client companies. The investor relations services range from one month to a year, from the inception of the contract. The Company considers the securities to be liquid and convertible to cash in under a year. The Company has the ability and intent to liquidate any security that the Company holds to fund operations over the next twelve months, if necessary, and as such has classified all of its marketable securities as short-term.
The Company followed the guidance of ASC 320-10-30 to determine the initial measure of value based on the quoted price of an otherwise identical unrestricted security of the same issuer, adjusted for the effect of the restriction, in accordance with the provisions of topic 820-10-15-5, which states that an equity security has a readily determinable fair value if it meets the condition of having a “sales prices or bid-and-asked quotations which are currently available on a securities exchange registered with the U.S. Securities and Exchange Commission (SEC) or in the over-the-counter market, provided that those prices or quotations for the over-the-counter market are publicly reported by the National Association of Securities Dealers Automated Quotation systems or by the OTC Markets Group Ins. Restricted stock meets that definition if the restriction terminates within one year.” These shares were classified as available for sale securities in accordance with ASC 948-310-40-1 as the Companies intention is to sell them in the near-term (less than one year). In compliance with ASC 320-10-35-1, equity securities that have readily determinable fair values that are classified as available-for-sale shall be measured subsequently at fair value in the statement of financial position. “Unrealized holding gains and losses for available-for-sale securities (including those classified as current assets) shall be excluded from earnings and reported in other comprehensive income until realized.”
As these shares will be earned over the term of the contracts, the Company will defer the recognition of the earnings of the revenue over the period the services are performed. The value recorded will be determined by multiplying the average of the closing price on the last day of the month for the period being reported based on closing market price per share.
Upon receipt, these shares were recorded as an asset on the Companies financials as "Investments, available for sale". The Company will also record a corresponding contra-asset account titled "Unearned Revenue paid in stock". |
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Inventories |
Inventories - Inventory is valued at the lower of cost or market. Cost is determined using weighted average cost method. |
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Prepaid taxes |
Prepaid taxes –A percentage of the Company’s aggregate gross amount of reportable payment transactions settled through one of the Company’s merchant banks were withheld and remitted to the Internal Revenue Service (IRS) under IRS regulation Section 6050W. The Company has filed the tax returns to request a refund the withholdings as management does not believe the Company’s revenue transactions fall within the rules of Section 605W. Management expected to receive a full refund of the entire $33,165 as of May 31, 2015 however, due to difficulty and expected cost of securing the refunds the Company wrote off the balance receivable in the period ended May 31, 2016. |
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Other Current Assets |
Other Current Assets – Other current assets consist of deposits in Chinese Renminbi on building space under an operating lease and are stated at the current exchange rate at year end. Security deposits of office rent in United States, Purchase deposits to vendors for the Hemp oil purchase, prepaid expenses in both United States and Shanghai, details as below:
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Property and Equipment |
Property and Equipment – Property and equipment are stated at cost. Depreciation and amortization of property and equipment is provided using the straight-line method over estimated useful lives ranging from three to five years. Leasehold improvements are amortized over the life of the lease. Depreciation and amortization expense was $16,410 and $20,071 for the years ended May 31, 2017 and 2016, respectively.
Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Gains and losses from retirement or replacement are included in operations. |
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Impairment of Long-life Assets |
Impairment of Long-life Assets – In accordance with ASC Topic 360, the Company reviews its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There is no impairment of long-lived assets as of May 31, 2017 and May 31, 2016. |
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Unearned revenue, revenue paid in stock |
Unearned revenue, revenue paid in stock – During fiscal year 2014, the Company received shares of stock and warrants as payment for investor relations work that the Company will be providing through May 2016. The stock that had not been earned was valued at $90,278 as of May 31, 2016 based on active market prices at the time of service contract being completed. During fiscal year 2017, the Company received additional shares of stock as payment for investor relation work total at $480,000 valued at contract dates that company will be providing through August 2017. The stock that had not been earned was valued at $231,945. As the Company earns the fee for this work, this balance will be reduced to reflect the portion still to be earned. |
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Accrued Dividend and Interest |
Accrued dividend & interest – The accrued dividend balance represents dividend payable related to the Series B-2014 preferred stock and Series C-2016 preferred stock. Accrued dividend was $150,831 and $2,575 for the year ended May 31, 2017 and 2016 respectively. The accrued interest balance represents interest payable for short term debt outstanding. Accrued interest was $16,857 and $23,954 for the year ended May 31, 2017 and 2016 respectively. |
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Accrued liabilities |
Accrued Liabilities – Accrued liabilities are comprised of the following:
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Short-term debt |
Short-term Debt - During 2016, the Company obtained short term debt of $660,000 from various individuals, secured by 660,000 shares of the Company owned stock in MDCL. The lender received an incentive of 30% appreciation of the stock value for MDCL at the maturity of the short-term notes, 15 months after inception or the date when the Company liquidates its MDCL stock, whichever is earlier. Short-term debt secured 660,000 shares of MDCL common stock were sold at $1.2 per share, the incentive feature was $39,600. In January 2017, the Company paid off the principal of the loan of $660,000 plus interest and incentives.
In September 2016, the Company obtained short-term debt of $410,000 from various individuals. Based on the original lending agreements, the loan is secured by shares of the stocks in the following companies.
When entering the loan agreement, the Company believed that the contract would be executed and SINO shares would be delivered upon signing the contract. However, such IR service agreement was not executed due to the disagreement among SINO’s management, as a result, the Company did not obtain the SINO shares as of May 31, 2017. For NFEC, the Company obtained 100,000 shares at the time of entering the contract, and the remaining shares were fully received by the end of year 2016. For RCON, the Company obtained 50,000 shares at the time entering the contract, but the agreement called for collateral of 60,000 RCON shares. The collateral is now short by 10,000 shares of RCON common stock so the RCON shares are short by 10,000. The loan agreements are still valid after renegotiating the terms with the private lenders. These notes are due on September 2017. The lenders received a 20% of the deemed increase in value of these secured shares (“Incentive Feature”) at the maturity of the short-term note. We estimate the value of the Incentive Feature of the common stock collateralizing the debt using the fair market value as of May 31, 2017. We recorded the estimated value of the Incentive Feature as and increase to the debt liability and interest expense. As of May 31, 2017, the Incentive Feature of $23,520 was recorded. |
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Use of Estimates |
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. |
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Fair Value of Financial Instruments |
Fair Value of Financial Instruments – The Company has adopted the provisions of ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
Much of the Company’s financial instruments are level one and are carried at market value, requiring no adjustment to book value. The financial instruments classified as level one were deemed to qualify as that classification because their value was determined by the price of identical instruments traded on an active exchange. It should be noted that 60,000 shares of the stock earned for consulting work from Clear Current, was held qualifies as a Level two instrument and has a book value of $67,500 as of May 31, 2016. In year ended May 31, 2017, the Company determined Clear Current failed to meet investment goals and investment was no longer worth what it paid. The Company write-off this investment as of May 31, 2017.
Level one instruments were based upon stated balance of financial institution or calculated based upon stock trading in the public market. Level two instruments were calculated based upon the sale of stock through a private placement at arms-length where our shares were an insignificant amount of the total volume of stock sold in the issuer. Level three financial instruments were valued by a professional independent appraiser hired by the Company to determine the valuation. The level three valuation calculation included discounted cash flow models and market based models as appropriately utilized by a professional valuation firm. The inputs they used included the entities past financial performance, projected budgets, prior private stock sale history and comparable company valuations.
The following table summarizes the assets we are carrying and the fair value category in which they are currently classified:
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Income Taxes |
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. |
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Other revenue |
Other Revenue – For the year ended May 31, 2017, other revenue is comprised of revenue related to Forex service fees, interest income generated from bank and other miscellaneous income. For the year ended May 31, 2016, other revenue is comprised of revenue related to Forex service fees and rent generated through office space sublease revenue which is recognized over the period the term of the lease, the sublease ended as of May 31, 2016. |
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Uncollectible write-off |
Uncollectible account write-off – Uncollectible account write-off was comprised of an expense recognized due to recognizing that a receivable would not be collected. This was determined to be a nonrecurring incident and not something that required an ongoing allowance for doubtful account. |
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Advertising Costs |
Advertising Costs – Advertising costs are expensed when incurred. |
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Earnings (Loss) Per Share |
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 (formerly SFAS128), “Earnings Per Share”. Fully diluted loss per share are not calculated and presented on the financial statements as the calculation would be antidilutive. |
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Stock Based Compensation |
Stock Based Compensation – The Company accounts for share-based payments pursuant to ASC 718, “Stock Compensation” and, accordingly, the Company records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options and restricted stock awards using the Black-Scholes option pricing model.
Stock compensation expense for stock options is recognized over the vesting period of the award or expensed immediately under ASC 718 and EITF 96-18 when stock or options are awarded for previous or current service without further recourse. The Company issued stock options to contractors and external companies that had been providing services to the Company upon their termination of services. Under ASC 718 and EITF 96-18 these options were recognized as expense in the period issued because they were given as a form of payment for services already rendered with no recourse.
On October 2016, the Company declared restricted stock award to its eligible employees and contractors. Total shares awarded were 1,035,000, and the fair market price at grant date was $0.37 per share. All these shares were fully vested at grant date, total stock compensation expense totaling $382,950 were recorded. 985,000 shares were issued on February 28, 2017, 50,000 shares were not recorded with transfer agent as of the filling date of the report.
On December 15, 2016, the Company awarded and issued restricted stock award to corporate counsel and former COO and secretary 100,000 shares in total, and the fair market price at the grant date was $0.44 per share. All these shares were fully vested at grant date, total stock compensation expense totaling $44,000 were recorded.
On December 15, 2016, the Company awarded and issued restricted stock award to various contractors and service provides 200,000 shares in total, and the fair market price at the grant date was $0.44 per share. All those shares were fully vested at grant date, total stock compensation expense totaling $88,000 were recorded. 200,000 shares were issued on December 15, 2016.
Stock option activity was as follows (converted post reverse split):
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New Accounting Pronouncements |
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 March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which modifies certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards, and classification in the statement of cash flows. The Company will adopt ASU 2016-09 in its first quarter of 2018. Currently, excess tax benefits or deficiencies from the Company's equity awards are recorded as additional paid-in capital in its Consolidated Balance Sheets. Upon adoption, the Company will record any excess tax benefits or deficiencies from its equity awards in its Consolidated Statements of Operations in the reporting periods in which vesting occurs. As a result, subsequent to adoption the Company's income tax expense and associated effective tax rate will be impacted by fluctuations in stock price between the grant dates and vesting dates of equity awards. The Company is still in progress of evaluating future impact of adopting this standard. In May 2017, the FASB issued ASU NO. 2017-09 Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, Effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance.
In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”. The amendments add further guidance on identifying performance obligations and also to improve the operability and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”. The amendments, among other things: (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The effective date of these amendments is at the same date that Topic 606 is effective. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements. In December 2016, the FASB issued ASU 2016-20,“Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”. The amendments in ASU 2016-20 affect narrow aspects of the guidance issued in ASU 2014-09 including Loan Guarantee Fees, Contract Costs, Provisions for Losses on Construction-Type and Production-Type Contracts, Disclosure of Remaining Performance Obligations, Disclosure of Prior Period Performance Obligations, Contract Modifications, Contract Asset vs. Receivable, Refund Liabilities, Advertising Costs, Fixed Odds Wagering Contracts in the Casino Industry, and Costs Capitalized for Advisors to Private Funds and Public Funds. The effective date of these amendments are at the same date that Topic 606 is effective. Topic 606 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements
The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based on current information. |
2. Critical Accounting Policies and Estimates (Tables) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Current Assets |
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Accrued liabilities |
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Short-term debt |
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Fair value of financial instruments |
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Stock option activity |
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4. Property and Equipment (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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May 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and equipment |
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Schedule of property useful lives |
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5. Intangible Assets (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
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May 31, 2017 | |||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
Intangible assets |
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6. Commitments and Concentrations (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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May 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Office lease commitment |
Office Lease – Shanghai – The Company entered into a lease for new office space in Shanghai, China. The lease period started October 1, 2013 and will terminate September 31, 2016. On August 2016, the Company renewed this lease at $5,400 per month to September 30, 2019, resulting in the following future commitments:
Office Lease – San Gabriel, California – The Company entered a lease for executive office space in San Gabriel, California. The Lease period started April 30, 2015 and was terminated on August 1, 2016. On June 2016, the Company renewed the contract for another 3 years to July 31, 2019, the current monthly rent is $5,304, resulting in the following future commitments:
The Company entered another lease for retail store in San Gabriel, California. The lease period started February 1, 2017 to July 31, 2019, the current monthly rent is $3,243, resulting in the following future commitments:
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8. Income Taxes (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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May 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Effective tax rate schedule |
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9. Correction of Immaterial Error (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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May 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Changes and Error Corrections [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of error correction |
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1. Liquidity and Capital Resources (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
May 31, 2017 |
May 31, 2016 |
|
Cash raised through sale of preferred stock | $ 5,000,043 | $ 720,000 |
Net cash used in operating activities | (4,588,908) | (2,904,662) |
Cash and cash equivalents, end of year | 1,770,729 | $ 197,231 |
Preferred Class C [Member] | ||
Cash raised through sale of preferred stock | $ 5,000,043 |
2. Critical Accounting Policies and Estimates (Details - Other Current Assets) - USD ($) |
May 31, 2017 |
May 31, 2016 |
---|---|---|
Accounting Policies [Abstract] | ||
Purchase deposit | $ 66,125 | $ 0 |
Prepaid Expense | 151,283 | 12,010 |
Security Deposit-Rent | 43,909 | 43,770 |
Other current assets | 10,084 | 0 |
Total other current assets | $ 271,401 | $ 55,780 |
2. Critical Accounting Policies and Estimates (Details - Other liabilities) - USD ($) |
May 31, 2017 |
May 31, 2016 |
---|---|---|
Accounting Policies [Abstract] | ||
China Employees Salaries and Commissions Accrual | $ 6,799 | $ 30,331 |
Representative Office Tax Accrual | 0 | 2,879 |
Other accruals | 60,983 | 5,943 |
Accrued liabilities | $ 67,782 | $ 39,153 |
2. Critical Accounting Policies and Estimates (Details - Fair Value) - USD ($) |
May 31, 2017 |
May 31, 2016 |
---|---|---|
Level 1 | ||
Cash | $ 1,770,729 | $ 197,231 |
Investments | 729,095 | 2,640,825 |
Total Financial Instruments | 2,499,804 | 2,838,056 |
Level 2 | ||
Cash | 0 | 0 |
Investments | 250,000 | 67,500 |
Total Financial Instruments | 250,000 | 67,500 |
Level 3 | ||
Cash | 0 | 0 |
Investments | 0 | 0 |
Total Financial Instruments | $ 0 | $ 0 |
2. Critical Accounting Policies and Estimates (Details - Option activity) - Stock Options - $ / shares |
12 Months Ended | |
---|---|---|
May 31, 2017 |
May 31, 2016 |
|
Number of Options Outstanding, Beginning | 0 | 389,039 |
Number of Options Granted | 0 | 0 |
Number of Options Exercised | 0 | 0 |
Number of Options Forfeited or Expired | (389,035) | |
Number of Options Outstanding, Ending | 0 | 0 |
Weighted Average Exercise Price Outstanding, Beginning | $ 0.00 | $ .48 |
Weighted Average Exercise Price Outstanding, Ending | $ 0.00 | $ 0.00 |
3. Stockholders Equity (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
May 31, 2017 |
May 31, 2016 |
|
Stock repurchased and retired, value | $ 6,249 | |
Conversion rate | $ 1.25 | |
Proceeds from preferred stock | $ 5,000,043 | $ 720,000 |
Beneficial conversion feature | $ (3,685,520) | $ (51,625) |
Former COO Roper [Member] | ||
Stock repurchased and retired, shares | 62,500 | |
Series B Preferred Stock [Member] | ||
Preferred stock converted into common stock, preferred shares converted | 835,000 | |
Preferred stock converted into common stock, common stock issued | 2,087,500 | |
Conversion rate | $ 2.50 | |
Preferred stock issued, shares issued | 650,000 | 1,885,000 |
Series A Preferred Stock [Member] | ||
Preferred stock converted into common stock, preferred shares converted | 290,000 | |
Preferred stock converted into common stock, common stock issued | 362,500 | |
Conversion rate | $ 1.25 |
4. Property and Equipment (Details - property and equipment) - USD ($) |
May 31, 2017 |
May 31, 2016 |
---|---|---|
Property Plant and Equipment, Gross | $ 158,547 | $ 110,830 |
Less: accumulated depreciation | (105,515) | (99,062) |
Property Plant and Equipment. Net | 53,032 | 11,768 |
Furniture and Fixtures | ||
Property Plant and Equipment, Gross | 126,486 | 87,413 |
Leasehold Improvements | ||
Property Plant and Equipment, Gross | $ 32,061 | $ 23,417 |
4. Property and Equipment (Details - useful lives) - USD ($) |
12 Months Ended | |
---|---|---|
May 31, 2017 |
May 31, 2016 |
|
Depreciation expense | $ 6,452 | $ 9,903 |
Computer Equipment | ||
Expected Useful Lives | 3 years | |
Furniture and Fixtures | ||
Expected Useful Lives | 3 years | |
Leasehold Improvements | ||
Expected Useful Lives | Term of the lease |
5. Intangible Assets (Details) - USD ($) |
12 Months Ended | |
---|---|---|
May 31, 2017 |
May 31, 2016 |
|
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Website development costs | $ 187,544 | $ 174,046 |
Less: accumulated amortization | (105,857) | (95,899) |
Total Intangible Assets | 81,687 | 78,147 |
Amortization expense | $ 9,958 | $ 10,166 |
6. Commitments and Concentrations (Details - Office lease) |
May 31, 2017
USD ($)
|
---|---|
Shanghai | |
Office lease 2018 fiscal year | $ 64,800 |
Office lease 2019 fiscal year | 64,800 |
Office lease 2020 fiscal year | 21,600 |
San Gabriel [Member] | |
Office lease 2018 fiscal year | 63,648 |
Office lease 2019 fiscal year | 63,648 |
Office lease 2020 fiscal year | 10,608 |
San Gabriel Retail Store [Member] | |
Office lease 2018 fiscal year | 38,924 |
Office lease 2019 fiscal year | 38,924 |
Office lease 2020 fiscal year | $ 6,487 |
7. Related Party (Details Narrative) |
12 Months Ended |
---|---|
May 31, 2017
USD ($)
shares
| |
Stock issued for compensation, value | $ 514,950 |
Lan Jiang [Member] | |
Stock issued for compensation, shares | shares | 200,000 |
Stock issued for compensation, value | $ 74,000 |
Breakwater MB [Member] | |
Payment to related party | $ 250,000 |
8. Income Taxes (Details) |
12 Months Ended | |
---|---|---|
May 31, 2017 |
May 31, 2016 |
|
Income Tax Disclosure [Abstract] | ||
Federal Statutory Rate | 35.00% | 35.00% |
State Statutory Rate | 6.00% | 5.00% |
Change in Rate / Other | 4.00% | 2.00% |
Permanent Tax Differences | (6.00%) | (1.00%) |
Calculated Rate | 39.00% | 41.00% |
Actual Calculated Rate | (39.00%) | (41.00%) |
Difference | 0.00% | 0.00% |
8. Income Taxes (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
May 31, 2017 |
May 31, 2016 |
|
Income Tax Disclosure [Abstract] | ||
Net operating loss carryforwards | $ 10,000,000 | $ 8,000,000 |
Expiration date of NOL | Dec. 31, 2036 | |
Net deferred tax assets | $ 3,400,000 | $ 2,700,000 |
9. Correction of Immaterial Error (Details Narrative) - USD ($) |
12 Months Ended | ||
---|---|---|---|
May 31, 2017 |
May 31, 2016 |
May 31, 2015 |
|
Revenues | $ 1,667,977 | $ 948,385 | |
Assets | 3,172,241 | 3,053,150 | |
Liabilities | 1,780,938 | 1,290,862 | |
Shareholders' equity | $ 1,391,303 | 1,762,288 | $ 1,596,479 |
Scenario, Previously Reported [Member] | |||
Revenues | 903,185 | ||
Restatement Adjustment [Member] | |||
Revenues | (45,200) | ||
Assets | (171,600) | ||
Liabilities | (2,575) | ||
Shareholders' equity | $ (169,025) |
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