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Aug. 31, 2011
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| Significant Accounting Policies [Text Block] |
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 SEC 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 Accounting Standards Codification
(“ASC”) section 830-10-55.
Selling
Price and Market - As a representative office in 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 Companies 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.
Reclassifications
— Certain amounts in the prior year’s financial
statements have been reclassified to conform to the current
year presentation and to correct prior year errors.
Revenue
recognition — Revenue consists of three main
sources:
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 24 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 in association with Forex. These fees are recognized
when earned.
Costs
of Services Sold — Costs of services sold are
the total direct cost of the Company’s operations in
Shanghai.
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
August 31, 2011 and 2010 there were deposit balances in a US
bank of $383,071 and $245,191, 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
PRC is secured by the Chinese government. At August 31, 2011
and 2010 there were deposits of $11,634 and $7,111,
respectively, in The Bank of China.
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 when the credit card processing
company deposits the cash to the Company account. Revenue
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. As of August 31, 2011 and May 31,
2011, the Company had accounts receivable of $7,046 and
$4,560, respectively.
The
Company evaluates the need for an allowance for doubtful
accounts on a regular basis. As of August 31, 2011 and 2010,
the Company determined that based on historically having no
bad debts an allowance was not needed.
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.
Other
Current Assets — Other current assets comprised
various deposits in Chinese Renminbi related to building
space under an operating lease and are stated at the current
exchange rate at the period end and prepaid expenses related
to several invoices that were paid prior to the services
being completed.
Other
current assets were $31,194 and $27,689 for the periods ended
August 31, 2011 and May 31, 2011, respectively.
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 $3,837 and
$3,812 for the quarters ended August 31, 2011 and 2010,
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, plant and equipment, for impairment
whenever events or changes in circumstances indicate that the
carrying amounts of the assets may not be fully recoverable.
If the total of the expected undiscounted future net cash
flows is less than the carrying amount of the asset, a loss
is recognized for the difference between the fair value and
carrying amount of the asset. There was no impairment as of
August 31, 2011 and August 31, 2010.
Accrued
Liabilities— Accrued liabilities are comprised
of the following:
Use
of Estimates — The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure 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.
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:
All
Company financial instruments are Level one and are carried
at market value. Therefore no adjustment is required.
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.
Advertising
Costs — Advertising costs are expensed when
incurred. Advertising costs totaled $40,322 and $20,400 in
the quarters ended August 31, 2011 and 2010,
respectively.
Earnings
(Loss) Per Share — Earning (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.
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 options are given for previous
service without further recourse. The Company issued stock
options to contractors 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
compensation for services already rendered with no
recourse.
The
following table summarizes share-based compensation expense
recorded in selling, general and administrative expenses
during each period presented (in thousands):
Stock
option activity was as follows:
The
following table presents information regarding options
outstanding and exercisable as of August 31,
2011:
As
of August 31, 2011, future compensation costs related to
options issued was $0. During the quarter ending August 31,
2011the Company purchased the right to cancel 2,500,000
options owned by LJ Sabean.
The
fair value of each option granted is estimated on the date of
the grant using the Black-Scholes option pricing model with
weighted average assumptions for grants as follows:
Significant
Shareholder Stock Repurchase and debt issuance —
enduring the three months ending August 31, 2011 the Company
repurchased and retired 5,170,106 shares and 2,500,000
options from a significant shareholder, which completely
liquidated his interest in the Company. The total
cost of the transaction to the Company was
$250,000. The initial payment of $100,000 was made
in August, 2011 and the other $150,000 is due as a
non-interest bearing note payable in two equal
installments. The first payment is due in the
fourth quarter of the 2012 fiscal year and the final payment
will be due in the fourth quarter of fiscal year
2013. As there was no stated interest rate, in
compliance with ASC 835-30-45-1a the Company calculated the
net present value of the future payments and disclosed the
future payments net of the discount of $14,948 as a liability
on the balance sheet using an imputed interest rate of
8.5%.
The
accrued interest expense on the note payable for the period
ending August 31, 2011 was $966, reducing the note discount
balance to $13,992 at the balance sheet date. The
Company expects to recognize total interest expense of $9,346
in fiscal year 2012 and $5,603 in fiscal year 2013.
Future
cash payments committed to under this purchase agreement are
represented on the following chart:
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