Overview
Since
April 3, 2013, through our subsidiary Man Loong Bullion Company Limited, a Hong Kong limited liability company (“Man Loong”),
we have been an electronic trading member of the Chinese Gold and Silver Exchange Society (“CGSE”), a self-regulatory
organization registered in Hong Kong which acts as an exchange for the trading of gold and silver. Man Loong holds a Type AA License
with the CGSE, which it uses to provide an electronic trading platform which customers of its agents can use to place trades in
a CGSE price contract for Kilo Gold and Loco London Gold and Silver via the electronic trading platform or a telephonic transaction
system. The agents’ customers can access their account to check their gain/loss on their trading position 24 hours a day
7 days a week through Man Loong’s electronic trading platform. Man Loong contracts with independent agents, each with their
own customers that seek to place trades for gold and silver price contracts with the CGSE using Man Loong’s electronic trading
platform, which is linked to the CGSE’s electronic trading platform by reason of Man Loong’s membership in the CGSE.
All transactions and technologies used to execute trades are consummated and located at Man Loong’s principal offices in
Hong Kong. The various independent sales agents who use Man Loong’s services, together with the agents’ customer base,
are located in Hong Kong and in the People’s Republic of China. Neither we, nor Man Loong, conducts business in the United
States or has agents, or any agreements with agents, or facilitate trades with any customers of agents that reside in the United
States.
The
electronic trading platform, which is located in Hong Kong, is licensed by Man Loong from True Technology Company Limited (“True
Technology”), a company organized under the laws of Hong Kong, and owned by Mr. Kee Yuen Choi, our Chief Executive Officer
and 49.5% stockholder and Mr. Hak Yim Wong, one of our directors and stockholders. The electronic trading platform
provides the various independent sales agents and their customers with CGSE price quotations on gold and silver price contracts,
on a Loco London basis, as well as information updates on the gold and silver market, based on an evaluation of third-party market
pricing sources such as Reuters or Bloomberg. The electronic trading platform also provides an agent’s customers with
up-to-date market data, trade reports and gain/ loss reports to assist them in evaluating their portfolio and effecting trades. In
addition, the electronic trading platform communicates and confirms all of the trades that are placed by Man Loong agents and
their customers with the CGSE and provides the agents and their customers with confirmation codes which confirm execution of the
trades.
Man
Loong’s membership in the CGSE allows it to provide its electronic trading platform to facilitate trades on behalf of the
agents’ customers and/or the agents themselves, who can purchase trading positions in gold and/or silver on the CGSE, without
Man Loong being required to become a counterparty to the trade or having to purchase or sell, as principal, any of the gold or
silver subject to the price contract being traded. Man Loong merely operates an electronic trading platform which it licenses
from True Technology that allows agents’ customers to directly place trades and become the actual counterparty to the trade
for a price contract, which is a product created by the CGSE for electronic trading that does not involve the physical transfer
or delivery of any actual gold or silver.
All
of Man Loong’s revenue is derived from the commissions it receives on each trade for which it processes through the electronic
trading platform it licenses from True Technology. For our fiscal years ended March 31, 2016 and 2015, Man Loong’s revenue
was approximately $1.8 million and $3.0 million, respectively, and its net income (loss) was approximately $(0.51) million and
$0.54 million, respectively.
Man
Loong has 3 agents in Hong Kong which cover three main geographic areas, including Hong Kong Island, Kowloon and the New Territories.
In mainland China, we have 10 agents located in Shanghai and Guangdong and Fujian provinces. Each of our agents in
Hong Kong have between 100 – 150 customers and our agents in China each have between 100 and 600 customers.
The
process for effectuating trades on Man Loong’s platform are as follows: (i) orders are placed by the agents’ customers
on the trading platform; (ii) the platform, which has a direct connection with the GCSE, communicates the order to the CGSE; (iii)
the GCSE matches the trade with a counterparty in the market, which counterparty is unknown to Man Loong, its agents’ and
their customers; (iv) the CGSE then confirms the trade and returns an official confirmation number to the customer through Man
Loong’s trading platform. The customer can use the confirmation code to verify on the CGSE website the completion of its
trade. The trading position represented by the gold or silver price contract remains open until the customer places a trade order
using the same procedures set forth in the preceding sentence, to close the open position. Man Loong, through its platform
helps facilitate the trade as an official member of the CGSE and earns a commission for its services. Moreover, the gold or silver
price contracts do not involve the physical transfer or delivery of any actual gold or silver as there is no physical asset securing
the price contract.
Man
Loong enters into an agency agreement with each agent for which it processes trades pursuant to which the agent agrees to pay
a commission to Man Loong for each trade that Man Loong processes and the agent acknowledges that Man Loong has no responsibility
for any trading losses suffered by it or its customers for the trades executed on their behalf. Man Loong does not accept customers
directly without an agent representative and does not enter into agreements directly with customers for the placement of trades.
Although the agent remains directly responsible to Man Loong for any trading losses, to help ensure that the respective agent’s
customers understand: (i) their assumption of trading risk; (ii) their obligations to their respective agents and (iii) that Man
Loong does not have any responsibility for any of their trading losses, Man Loong requires that each agent representative’s
client for whom Man Loong is requested to process a trade to complete and sign a form acknowledging these risks and obligations
prior to commencing trading activity. Any customer that seeks to open a trading account directly with Man Loong is assigned to
an agent and is required to execute an agreement with an agent prior to placing a trade. Man Loong receives a commission from
the agents ranging from $20 to $40 per trade processed by it regardless of the purchase price paid or received for the gold or
silver contract and the agent assumes the sole responsibility to Man Loong and the CGSE for payment of the purchase price of the
gold or silver contract traded by it or its customers and for any loss recognized on those trades.
Man
Loong’s agents require that all of its customers maintain accounts with the agent or Man Loong with a deposit a minimum
of $1,289 USD in such bank account, which ensures that agents can fund their customer’s trading losses, if any, on contracts
that are executed on Man Loong’s trading platform. Each of the agent’s customers enter into an agreement with the
agent that directs the agent to either deposit funds into an account maintained by the agent or Man Loong’s segregated bank
account and authorizes the agent to withdraw money from such accounts as needed to cover losses and pay associated fees. Often
the customers of the agents prefer to maintain accounts with Man Loong due to its independent nature and affiliation with the
CGSE and Man Loong will maintain and monitor such bank accounts in a segregated bank account as an accommodation to its agents. If
a customer does not maintain an initial margin deposit with Man Loong, the customer will make their initial margin deposit payment
directly to their agent’s account and prior to processing any trades on behalf of such customer, Man Loong requires confirmation
of such deposit from the agent. For those customers that maintain initial margin deposits with their agent’s, trade processing
fees are billed by Man Loong to the agent at the end of the month.
As
an accommodation to its agents, Man Loong also monitors the customer’s total net trading position regardless of whether
or not the deposit is placed with its bank. At any time that a price contract is open, and the agent’s customer’s
unrealized trading losses are 80% or more of the deposit balance, Man Loong’s system alerts Man Loong to request an increase
in the customer’s deposit balance. Typically, the agent’s customer’s trading account is frozen until the deposit
balance is increased. In the event the unrealized trading losses equals the deposit balance, the agent’s customer’s
trading account is immediately frozen and closed, the system then closes the trading positions with the CGSE and the deposit balance
is paid to the agent so that the agent can fund the trading losses with the CGSE. With respect to bank accounts held by the agent’s
bank as opposed to the bank accounts which Man Loong’s maintains, the agent provides Man Loong with the customer’s
deposit balance so that Man Loong can alert the agent and customer when unrealized trading losses are 80% of the customer’s
account balance; and Man Loong freezes the customer’s trading account until the agent confirms that the deposit balance
has been increased. Although Man Loong monitors customer accounts, Man Loong’s agreements with its agents provide that the
agent is responsible for all losses of customers and therefore, the agent and not Man Loong bears the risk that the customer’s
net trading position is closed when losses exceed the customer’s deposit balance.
The
agents often use Man Loong’s offices and conference rooms as a physical place to meet with existing and potential customers,
and Man Loong provides a dedicated investment center where agents and their customers can access the electronic trading platform
to place and process price contract orders for gold, and silver and obtain up-to-date market data, trade reports and gain/ loss
reports to assist them in evaluating their portfolio and effecting trades.
The
CGSE acts as a central clearing agency for all gold and silver price contracts traded in Hong Kong. The CGSE locates
matching counterparties for all trades in precious metals submitted to it and then confirms the trades through a member firm,
like Man Loong, with the actual parties to the price contract. Man Loong is registered with and licensed by the CGSE,
a registered self-regulatory society in Hong Kong which also acts as an exchange for gold and silver. The CGSE has
been in existence since 1910 and as of June 1, 2016 has 171 licensed members, 72 of the licensed members are engaged in electronic
trading transactions.
CGSE
members must conduct themselves in accordance with a code of conduct which is regulated by the CGSE. Applicants to the CGSE must
apply for and/or purchase membership and licensing from the CGSE or from existing members, and the CGSE has the power to suspend
and/or revoke membership for breach of its rules and regulations. The CGSE’s constitution limits CGSE membership to 192
members, all of whom must have a minimum required working capital, defined as cash plus precious metals, of approximately $193,000
and minimum required assets of $643,000. The CGSE requires its members to submit a quarterly liquidity capital report, in order
to ensure that the bank balances exceed or equal the balance of customer deposits. Man Loong was in compliance with these requirements
as of March 31, 2016 and 2015.
As
of March 31, 2016 and 2015, Man Loong had $1.1 million and $2.5 million, respectively, in cash and $2.7 million and 3.2 million,
respectively, in total assets.
Recent
Developments
In
April 2016, Man Loong received a license from the CGSE to trade gold and silver contracts in the new Qian Hai trade zone in Shenzhen,
PRC. The new license allows Man Loong to trade gold and silver contracts with its existing and new customers who are citizens
of the PRC. Man Loong intends to operate its electronic trading platform for the processing of trades placed in Qian Hai through
the CGSE on behalf of its agents’ customers in China, and such operations are expected to commence in approximately the
fourth quarter of 2016. No assurance can be given however, that Man Loong will be successful in deriving revenue from operations
in Qian Hai.
Our
Growth Strategy
We
believe that the precious metals market creates a significant growth opportunity on which we intend to capitalize by utilizing
the following strategies:
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Customer
service and trading platform capabilities.
We believe that in order to compete effectively in our product market,
we must constantly improve the quality of our customer service and our electronic trading platform capabilities as demanded
by agents and their customers and as driven by technological change. Man Loong has established a strong team of
IT specialists to help ensure that the trading platform functions without disruption and error. Man Loong has entered into
licensing agreements with an affiliated company engaged in hosting its servers and the development and enhancement of its
trading platform which allows Man Loong to continually improve the functionality of the trading platform in response to customer
demands. In Man Loong’s offices in Hong Kong, Man Loong provides a 115 workstation trading floor where agents
and their customers can access our trading platform to execute trades and obtain research information on precious metals prices
and price trends. Beginning in 2016, Man Loong’s trading platform allows its agents’ customers to place
trades on the trading platform directly from their Android or IPhone mobile devices.
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Brand
Recognition.
We also
plan on developing our brand recognition. In addition to providing high quality products
and effective access to the bullion market through Man Loong’s electronic trading
platform. Customers can access their account to check their gain/ loss position 24 hours
a day 7 days a week through Man Loong’s electronic trading platform. We believe
that in order to promote our brand recognition, strengthen the management of our distribution
network and improve our sales revenue and market share, we will also need to continue
expanding our sales channels in Hong Kong, China, Singapore and India. With adequate
funding, we plan to acquire a number of local and overseas foreign exchange providers
as well as precious metals and commodities brokers that can complement our strengths
in services, integration, and implementation. We expect that this strategy will result
in expanding our services to a wider customer base. In April 2015, Man Loong loaned $773,793
(HKD $6,000,000) to Global Long Inc. Limited (“Global Long”), a company engaged
in trading silver contracts as an electronic trading member of the Guangdong Precious
Metals Exchange through its subsidiary in the PRC, eBullion Trade Company Limited. The
purpose of the loan was to establish a relationship with Global Long with the intent
of becoming their first choice for Global Long’s customers who wish to trade gold
trading positions through the CGSE. In April 2016, Man Loong received a license
from the CGSE to trade gold contracts in the new Qian Hai trade zone in Shenzhen, China. Concurrent
with receiving the license, Man Loong registered a new subsidiary, Shenzhen Qian Hai
Man Loong Bullion Company Ltd. (“Shenzhen Qian Hai”) organized as a Wholly
Foreign Owned Enterprise under PRC law. The new license will allow Man Loong
to provide its trading platform and trading services to its existing and new customers
who are citizens of the PRC to trade gold contracts through Shenzhen Qian Hai. Man
Loong is in the process of defining its business and marketing strategies and processes
for trades placed through Shenzhen Qian Hai. Man Loong intends to charge a
fee to facilitate such trades placed in Qian Hai, and such operations are expected to
begin in approximately the fourth quarter of 2016. No assurance can be given however,
that Man Loong will be successful in deriving revenue from operations in Qian Hai.
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Sales
and Marketing
Man
Loong’s website is its main sales and marketing tool. In addition to its expertise in technology, Man Loong has employed
a team of seasoned marketing staff to update and maintain its website, which is readily available to access from major search
engines. Man Loong’s marketing team also designs online promotions that are intended to increase the volume of trade and
frequency of visits by targeted groups of customers.
Man
Loong uses its independent agents, instead of salaried employees, as its representatives to promote its product and services and provide
customer support at Man Loong’s trading center located in its offices in Hong Kong. These agents are engaged on an “at
will” basis and are compensated commensurate with their performance. These arrangements are not in writing, but are based
on oral agreements and on-going business relationships. The compensation to the agents is recorded as a marketing expense.
Man
Loong maintains a Q&A section on its website, which serves as a platform for agents and their customers to communicate with
it. The forum administrators gather the customer comments and suggestions for its consideration when preparing its annual business
plan. Additionally, Man Loong uses this feedback to determine which enhancements to the trading platform would be of greatest
service to its agents and their customers.
Man
Loong now has one investment center open in Hong Kong, where its current and potential agents and their customers may access Man
Loong’s online trading platform and market research tools or meet its customer service representatives and other professional
staff to discuss issues and answer questions.
Man
Loong intends to expand the market for its principal operations beyond its investment center in Hong Kong by exploring the opening
of additional investment centers in major cities or other localities in China, such as Qian Hai, and by promoting the Man Loong
brand. Man Loong believes that interest in the electronic trading of gold and silver contracts is increasing in Asia’s
emerging markets both in and outside of China as income and living standards increase, and that these emerging markets could provide
Man Loong with significant new market opportunities to build its customer base and its brand.
Competition
The
retail market for facilitating trades in gold and silver contracts is fragmented and highly competitive. Our competitors in the
retail market can be grouped into several broad categories based on size, business model, product offerings, target customers
and geographic scope of operations. These include international retail precious metals brokers, international multi-product trading
firms, other electronic trading firms and international banks and other financial institutions with significant precious metals
operations. We expect competition to continue to remain competitive and strong for the foreseeable future.
Our
Competitive Strengths
We
attribute our success to date and potential for future growth to a combination of strengths, including the following:
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Man
Loong’s Trading Platform Technology is Regularly Updated to Meet Evolving Customer Needs.
Man Loong continuously
carries out research and gathers data on customer behavior and trends so that it may seek to provide the best technology to
meet the evolving requirements of its agents and their customers. Man Loong views itself primarily as an e-commerce
trading platform provider enabling its customers to acquire and/or dispose of precious metals and precious metals contracts,
at their own market risk.
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Experienced
Management Team.
Man Loong’s key employees have significant experience and expertise in the application of technology
and automation systems and, as significant equity owners of our Company, are heavily committed to our success. Its senior
management team, in particular, has substantial experience of operating electronic trading platform an average of 10 years’
experience in the gold and silver industry between them.
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Low
Cost Structure through Automation.
Man Loong's focus on automation and expense management practices enables it to
operate with a low cost structure.
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Provide
24 Hour Customer Service.
We view ourselves not only as a product provider but also as a company that competes as
a service provider. As such, we strive to provide first-class customer service, with a 24-hour online customer service desk
to respond to customer inquiries. In addition, Man Loong’s technical response team is on standby 24 hours a day, 7 days
a week to provide technology assistance to agents and their customers, if and as needed.
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Research
and Development
Man
Loong has a dedicated marketing team devoted to determining its agents’ and their customers’ demands for capability
enhancements of our electronic trading platform and working with True Technology, an affiliated IT services provider owned by
Mr. Choi, our Chief Executive Officer and a 49.5% stockholder and Mr. Wong, a director and a stockholder, for the development
and implementation of improvements. During the years ended March 31, 2016 and 2015, Man Loong did not incur any research
and development expenses as very few software enhancements were made to the electronic platform during those years other than
basic software enhancements services, for which Man Loong was not charged any fee other than its monthly license fee to True Technology.
For the years ended March 31, 2016 and 2015, Man Loong paid True Technology $46,412 and $46,430, respectively for the use of the
platform.
Intellectual
Property
We
believe our intellectual property is important to our success. The intellectual property rights of an owner are not automatically
protected by the laws of Hong Kong if the trademark or proprietary technology is not registered with the Trade Marks Registry
of Hong Kong. Man Loong relies on Hong Kong’s intellectual property laws, where applicable, and on contractual restrictions
to protect its trademark or proprietary technology from parties who infringe on its trademarks and its affiliate’s proprietary
technology. In September 2012, Man Loong registered its trademark with the Intellectual Property Department of Hong Kong for marketing
and brand recognition.
Man
Loong does not own the software that is used for the operation of its electronic trading platform, but rather Man Loong licenses
it from True Technology. The license agreement, with True Technology provides that True Technology will not license the
customized software that Man Loong licenses to any third parties. In April 2013, Man Loong entered into a Software
Development License and Maintenance Agreement with True Technology (the “License Agreement”). In April, 2015,
the trading platform lease with True Technology was renewed for 2 years with monthly payment of approximately $3,868 until March
31, 2017. The License Agreement provides that True Technology grants a non-exclusive license to use the software developed by
True Technology that we currently use in our business and the provision of hosting services. True Technology has agreed not
to license or sublicense the software to third parties without Man Loong’s prior consent. True Technology has modified
the licensed technology at the request of Man Loong to fit Man Loong’s specifications. The License Agreement provides that
all enhancements or modifications to the software requested by us and developed by True Technology shall be the proprietary property
of Man Loong and Man Loong is required to pay an additional hourly fee for the development of such enhancements and modifications;
however, the basic technology upon which the enhancements are made is owned by True Technology. In addition, True Technology
may license or sublicense the underlying software, without Man Loong’s enhancements or modifications that are used for the
operation of the electronic trading platform, to third parties without the consent of Man Loong.
Employees
As
of June 1, 2016, Man Loong employed a total of 18
full time employees. The following table sets forth the number of
our full time employees by function.
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Number
of
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Function
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Employees
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Senior Management
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2
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Operations
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7
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Sales and Marketing
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2
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Finance
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3
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Technology, Research and Development
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2
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Human Resource
& Administration
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2
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Total
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18
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Regulations
Because
our primary operating subsidiary is located in Hong Kong, we are regulated by Hong Kong law. We believe that we are in material
compliance with all registrations and requirements for the issuance and maintenance of all licenses required by the governing
bodies, and that all license fees and filings are current. The Hong Kong government and other regulatory agencies may block or
suspend our internet transmission capabilities if we are deemed to be in violation of the following content regulations for online
services:
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Securities
and Futures Ordinance (Cap. 571 of the Laws of Hong Kong)
– Man Loong is subject to the laws, rules and regulations
regarding trading. The Securities and Futures Commission is responsible for: maintaining and promoting the fairness, efficiency,
competitiveness, transparency and orderliness of the securities and futures industry. The Commission may suppress illegal,
dishonorable and improper practices in the securities and futures industry; to take appropriate steps in relation to the securities
and futures industry. Regardless of the communication or delivery medium used, the Commission will continue to apply the general
anti-fraud and anti-manipulation provisions of the relevant Ordinances in its enforcement actions. If any person responsible
for activities over the Internet is found to have acted in contravention of the provisions of the Ordinances or appears to
have been involved in any misconduct whether in Hong Kong or elsewhere, the Commission may exercise its regulatory powers
(including prosecution or taking other disciplinary actions as may be required); and when necessary, the Commission may consider
other regulatory means available to it including seeking cooperation from foreign regulators and law enforcement agencies
to take joint enforcement action, if necessary. We are prohibited from carrying on any regulated activity, as defined under
the Securities and Futures Ordinance, such as dealing in securities and/or futures contracts, unless we have been granted
the appropriate license(s) from the Commission.
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Personal
Data (Privacy) Ordinanc
e
(Cap. 486 of the Laws of Hong Kong)
– Man Loong is subject to data privacy laws,
rules and regulations that regulate the use of customer data. In Hong Kong we are governed by the Personal Data (Privacy)
Ordinance and as a data user we are prohibited from doing or engaging in any practice that contravenes the data protection
principles set out therein.
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Telecommunications
Ordinance (Cap. 106 of the Laws of Hong Kong), Crimes Ordinance (Cap. 200 of the Laws of Hong
Kong) and Theft Ordinance
(Cap. 210 of the Laws of Hong Kong)
– Provisions under the Telecommunications Ordinance, Crimes Ordinance and Theft
Ordinance make it an offense for unauthorized access to computers by telecommunication, to access a computer with criminal
or dishonest intent, and extend the meaning of criminal damage to include misuse of computer programs or data, and burglary
to include unlawfully causing a computer to function other than as it has been established and altering, erasing or adding
any computer program or data. In this respect, any of the above mentioned computer related crimes committed by any staff,
employees or agents, will subject us to possible criminal charges and/or investigations.
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These
rules and regulations are administered by the three branches of Hong Kong’s Commerce and Economic Development Bureau: (i)
the Commerce, Industry and Tourism Branch (responsible for policy matters on Hong Kong’s external commercial relations,
inward investment promotion, intellectual property protection, industry and business support, tourism, consumer protection and
competition), (ii) the Communications and Technology Branch (responsible for policy matters on broadcasting, film-related issues,
overall view of creative (including film) industry, development of telecommunications, innovation and technology, and control
of obscene and indecent articles); and (iii) the Office of the Government Chief Information Officer (responsible for policy, strategy
and execution of information technology programs and initiatives).
Our
Corporate History and Background
We
were incorporated under the laws of the State of Delaware on January 28, 2013. We were initially formed to develop software for
use in on-line trading of gold and silver contracts. Since the acquisition of Man Loong, our business development focus has been,
and we expect will continue to be, solely on increasing Man Loong’s market share for the on-line trading of gold and silver
contracts within the Hong Kong market while developing a business model for the on-line trading of gold and silver contracts by
Man Loong in the PRC.
In
April 2016, Man Loong received a license from the CGSE to trade gold contracts in the new Qian Hai trade zone in Shenzhen, China.
Concurrent with receiving the license, Man Loong registered a new subsidiary, Shenzhen Qian Hai Man Loong Bullion Company Ltd.
(“Shenzhen Qian Hai”) organized as a Wholly Foreign Owned Enterprise under PRC law. The new license will allow Man
Loong to provide its trading platform and trading services to its existing and new customers who are citizens of the PRC to trade
gold contracts through Shenzhen Qian Hai. Man Loong is in the process of defining its business and marketing strategies and processes
for trades placed through Shenzhen Qian Hai. Man Loong intends to charge a fee to facilitate such trades placed in Qian Hai, and
such operations are expected to begin in approximately the fourth quarter of 2016. No assurance can be given however, that Man
Loong will be successful in deriving revenue from operations in Qian Hai.
Acquisition
of Man Loong
On
April 3, 2013, we entered into a Contribution Agreement with the shareholders of Man Loong, whereby we acquired 100% of the issued
and outstanding capital stock of Man Loong from its stockholders, in exchange for 507,600,000 newly issued shares of our common
stock, par value $0.0001. After the transaction, Man Loong became our wholly owned subsidiary.
In
March 2015, we increased the number of our authorized shares from 500,000,000 to 1,000,000,000. The par value of our shares remained
unchanged at $.0001. We also effected a 10 for 1 stock split, whereby we exchanged 10 of our shares for every 1 share issued at
outstanding before the split. Following the share split, we have 512,600,000 shares issued and outstanding.
As
a result of the acquisition, we have assumed the business and operations of Man Loong. Man Loong, which was incorporated
in 1974 in Hong Kong and was re-registered in 2007 under Hong Kong law as a limited liability company, was organized to facilitate
the trading of precious metals contracts. Man Loong initially provided an electronic trading platform that offered one-stop electronic
trading in Hong Kong, and in 2010, expanded its services to include the trading for its agent’s customers and not as principal,
of gold and silver contracts in mainland China. Man Loong currently has one office in Hong Kong and 10 independent agents in mainland
China located in Shanghai, Guangdong and Fujian provinces.
The
acquisition of Man Loong was treated for accounting purposes as a reverse merger with eBullion acquiring 100% of the outstanding
common stock of Man Loong in exchange for 507,600,000 newly issued shares of our common stock, par value $.0001. Unless the context
suggests otherwise, when we refer in this prospectus to business and financial information for periods prior to the consummation
of the reverse acquisition, we are referring to the business and financial information of Man Loong. For accounting purposes,
the reverse merger of eBullion, Inc. with Man Loong has been treated as a recapitalization with no adjustment to the historical
book and tax basis of either companies’ assets or liabilities.
Our
Corporate Structure
Our primary business operations are conducted through our Hong Kong operating subsidiary, Man Loong. For
ease of reference, below is a chart that presents our current corporate structure.
Our
principal executive offices are located at 80 Broad Street, New York, New York 10004 and Man Loong’s principal offices are
located at 18/F, Tower 6, China Hong Kong City, 33 Canton Road, Tsim Sha Tsui, Hong Kong. The telephone number at our principal
executive offices is (212) 837-7858 and Man Loong’s principal executive office is +852-2155-3999. All of our transactions
and the technologies, including the servers that carry out these transactions, are all executed and located in Hong Kong.
Our
website address is http://www.ebulliongroup.com. The information contained in, and that can be accessed through, our website is
not incorporated into and is not part of this annual report.
Our annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports are filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act. and are available free of charge through the investor relations page of our internet
relations page of our internet website as soon as practicable after those reports are electronically filed or furnished with the
SEC.
Investing
in our common stock involves a high degree of risk. In addition to the risks related to our business set forth in this Form 10-K
and the other information included and incorporated by reference in this Form 10-K, you should carefully consider the risks described
below before purchasing our common stock. Additional risks, uncertainties and other factors not presently known to us or that
we currently deem immaterial may also impair our business operations.
RISKS
RELATED TO OUR BUSINESS
Restricted
access to Man Loong’s website, could lead to significant operating disruptions, a negative customer experience or the loss
of agents and their customers.
If
any enterprises or professional organizations, including governmental agencies, blocked access to Man Loong’s website or
the Internet generally for a number of reasons including due to security or confidentiality concerns or regulatory
reasons, or if any government of any jurisdiction in which we or Man Loong are considered to be carrying on business in may block
or suspend internet transmission capabilities, Man Loong’s business would experience significant operating disruptions because
our revenues are generated through the commissions Man Loong receives for the trades placed through the electronic trading platform
it licenses from True Technology which requires internet transmission capabilities to operate. If these entities were
to block or limit access to Man Loong’s website or adopt policies restricting its ability to provide its agents’ customers
accurate and up-to-date information, the functionality of Man Loong’s electronic trading platform could be negatively impacted,
which could adversely affect its ability to retain and attract commission business from agents and their customers.
All
of our revenue is based upon Man Loong’s trade commissions which are themselves influenced by trading volume and volatility
and economic conditions that are beyond our control.
Any
volatility in the global financial markets has an impact on Man Loong’s commissions and therefore its revenue. Our revenue
is influenced by the general level of trading activity in the gold and silver market because all of our revenue is derived from
the commission Man Loong receives on each trade that it facilitates, which is a fixed commission of $20-40 per trade. Our revenue
and operating results may vary significantly from period to period primarily due to movements and trends in the world’s
currency markets, volatility in the market price of gold and silver and fluctuations in trading levels. Man Loong has generally
experienced greater trading volume in periods of volatile markets as during such periods there tends to be increased trading.
Recently, Man Loong experienced lower levels of trading volume due to a reduction in the short term volatility of gold and silver
prices, and its commission revenues were negatively affected. Like other financial services firms, our business and profitability
and Man Loong’s are directly affected by elements that are beyond our and its control, such as economic and political conditions,
broad trends in business and finance, changes in the volume of transactions, changes in supply and demand for precious metals,
movements in currency exchange rates, changes in the financial strength of market participants, legislative and regulatory changes,
changes in the markets in which such transactions occur, changes in how such transactions are processed and disruptions due to
terrorism, war or extreme weather events. Any one or more of these factors, or other factors, may adversely affect our business
and results of operations and cash flows. As a result, period-to-period comparisons of our operating results may not be meaningful
and our future operating results may be subject to significant fluctuations or declines.
Competitive
trading systems could force Man Loong to reduce its commissions and negatively impact revenue.
Any
increased competition to Man Loong’s platform through the development of faster or more capable execution programs could
reduce the volume of trades or force Man Loong to reduce its commission on each trade to continue to attract commission business
from the various sales agents seeking to use Man Loong to process their customers' trades on the CGSE. In addition,
new and enhanced alternative trading systems have emerged as an option for individual and institutional investors to carry out
proprietary trades, which also could result in reduced commissions.
All
of our revenue and operating profits are derived from Man Loong’s role as a service provider. In its role as a service provider,
Man Loong derives a fixed amount of commission from each trade that it facilitates.
Man
Loong may also experience reduced trade volumes from competition from computer-generated buy and sell programs and other technological
advances and regulatory changes in the precious metals market that may continue to tighten spreads on precious metals transactions.
In addition, new and enhanced alternative trading systems have emerged as an option for individual and institutional investors
to avoid directing their trades through retail trade facilitators, which could result in reduced revenue derived from our precious
metal trade facilitation business. Man Loong may also face price competition from its competitors.
Man
Loong may be exposed to unidentified or unexpected risks if its risk management policies and procedures are not effective.
Man
Loong relies on a combination of technical and human controls and supervision to protect it against certain risks. Man Loong’s
policies, procedures and practices are used to identify, monitor and control a variety of risks, including risks related to human
error, hardware and software errors, market movements, fraud and money-laundering, are established and reviewed by its management. Man
Loong’s approach is discretionary by nature and applied on a case by case basis and developed internally by Man Loong based
on historical market behavior and standard industry practices. These risk management methods may not adequately prevent losses
and may not protect Man Loong against all risks or less than anticipated, in which case our business, financial condition and
results of operations and cash flows may be materially adversely affected.
These
methods may also be subject to error and failure and therefore may not adequately prevent losses due to technical errors or if
testing and quality control practices are not effective in preventing software or hardware failures. Additionally, although Man
Loong has risk-management policies, control systems and compliance manuals set in place, there can be no guarantee given that
such policies, systems, and manuals will be effectively applied in every circumstance by our staff. These methods include the
installation of technology that rejects trades from the customers of agents unless they maintain a minimum amount of cash on deposit
with the agent or Man Loong in their bank accounts in order to ensure settlement of the purchase price of gold or silver price
contracts and the payment of their trading losses, if any, to the customer’s agent who is counterparty to the trade. For
example, employees could override the system and either reduce minimum account balances to an insufficient amount or theoretically
waive such requirement, thereby exposing our agents to the risk of nonpayment of the purchase price of gold or silver price contracts
and their customers trading losses, if any, and exposing us to a claim by the agent based on our failure to follow our own risk
management guidelines. Under certain circumstances Man Loong may elect, in consultation with the affected agents, to adjust its
risk-management policies to allow for an increase in risk tolerance such as reduction of minimum account balances, especially
with long term customers, which could expose its agents to the risk of greater losses. The agents typically require that all of
their customers maintain a minimum balance of USD$1,289 in the agents’ or Man Loong’s segregated bank account and,
as an accommodation to its agents, Man Loong monitors the customer’s total net trading position. Each of the agents’
customers enter into an agreement with their agent that directs the agent to either deposit funds into an account maintained by
the agent or Man Loong’s segregated bank account and authorizes the agent to withdraw money from such accounts as needed
to cover losses and pay associated fees. If at any time the agent’s customer’s unrealized trading losses are 80% or
more of the deposit balance in the customer’s account, Man Loong’s system alerts Man Loong to request an increase
in the agent’s customer’s deposit balance. Typically, the agent’s customer’s trading account is frozen
until the deposit balance is increased. In the event the unrealized trading losses equal the deposit balance, the agent’s
customer’s trading account is immediately frozen and closed, the system closes the trading positions with the CGSE and the
deposit balance maintained in Man Loong’s account is paid to the agent so that the agent can fund any trading losses with
the CGSE. If the agent does not cover its customer’s trading losses with the CGSE, Man Loong will still not be responsible
for any trading losses and the agent will likely lose its right to engage in future trading through the CGSE pending funding of
the open loss position. Deviations from such policies could subject Man Loong’s agents to risk.
We
do not own the trading platform upon which our business operates and if the license was terminated our business would experience
significant operating disruptions.
Man
Loong licenses the software that is utilized to run its electronic trading platform from True Technology, an entity owned by our
Chief Executive Officer and one of our directors and shareholders pursuant to the terms of a license agreement that can be terminated
by True Technology at any time. Although Man Loong’s agreement with True Technology prohibits True Technology from licensing
the technology that it develops for Man Loong to any other third party and we believe that we could take the customized version
of the technology and migrate it to another platform or that alternative software programs are available or could be developed
by other third parties or eventually by Man Loong in house, such migration or the development of any such programs would be costly
and may not be available in a timely manner. In addition, True Technology can license or sublicense the underlying software, without
the enhancements or modifications to third parties without the consent of Man Loong. The termination of the license agreement
would likely result in suspension of Man Loong’s internet transmission capabilities and its business would experience significant
operating disruptions if the license agreement were terminated.
Man
Loong also relies on True Technology’s computer systems or third-party service and software providers, including trading
platforms, back-office systems, internet service providers and communications facilities. Deterioration in the performance or
quality of work from third party service providers, could adversely affect Man Loong’s business. If Man Loong’s arrangement
with any third party is terminated, it may not be able to find an alternative systems or a services provider on a timely basis
or on commercially reasonable terms. This could have a material adverse effect on our business, financial condition and results
of operations and cash flows.
Our
business is substantially dependent upon our licensed trading platform. Any disruption or corruption of the trading platform or
our inability to maintain technological superiority in our industry could have a material adverse effect on our business, financial
condition and results of operations and cash flows.
Our
business is substantially dependent upon Man Loong’s licensed electronic trading platform, which Man Loong relies upon to
accurately and timely receive and process internal and external data. If the trading platform were to fail to function
properly for any reason, Man Loong could suffer from trade errors and therefore it would be forced to suspend operations until
such time as the disruptions were fixed. Man Loong’s ability to facilitate transactions successfully and provide high quality
customer service depends on the efficient and uninterrupted operation of its computer and communications hardware and software
systems. Computer systems are vulnerable to damage or interruption from human error, natural disasters, power loss, telecommunication
failures, break-ins, sabotage, computer viruses, intentional acts of vandalism, computer denial-of-service attacks and other similar
events. If Man Loong’s systems fail to perform, it could experience periodic interruptions and disruptions in operations,
slower response times or decreased customer satisfaction.
In
order to remain competitive, Man Loong’s electronic trading platform is under continuous development and redesign. However,
with any newly developed technology Man Loong runs the ongoing risk that failures may occur and result in service interruptions
or other negative consequences such as slower quote aggregation, slower trade execution, erroneous trades, or mistaken risk-management
information.
We
believe Man Loong’s technology has provided Man Loong with a competitive advantage relative to many of its competitors.
If its competitors develop more advanced technologies, it may be required to devote substantial resources to the development of
more advanced technology to remain competitive. The gold and silver market is characterized by rapidly changing technology, evolving
industry standards and changing trading systems, practices and techniques. Man Loong may not be able to keep up with these rapid
changes in the future, develop new technology, realize a return on amounts invested in developing new technologies or remain competitive
in the future.
Man
Loong’s systems have in the past experienced disruptions in operations, which it believes will continue to occur from time
to time. As of the date hereof, we have not been notified of any claim against Man Loong alleging harm caused to third parties
by this disruption and customers of its agents have continued to actively place precious metals trading orders through their respective
trading accounts. However, we can provide no assurance that we will not receive any claims in the future in connection with this
disruption.
To
mitigate the risk of trading disruptions, Man Loong has a mirror server setup in a secured server room in its headquarters
office in Hong Kong. The mirror server has the same trading software installed as the production server. If
there are any network problems with the production server, the network connection will be switched to the mirror server to minimize,
if not avoid entirely any downtime of the trading systems. In addition, Man Loong has two IT specialists and one operations
manager to continuously monitor the server status and ensure the resumption of operations should it ever become necessary.
Man
Loong’s IT department is working with IT security consultants to strengthen and protect its network from intentional attacks.
Man Loong has also established a separate department to monitor its networks and to identify and minimize human errors, such as
clerical mistakes and incorrectly placed trades, as well as intentional misconduct, such as unauthorized trading, mischief and
fraud. Despite any precautions it may take, any systems failure that causes an interruption in its services or decreases the responsiveness
of its services could, among other consequences, impair its reputation, damage its brand name and materially adversely affect
its and our business, financial condition and results of operations and cash flows.
Due
to the fact that Man Loong’s cost structure is largely fixed, it may not be able to respond to changes in revenue.
A
substantial portion of Man Loong’s expenses are fixed expenses for which it has payment commitments regardless of its revenue. These
expenses include office lease costs, trade platform rent, hosting facilities and security and staffing costs. If demand
for Man Loong’s services declines and, as a result, its revenues decline, it may not be able to adjust its cost structure
on a timely basis and its profitability and cash flows may be materially adversely affected.
Our
revenue is dependent upon Man Loong’s ability to attract and retain the agents with whom its customers have accounts.
Our
revenue is dependent upon Man Loong’s ability to retain and attract agents. Man Loong’s customer base is
primarily comprised of agents who have been retained by individual customers who trade in gold and silver price contracts. Although
Man Loong offers products and tailored services designed to educate, support and retain its agents, its efforts to attract new
agents, and those agents’ ability to attract new customers or reduce the attrition rate of its existing agents and their
customers may not be successful. If Man Loong is unable to maintain or increase its agent retention rates or generate a substantial
number of new agents in a cost-effective manner, its business, financial condition and results of operations and cash flows would
likely be adversely affected. The number of agents and their customers remained substantially unchanged during the
years ended March 31, 2016 and 2015. The number of agent customers decreased by 2 during 2016 however those 2 customers historically
accounted for more than 10% of commission revenue. Although Man Loong has spent significant financial resources on support services
for agents and their customers, marketing expenses and related expenses and plans to continue to do so, these efforts may not
be cost-effective at attracting new agents. In particular, we believe that costs for customer support services and rates for desirable
advertising and marketing placements, including online, search engine, print and television advertising, are likely to increase
in the foreseeable future, and Man Loong may be disadvantaged relative to its larger competitors in its ability to expand or maintain
its customer support capabilities, and advertising and marketing commitments.
Man
Loong currently has 3 agents in Hong Kong which cover three main geographic areas, including Hong Kong Island, Kowloon and the
New Territories. In mainland China, Man Loong has 10 agents located in Shanghai and Guangdong and Fujian provinces. Each
of Man Loong’s agents in Hong Kong have between 100 – 150 customers and its agents in China each have between 100
and 600 customers.
Any
future expansion or acquisitions may result in significant transaction expenses, integration and consolidation risks and risks
associated with entering new markets, and we may be unable to profitably operate our consolidated company.
Our
growth strategy includes the penetration of new markets in the future. Any future markets that we enter may result
in significant transaction expenses and present new risks associated with entering additional markets or offering new products
and integrating the acquired companies. We may not have sufficient management, financial and other resources to integrate
our operations in the new markets with our current operations and we may be unable to profitably operate our expanded company.
Additionally, any new businesses that we may acquire, once integrated with our existing operations, may not produce expected or
intended results.
Some
of the new markets may be in emerging growth countries. To compete successfully in these emerging markets, we must
continue to design, develop, and sell new and enhanced precious metals electronic trading programs and services that are culturally
acceptable to these emerging markets. Any emerging market that we attempt to penetrate will have risks of potential entrenched
local competition, higher credit risks, cultural differences, less developed and established local financial and banking infrastructure,
reduced protection of intellectual rights, inability to enforce contracts in some jurisdictions, difficulties and costs associated
with staffing and managing foreign operations, including reliance on newly hired local personnel, currency and tax laws that may
prevent or restrict the transfer of capital and profits among our various operations around the world; and time zone, language
and cultural differences among personnel in different areas of the world. We may also have difficulty in complying with the diverse
regulatory requirements of multiple jurisdictions, which may be more burdensome, not clearly defined, and subject to unexpected
changes, potentially exposing us to significant compliance costs and regulatory penalties
Our
Hong Kong operating subsidiary, Man Loong, facilitates the trading of gold and silver price contracts in Hong Kong and China. Price
contracts in gold and silver are not and may not be offered in the U.S. by us, including by our non-U.S. subsidiary, and are not
eligible for resale to U.S. residents. Neither we, nor Man Loong, conducts business in the United States or has agents, or any
agreements with agents, or facilitate trades with customers of agents that reside in the United States.
In
April 2016, Man Loong received a license from the CGSE to trade gold contracts in the new Qian Hai trade zone in Shenzhen, China.
Concurrent with receiving the license, Man Loong registered a new subsidiary, Shenzhen Qian Hai Man Loong Bullion Company Ltd.
(“Shenzhen Qian Hai”) organized as a Wholly Foreign Owned Enterprise under PRC law. The new license will allow Man
Loong to provide its trading platform and trading services to its existing and new customers who are citizens of the PRC to trade
gold contracts through Shenzhen Qian Hai. Man Loong is in the process of defining its business and marketing strategies and processes
for trades placed through Shenzhen Qian Hai. Man Loong intends to charge a fee to facilitate such trades placed in Qian Hai, and
such operations are expected to begin in approximately the fourth quarter of 2016. We have little experience with the regulatory
and compliance requirements of operating a company in the PRC. These risks may expose us to regulatory penalties and significant
compliance costs.
Man
Loong may be unable to respond to agents and their customers’ demands for new services and products and our business, financial
condition and results of operations and cash flows may be materially adversely affected.
Man
Loong’s agents and their customers may demand new services provided by Man Loong’s electronic trading platform. If
Man Loong fails to identify these demands from agents and their customers or update its services accordingly, any new services
and products provided by its competitors may render its existing services and products less competitive. Man Loong is currently
dependent upon a third party for the development of enhancements to its trading platform. The software developer is
not our employee and we cannot control the timing or amount of resources they devote to our programs. Our future success
will depend, in part, on Man Loong’s ability to respond to agents’ and their customers’ demands for new services
and products on a timely and cost-effective basis and to adapt to address the increasingly sophisticated requirements and varied
needs of our agents’ customers and prospective customers. We may not be successful in developing, introducing or marketing
new services and products. In addition, Man Loong’s new service and product enhancements may not achieve market acceptance.
Any failure on our part or Man Loong’s to anticipate or respond adequately to customer requirements, or any significant
delays in the development, introduction or availability of new services, products or service or product enhancements could have
a material adverse effect on our business, financial condition and results of operations and cash flows.
We
depend on our key personnel, the loss of whom would impair our ability to compete.
We
and Man Loong are highly dependent on the employment services of Kee Yuen Choi, our and Man Loong’s Chief Executive Officer.
The loss of Mr. Choi’s services could adversely affect us. We and Man Loong are also dependent on the other members of our
management. The loss of the service of any of these persons could seriously harm our product development and commercialization
efforts. In addition, research, product development and commercialization will require additional skilled personnel in areas such
as software and electronic technical support, customer support and marketing and retention of personnel, particularly for employees
with technical expertise, is uncertain. If we are unable to hire, train and retain a sufficient number of qualified employees,
our ability to conduct and expand our business could be seriously reduced. The inability to retain and hire qualified personnel
could also hinder the planned expansion of our business and may result in us relocating some or all of our operations.
We
have identified material weaknesses in our internal controls, and we cannot provide assurances that these weaknesses will be effectively
remediated or that additional material weaknesses will not occur in the future.
If
our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able
to accurately report our financial results, prevent fraud, or file our periodic reports in a timely manner, which may cause investors
to lose confidence in our reported financial information and may lead to a decline in our stock price. Our most recent evaluation
of our internal controls resulted in our conclusion that our disclosure controls and procedures and that our internal controls
over financial reporting were not effective. Effective internal controls are necessary for us to provide reliable financial reports.
All internal control systems, no matter how well designed, have inherent limitations. Even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement preparation and presentation. In our case, our failure
to achieve and maintain an effective internal control environment could cause us to be unable to produce reliable financial reports
or prevent fraud. This may cause investors to lose confidence in our reported financial information, which could in turn have
a material adverse effect on our stock price.
Our
Chief Executive Officer beneficially owns and controls a substantial portion of our outstanding common stock, which may limit
your ability and the ability of our other stockholders, whether acting alone or together, to propose or direct the management
or overall direction of our Company.
Mr. Choi,
acts as our Chief Executive Officer and Chairman of our Board of Directors, and through his control of approximately 49.5% of
our outstanding common stock, controls the Company and important matters relating to us. As a result of his positions and
his control of our common stock, Mr. Choi controls the outcome of all matters submitted to our shareholders for approval,
including the election of our directors, our business strategy and our day-to-day operations. In addition, Mr. Choi’s
ownership of our common stock and control of the Company could discourage the acquisition of our common stock by potential investors
and could have an anti-takeover effect, preventing a change in control of the Company and possibly depressing the trading price
of our common stock. There can be no assurance that conflicts of interest will not arise with respect to Mr. Choi’s
ownership and control of the Company or that any conflicts will be resolved in a manner favorable to the other shareholders of
the Company.
Man
Loong’s operations will be dependent upon its ability to protect our intellectual property, which could be costly.
Our
success will depend in part upon protecting any technology we or Man Loong uses or may develop from infringement, misappropriation,
duplication and discovery, and avoiding infringement and misappropriation of third party rights. Man Loong’s intellectual
property is essential to its business, and its ability to compete effectively with other companies depends on the proprietary
nature of its technologies. Man Loong does not have patent protection for its electronic trading platform. Man Loong relies upon
trade secrets, know-how, continuing technological innovations and licensing opportunities to develop, maintain and strengthen
its competitive position. Although Man Loong has confidentiality provisions in the agreements with our employees and independent
contractors, there can be no assurance that that such agreements can fully protect its intellectual property, be enforced in a
timely manner or that any such employees or consultants will not violate their agreements with Man Loong.
Furthermore,
Man Loong may have to take legal action in the future to protect its trade secrets or know-how, or to defend them against claimed
infringement of the rights of others. Any legal action of that type could be costly and time-consuming to Man Loong, and there
can be no assure that such actions will be successful. The invalidation of key proprietary rights which we or Man Loong own or
unsuccessful outcomes in lawsuits to protect our of Man Loong’s intellectual property may have a material adverse effect
on our or Man Loong’s business, financial condition and results of operations.
If
we or Man Loong cannot adequately protect our or its intellectual property rights, our or its competitors may be able to compete
more directly with us or Man Loong, which could adversely affect our or Man Loong’s competitive position and, as a result,
our and Man Loong’s business, financial condition and results of operations.
We
may incur substantial liabilities and may be required to limit commercialization of our electronic trading platform in response
to product liability lawsuits.
We
or Man Loong could be the subject of complaints or litigation from agents or their customers alleging product quality or operational
concerns. Litigation or adverse publicity resulting from these allegations could materially and adversely affect our business,
regardless of whether the allegations are valid or whether we are liable. Neither we nor Man Loong currently have product
liability insurance coverage, and even if there was such coverage, there would be no assurance that such coverage would be sufficient
to properly protect us. Further, claims of this type, whether substantiated or not, may divert our financial and management resources
from revenue generating activities and the business operation.
We
are an “emerging growth company,” and any decision on our part to comply with certain reduced disclosure requirements
applicable to emerging growth companies could make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act enacted in April 2012, and,
for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting
requirements applicable to other public companies including, but not limited to, not being required to comply with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could remain an
emerging growth company until the earliest of : (i) the last day of the fiscal year in which we have total annual gross revenues
of $1 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our first
sale of common equity securities pursuant to an effective registration statement; (iii) the date on which we have issued more
than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large
accelerated filer. We cannot predict if investors will find our common stock less attractive if we choose to rely on
these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure,
there may be a less active trading market for our common stock and our stock price may be more volatile.
Under
Section 107(b) of the Jumpstart Our Business Startups Act, emerging growth companies can delay adopting new or revised accounting
standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of
this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting
standards as other public companies that are not emerging growth companies.
As
a result of us becoming a public company, we are subject to additional reporting and corporate governance requirements that will
require additional management time, resources and expense.
We
are obligated to file with the U.S. Securities and Exchange Commission annual and quarterly information and other reports that
are specified in the U.S. Securities Exchange Act of 1934. We are also subject to other reporting and corporate governance requirements
under the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated thereunder, all of which will impose
significant compliance and reporting obligations upon us.
Our
internal controls over financial reporting may not be effective and our independent registered public accounting firm may not
be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.
As
a newly public reporting company, we will be in a continuing process of developing, establishing, and maintaining internal controls
and procedures that will allow our management to report on, and our independent registered public accounting firm to attest to,
our internal controls over financial reporting if and when required to do so under Section 404 of the Sarbanes-Oxley Act of 2002.
Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over
financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act until the later of the year following our first annual
report required to be filed with the SEC, or the date we are no longer an emerging growth company. If we fail to achieve and maintain
the adequacy of our internal controls, we would not be able to conclude on an ongoing basis that we have effective internal controls
over financial reporting in accordance with Section 404. At such time, our independent registered public accounting firm may issue
a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.
Moreover, our testing, or the subsequent testing by our independent registered public accounting firm, that must be performed
may reveal other material weaknesses or that the material weaknesses described above have not been fully remediated. If we do
not remediate the material weaknesses described above, or if other material weaknesses are identified or we are not able to comply
with the requirements of Section 404 in a timely manner, our reported financial results could be materially misstated or could
subsequently require restatement, we could receive an adverse opinion regarding our internal controls over financial reporting
from our independent registered public accounting firm and we could be subject to investigations or sanctions by regulatory authorities,
which would require additional financial and management resources, and the market price of our stock could decline.
Future
sales of our common stock by our existing shareholders could cause our stock price to decline.
All
of our outstanding shares of common stock are eligible for resale under Rule 144, subject to certain restrictions. If our
shareholders sell substantial amounts of our common stock in the public market at the same time, the market price of our common
stock could decrease significantly due to an imbalance in the supply and demand of our common stock. Even if they do not actually
sell the stock, the perception in the public market that our shareholders might sell significant shares of our common stock could
also depress the market price of our common stock.
A
decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional
shares of our common stock or other equity securities, and may cause you to lose part or all of your investment in our shares
of common stock.
Shareholders
do not have pre-emptive rights, which will cause them to experience dilution if we issue additional securities.
We
may issue and sell additional shares of our authorized but previously unissued shares of common stock, preferred stock, or common
stock warrants on such terms and conditions as our Board of Directors, in its sole discretion, may determine without consent of
our shareholders. Our shareholders do not have pre-emptive rights to acquire additional shares should we in the future issue or
sell additional securities. Thus, we are not required to offer any existing shareholder the right to purchase his or her pro rata
portion of any future issuance of securities and, therefore, upon the issuance of any additional securities by us hereafter, our
shareholders will not be able to maintain their then existing pro rata ownership in our outstanding shares of common stock, preferred
stock, or common stock warrants without additional purchases of securities at the price then set internally by us.
In
March 2015, we increased the number of our authorized shares from 500,000,000 to 1,000,000,000. The par value of our shares remained
unchanged at $.0001. We also effected a 10 for 1 stock split, whereby we exchanged 10 of our shares for every 1 share issued at
outstanding before the split. Following the share split, we have 512,600,000 shares issued and outstanding.
Effecting
a forward stock split and an increase in our authorized number of shares of common stock may not result in increased liquidity
in the trading of our stock and could have certain anti-takeover effects.
There
is no guarantee that the liquidity in the trading of our common stock after our forward stock split will increase. In addition,
any additional issuance of common stock could, under certain circumstances, have the effect of delaying or preventing a change
in control by increasing the number of outstanding shares entitled to vote and by increasing the number of votes required to approve
a change in control. The issuance of the additional authorized shares recently approved by our board of directors and
shareholders could render more difficult or discourage an attempt to obtain control of eBullion by means of a tender offer, proxy
contest, merger or otherwise. The ability of the board of the directors to issue such additional shares of common stock
could discourage an attempt by a party to acquire control of our company by tender offer or other means. Such issuances
could therefore deprive stockholders of benefits that could result from such an attempt, such as the realization of a premium
over the market price that such an attempt could cause.
In
the event of a breach of law by us or a breach of a contractual obligation our shareholders will have little or no recourse because
all of our assets, as well as our officers and directors, are located in Hong Kong.
Investors
in our company will have little recourse in the event of a breach of law or contractual obligation that has an adverse effect
upon our operations because of the inherent difficulties in enforcing their rights since all of our assets are located in Hong
Kong. Inasmuch as our officers and directors reside outside of the United States, investors located in the United States may have
difficulty enforcing their rights against such person if he were to breach his duties. In addition, it may not be possible to
effect service of process in Hong Kong and uncertainty exists as to whether the courts in Hong Kong would recognize or enforce
judgments of U.S. courts obtained against our officers and directors predicated on the civil liability provisions of the securities
laws of the U.S. or any state thereof, or to be competent to hear original actions brought in Hong Kong against us or such person
predicated upon the securities laws of the United States or any state thereof.
We
do not expect to pay dividends on our common stock in the foreseeable future.
Although
Man Loong has paid dividends to its private stockholders in the past, we do not expect to pay dividends on common stock for the
foreseeable future, and we may never pay dividends. Consequently, the only opportunity for investors to achieve a return
on their investment may be if an active trading market develops and investors are able to sell their shares for a profit or if
our business is sold at a price that enables investors to recognize a profit. We currently intend to retain any future earnings
to support the development and expansion of our business and do not anticipate paying cash dividends for the foreseeable future.
Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors,
including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit
agreements that we may be a party to at the time. In addition, our ability to pay dividends on our common stock may be limited
by state law. Accordingly, we cannot assure investors any return on their investment, other than in connection with a sale of
their shares or a sale of our business. At the present time there is a limited trading market for our shares. Therefore, holders
of our securities may be unable to sell them. We cannot assure investors that an active trading market will develop or that any
third party will offer to purchase our business on acceptable terms and at a price that would enable our investors to recognize
a profit.
Our
lack of an independent audit committee and audit committee financial expert at this time may hinder our board of directors’
effectiveness in fulfilling the functions of the audit committee without undue influence from management and until we establish
such committee will prevent us from obtaining a listing on a national securities exchange.
Although
our common stock is not listed on any national securities exchange, for purposes of independence we use the definition of independence
applied by NASDAQ. Currently, we have no independent audit committee. Our full board of directors functions as our audit
committee and is comprised of four directors, one of whom are considered to be "independent" in accordance with
the requirements set forth in NASDAQ Listing Rule 5605(a)(2). An independent audit committee plays a crucial role in the corporate
governance process, assessing our company's processes relating to our risks and control environment, overseeing financial reporting,
and evaluating internal and independent audit processes. The lack of an independent audit committee may prevent the board of directors
from being independent from management in its judgments and decisions and its ability to pursue the responsibilities of an
audit committee without undue influence. We may have difficulty attracting and retaining directors with the requisite qualifications.
If we are unable to attract and retain qualified, independent directors, the management of our business could be compromised.
An independent audit committee is required for listing on any national securities exchange, therefore until such time as we meet
the audit committee independence requirements of a national securities exchange we will be ineligible for listing on any national
securities exchange.
Our
board of directors acts as our compensation committee, which presents the risk that compensation and benefits paid to those executive
officers who are board members and other officers may not be commensurate with our financial performance.
A
compensation committee consisting of independent directors is a safeguard against self-dealing by company executives. Our board
of directors acts as the compensation committee and determines the compensation and benefits of our executive officers, administers
our employee stock and benefit plans, and reviews policies relating to the compensation and benefits of our employees. Our lack
of an independent compensation committee presents the risk that our executive officer on the board may have influence over his
personal compensation and benefits levels that may not be commensurate with our financial performance.
Limitations
on director and officer liability and indemnification of our company’s officers and directors by us may discourage stockholders
from bringing suit against an officer or director.
Our
company’s certificate of incorporation and bylaws provide, with certain exceptions as permitted by governing state law,
that a director or officer shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director
or officer, except for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful
payments of dividends. These provisions may discourage stockholders from bringing suit against a director or officer for breach
of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on our behalf against a director
or officer.
We
are responsible for the indemnification of our officers and directors.
Should
our officers and/or directors require us to contribute to their defense, we may be required to spend significant amounts of our
capital. Our certificate of incorporation and bylaws also provide for the indemnification of our directors, officers, employees,
and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which
they become a party arising from their association with or activities on behalf of our Company. This indemnification policy could
result in substantial expenditures, which we may be unable to recoup. If these expenditures are significant, or involve issues
which result in significant liability for our key personnel, we may be unable to continue operating as a going concern.
Our
common stock may be thinly traded, so you may be unable to sell at or near ask prices or at all if you need to sell your shares
to raise money or otherwise desire to liquidate your shares.
Currently,
there is a limited trading market for our common stock, which is traded on the OTCBB. We cannot predict the extent to which investors’
interests will lead to an active trading market for our common stock or whether the market price of our common stock will be volatile.
If an active trading market does not develop, investors may have difficulty selling any of our common stock that they buy. There
may be limited market activity in our stock and we are likely to be too small to attract the interest of many brokerage firms
and analysts. We cannot give you any assurance that an active public trading market for our common stock will develop or be sustained.
Our trading volume is limited by the fact that many major institutional investment funds, including mutual funds as well as individual
investors, follow a policy of not investing in OTCBB stocks and certain major brokerage firms restrict their brokers from recommending
OTCBB stocks because they are considered speculative, volatile, thinly traded and the market price of the common stock may not
accurately reflect the underlying value of our Company. The market price of our common stock could be subject to wide fluctuations
in response to quarterly variations in our revenues and operating expenses, announcements of new products or services by us, significant
sales of our common stock, including “short” sales, the operating and stock price performance of other companies that
investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions.
The
application of the “penny stock” rules to our common stock could limit the trading and liquidity of the common stock,
adversely affect the market price of our common stock and increase your transaction costs to sell those shares.
As
long as the trading price of our common stock is below $5 per share, the open-market trading of our common stock will be subject
to the “penny stock” rules, unless we otherwise qualify for an exemption from the “penny stock” definition.
The “penny stock” rules impose additional sales practice requirements on certain broker-dealers who sell securities
to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 together with their spouse). These regulations, if they apply, require the delivery, prior
to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks.
Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain
accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s
written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of our
common stock, reducing the liquidity of an investment in our common stock and increasing the transaction costs for sales and purchases
of our common stock as compared to other securities. The stock market in general and the market prices for penny stock companies
in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These
broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance. Stockholders
should be aware that, according to Securities and Exchange Commission (“SEC”) Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include: (i) control of the market for
the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through
prearranged matching of purchases and sales and false and misleading press releases; (iii) boiler room practices involving high-pressure
sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differential
and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent
investor losses. The occurrence of these patterns or practices could increase the volatility of our share price.
We
may not be able to attract the attention of major brokerage firms, which could have a material adverse impact on the market value
of our common stock.
The
trading market for our common stock will rely in part on the research and reports that equity research analysts publish about
us and our business. We do not control these analysts. However, security analysts of major brokerage firms may not provide coverage
of our common stock since there is no incentive to brokerage firms to recommend the purchase of our common stock, which may adversely
affect the market price of our common stock. If equity research analysts do provide research coverage of our common stock, the
price of our common stock could decline if one or more of these analysts downgrade our common stock or if they issue other unfavorable
commentary about us or our business. If one or more of these analysts ceases coverage of our company, we could lose visibility
in the market, which in turn could cause our stock price to decline.
Our
management has limited experience managing a public company.
At
the present time, none of our management has experience in managing a public company. This may hinder our ability to
establish effective controls and systems and comply with all applicable requirements attendant to being a public company. If
compliance problems result, these problems could have a material adverse effect on our business, financial condition or results
of operations.
As
a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition,
the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, and the Dodd-Frank Act of 2010, as well as rules subsequently implemented
by the SEC, have imposed various new requirements on public companies, including requiring changes in corporate governance practices.
Our management and other personnel devote a substantial amount of time to our new compliance requirements. Moreover, these requirements
have increased our legal, accounting and financial compliance costs and make some activities more time-consuming and costly. For
example, it is difficult and more expensive for us to obtain director and officer liability insurance. These requirements also
make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees
or as executive officers.
RISKS
RELATED TO REGULATION
Litigation
and regulatory investigations may result in significant financial losses and harm to our reputation.
We
face significant risk of litigation, regulatory investigations and similar actions in the ordinary course of our business, including
the risk of lawsuits and other legal actions relating to unauthorized transactions, error transactions, breach of data privacy
laws, breach of fiduciary or other duties. Any such action may include claims for substantial or unspecified compensatory damages,
as well as civil, regulatory or criminal proceedings against our directors, officers or employees, and the probability and amount
of liability, if any, any remain unknown for significant periods of time. We may be also subject to various regulatory inquiries,
such as information requests and book and records examinations, from regulators and other authorities in the geographical markets
in which we operate.
A
substantial liability arising from a law suit judgment or a significant regulatory action against us or a disruption in our business
arising from adverse adjudications in proceedings against our directors, officers or employees could have a material adverse effect
on our business, financial condition and results or operations. Moreover, even if we ultimately prevail in the litigation, regulatory
action or investigation, we could suffer significant harm to our reputation, which could materially affect our prospects and future
growth, including our ability to attract new agents as customers, retain current agents and their customers, and recruit and retain
employees and agents.
Compliance
with rules and regulations in our geographical markets could have a material adverse effect on our business, financial condition
and results of operation.
As
a data user we and Man Loong are prohibited from doing or engaging in any practice that contravenes the data privacy laws, rules
and regulations that regulate the use of customer data in the markets in which we or Man Loong are engaged. In Hong Kong, Man
Loong is governed by the Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong) Compliance with these laws,
rules and regulations may restrict Man Loong’s business activities, require us to incur increased expenses and devote considerable
time to compliance efforts.
In
addition, we or Man Loong may also be required to qualify to do business in certain foreign countries where we have agents and
where their customers are residing. We and Man Loong are required to comply with the laws and regulations of each country in which
we conduct business, including laws and regulations currently in place or which may be enacted related to Internet services available
to their citizens from service providers located elsewhere. Although we have systems in place to block trades initiated from countries
in North America, there can be no guarantee that such systems will be free from failure. Any failure to develop effective compliance
and reporting systems could result in regulatory penalties in the applicable jurisdiction, which could have a material adverse
effect on our business, financial condition and results of operations and cash flows.
Presently
all transactions for price contracts on gold and silver are executed and completed over Man Loong’s electronic trading platform
or telephone transaction system located in Hong Kong although its agents and their customers may not reside in Hong Kong. Agents
and their customers may access Man Loong’s electronic trading platform via the Internet from anywhere in the world to monitor
their account and throughout most of Asia to execute trades, but all instructions are first communicated to Man Loong for approval
and then the resulting trade is executed in Hong Kong. The acceptance of a customer order by internet in a jurisdiction other
than Hong Kong may require Man Loong to comply with the laws of that jurisdiction and failure to comply may have a material negative
impact on our financial condition and business results.
Without
local PRC registration, licensing or authorization, we may be subject to possible enforcement action and sanction for our operations
in the PRC if our operations are deemed to have violated PRC regulations.
When
permitted, we promote our services to agents outside of Hong Kong, including to agents in mainland China where our industry is
separately regulated. The regulatory rules and procedures for engaging in our business in China are complex and are not as clear
as those in many other jurisdictions and so we have not sought licensing from PRC government authorities to conduct business operations
in China. We do work with third party agents to promote and introduce our services to individuals and businesses in China. Our
PRC legal counsel has advised us that our activities in China are in compliance with PRC law because such activities are purely
promotional and never involve the conduct of any business transactions in China. We cannot assure you that PRC rules and regulations
will not change such that we can no longer engage in such promotional activities or offer our precious metals trading services
to PRC residents online. In such case, we may be subject to fines, penalties, or sanctions or may be required to cease such offerings
to PRC residents all together. These restrictions may limit our ability to increase revenues and would have a material adverse
effect on our results of operations.
If
Man Loong were to fail to comply with the requirements of the CGSE, Man Loong could lose its ability to process client trades,
which would have an adverse material effect on our revenues, financial condition and cash flows.
Man
Loong must comply with the minimum working capital and other requirements of the CGSE to continue our present business operations
as an officially designated electronics trading member of the CGSE, a self-regulatory organization registered in Hong Kong.
If we were to fall out of compliance with the CGSE’s requirements for its members, Man Loong could lose its ability to facilitate
any trades of gold or silver for customers of its agents, and potentially lose its membership in the CGSE, all of which would
have an adverse material effect on our revenues, financial condition and cash flows. The constitution of the CGSE requires its
members to have a minimum working capital, defined as cash plus precious metals, of approximately $193,000 and minimum assets
of $643,000. The CGSE also requires its members to submit a quarterly liquidity capital report, in order to ensure that the bank
balances exceed or equal the balance of customer deposits, as well as comply with a code of conduct which is established by CGSE.
As of March 31, 2016 and 2015, Man Loong had $1.1 million and $2.5 million in cash, respectively, and $2.6 million and $3.2 million,
respectively, in total assets. We were in compliance with these requirements as of March 31, 2016 and 2015.
Our
growth may be limited by various restrictions and we remain at risk that we may be required to cease operations if we become subject
to regulation by local government bodies.
We
currently have only a limited presence in a number of significant markets and may not be able to gain a significant presence there
unless and until regulatory barriers to international firms in certain of those markets are modified. Consequently, we cannot
assure you that our international expansion will continue and that we will be able to develop our business in emerging markets
as we currently plan. Furthermore, we may be subject to possible enforcement action and sanction if we are determined to have
previously offered, or currently offer, our services in violation of local government’s regulations. In these circumstances,
we are exposed to sanction by local enforcement agencies and our contracts with agents may be unenforceable. We may also be required
to cease the conduct of our business with agents in the relevant jurisdiction and/or we may determine that compliance with the
regulatory requirements for continuance of the business is too onerous to justify making the necessary changes to continue that
business.
Procedures
and requirements of the Patriot Act may expose us to significant costs or penalties.
As
participants in the financial services industry, we are, and our subsidiaries are, subject to laws and regulations, including
the Patriot Act of 2001, that require that we know our agents’ customers and monitor transactions for suspicious financial
activities. The cost of complying with the Patriot Act and related laws and regulations is significant. We face the risk that
our policies, procedures, technology and personnel directed toward complying with the Patriot Act are insufficient and that we
could be subject to significant criminal and civil penalties due to noncompliance. Such penalties could have a material adverse
effect on our business, financial condition and results of operations and cash flows. In addition, as an online financial services
provider worldwide, we may face particular difficulties in identifying our agents’ customers and monitoring their activities.