ITEM 1.
|
FINANCIAL STATEMENTS
|
eBullion,
Inc.
Condensed
Consolidated Balance Sheets
As
of September 30, and March 31, 2016
(Expressed
in US dollars)
|
|
Unaudited
September 30,
2016
|
|
|
Audited
March 31, 2016
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
878,494
|
|
|
$
|
1,109,465
|
|
Commissions receivable
|
|
|
202,667
|
|
|
|
100,493
|
|
Deposits and prepaid expenses
|
|
|
69,640
|
|
|
|
29,819
|
|
Prepaid income taxes
|
|
|
147,547
|
|
|
|
147,556
|
|
Total current assets
|
|
|
1,298,348
|
|
|
|
1,387,333
|
|
|
|
|
|
|
|
|
|
|
Noncurrent Assets
|
|
|
|
|
|
|
|
|
Deposits and prepaid expenses
|
|
|
188,397
|
|
|
|
141,084
|
|
Equipment, net
|
|
|
262,137
|
|
|
|
253,807
|
|
Loan receivable from Global Long
|
|
|
773,746
|
|
|
|
773,793
|
|
Deferred income taxes
|
|
|
101,954
|
|
|
|
101,960
|
|
Total noncurrent assets
|
|
|
1,326,234
|
|
|
|
1,270,644
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,624,582
|
|
|
$
|
2,657,977
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Bank Overdraft
|
|
$
|
-
|
|
|
$
|
30,645
|
|
Accounts payable and accrued liabilities
|
|
|
33,249
|
|
|
|
33,684
|
|
Customer deposits
|
|
|
203,577
|
|
|
|
187,037
|
|
Total current liabilities
|
|
|
236,826
|
|
|
|
251,366
|
|
|
|
|
|
|
|
|
|
|
Noncurrent Liabilities
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
1,847
|
|
|
|
5,517
|
|
Total noncurrent liabilities
|
|
|
1,847
|
|
|
|
5,517
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
238,673
|
|
|
|
256,883
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value, 1,000,000,000 shares authorized, 512,600,000 shares issued and outstanding
|
|
|
51,260
|
|
|
|
51,260
|
|
Additional paid in capital
|
|
|
1,477,404
|
|
|
|
1,477,404
|
|
Retained earnings
|
|
|
859,112
|
|
|
|
873,954
|
|
Accumulated other comprehensive loss
|
|
|
(1,867
|
)
|
|
|
(1,524
|
)
|
Total shareholders’ equity
|
|
|
2,385,909
|
|
|
|
2,401,094
|
|
Total liabilities and shareholders’ equity
|
|
$
|
2,624,582
|
|
|
$
|
2,657,977
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
eBulllion,
Inc.
Unaudited
Condensed Consolidated Statements of Comprehensive Income (Loss)
For
the Three and Six Months Ended September 30, 2016 and 2015
(Expressed
in US dollars)
|
|
Six
Months Ended
|
|
|
Three
Months Ended
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission
revenue
|
|
$
|
1,034,416
|
|
|
$
|
842,567
|
|
|
$
|
561,178
|
|
|
$
|
308,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
675,632
|
|
|
|
765,317
|
|
|
|
330,115
|
|
|
|
402,090
|
|
Employee
compensation and benefits
|
|
|
360,601
|
|
|
|
328,615
|
|
|
|
186,183
|
|
|
|
162,709
|
|
Depreciation
and Amortization
|
|
|
37,800
|
|
|
|
40,344
|
|
|
|
18,905
|
|
|
|
20,172
|
|
Total
expenses
|
|
|
1,074,033
|
|
|
|
1,134,276
|
|
|
|
535,203
|
|
|
|
584,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
|
(39,617
|
)
|
|
|
(291,709
|
)
|
|
|
25,975
|
|
|
|
(276,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
income
|
|
|
-
|
|
|
|
9,030
|
|
|
|
-
|
|
|
|
-
|
|
Interest
income, net
|
|
|
21,107
|
|
|
|
21,356
|
|
|
|
7,743
|
|
|
|
11,645
|
|
Total
other income
|
|
|
21,107
|
|
|
|
30,386
|
|
|
|
7,743
|
|
|
|
11,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) BEFORE INCOME TAXES
|
|
|
(18,510
|
)
|
|
|
(261,323
|
)
|
|
|
33,718
|
|
|
|
(264,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAX PROVISION (BENEFIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
4,180
|
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
(3,668
|
)
|
|
|
(5,300
|
)
|
|
|
(2,405
|
)
|
|
|
(2,650
|
)
|
Total
income tax provision (benefit)
|
|
|
(3,668
|
)
|
|
|
(1,120
|
)
|
|
|
(2,405
|
)
|
|
|
(2,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
|
(14,842
|
)
|
|
|
(260,203
|
)
|
|
|
36,123
|
|
|
|
(262,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
(343
|
)
|
|
|
2,303
|
|
|
|
1,056
|
|
|
|
682
|
|
COMPREHENSIVE
INCOME (LOSS)
|
|
$
|
(15,185
|
)
|
|
$
|
(257,900
|
)
|
|
$
|
37,179
|
|
|
$
|
(261,575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
512,600,000
|
|
|
|
512,600,000
|
|
|
|
512,600,000
|
|
|
|
512,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED EARNINGS (LOSS) PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss) per common share
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
eBullion,
Inc.
Condensed
Consolidated Statements of Shareholders’ Equity
For
the Year Ended March 31, 2016 and Six Months Ended September 30, 2016
(Expressed
in US dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Number
of
|
|
|
Par
|
|
|
Paid
in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
(Loss)
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
March 31, 2015 - Audited
|
|
|
512,600,000
|
|
|
$
|
51,260
|
|
|
$
|
1,477,404
|
|
|
$
|
1,383,704
|
|
|
$
|
(1,220
|
)
|
|
$
|
2,911,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(509,750
|
)
|
|
|
-
|
|
|
|
(509,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(304
|
)
|
|
|
(304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
March 31, 2016 - Audited
|
|
|
512,600,000
|
|
|
$
|
51,260
|
|
|
$
|
1,477,404
|
|
|
$
|
873,954
|
|
|
$
|
(1,524
|
)
|
|
$
|
2,401,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(14,842
|
)
|
|
|
-
|
|
|
|
(14,842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(343
|
)
|
|
|
(343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
September 30, 2016 - Unaudited
|
|
|
512,600,000
|
|
|
$
|
51,260
|
|
|
$
|
1,477,404
|
|
|
$
|
859,112
|
|
|
$
|
(1,867
|
)
|
|
$
|
2,385,909
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
eBullion,
Inc.
Unaudited
Condensed Consolidated Statements of Cash Flows
For
the Six Months Ended September 30, 2016 and 2015
(Expressed
in US dollars)
|
|
2016
|
|
|
2015
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(14,842
|
)
|
|
$
|
(260,203
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
(8,344
|
)
|
|
|
40,344
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Commissions
receivable
|
|
|
(102,130
|
)
|
|
|
77,838
|
|
Deposits
and prepaid expenses
|
|
|
(87,103
|
)
|
|
|
(209,317
|
)
|
Accounts
payable and accrued liabilities
|
|
|
(649
|
)
|
|
|
(3,466
|
)
|
Customer
deposits
|
|
|
16,543
|
|
|
|
61,297
|
|
Income
taxes payable
|
|
|
-
|
|
|
|
4,180
|
|
Deferred
income taxes
|
|
|
(3,668
|
)
|
|
|
(5,300
|
)
|
Net
cash used in operating activities
|
|
|
(200,193
|
)
|
|
|
(294,627
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Loan
receivable from Global Long
|
|
|
-
|
|
|
|
(774,042
|
)
|
Net
cash used in investing activities
|
|
|
-
|
|
|
|
(774,042
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Bank
overdraft
|
|
|
(30,628
|
)
|
|
|
-
|
|
Net
cash used in financing activities
|
|
|
(30,628
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET
DECREASE IN CASH
|
|
|
(230,821
|
)
|
|
|
(1,068,699
|
)
|
EFFECT
OF EXCHANGE RATE CHANGES ON CASH
|
|
|
(150
|
)
|
|
|
1,064
|
|
Cash,
beginning of period
|
|
|
1,109,465
|
|
|
|
2,513,423
|
|
Cash,
end of period
|
|
$
|
878,494
|
|
|
$
|
1,445,818
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash
paid during the year for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
eBullion,
Inc.
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
For
the Six Months Ended September 30, 2016 and 2015
|
(Expressed
in US Dollars)
|
1.
|
Nature
of Operations and Basis of Presentation
|
eBullion,
Inc. (“eBullion” or “the Company”) was incorporated in Delaware on January 28, 2013. On April 3, 2013,
the Company’s shareholders exchanged 100% of their shares for 100% of the shares of Man Loong Bullion Company Limited (“Man
Loong”) a company which was incorporated in Hong Kong in 1974, and in 2007, was re-registered under Hong Kong law as a limited
liability company. Upon completion of this transaction, Man Loong became a 100% owned subsidiary of eBullion. This transaction
was accounted for as a reverse take-over.
The
Company provides trading services for gold and silver trading positions on Man Loong’s proprietary, 24-hour electronic trading
platform, and its telephone transaction system located in Hong Kong. The Company is licensed through the Chinese Gold and Silver
Exchange Society (“CGSE”) a self-regulatory organization located in Hong Kong which acts as an exchange for the trading
of Kilo gold and Loco London gold and silver price indices quoted on the London Metals Exchange.
The
Company is not a counter party for trades entered through its trading platform and telephone transaction system, and instead,
contracts with agents who pay Man Loong a fixed commission on each trade that the Company executes for its agents and their customers.
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 intends to charge a fee to facilitate such trades placed in Qian Hai and is
in the process of defining its business and marketing strategies and processes for trades placed through Shenzhen Qian Hai.
Basis
of Presentation
These
unaudited condensed consolidated financial statements are expressed in U.S. Dollars and have been prepared in accordance with
accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information
and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments of a normal
recurring nature and considered necessary for a fair presentation of its financial condition and results of operations for the
interim periods presented in this Quarterly Report on Form 10-Q have been included. Operating results for the interim periods
are not necessarily indicative of financial results for the full year. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended March 31, 2016.
The
Company’s and Man Loong’s fiscal year end is March 31.
Principles
of Consolidation
The unaudited condensed consolidated financial statements as of September 30, 2016 and March 31,
2016 (audited), and for the three and six months ended September 30, 2016 and 2015, include the accounts of eBullion and its wholly
owned subsidiary, Man Loong. All significant intercompany transactions have been eliminated.
eBullion,
Inc.
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
For
the Six Months Ended September 30, 2016 and 2015
|
(Expressed
in US Dollars)
|
2.
|
Summary
of Significant Accounting Policies
|
Use
of Estimates
The
preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenue and expenses
during the reporting period. Changes in these estimates are recorded when known. Significant estimates made by management include:
|
●
|
Valuation
of assets and liabilities
|
|
●
|
Useful
lives of equipment
|
|
●
|
Accounting
for transactions with variable interest entities
|
|
●
|
Other
matters that affect the reported amounts and disclosures of contingencies in the consolidated financial statements.
|
Actual
results could differ from those estimates.
Revenue
Recognition
The
Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 605,
Revenue Recognition
, which requires that four basic criteria must be met before revenue
can be recognized: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred or services have been rendered;
(3) the fee is fixed and determinable; and (4) collectability is reasonably assured. The Company is not a counter party for trades
executed through its trading platform and telephone transaction system and, instead, recognizes revenue to the extent of the flat-fee
commission it receives on each trade processed for its agents and their customers.
Advertising
Advertising
costs are incurred for the production and communication of advertising, as well as other marketing activities. The Company expenses
the cost of advertising as incurred. The Company did not capitalize any production costs associated with advertising for the three
and six months ended September 30, 2016 and 2015. The total amount charged to advertising expense was $353 and $4,696 for
the six months ended September 30, 2016 and 2015, respectively and $124 and $2,818 for the three months ended September 30, 2016
and 2015, respectively.
Cash
and cash equivalents
Cash
and cash equivalents consist primarily of cash on deposit, certificates of deposits, money market accounts, and investment grade
commercial paper that are readily convertible to cash and purchased with original maturities of three months or less. As
of September 30, 2016 and March 31, 2016, the Company had no cash equivalents.
Fair
Value of Financial Instruments
ASC
820, “Fair
Value Measurements
”, defines fair value and establishes a three-level valuation hierarchy for disclosures
of fair value measurement and enhances disclosure requirements for fair value measures. The carrying amounts reported in the condensed
consolidated balance sheets for cash, commissions receivable, loan receivable from Global Long, accounts payable and accrued liabilities
and customer deposits qualify as financial instruments and are a reasonable estimate of fair value because of the short period
of time between the origination of such instruments and their expected realization and their current market rate of interest.
eBullion,
Inc.
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
For
the Six Months Ended September 30, 2016 and 2015
|
(Expressed
in US Dollars)
|
2.
|
Summary
of Significant Accounting Policies - continued
|
The
standard establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest
priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy defined by the standard are
as follows:
Level
1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets
are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information
on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, listed equities
and U.S. government treasury securities.
Level
2 - Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly
observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation
methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward
prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments,
as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout
the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions
are executed in the marketplace. Instruments in this category include non-exchange-traded derivatives such as over the counter
forwards, options and repurchase agreements.
Level
3 - Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used
with internally developed methodologies that result in management’s best estimate of fair value from the perspective of
a market participant. Level 3 instruments include those that may be more structured or otherwise tailored to customers’
needs.
The
Company had no financial instruments that were required to be measured at fair value for the three and six months ended September
30, 2016 and 2016.
Commissions
Receivable
Commissions
receivable represent commissions to be collected from agents for their customers’ trades executed across Man Loong’s
electronic trade platform and telephone transaction system through the balance sheet date. Commissions receivable are typically
remitted to the Company within 30 days of trade execution. The Company has not historically incurred credit losses on these commissions
receivable. As of September 30, 2016 and March 31, 2016, the Company has no reserve for credit losses nor has it incurred any
bad debts for the three and six months ended September 30, 2016 and 2015.
Deposits
and Prepaid Expenses
The
Company records goods and services paid for but not received until a future date as deposits and prepaid expenses. These primarily
include deposits and prepayments for occupancy related expenses. Deposits or prepaid expenses which will be realized
more than 12 months past the balance sheet date are classified as non-current assets in the accompanying condensed consolidated
balance sheets.
Equipment
Equipment
is stated at cost. The cost of an asset consists of its purchase price and any directly attributable costs of bringing the asset
to its present working condition and location for its intended use.
Equipment
is depreciated using the straight-line method over the estimated useful lives of the assets as follows:
|
Office equipment
|
|
5 years
|
|
Furniture and fixtures
|
|
5 years
|
|
Computer equipment
|
|
5 years
|
Expenditures
for maintenance and repairs are charged to expense as incurred. Additions, renewals and betterments are capitalized.
Gain
or loss on disposal of equipment is the difference between net sales proceeds and the carrying amount of the relevant assets,
if any, and is recognized as income or loss in the accompanying unaudited condensed consolidated statements of comprehensive income
(loss). There were no disposals of equipment for the three and six months ended September 30, 2016 and 2015.
eBullion,
Inc.
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
For
the Six Months Ended September 30, 2016 and 2015
|
(Expressed
in US Dollars)
|
2.
|
Summary
of Significant Accounting Policies - continued
|
Variable
Interest Entity
A
variable interest entity (“VIE”) is a legal entity, other than an individual, used for business purposes that either
(a) has equity investors that do not provide sufficient financial resources for the entity to support its activities, or (b) the
equity investors lack any one of the following three criteria:
|
●
|
The
power to direct activities that most significantly impact the entity’s economic performance
|
|
●
|
The
obligation to absorb the expected losses of the entity
|
|
●
|
The
right to receive the expected residual returns.
|
A
VIE is required to be consolidated by a reporting entity if it has a controlling financial interest in the VIE. A reporting entity
is deemed to have a controlling financial interest in a VIE if it both has the power to direct the activities that most significantly
impact the VIE’s economic performance and the obligation to absorb the losses or the right to receive economic benefits
from the VIE that could potentially be significant to the VIE. The Company did not have a VIE as of September 30, and March 31,
2016 and for the three and six months ended September 30, 2016 and 2015.
Reporting
Currency and Foreign Currency Translation
As
of September 30 and March 31, 2016 and for the three and six months ended September 30, 2016 and 2015, the accounts of the Company
were maintained in their functional currencies, which is the U.S. dollar for eBullion and the Hong Kong dollar ("HK dollar")
for Man Loong. The financial statements of Man Loong have been translated into U.S. dollars which is its reporting
currency. All assets and liabilities of Man Loong are translated at the exchange rate on the balance sheet date, shareholders’
equity is translated at historical rates and the statements of comprehensive income (loss), and statements of cash flows are translated
at the weighted average exchange rate for the periods. The resulting translation adjustments for the period are reported under
other comprehensive income (loss) and accumulated translation adjustments are reported as a separate component of shareholders’
equity.
Foreign
exchange rates at September 30 and March 31, 2016 and for the three and six months ended September 30, 2016 and 2015 are as follows:
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Year end March 31, 2016 USD/HKD exchange
rate
|
|
|
7.7540
|
|
|
|
-
|
|
|
Period end USD/HKD exchange rate
|
|
|
7.7545
|
|
|
|
7.7500
|
|
|
Average USD/HKD exchange rate:
|
|
|
|
|
|
|
|
|
|
Six months ended September 30
|
|
|
7.7582
|
|
|
|
7.7515
|
|
|
Three months ended September 30
|
|
|
7.7561
|
|
|
|
7.7513
|
|
Long-Lived
Assets
The
Company periodically evaluates the carrying value of long-lived assets when events and circumstances warrant such review. The
carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such an asset is
less than its carrying value. In that event, a loss is recognized in the amount by which the carrying value exceeds the fair market
value of the long-lived asset. The Company has identified no such impairment losses.
Accounts
payable and accrued liabilities
Accounts
payable and accrued liabilities at September 30, 2016 and March 31, 2016 primarily consist of accrued statutory bonus payable
to employees in Hong Kong, audit fees payable to the Company’s auditors and accountants and legal fees payable to the Company’s
legal counsel.
eBullion,
Inc.
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
For
the Six Months Ended September 30, 2016 and 2015
|
(Expressed
in US Dollars)
|
2.
|
Summary
of Significant Accounting Policies - continued
|
Customer
Deposits
Customer
deposits at September 30, 2016 and March 31, 2016 were accepted pursuant to the Company’s agreements with certain of its
independent agents. Under terms of those agreements, the Company accepts margin deposits for certain of the agents’ customers
who prefer that the Company hold those deposits. If an agent’s customer suffers a trading loss equaling 80% or more of the
customers’ deposit balance, the customer is required to increase the balance of his deposit or the customer’s trading
position is closed and the remaining deposit balance is remitted to the agent in order to fund the customer’s trading losses.
Accordingly,
the Company had no risk of loss related to customer deposits at September 30, 2016 and March 31, 2016.
Accumulated
Other Comprehensive Loss
The
Company’s accumulated other comprehensive loss as September 30, and March 31, 2016 consist of adjustments resulting from
translating Man Loong’s functional currency, the HK dollar, to its reporting currency, the U.S. dollar.
Rental
Income
Rental
income consisted of rent charged for a portion of Man Loong’s office facility which was leased on a short term lease arrangement.
Agreed rental payments were $4,514 per month from January 1, 2015 until March 31, 2015 when the lease arrangement expired. Though
not subject to a formal lease agreement, in April 2015, Man Loong extended the lease arrangement for a further 2 months. For the
six months ended September 30, 2016 and 2015, Man Loong recognized $0 and $9,030, respectively, and $0 and $0 for the three months
ended September 30, 2016 and 2015, respectively in the accompanying unaudited condensed consolidated statements of comprehensive
income.
Income
Taxes
The
Company utilizes ASC 740,
Income Taxes
, which requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
The
Company has adopted the provisions of the interpretation, of ASC 740,
Accounting for Uncertainty in Income Taxes
. The Company
did not have any material unrecognized tax benefits and there was no effect on its financial condition or results of operations
as a result of implementing the interpretation. The Company files income tax returns in the United States and the Company is subject
to federal income tax examinations for the fiscal years ended March 31, 2014 through 2016. Man Loong files income tax returns
in Hong Kong and is no longer subject to tax examinations by tax authorities for years before 2009. At September 30, 2016, Man
Loong had no uncertain tax positions.
Historically,
the Company has not provided for U.S. income and foreign withholding taxes on Man Loong’s undistributed earnings, because
such earnings have been retained and reinvested by Man Loong. The Company does not intend to require Man Loong to pay dividends
for the foreseeable future and so additional income taxes and applicable withholding taxes that would result from the repatriation
of such earnings are not practicably determinable.
Earnings
(Loss) per Share
The
Company computes earnings (loss) per share (“EPS”) in accordance with ASC 260,
Earnings Per Share
. ASC 260
requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss)
divided by the weighted average common shares outstanding during the period.
Diluted
EPS is similar to basic EPS but presents the dilutive effect on a per share basis of contracts to issue ordinary common shares
(e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented,
or issuance date, if later. The computation of diluted EPS includes the estimated impact of the exercise of contracts to purchase
common stocks using the treasury stock method and the potential shares of converted common stock associated with the convertible
debt using the if-converted method.
eBullion,
Inc.
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
For
the Six Months Ended September 30, 2016 and 2015
|
(Expressed
in US Dollars)
|
2.
|
Summary
of Significant Accounting Policies - continued
|
Potential
common shares that have an anti-dilutive effect (i.e., those that increase earnings per share or decrease loss per share) are
excluded from the calculation of diluted EPS.
The
Company does not have any securities that may potentially dilute its basic earnings (loss) per share.
Comprehensive
Income (Loss)
Comprehensive
income (Loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes
unrealized gains or losses resulting from translating Man Loong’s functional currency, the HK dollar, to its reporting currency,
the U.S. dollar.
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13 Financial Instruments – Credit Losses (Topic 326)
Measurement of Credit on Financial
Instruments
. ASU 2016-13 will replace the “incurred loss” methodology for recognizing impairment losses on financial
instruments, which delays the recognition of such losses until it is probable that a loss has been incurred, with the Current
Expected Credit Losses (“CECL”) methodology. Using the CECL methodology, an entity will recognize credit losses based
on its estimate of future losses, even though those estimated losses have not yet met the probable threshold. ASU 2016-13 is effective
for years beginning after December 18, 2018 and early adoption is permitted in fiscal years beginning after December 31, 2018.
The adoption of ASU 2016-13 is not expected to have a material effect on the Company’s unaudited condensed consolidated
financial statements.
In
May 2016, the FASB issued ASU 2016-12 Revenue From Contracts (Topic 606)
Narrow Scope Improvements and Practical Expedients
.
ASU 2016-12 is an amendment to ASU 2014-09 and, among other matters, provides new guidance on when an entity would recognize revenue
if the entity concludes that collectability is not probable. ASU 2016-12 is effective for years beginning after December 18, 2018
and early adoption is permitted. The adoption of ASU 2016-12 is not expected to have a material effect on the Company’s
unaudited condensed consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02 Leases (Topic 842). ASU 2016-02 establishes new guidance for the recording and disclosure
of assets and liabilities that arise from leasing activity. ASU 2016-02 will require most lessees to record lease assets and lease
liabilities that arise from leases on the statement of financial condition and disclose qualitative and quantitative information
related to lease transactions such as variable lease payments and options to renew and terminate leases. ASU 2016-02 is effective
for years beginning after December 18, 2018 and early adoption is permitted. The Company is evaluating ASU 2016-02 to determine
its impact, if any, on the unaudited condensed consolidated financial statements.
In
January 2016, the FASB issued ASU 2016-01 Financial Instruments Overall (Subtopic 825-10)
Recognition and Measurement of Financial
Assets and Liabilities
. ASU 2016-01 amends the guidance in US GAAP on classification, measurement and disclosure of financial
instruments. It revises an entity’s accounting related to: 1) classification and measurement of investments in equity securities;
2) presentation of certain fair value changes for financial liabilities measured at fair value; and, 3) amends disclosure requirements
associated with the fair value of financial instruments. ASU 2016-01 is effective for years beginning after December 15, 2017
and early adoption is permitted. The adoption of ASU 2016-01 is not expected to have a material effect on the Company’s
unaudited condensed consolidated financial statements.
In
August 2015, the FASB issued ASU 2015-14 Revenue From Contracts With Customers (Topic 606)
Deferral of the Effective Date
.
ASU 2015-14 defers the effective date of ASU 2014-09, Revenue From Contracts With Customers (Topic 606) which clarifies the principles
for revenue recognition and develops common revenue recognition standards for US GAAP and International Financial Reporting Standards
(IFRS). ASU 2015-14 defers the effective date of ASU 2014-09 to years beginning after December 31, 2018 and early adoption is
permitted. The adoption of ASU 2015-14 and ASU 2014-09 is not expected to have a material effect on the Company’s unaudited
condensed consolidated financial statements.
In
November 2015, the FASB issued ASU 2015-17 Income Taxes (Topic 740)
Balance Sheet Classification of Deferred Taxes.
ASU
2015-17 simplifies the presentation of deferred tax assets and liabilities by allowing both balances to be presented as non-current
on the balance sheet. ASU 2015-17 is effective for years beginning after December 15, 2017 and early adoption is permitted. The
adoption of ASU 2015-17 is not expected to have a material effect on the Company’s unaudited condensed consolidated financial
statements.
eBullion,
Inc.
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
For
the Six Months Ended September 30, 2016 and 2015
|
(Expressed
in US Dollars)
|
2.
|
Summary
of Significant Accounting Policies - continued
|
Other
recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified
Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present
or future unaudited condensed consolidated financial statements.
3.
|
Deposits
and Prepaid Expenses
|
|
|
|
Deposits
and prepaid expenses consisted of the following as of September 30, 2016 and March 31, 2016:
|
|
|
|
Unaudited
|
|
|
Audited
|
|
|
|
|
September 30,
2016
|
|
|
March 31,
2016
|
|
|
Current
|
|
|
|
|
|
|
|
Prepaid
rent and occupancy expenses
|
|
$
|
69,640
|
|
|
$
|
29,819
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent
|
|
|
|
|
|
|
|
|
|
Rent
and occupancy deposits
|
|
|
188,397
|
|
|
|
141,084
|
|
|
Total
deposits and prepaid expenses
|
|
$
|
258,037
|
|
|
$
|
170,903
|
|
4.
|
Loan
receivable from Global Long
|
On
April 3, 2015, Man Loong loaned Global Long Inc. Limited (“Global Long”) $773,332 (HKD$6,000,000). Global Long is
registered in Hong Kong and through its subsidiary in the Peoples Republic of China, eBullion Trade Company Limited (“eBullion
Trade”), is engaged in trading silver contracts as an electronic trading member of the Guangdong Precious Metal Exchange
(“GPME”). The loan bears interest at a 6% annual rate, matures on its 5th anniversary and is secured by a first right
of claim on a bank deposit held by eBullion Trade. Under the terms of the loan, interest is payable to Man Loong quarterly and
Global Long has the right to repay the loan at any time before the maturity date. Until all principal and accrued interest are
repaid on the loan, Global Long may not enter into additional borrowings without Man Loong’s written permission, and upon
certain events of default, the Loan becomes due on demand. 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 in gold trading positions
through the CGSE.
The
Company determined that the loan to Global Long does not give the Company a variable interest in Global Long and that Global Long
is not a variable interest entity (“VIE”) because Man Loong does not have the power to direct any of the activities
of Global Long or eBullion Trade that significantly impact their economic performance. Accordingly, the Company has not consolidated
Global Long into its consolidated financial statements.
eBullion,
Inc.
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
For
the Six Months Ended September 30, 2016 and 2015
|
(Expressed
in US Dollars)
|
Equipment,
including leasehold improvements, consisted of the following as of September 30, 2016 and March 31, 2016:
|
|
|
Unaudited
|
|
|
|
|
|
|
|
September 30,
2016
|
|
|
March 31,
2016
|
|
|
Office equipment
|
|
$
|
206,333
|
|
|
$
|
206,345
|
|
|
Computer equipment
|
|
|
59,915
|
|
|
|
59,919
|
|
|
Furniture
and fixtures
|
|
|
111,937
|
|
|
|
65,774
|
|
|
|
|
|
378,185
|
|
|
|
332,038
|
|
|
Less:
Accumulated depreciation
|
|
|
(116,048
|
)
|
|
|
(78,231
|
)
|
|
Equipment,
net
|
|
$
|
262,137
|
|
|
$
|
253,807
|
|
Depreciation
expense was $37,800 and $40,344 for the six months ended September 30, 2016 and 2015, respectively, and $18,905 and $20,172 for
the three months ended September 30, 2016 and 2015, respectively and was recorded as depreciation expense in the accompanying
unaudited condensed consolidated statements of comprehensive income (loss).
Customer
deposits were $203,577 and $187,037 at September 30, 2016 and March 31, 2016, respectively, and were recorded as a current liability
in the accompanying unaudited condensed consolidated balance sheets.
7.
|
General
and Administrative Expenses
|
General
and administrative expenses consist of the following for the three and six months ended September 30, 2016 and 2015.
|
|
|
Unaudited
Six months
2016
|
|
|
Unaudited
Six months
2015
|
|
|
Unaudited
Three months
2016
|
|
|
Unaudited
Three months
2015
|
|
|
Marketing expenses
|
|
$
|
212,688
|
|
|
$
|
172,108
|
|
|
$
|
97,837
|
|
|
$
|
84,758
|
|
|
Trading platform rent
|
|
|
61,716
|
|
|
|
83,465
|
|
|
|
24,929
|
|
|
|
39,183
|
|
|
Transportation
|
|
|
3,152
|
|
|
|
29,803
|
|
|
|
2,014
|
|
|
|
12,457
|
|
|
Internet
|
|
|
10,469
|
|
|
|
8,908
|
|
|
|
5,608
|
|
|
|
4,454
|
|
|
Travel and entertainment
|
|
|
3,028
|
|
|
|
3,852
|
|
|
|
2,673
|
|
|
|
701
|
|
|
Computers and software
|
|
|
22,061
|
|
|
|
16,237
|
|
|
|
7,856
|
|
|
|
8,442
|
|
|
Legal and professional
|
|
|
106,466
|
|
|
|
80,354
|
|
|
|
41,700
|
|
|
|
54,088
|
|
|
Licenses
|
|
|
13,866
|
|
|
|
26,969
|
|
|
|
10,443
|
|
|
|
25,073
|
|
|
Occupancy
|
|
|
206,795
|
|
|
|
298,774
|
|
|
|
117,266
|
|
|
|
149,234
|
|
|
Advertising
|
|
|
353
|
|
|
|
4,696
|
|
|
|
124
|
|
|
|
2,818
|
|
|
Other
|
|
|
35,038
|
|
|
|
40,151
|
|
|
|
19,665
|
|
|
|
20,882
|
|
|
Total
general and administrative expense
|
|
$
|
675,632
|
|
|
$
|
765,317
|
|
|
$
|
330,115
|
|
|
$
|
402,090
|
|
eBullion,
Inc.
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
For
the Six Months Ended September 30, 2016 and 2015
|
(Expressed
in US Dollars)
|
Income
(loss) before income taxes as shown in the accompanying unaudited condensed consolidated statements of comprehensive income (loss)
is summarized below for the three and six months ended September 30, 2016 and 2015.
|
|
|
Unaudited
Six months
2016
|
|
|
Unaudited
Six months
2015
|
|
|
Unaudited
Three months
2016
|
|
|
Unaudited
Three months
2015
|
|
|
United States
|
|
$
|
(24,851
|
)
|
|
$
|
(26,089
|
)
|
|
$
|
(15,950
|
)
|
|
$
|
(16,445
|
)
|
|
Hong
Kong
|
|
|
6,341
|
|
|
|
(235,234
|
)
|
|
|
49,668
|
|
|
|
(248,462
|
)
|
|
Income
before income taxes
|
|
$
|
(18,510
|
)
|
|
$
|
(261,323
|
)
|
|
$
|
33,718
|
|
|
$
|
(264,907
|
)
|
Under
Hong Kong Profits Tax Law the Company is subject to profits tax at a statutory rate of 16.5% on income reported in its statutory
financial statements after appropriate tax adjustments.
The
income tax provision (benefit) consists of the following for the three and six months ended September 30, 2016 and 2015:
|
|
|
Unaudited
Six months
2016
|
|
|
Unaudited
Six months
2015
|
|
|
Unaudited
Three months
2016
|
|
|
Unaudited
Three months
2015
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Hong
Kong
|
|
|
-
|
|
|
|
4,180
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
current provision
|
|
|
-
|
|
|
|
4,180
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Hong
Kong
|
|
|
(3,668
|
)
|
|
|
(5,300
|
)
|
|
|
(2,405
|
)
|
|
|
(2,650
|
)
|
|
Total
deferred benefit
|
|
|
(3,668
|
)
|
|
|
(5,300
|
)
|
|
|
(2,405
|
)
|
|
|
(2,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
income tax provision
|
|
$
|
(3,668
|
)
|
|
$
|
(1,120
|
)
|
|
$
|
(2,405
|
)
|
|
$
|
(2,650
|
)
|
The
reconciliation of the income tax provision (benefit) to the amount computed by applying the U.S. statutory federal income tax
rate to income before income taxes is as follows:
|
|
|
Unaudited
Six months
2016
|
|
|
Unaudited
Six months
2015
|
|
|
Unaudited
Three months
2016
|
|
|
Unaudited
Three months
2015
|
|
|
Income tax provision (benefit) at the
U.S. statutory tax rate
|
|
$
|
(6,293
|
)
|
|
$
|
(88,850
|
)
|
|
$
|
11,464
|
|
|
$
|
(90,068
|
)
|
|
Valuation allowance on U.S. net operating
loss carryforwards
|
|
|
8,449
|
|
|
|
8,870
|
|
|
|
5,423
|
|
|
|
5,591
|
|
|
Impact of foreign operations
|
|
|
(5,824
|
)
|
|
|
78,860
|
|
|
|
(19,292
|
)
|
|
|
81,827
|
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Income
tax provision (benefit)
|
|
$
|
(3,668
|
)
|
|
$
|
(1,120
|
)
|
|
$
|
(2,405
|
)
|
|
$
|
(2,650
|
)
|
At
September 30, 2016, we had U.S. net operating loss carryforwards of approximately $395,000 which expire at various times
through 2035. Based on the available evidence, it is uncertain whether future U.S. taxable income will be sufficient to
offset the estimated net loss carryforwards, accordingly, we have recorded a valuation allowance of approximately $134,000 as
of September 30, 2016.
eBullion,
Inc.
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
For
the Six Months Ended September 30, 2016 and 2015
|
(Expressed
in US Dollars)
|
8.
|
Income
Taxes - continued
|
At
September 30, 2016, we had Hong Kong net operating loss carryforwards of approximately $291,000 which expire at various times
through 2032. Based on the available evidence, it is uncertain whether future Hong Kong taxable income will be sufficient to offset
the estimated net loss carryforwards, accordingly, we have recorded a valuation allowance of approximately $48,000 as of September
30, 2016.
As
September 30 and March 31, 2016, the Company’s and Man Loong’s differences between the book and tax basis of equipment
gave rise to deferred income tax assets of $101,954 and $101,960, respectively which are recorded as noncurrent in the accompanying
condensed consolidated balance sheets. The Company had no other differences between the book and tax basis of assets and liabilities
as September 30 and March 31, 2016.
As
a result of the implementation of ASC 740,
Accounting for Income Taxes
, the Company recognized no material adjustment to
unrecognized tax benefits. The Company would classify income tax penalties and interest, if any, as part of interest and other
expenses in the accompanying unaudited condensed consolidated statements of comprehensive income. The Company has incurred no
interest or penalties during the three and six months ended September 30, 2016 and 2015.
9.
|
Earnings
(Loss) Per Share
|
Earnings
(loss) per share (“EPS”) information for the three and six months ended September 30, 2016 and 2015 was determined
by dividing net income (loss) for the period by the weighted average number of both basic and diluted shares of common stock and
common stock equivalents outstanding.
As
of and for the three and six months ending September 30, 2016 and 2015, the Company did not have any securities that may potentially
dilute the basic earnings per share. Therefore basic and diluted earnings per share for the respective years are the same.
|
|
|
Unaudited
Six months
2016
|
|
|
Unaudited
Six months
2015
|
|
|
Unaudited
Three months
2016
|
|
|
Unaudited
Three months
2015
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common
shareholders
|
|
$
|
(14,842
|
)
|
|
$
|
(260,203
|
)
|
|
$
|
36,123
|
|
|
$
|
(262,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock (basic and diluted)
|
|
|
512,600,000
|
|
|
|
512,600,000
|
|
|
|
512,600,000
|
|
|
|
512,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss) per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
10.
|
Related
Party Transactions and Balances
|
The
Company engaged in related party transactions with certain shareholders, and a company under common control as described below.
On
May 27, 2011, the Company entered into an agreement with a company under common control, True Technology Company Limited (“True
Technology”), under which True Technology hosts the Company’s servers and provides a connection between the customer’s
servers and the internet using True Technology’s public network connections. The fee for these services was $3,868 per month
for the three and six months ended September 30, 2016 and 2015 and is recorded as trading platform rent as a component of general
and administrative expenses. Included in trading platform rental fees in the accompanying unaudited condensed consolidated statements
of comprehensive income (loss) for the six months ended September 30, 2016 and 2015, are rental fees which were paid to True Technology
of $23,201 and $23,221 respectively. Rental fees paid to True Technology for the three months ended September 30, 2016 and 2015
were $11,604 and $11,611 respectively.
Included
in employee compensation and benefits in the accompanying unaudited condensed consolidated statements of comprehensive income
for the six months ending September 30, 2016 and 2015, are salaries and director compensation of $18,045 and $15,841 respectively,
which were paid to two of the Company’s directors and shareholders. Compensation and benefits paid to these shareholders
for the three months ended September 30, 2016 and 2015 were $10,315 and $7,740 respectively
.
eBullion,
Inc.
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
For
the Three Months Ended September 30, 2016 and 2015
|
(Expressed
in US Dollars)
|
The
Company leases office space under non-cancellable operating lease agreements that expire on various dates through 2019.
In
December 2012, the Company entered into a lease agreement on approximately 10,000 square feet of office space which replaced its
previous office facilities. The Company occupied the space in January 2013. Under terms of the lease, the Company paid approximately
$192,000 in lease deposits and was committed to lease and management fee payments of approximately $46,647 per month for 29 months.
In
September 2015, the Company entered into a new lease agreement on approximately 5,500 square feet of office space which replaced
its previous office facilities. The Company occupied the space in December 2015. Under terms of the lease, the Company paid approximately
$147,397 in lease deposits and was committed to lease and management fee payments of approximately $27,209 per month for 35 months.
In
May 2016, the Company entered into a new lease agreement for additional office space. The Company occupied the space in July 2016.
Under terms of the lease, the Company paid approximately $44,155 in lease deposits and is committed to lease and management fee
payments of approximately $10,645 per month for 29 months.
In
May 27, 2011, the Company entered into an agreement with True Technology, a company under common control under which True Technology
hosts the Company’s servers and provides a connection between the customer’s servers and the internet using True Technology’s
public network connections. 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.
Future annual minimum lease payments, including maintenance and management fees, for non-cancellable
operating leases and trading platform fees, are as follows:
|
Years
ending September 30,
|
|
|
|
|
2017
|
|
|
477,270
|
|
|
2018
|
|
|
454,062
|
|
|
2019
|
|
|
24,245
|
|
|
|
|
$
|
955,577
|
|
ITEM 2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
You
should read the following discussion and analysis of our financial condition and results of operations together with our financial
statements and related notes appearing elsewhere in this quarterly report. The following discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including those discussed below and elsewhere in this quarterly
report. This discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements
and the audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2016, found in our Annual
Report on Form 10-K. This discussion may contain forward-looking statements that involve risks and uncertainties. See “Forward-Looking
Statements.”
OVERVIEW
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, with a par value of $0.0001. After the transaction, Man Loong became our wholly owned subsidiary.
This
share exchange transaction (the “Merger”) was accounted for as a recapitalization whereby Man Loong was the acquirer
for financial reporting purposes and eBullion was the acquired company. Consequently, the assets and liabilities and
the operations that are reflected in the historical financial statements prior to the Merger were those of Man Loong and were
recorded at the historical cost basis. The consolidated financial statements after completion of the Merger include
the assets and liabilities of eBullion and Man Loong, historical operations of Man Loong and operations of eBullion from the closing
date of the Merger. Common stock and the corresponding capital amounts of the Company pre-merger have been retroactively
restated as capital stock shares reflecting the exchange ratio in the Merger. In conjunction with the Merger, Man Loong
received no cash and assumed no liabilities of eBullion.
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. All share and per
share amounts for the prior year have been retroactively restated to give effect of the 10 for 1 share split.
Since
April 3, 2013, through our subsidiary, Man Loong, we have been engaged in the precious metals trading business, facilitating the
execution of gold and silver price contracts for customers of its agents via an electronic trading platform which we license from
an affiliated company, True Technology. In facilitating trades of these price contracts, Man Loong acts in its capacity as an
officially designated electronics trading member of the Chinese Gold and Silver Exchange Society, or the “CGSE”, in
Hong Kong. Man Loong holds a Type AA License which it uses to engage in the electronic trading of Kilo Gold and Loco London Gold
and Silver. The electronic trading platform that Man Loong licenses from True Technology provides its agents’ 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. Man Loong’s
customer base is located primarily in China where it works through independent agents, and in Hong Kong where it has one office
and maintains its trading platforms. 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, Man Loong has 10 agents located in Shanghai and Guangdong and
Fujian provinces. Each of our agents in Hong Kong have between 100 and 150 customers and our agents in China each have between
100 and 600 customers.
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 intends to charge a fee to facilitate such trades, and is in the process of
defining its business and marketing strategies and processes for trades placed through Shenzhen Qian Hai.
Man
Loong’s membership in the CGSE allows it to facilitate trades on behalf of nonmembers who execute trades to buy and/or sell
gold and/or silver price contracts without it being required to become a counterparty to the trade or to purchase or sell any
gold or silver being traded as a principal. Man Loong facilitates the trades that are placed using its electronic trading platform.
Man Loong provides agents and their customers with access to its electronic trading platform which has a direct connection to
the CGSE. Man Loong enters into an agency agreement with each agent for which it facilitates trades pursuant to which the agent
agrees to pay a commission to Man Loong for each trade that Man Loong facilitates and the agent agrees to take all responsibility
for trade losses. The agents often use Man Loong’s offices and conference rooms as a physical place to meet with customers
and Man Loong provides a dedicated investment center where agents and their customers can access the electronic trading platform
to place and process 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 contract trades.
Man
Loong provides its agents and their customers, with access to its electronic trading platform to place and process price contract
orders for gold and silver, which price contracts do not involve the physical transfer or delivery of any actual gold, silver
or other precious metals. 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 price contract trades. Man
Loong’s agents assume all of the portfolio trading risk of their price contract orders. Man Loong merely supplies
the trading platform that processes the trade as a member of the CGSE and receives a commission. The electronic trading platform
communicates and confirms all of the trades that are placed by Man Loong to the CGSE and the CGSE, through the electronic trading
platform, provides both the customers of the agents and the agents with confirmation codes which confirm execution of the trades
placed through the electronic platform.
Man
Loong receives a brokerage commission per trade ranging from $20 to $40 regardless of the purchase price paid or received for
the gold or silver traded and the agent assumes the sole responsibility for settlement of the purchase price of the gold or silver
traded and for any resulting gain or loss recognized on those trades.
All
of our revenue has been derived by Man Loong from the commission it receives on each trade executed through its electronic trade
platform or telephone transaction system. Man Loong calculates and charges the agents’ account a flat fee of
between $20 - $40 when each trade is closed and invoices those agents for their commission at the end of each month. Payment terms
for commissions are net 30 days. The typical fee is $40 per trade; however, for agents whose customers execute a large
number of trades, Man Loong will discount the fee to as low as $20 per trade. Man Loong evaluates its commission fee
on an annual basis and adjusts it accordingly based upon its operational costs, which include the fees to run its electronic trading
platform, the fees associated with the maintenance of its office, the fees that are charged by the CGSE and its employee costs.
Man
Loong is not a counterparty in the trades executed by our agents’ customers on our trading platforms, instead it charges
a commission which ranges from $20 to $40 for each completed trade. Man Loong’s revenue is dependent upon the amount of
commission it generates which in turn is dependent upon the number of agents it has, the number of customers its agents have,
and trade volume as opposed to the price of the commodities. Man Loong’s revenues increase as it adds new contracted agents
and as those agents increase the number of their customers. If Man Loong has fewer agents, its revenue may suffer. In addition,
past trends indicate that at times of price volatility in the prices of gold and silver, Man Loong’s agents’ customers
tend to increase the number of trades that they execute across Man Loong’s trading platforms and in times of low gold and
silver price volatility Man Loong’s agents’ customers decrease the number of trades. The number of agents’ customers
decreased by 2 during the year ended March 31, 2016 and those 2 customers historically accounted for more than 10% of commission
revenue. Additionally, the number of agent customers decreased by 19 during the six months ended September 30, 2016. Volatility
in the price of gold increased during the three and six months ended September 30, 2016 compared to the prior year, trading in
a range of approximately $1,200 to $1,370 per ounce compared to a relatively steady trading range of $1,160 to $1,200 per ounce
for the three and six months ended September 30, 2015. Volatility in the price of silver also increased during the three and six
months ended September 30, 2016 compared to the prior year, trading in a range of approximately $15 to $20 per ounce compared
to a relatively steady trading range of $15 to $17 per ounce for the three and six months ended September 30, 2015. For the three
and six months ended September 30, 2016, revenues increased by $252,759, or 82.0% and $191,849 or 22.8%, respectively, as compared
to the three and six months ended September 30, 2015. We believe that revenues increased primarily because of the increase in
volatility in gold and silver prices. A decrease in the volatility in gold prices in the future or further decreases in the number
of agents and their customers could result in declines in trade revenue compared to past results.
Our
principal offices are located at 80 Broad Street, New York, New York 10004, (212) 837-7858. Man Loong currently has one
office in Hong Kong. Man Loong’s principal executive offices are located at 18/F, Tower 6, China Hong Kong City,
33 Canton Road, Tsim Sha Tsui, Hong Kong. The telephone number at Man Loong’s principal executive office is +852-2155-3999.
All of Man Loong’s transactions and the technologies, including the servers that carry out these transactions, are all processed
and located in Hong Kong.
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 People’s Republic of China.
Results
of Operations for the Three Months Ended September 30, 2016 and 2015
Man
Loong’s revenue was $561,178 and $308,419 for the quarters ended September 30, 2016 and 2015, respectively, an increase
of $252,759 or 82.0%. All of Man Loong's revenue was derived from commissions on trades placed through its trading
platform and telephone transaction system. During the year ended March 31, 2016, the number of agents remained constant,
however the number of agent customers decreased by 2, and those 2 customers historically accounted for more than 10% of commission
revenue. The number of agent customers remained unchanged during the quarter ended September 30, 2016. We believe that revenues
increased as compared to the prior quarter primarily because of the increase in volatility in gold and silver prices. A lack of
volatility in gold and silver prices in the future or further decreases in the number of agents and their customers could result
in declines in commission revenues as it has in the past.
Total
expenses were $535,203 for the quarter ended September 30, 2016 as compared to $584,971 for the quarter ended September 30, 2015,
a decrease of $49,768 or 8.5%. Approximately 62% of our total expenses for the quarter ended September 30, 2016 were
attributed to general and administrative expenses compared to 68% for the quarter ended September 30, 2015. Historically,
marketing, which includes payment made to agents for their provision of sales, marketing and customer support services has been
one of our largest general and administrative expenses. Marketing expense was $97,837 or 18% of Man Loong’s total
expenses for the quarter ended September 30, 2016 and $84,758 or 15% of Man Loong’s total expenses for the quarter ended
September 30, 2015. The increase in marketing expenses in the quarter ended September 30, 2016 as compared to the prior year was
the result of Man Loong increasing headcount and expanding its marketing effort to attract new agents and customers. Man
Loong’s other large expenses were (i) its trading platform hosting and rent which was $24,929 or 5% of its total expenses
for the quarter ended September 30, 2016 and $39,183 or 7% of its total expenses for the quarter ended September 30, 2015, (ii)
its legal and professional expense which was $41,700 or 8% of its total expenses for the quarter ended September 30, 2016 and
$54,088 or 9% of its total expenses for the quarter ended September 30, 2015 and (iii) its occupancy costs for the rent and management
fee paid for its offices which was $117,266 or 22% of Man Loong’s total expenses for the quarter ended September 30, 2016
and $149,234 or 26% of its total expenses for the quarter ended September 30, 2015. For the quarters ended September 30, 2016
and 2015, employee compensation and benefits was $186,183 and $162,709 or 35% and 28% of Man Loong’s total expenses for
the quarters ended September 30, 2016 and 2015, respectively.
Net
income (loss) was net income of $36,123 for the quarter ended September 30, 2016, compared to net loss of $262,257 for the quarter
ended September 30, 2015, an increase of $298,380 or 114%. The increase in net income was primarily the result of Man
Loong’s increase in revenue while its platform rent, legal and professional and occupancy expenses all decreased, offset
in part by an increase in marketing and employee compensation and benefits expenses, as a percentage of revenue for the quarter
ended September 30, 2016 as compared to the quarter ended September 30, 2015.
Results
of Operations for the Six Months Ended September 30, 2016 and 2015
Man
Loong’s revenue was $1,034,416 and $842,567 for the six months ended September 30, 2016 and 2015, respectively, an increase
of $191,849 or 22.8%. All of Man Loong's revenue was derived from commissions on trades placed through its trading
platform and telephone transaction system. During the year ended March 31, 2016, the number of agents remained constant,
however the number of agent customers decreased by 2, and those 2 customers historically accounted for more than 10% of commission
revenue. Additionally, the number of agent customers decreased by 19 during the six months ended September 30, 2016. We believe
that revenues increased as compared to the six months ended September 30, 2015 primarily because of the increase in volatility
in gold and silver prices. A lack of volatility in gold and silver prices in the future or further decreases in the number of
agents and their customers could result in declines in commission revenues as it has in the past.
Total
expenses were $1,074,033 for the six months ended September 30, 2016 as compared to $1,134,276 for the six months ended September
30, 2015, a decrease of $60,243 or 5.3%. Approximately 63% of our total expenses for the six months ended September
30, 2016 were attributed to general and administrative expenses compared to 68% for the six months ended September 30, 2015.
Historically, marketing, which includes payment made to agents for their provision of sales, marketing and customer support services
has been our largest general and administrative expense. Marketing expense was $212,688 or 20% of Man Loong’s
total expenses for the six months ended September 30, 2016 and $172,108 or 15% of Man Loong’s total expenses for the six
months ended September 30, 2015. The increase in marketing expenses in the six months ended September 30, 2016 as compared to
the prior year was the result of Man Loong increasing headcount and expanding its marketing effort to attract new agents and customers. Man
Loong’s other large expenses were (i) its trading platform hosting and rent which was $61,716 or 6% of its total expenses
for the six months ended September 30, 2016 and $83,465 or 7% of its total expenses for the six months ended September 30, 2015,
(ii) its legal and professional expense which was $106,466 or 10% of its total expenses for the six months ended September 30,
2016 and $80,354 or 7% of its total expenses for the six months ended September 30, 2015 and (iii) its occupancy costs for the
rent and management fee paid for its offices which was $206,795 or 19% of Man Loong’s total expenses for the six months
ended September 30, 2016 and $298,774 or 26% of its total expenses for the six months ended September 30, 2015. For the six months
ended September 30, 2016 and 2015, employee compensation and benefits was $360,601 and $328,615 or 34% and 29% of Man Loong’s
total expenses for the six months ended September 30, 2016 and 2015, respectively.
Net
loss was $14,842 for the six months ended September 30, 2016, compared to $260,203 for the six months ended September 30, 2015,
a decrease of $245,361 or 94.3%. The decrease in net loss was primarily the result of Man Loong’s increase in
revenue while its platform rent and occupancy expenses decreased, offset in part by an increase in marketing, legal and professional
and employee compensation and benefits expenses, as a percentage of revenue for the six months ended September 30, 2016 as compared
to the six months ended September 30, 2015.
LIQUIDITY
To
date, eBullion has funded its operations from cash flows generated by operations. As of September 30, 2016, eBullion had cash
totaling $878,494, total assets of $2,624,582, total liabilities of $238,673 and working capital of $1,061,522. Net cash used
in operations was $200,193 and $294,627 for the six months ended September 30, 2016 and 2015, respectively. The decrease in net
cash used in operations for the six months ended September 30, 2016 included an decrease in net loss of $245,361, an increase
in deposits and prepaid expenses of $87,103, a decrease in accounts payable and accrued expenses of $649 and an increase in deferred
income taxes of $3,668, offset by an increase in commissions receivable of $102,130 and an increase in customer deposits of $16,543.
Net cash used in investing activities was $0 and $774,020 for the six months ended September 30, 2016 and 2015, respectively.
The decrease in net cash used in investing activities for the six months ended September 30, 2016 was primarily due to Man Loong’s
loan of $774,164 to Global Long Limited Inc. (“Global Long”) during the six months ended September 30, 2015 compared
to no lending activity during the six months ended September 30, 2016. Global Long is registered in Hong Kong and through its
subsidiary in the Peoples Republic of China, eBullion Trade Company Limited (“EBullion Trade”), is engaged in trading
silver contracts as an electronic trading member of the Guangdong Precious Metal Exchange. The loan bears interest at a 6% annual
rate, matures on its 5th anniversary and is secured by a first right of claim on a bank deposit held by a subsidiary of Global
Long. Under terms of the loan, interest is payable to Man Loong quarterly and Global Long has the right to repay the loan at any
time before the maturity date. Until all principal and accrued interest are repaid on the loan, Global Long may not enter into
additional borrowings without Man Loong’s written permission, and upon certain events of default, the Loan becomes due on
demand. The purpose of the loan was to establish a relationship with Global Long with the intent of becoming the first choice
for eBullion Trade’s customers who wish to trade in gold trading positions through the CGSE. Net cash used by financing
activities was $30,628 and $0 for the six months ended September 30, 2016 and 2015, respectively. The increase in net cash used
by financing activities for the six months ended September 30, 2016 was due to a decrease in bank overdraft during the six months
ended September 30, 2016 as compared to $0 during the six months ended September 30, 2015.
As
of September 30, 2016 and for the six months then ended, Man Loong’s customer deposits increased from $187,037 at March
31, 2016 to $203,577 at September 30, 2016, an increase of $16,540 or 8.8%. Customer deposits arise when customers of Man Loong’s
agents request that Man Loong hold the minimum deposit required to secure the customer’s account from trading losses instead
of the agent. Man Loong will continue to offer this service to customers who request it, and expects the number of
customers who hold minimum deposit funds in its accounts to increase in the future.
As
of September 30, 2016 and for the six months then ended, Man Loong’s commission receivables increased from $100,493 at March
31, 2016 to $202,667 at September 30, 2016, an increase of $102,174 or 101.7%. Commissions receivable represent commissions
to be collected from agents for their customers’ trades executed across Man Loong’s electronic trade platform and
telephone transaction system. Commissions receivable are typically remitted to Man Loong within 30 days of trade execution. We
have not historically incurred credit losses on these commissions receivable, and we continue working with our agents to improve
the payment times of commissions accrued but unpaid at the end of each month. As of September 30, and March 31, 2016, we had no
reserve for credit losses nor had we incurred any bad debts for the three and months ended September 30, 2016 and 2015.
As
of September 30, 2016 and for the six months then ended, Man Loong’s deposits and prepaid expenses increased from $170,903
at March 31, 2016 to $258,037 at September 30, 2016, an increase of $87,134 or 51.0%. Deposits and prepaid expenses consist
primarily of prepaid rent and occupancy expenses on Man Loong’s principal offices in Hong Kong. In May 2016, Man Loong entered
into a lease agreement on new office space which required Man Loong to pay an additional deposit of approximately $44,155.
No
dividends were declared or paid in the quarters ended September 30, 2016 and 2015 and none are expected to be paid for the foreseeable
future.
Commitments
eBullion is
committed to paying a monthly fee of approximately $3,868 until March 31, 2017 to True Technology Limited for hosting services
and use of the trading platform that is the cornerstone of its business. True Technology is a company owned by Messrs.
Choi and Wong, Man Loong’s CEO and a director, respectively. In September 2015, Man Loong entered into a lease for its principal
office space which requires monthly payments of approximately $27,209 through October 2018. In May 2016, the Company entered into
a new lease agreement for additional office space. The Company paid approximately $44,155 in lease deposits and is committed to
lease and management fee payments of approximately $10,645 per month through October 2018.
OFF-BALANCE
SHEET ARRANGEMENTS
We
did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under
Securities and Exchange Commission rules.
ITEM 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
Not
applicable to smaller reporting companies.
ITEM 4.
|
CONTROLS
AND PROCEDURES.
|
a) Evaluation
of disclosure controls and procedures
Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation,
with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures
(as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation,
the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are ineffective as of September
30, 2016 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under
the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s
CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Subject to receipt of additional financing
or revenue generated from operations, the Company intends to retain additional individuals to remedy the ineffective controls.
(b)
Changes in Internal Control over Financial Reporting
There
has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
Act) that occurred during our fiscal quarter ended September 30, 2016, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART
II—OTHER INFORMATION
ITEM 1.
|
LEGAL
PROCEEDINGS.
|
None.
The
following information updates, and should be read in conjunction with, information disclosed in Part I, Item 1A “Risk Factors”
of our Annual Report on Form 10-K for the year ended March 31, 2016 which was filed with the Securities and Exchange Commission
on June 29, 2016. There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the
year ended March 31, 2016 other than as set forth below:
RISKS
RELATED TO OUR BUSINESS
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. During the year ended March 31, 2016, the number of agents remained constant, however
the number of agent customers decreased by 2, and those 2 customers historically accounted for more than 10% of commission revenue.
Additionally, the number of agent customers decreased by 19 during the six months ended September 30, 2016. We believe that revenues
increased during the three and six months ended September 30, 2016, as compared to the prior year, primarily because of increased
volatility in gold and silver prices. For the three and six months ended September 30, 2016, revenues increased by $252,759 or
82.0% and $191,849 or 22.8%, respectively as compared to the three and six months ended September 30, 2015. Although Man Loong
has spent significant financial resources on support services for agents and their customers, and marketing and related expenses
and plans to continue to do so, these efforts may not be cost-effective at attracting new agents and customers. In particular,
during the three and six months ended September 30, 2016, marketing expenses increased as we expanded our marketing efforts to
attract additional customers, and 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. There can be no assurance that Man Loong will be able to retain its agents and their customers.
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 September 30, 2016 and March 31, 2016, Man Loong had $0.9 million and $1.1 million in cash, respectively, and $2.62 million
and $2.66 million, in total assets, respectively. We were in compliance with the CGSE’s requirements as of September
30, 2016 and March 31, 2016.
ITEM 2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|
RECENT
SALES OF UNREGISTERED SECURITIES
There
have been no recent sales of unregistered securities.
PURCHASE
OF EQUITY SECURITIES
None.
ITEM 3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
Not
Applicable.
ITEM 4.
|
MINE
SAFETY DISCLOSURES
|
Not
Applicable.
ITEM 5.
|
OTHER
INFORMATION.
|
None.
The
exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index
is incorporated herein by reference.