eBullion, Inc.
Condensed Consolidated Balance Sheets
As of
December 31, 2016 and March 31, 2016
(Expressed in US dollars)
|
|
Unaudited
December 31,
2016
|
|
|
Audited
March 31,
2016
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
793,804
|
|
|
$
|
1,109,465
|
|
Commissions receivable
|
|
|
517,751
|
|
|
|
100,493
|
|
Deposits and prepaid expenses
|
|
|
42,099
|
|
|
|
29,819
|
|
Prepaid income taxes
|
|
|
-
|
|
|
|
147,556
|
|
Total current assets
|
|
|
1,353,654
|
|
|
|
1,387,333
|
|
|
|
|
|
|
|
|
|
|
Noncurrent Assets
|
|
|
|
|
|
|
|
|
Deposits and prepaid expenses
|
|
|
188,395
|
|
|
|
141,084
|
|
Property and equipment, net
|
|
|
243,243
|
|
|
|
253,807
|
|
Loan receivable from Global Long
|
|
|
773,734
|
|
|
|
773,793
|
|
Deferred income taxes
|
|
|
101,953
|
|
|
|
101,960
|
|
Total noncurrent assets
|
|
|
1,307,325
|
|
|
|
1,270,644
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,660,979
|
|
|
$
|
2,657,977
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Bank Overdraft
|
|
$
|
-
|
|
|
$
|
30,645
|
|
Accounts payable and accrued liabilities
|
|
|
12,463
|
|
|
|
33,684
|
|
Income taxes payable
|
|
|
12,067
|
|
|
|
-
|
|
Customer deposits
|
|
|
208,731
|
|
|
|
187,037
|
|
Total current liabilities
|
|
|
233,261
|
|
|
|
251,366
|
|
|
|
|
|
|
|
|
|
|
Noncurrent Liabilities
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
584
|
|
|
|
5,517
|
|
Total noncurrent liabilities
|
|
|
584
|
|
|
|
5,517
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
233,845
|
|
|
|
256,883
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
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
|
|
|
900,506
|
|
|
|
873,954
|
|
Accumulated other comprehensive loss
|
|
|
(2,036
|
)
|
|
|
(1,524
|
)
|
Total shareholders’ equity
|
|
|
2,427,134
|
|
|
|
2,401,094
|
|
Total liabilities and shareholders’ equity
|
|
$
|
2,660,979
|
|
|
$
|
2,657,977
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
eBullion, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
Three and Nine Months Ended
December 3
1, 201
6 and 201
5
(Expressed in US dollars
)
|
|
Nine Months Ended
December 31,
|
|
|
Three Months Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission revenue
|
|
$
|
1,502,897
|
|
|
$
|
1,371,311
|
|
|
$
|
468,476
|
|
|
$
|
528,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
921,777
|
|
|
|
1,221,611
|
|
|
|
246,136
|
|
|
|
456,239
|
|
Employee compensation and benefits
|
|
|
527,340
|
|
|
|
495,772
|
|
|
|
166,738
|
|
|
|
167,158
|
|
Depreciation
|
|
|
56,703
|
|
|
|
64,426
|
|
|
|
18,903
|
|
|
|
24,083
|
|
Loss on disposal of property and equipment
|
|
|
-
|
|
|
|
124,846
|
|
|
|
-
|
|
|
|
124,860
|
|
Total expenses
|
|
|
1,505,820
|
|
|
|
1,906,655
|
|
|
|
431,777
|
|
|
|
772,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
(2,923
|
)
|
|
|
(535,344
|
)
|
|
|
36,699
|
|
|
|
(243,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
-
|
|
|
|
9,031
|
|
|
|
-
|
|
|
|
-
|
|
Interest income, net
|
|
|
36,606
|
|
|
|
32,999
|
|
|
|
15,499
|
|
|
|
11,643
|
|
Total other income
|
|
|
36,606
|
|
|
|
42,030
|
|
|
|
15,499
|
|
|
|
11,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
33,683
|
|
|
|
(493,314
|
)
|
|
|
52,198
|
|
|
|
(231,942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX PROVISION (BENEFIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
12,061
|
|
|
|
4,181
|
|
|
|
12,063
|
|
|
|
-
|
|
Deferred
|
|
|
(4,930
|
)
|
|
|
17,684
|
|
|
|
(1,263
|
)
|
|
|
22,987
|
|
Total income tax provision (benefit)
|
|
|
7,131
|
|
|
|
21,865
|
|
|
|
10,800
|
|
|
|
22,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
26,552
|
|
|
|
(515,179
|
)
|
|
|
41,398
|
|
|
|
(254,929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
(512
|
)
|
|
|
2,058
|
|
|
|
(163
|
)
|
|
|
(245
|
)
|
COMPREHENSIVE INCOME (LOSS)
|
|
$
|
26,040
|
|
|
$
|
(513,121
|
)
|
|
$
|
41,235
|
|
|
$
|
(255,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (1)
|
|
|
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
|
)
|
|
(1)
|
The Company’s weighted average common shares outstanding for both basic and diluted earnings per share have been restated for the effects of the 10 for 1 stock split which was effective in March 2015. See Note 13 for further discussion.
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Number of
|
|
|
|
|
|
Paid in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Par 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 for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(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 for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,552
|
|
|
|
-
|
|
|
|
26,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(512
|
)
|
|
|
(512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2016 - Unaudited
|
|
|
512,600,000
|
|
|
$
|
51,260
|
|
|
$
|
1,477,404
|
|
|
$
|
900,506
|
|
|
$
|
(2,036
|
)
|
|
$
|
2,427,134
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
eBullion, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
For the
Nine Months Ended
December 3
1, 201
6 and 201
5
(Expressed in US dollars)
|
|
2016
|
|
|
2015
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
26,552
|
|
|
$
|
(515,179
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
56,703
|
|
|
|
64,426
|
|
Loss on disposal of proprety and equipment
|
|
|
-
|
|
|
|
124,846
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Commissions receivable
|
|
|
(417,090
|
)
|
|
|
75,775
|
|
Deposits and prepaid expenses
|
|
|
(59,578
|
)
|
|
|
(94,500
|
)
|
Accounts payable and accrued liabilities
|
|
|
(51,850
|
)
|
|
|
9,070
|
|
Customer deposits
|
|
|
21,699
|
|
|
|
78,975
|
|
Prepaid income taxes
|
|
|
147,483
|
|
|
|
-
|
|
Income taxes payable
|
|
|
12,061
|
|
|
|
4,181
|
|
Deferred income taxes
|
|
|
(4,930
|
)
|
|
|
17,684
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(268,950
|
)
|
|
|
(234,722
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(46,147
|
)
|
|
|
(234,443
|
)
|
Increase in restricted cash
|
|
|
-
|
|
|
|
(313,864
|
)
|
Loan receivable from Global Long
|
|
|
-
|
|
|
|
(774,083
|
)
|
Net cash used in investing activities
|
|
|
(46,147
|
)
|
|
|
(1,322,390
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
(315,097
|
)
|
|
|
(1,557,112
|
)
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
|
|
(564
|
)
|
|
|
1,010
|
|
Cash, beginning of period
|
|
|
1,109,465
|
|
|
|
2,513,423
|
|
Cash, end of period
|
|
$
|
793,804
|
|
|
$
|
957,321
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid during the period for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 December 31, 2016 and March 31, 2016, and for the three and nine months ended December 31, 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
Nine Months Ended
December 3
1, 201
6 and 201
5
|
(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 nine months ended December 31, 2016 and 2015. The total amount charged to advertising expense was $353 and $4,696 for the nine months ended December 31, 2016 and 2015, respectively and $0 and $0 for the three months ended December 31, 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 December 31, 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
Nine Months Ended
December 3
1, 201
6 and 201
5
|
(Expressed in US Dollars)
|
2.
|
Summary of Significant Accounting Policies
|
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 nine months ended December 31, 2016 and 2015.
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 December 31, 2016 and March 31, 2016, the Company has no reserve for credit losses nor has it incurred any bad debts for the three and nine months ended December 31, 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.
Property and Equipment
Property and 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.
Property and 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 nine months ended December 31, 2016 and 2015.
eBullion, Inc.
|
Notes to Unaudited Condensed Consolidated Financial Statements
|
For the
Nine Months Ended
December 3
1, 201
6 and 201
5
|
(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 December 31, and March 31, 2016 and for the three and nine months ended December 31, 2016 and 2015.
Reporting Currency and Foreign Currency Translation
As of December 31 and March 31, 2016 and for the three and nine months ended December 31, 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 December 31 and March 31, 2016 and for the three and nine months ended December 31, 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
|
|
|
7.7546
|
|
|
|
7.7503
|
|
Average USD/HKD exchange rate:
|
|
|
|
|
|
|
|
|
Nine months ended December 31
|
|
|
7.7579
|
|
|
|
7.7511
|
|
Three months ended December 31
|
|
|
7.7571
|
|
|
|
7.7503
|
|
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 December 31, 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
Nine Months Ended
December 3
1, 201
6 and 201
5
|
(Expressed in US Dollars)
|
2.
|
Summary of Significant Accounting Policies - continued
|
Customer Deposits
Customer deposits at December 31, 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 December 31, 2016 and March 31, 2016.
Accumulated Other Comprehensive Loss
The Company’s accumulated other comprehensive loss as December 31, 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 nine months ended December 31, 2016 and 2015, Man Loong recognized $0 and $9,031, respectively, and $0 and $0 for the three months ended December 31, 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 December 31, 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
Nine Months Ended
December 3
1, 201
6 and 201
5
|
(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 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
Nine Months Ended
December 3
1, 201
6 and 201
5
|
(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 December 31, 2016 and March 31, 2016:
|
|
Unaudited
December 31,
2016
|
|
|
Audited
March 31,
2016
|
|
Current
|
|
|
|
|
|
|
Prepaid rent and occupancy expenses
|
|
$
|
42,099
|
|
|
$
|
29,819
|
|
|
|
|
|
|
|
|
|
|
Noncurrent
|
|
|
|
|
|
|
|
|
Rent and occupancy deposits
|
|
|
188,395
|
|
|
|
141,084
|
|
Total deposits and prepaid expenses
|
|
$
|
230,494
|
|
|
$
|
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
Nine Months Ended
December 3
1, 201
6 and 201
5
|
(Expressed in US Dollars)
|
5.
|
Property and Equipment
|
Property and equipment, including leasehold improvements, consisted of the following as of December 31, 2016 and March 31, 2016:
|
|
Unaudited
December 31, 2016
|
|
|
March 31,
2016
|
|
Office equipment
|
|
$
|
206,329
|
|
|
$
|
206,345
|
|
Computer equipment
|
|
|
59,914
|
|
|
|
59,919
|
|
Furniture and fixtures
|
|
|
111,936
|
|
|
|
65,774
|
|
|
|
|
378,179
|
|
|
|
332,038
|
|
Less: Accumulated depreciation
|
|
|
(134,936
|
)
|
|
|
(78,231
|
)
|
Equipment, net
|
|
$
|
243,243
|
|
|
$
|
253,807
|
|
Depreciation expense was $56,703 and $64,426 for the nine months ended December 31, 2016 and 2015, respectively, and $18,903 and $24,083 for the three months ended December 31, 2016 and 2015, respectively and was recorded as depreciation expense in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).
Customer deposits were $208,731 and $187,037 at December 31, 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 nine months ended December 31, 2016 and 2015.
|
|
Unaudited
Nine
months
|
|
|
Unaudited
Nine
months
|
|
|
Unaudited
Three
months
|
|
|
Unaudited
Three
months
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Marketing expenses
|
|
$
|
255,597
|
|
|
$
|
254,406
|
|
|
$
|
42,903
|
|
|
$
|
82,298
|
|
Trading platform rent
|
|
|
78,415
|
|
|
|
126,019
|
|
|
|
16,697
|
|
|
|
42,554
|
|
Transportation
|
|
|
8,118
|
|
|
|
36,171
|
|
|
|
4,967
|
|
|
|
6,366
|
|
Internet
|
|
|
15,864
|
|
|
|
13,620
|
|
|
|
5,395
|
|
|
|
4,713
|
|
Travel and entertainment
|
|
|
4,382
|
|
|
|
6,892
|
|
|
|
1,354
|
|
|
|
3,040
|
|
Computers and software
|
|
|
30,490
|
|
|
|
30,098
|
|
|
|
8,429
|
|
|
|
13,862
|
|
Legal and professional
|
|
|
133,438
|
|
|
|
115,598
|
|
|
|
26,970
|
|
|
|
35,244
|
|
Licenses
|
|
|
14,524
|
|
|
|
37,802
|
|
|
|
657
|
|
|
|
10,832
|
|
Occupancy
|
|
|
325,301
|
|
|
|
501,829
|
|
|
|
118,507
|
|
|
|
193,498
|
|
Advertising
|
|
|
353
|
|
|
|
4,696
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
55,295
|
|
|
|
94,480
|
|
|
|
20,257
|
|
|
|
63,832
|
|
Total general and administrative expense
|
|
$
|
921,777
|
|
|
$
|
1,221,611
|
|
|
$
|
246,136
|
|
|
$
|
456,239
|
|
eBullion, Inc.
|
Notes to Unaudited Condensed Consolidated Financial Statements
|
For the
Nine Months Ended
December 3
1, 201
6 and 201
5
|
(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 nine months ended December 31, 2016 and 2015.
|
|
Unaudited
Nine
months
|
|
|
Unaudited
Nine
months
|
|
|
Unaudited
Three
months
|
|
|
Unaudited
Three
months
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
(38,081
|
)
|
|
$
|
(46,441
|
)
|
|
$
|
(13,230
|
)
|
|
$
|
(20,292
|
)
|
Hong Kong
|
|
|
71,764
|
|
|
|
(446,873
|
)
|
|
|
65,428
|
|
|
|
(211,650
|
)
|
Income before income taxes
|
|
$
|
33,683
|
|
|
$
|
(493,314
|
)
|
|
$
|
52,198
|
|
|
$
|
(231,942
|
)
|
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 nine months ended December 31, 2016 and 2015:
|
|
Unaudited
Nine
months
|
|
|
Unaudited
Nine
months
|
|
|
Unaudited
Three
months
|
|
|
Unaudited
Three
months
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Hong Kong
|
|
|
12,061
|
|
|
|
4,181
|
|
|
|
12,063
|
|
|
|
-
|
|
Total current provision
|
|
|
12,061
|
|
|
|
4,181
|
|
|
|
12,063
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Hong Kong
|
|
|
(4,930
|
)
|
|
|
17,684
|
|
|
|
(1,263
|
)
|
|
|
22,987
|
|
Total deferred benefit
|
|
|
(4,930
|
)
|
|
|
17,684
|
|
|
|
(1,263
|
)
|
|
|
22,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
7,131
|
|
|
$
|
21,865
|
|
|
$
|
10,800
|
|
|
$
|
22,987
|
|
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
Nine
months
|
|
|
Unaudited
Nine
months
|
|
|
Unaudited
Three
months
|
|
|
Unaudited
Three
months
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Income tax provision (benefit) at the U.S. statutory tax rate $
|
|
|
11,452
|
|
|
$
|
(167,727
|
)
|
|
$
|
17,747
|
|
|
$
|
(78,860
|
)
|
Valuation allowance on U.S. net operating loss carryforwards
|
|
|
12,948
|
|
|
|
15,790
|
|
|
|
4,498
|
|
|
|
6,899
|
|
Impact of foreign operations
|
|
|
(17,269
|
)
|
|
|
173,802
|
|
|
|
(11,445
|
)
|
|
|
94,948
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income tax provision (benefit)
|
|
$
|
7,131
|
|
|
$
|
21,865
|
|
|
$
|
10,800
|
|
|
$
|
22,987
|
|
At December 31, 2016, we had U.S. net operating loss carryforwards of approximately $408,000 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 carryforward, accordingly, we have recorded a valuation allowance of approximately $138,720 as of December 31, 2016.
eBullion, Inc.
|
Notes to Unaudited Condensed Consolidated Financial Statements
|
For the
Nine Months Ended
December 3
1, 201
6 and 201
5
|
(Expressed in US Dollars)
|
8.
|
Income Taxes, Continued
|
At December 31, 2016, we had Hong Kong net operating loss carryforwards of approximately $285,000 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 carryforward, accordingly, we have recorded a valuation allowance of approximately $47,000 as of December 31, 2016.
As December 31 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 $101,953 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 December 31 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 nine months ended December 31, 2016 and 2015.
9.
|
Earnings (Loss) Per Share
|
Earnings (loss) per share (“EPS”) information for the three and nine months ended December 31, 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 nine months ended December 31, 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
Nine
months
|
|
|
Unaudited
Nine
months
|
|
|
Unaudited
Three
months
|
|
|
Unaudited
Three
months
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders
|
|
$
|
26,552
|
|
|
$
|
(515,179
|
)
|
|
$
|
41,398
|
|
|
$
|
(254,929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock (basic and diluted)
|
|
|
51,260,000
|
|
|
|
51,260,000
|
|
|
|
51,260,000
|
|
|
|
51,260,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 nine months ended December 31, 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 nine months ended December 31, 2016 and 2015, are rental fees which were paid to True Technology of $34,803 and $34,834 respectively. Rental fees paid to True Technology for the three months ended December 31, 2016 and 2015 were $11,602 and $11,612 respectively.
Included in employee compensation and benefits in the accompanying unaudited condensed consolidated statements of comprehensive income for the nine months ending December 31, 2016 and 2015, are salaries and director compensation of $29,647 and $23,222 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 December 31, 2016 and 2015 were $11,602 and $7,742 respectively
.
|
eBullion, Inc.
|
Notes to Unaudited Condensed Consolidated Financial Statements
|
For the
Nine Months Ended
December 3
1, 201
6 and 201
5
|
(Expressed in US Dollars)
|
11.
|
Commitments and contingencies
|
The Company leases office space under non-cancellable operating lease agreements that expire on various dates through 2018.
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 December 31,
|
|
|
|
|
|
|
|
2017
|
|
|
465,604
|
|
2018
|
|
|
364,743
|
|
|
|
|
|
|
|
|
$
|
830,347
|
|
As of December 31, 2016, the Company has no capital commitments or contingencies in the next twelve months.
The Company evaluated subsequent events through the date the financial statements were issued and filed with this Form 10-Q. There were no subsequent events that required recognition or disclosure.
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 nine months ended December 31, 2016. Volatility in the price of gold increased during the three and nine months ended December 31, 2016 compared to the prior year, trading in a range of approximately $1,100 to $1,400 per ounce compared to a relatively steady trading range of $1,050 to $1,300 per ounce for the three and nine months ended December 31, 2015. Volatility in the price of silver also increased during the three and nine months ended December 31, 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 nine months ended December 31, 2015. For the three and nine months ended December 31, 2016, revenues decreased by $60,279, or 11.4% and increased by $131,586 or 9.6%, respectively, as compared to the three and nine months ended December 31, 2015. We believe that revenues decreased or increased primarily because of the decrease or 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 office is 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 +85221553999. 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 December 31, 2016 and 2015
Man Loong’s revenue was $468,476 and $528,755 for the quarters ended December 31, 2016 and 2015, respectively, a decrease of $60,279 or 11.4%. 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 December 31, 2016. We believe that revenues decreased as compared to the prior quarter primarily because of the decrease 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 $431,777 for the quarter ended December 31, 2016 as compared to $772,340 for the quarter ended December 31, 2015, a decrease of $340,563 or 44.09%. Approximately 57% of our total expenses for the quarter ended December 31, 2016 were attributed to general and administrative expenses compared to 59% for the quarter ended December 31, 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 $42,903 or 10% of Man Loong’s total expenses for the quarter ended December 31, 2016 and $82,298 or 11% of Man Loong’s total expenses for the quarter ended December 31, 2015. The decrease in marketing expenses in the quarter ended December 31, 2016 as compared to the prior year was the result of Man Loong decreasing headcount. Man Loong’s other large expenses were (i) its trading platform hosting and rent which was $16,697 or 4% of its total expenses for the quarter ended December 31, 2016 and $42,554 or 6% of its total expenses for the quarter ended December 31, 2015, (ii) its legal and professional expense which was $26,970 or 6% of its total expenses for the quarter ended December 31, 2016 and $35,244 or 5% of its total expenses for the quarter ended December 31, 2015 and (iii) its occupancy costs for the rent and management fee paid for its offices which was $ 118,507 or 27% of Man Loong’s total expenses for the quarter ended December 31, 2016 and $193,498 or 25% of its total expenses for the quarter ended December 31, 2015. For the quarter ended December 31, 2016 and 2015, employee compensation and benefits was $166,738 and $167,158 or 39% and 22% of Man Loong’s total expenses for the quarters ended December 31, 2016 and 2015, respectively.
Net income (loss) was net income of $41,398 for the quarter ended December 31, 2016, compared to net loss of $254,929 for the quarter ended December 31, 2015, an increase of $296,327 or 116%. 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 December 31, 2016 as compared to the quarter ended December 31, 2015.
Results of Operations for the Nine Months Ended December 31, 2016 and 2015
Man Loong’s revenue was $1,502,897 and $1,371,311 for the nine months ended December 31, 2016 and 2015, respectively, an increase of $131,586 or 9.6%. 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 nine months ended December 31, 2016. We believe that revenues increased as compared to the nine months ended December 31, 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 $1,505,820 for the nine months ended December 31, 2016 as compared to $1,906,655 for the nine months ended December 31, 2015, a decrease of $400,835 or 21.02%. Approximately 61% of our total expenses for the nine months ended December 31, 2016 were attributed to general and administrative expenses compared to 64% for the nine months ended December 31, 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 $255,597 or 17% of Man Loong’s total expenses for the nine months ended December 31, 2016 and $254,406 or 13% of Man Loong’s total expenses for the nine months ended December 31, 2015. The increase in marketing expenses in the nine months ended December 31, 2016 as compared to the prior year was the result of Man Loong decreasing 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 $78,415 or 5% of its total expenses for the nine months ended December 31, 2016 and $126,019 or 7% of its total expenses for the nine months ended December 31, 2015, (ii) its legal and professional expense which was $133,438 or 9% of its total expenses for the nine months ended December 31, 2016 and $115,598 or 6% of its total expenses for the nine months ended December 31, 2015 and (iii) its occupancy costs for the rent and management fee paid for its offices which was $325,301 or 22% of Man Loong’s total expenses for the nine months ended December 31, 2016 and $501,829 or 27% of its total expenses for the nine months ended December 31, 2015. For the nine months ended December 31, 2016 and 2015, employee compensation and benefits was $527,340 and $495,772 or 35% and 26% of Man Loong’s total expenses for the nine months ended December 31, 2016 and 2015, respectively.
Net income was $26,552 for the nine months ended December 31, 2016, compared to a loss of $515,179 for the nine months ended December 31, 2015, an increase of $541,731 or 105%. The increase in net income was primarily the result of Man Loong’s increase in revenue while its platform rent and occupancy expenses decreased, offset in part by a slight increase in marketing, legal and professional and employee compensation and benefits expenses, as a percentage of revenue for the nine months ended December 31, 2016 as compared to the nine months ended December 31, 2015.
LIQUIDITY
To date, eBullion has funded its operations from cash flows generated by operations. As of December 31, 2016, eBullion had cash totaling $793,804, total assets of $2,660,979, total liabilities of $233,845 and working capital of $1,120,393. Net cash used in operations was $268,950 and $548,586 for the nine months ended December 31, 2016 and 2015, respectively. The decrease in net cash used in operations for the nine months ended December 31, 2016 included a decrease in commissions receivable of $417,090, a decrease in deposits and prepaid expenses of $59,578, a decrease in accounts payable and accrued expenses of $51,850, and a decrease in deferred income taxes of $4,930, offset by an increase in net income of $26,552, an increase in customer deposits of $21,699, an increase in prepaid income taxes of $147,483, and an increase in Income tax payable of $12,061. Net cash used in investing activities was $46,147 and $1,008,526 for the nine months ended December 31, 2016 and 2015, respectively. The decrease in net cash used in investing activities for the nine months ended December 31, 2016 was primarily due to Man Loong’s loan of $774,083 to Global Long Limited Inc. (“Global Long”) during the nine months ended December 31, 2015 compared to no lending activity during the nine months ended December 31, 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 $0 and $0 for the nine months ended December 31, 2016 and 2015, respectively.
As of December 31, 2016 and for the nine months then ended, Man Loong’s customer deposits increased from $187,037 at March 31, 2016 to $208,731 at December 31, 2016, an increase of $21,694 or 11.6%. 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 December 31, 2016 and for the nine months then ended, Man Loong’s commission receivables increased from $100,493 at March 31, 2016 to $517,751 at December 31, 2016, an increase of $417,258 or 415.2%. 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 December 31, and March 31, 2016, we had no reserve for credit losses nor had we incurred any bad debts for the three and months ended December 31, 2016 and 2015.
As of December 31, 2016 and for the nine months then ended, Man Loong’s deposits and prepaid expenses increased from $170,903 at March 31, 2016 to $230,494 at December 31, 2016, an increase of $59,591 or 34.86%. 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 December 31, 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.