Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the Securities and Exchange Commission.
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 will be those of Man Loong and will be 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.
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 agents’ 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. 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 supporting services to its existing and new customers who are citizens of the PRC to trade gold contracts through Shenzhen Qian Hai. The Shenzhen Qian Hai office is located in CGSE office center in Shenzhen, China. The CGSE office center in Shenzhen provides office space and accounting book keeping services to Shenzhen Qian Hai Man Loong Bullion Company Ltd.
As of Mar 31, 2017, Shenzhen Qian Hai is still at development stage, its role is acting as a representative office of Man Loong to provide customer support services to customers within China.
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. Volatility in the price of gold increased during the year ended March 31, 2017 compared to the prior year, trading in a range of approximately $1,050 to $1,300 per ounce compared to a relatively steady trading range of $1,060 to $1,350 per ounce for the year ended March 31, 2017 and . Volatility in the price of silver also increased during the year ended March 31, 2017 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 year ended March 31, 2017. For the year ended March 31, 2017, Revenues increased by $143,635, or 8% as compared to year ended March 31, 2016. 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 Man Loong’s principal executive offices, 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 +852-3187-4300. 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 Years Ended March 31, 2017and March 31, 2016
Man Loong’s revenue was $1,952,966 and $1,809,331 for the years ended March 31, 2017 and 2016, respectively, an increase of $143,635 or 8%. All of our revenue was derived from commissions on trades placed through our trading platform and telephone transaction system. During the year ended March 31, 2017, 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 year ended March 31, 2017. We believe that revenues increased as compared to the prior year 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 $2,031,762 for the year ended March 31, 2017 as compared to $2,459,507 for the year ended March 31, 2016, a decrease of $427,745 or 17%. Approximately 62% of our total expenses for the year ended March 31, 2017 were attributed to general and administrative expenses compared to 64% for the year ended March 31, 2016. 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 $281,639 or 14% of Man Loong’s total expenses for the year ended March 31, 2017 and $334,848 or 14% of Man Loong’s total expenses for the year ended March 31, 2016. The decrease in marketing expenses in the year ended March 31, 2017 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 $92,139 or 5% of its total expenses for the year ended March 31, 2017 and $162,882 or 7% of its total expenses for the year ended March 31, 2016, (ii) its legal and professional expense which was $169,843 or 8% of its total expenses for the year ended March 31, 2017 and $214,780 or 9% of its total expenses for the year ended March 31, 2016 and (iii) its occupancy costs for the rent and management fee paid for its offices which was $ 469,391 or 23% of Man Loong’s total expenses for the year ended March 31, 2017 and $567,050 or 23% of its total expenses for the year ended March 31, 2016. For the year ended March 31, 2017 and 2016, employee compensation and benefits was $694,806 and $669,230 or 34% and 27% of Man Loong’s total expenses for the year ended March 31, 2017 and 2016, respectively.
Man Loong’s other income was $49,379 for the year ended March 31, 2017 compared to $53,623 for the year ended March 31, 2016, a decrease of $4,244 or 8%. The decrease in other income for the year ended March 31, 2017 was due to a decrease in rental income charged for a portion of Man Loong’s office facility which was leased on a short term lease arrangement which expired in June 2015, offset by an increase in interest income principally from the note receivable from Global Long.
Net loss was $55,105 for the year ended March 31, 2017, compared to a loss of $509,750 for the year ended March 31, 2016, an increase of $454,645 or 89%. The decrease in net loss was primarily the result of Man Loong’s increase in revenue while its ,marketing, platform rent, legal and professional, and occupancy expenses decreased, offset in part by an increase in employee compensation and benefits expenses, as a percentage of revenue for the year ended March 31, 2017 as compared to the year ended March 31, 2016.
Liquidity
During the year ended March 31, 2014, eBullion completed a private placement by selling 5,000,000 common shares for net proceeds of $240,044. However, substantially all of Man Loong’s operations and growth have been funded from cash flows from operations. Cash flows generated by Man Loong are used to 1) attract new agents and their customers by improving the capabilities of our electronic trading platforms as well as expand capabilities to allow trading on customers’ smart phones, 2) expand our business by opening an investment center in China’s new Qian Hai trade zone for gold and silver price contract trading, and 3) expand our operations into emerging markets throughout Asia.
On April 3, 2015, Man Loong loaned Global Long Inc. Limited (“Global Long”) $773,793 (HKD$6,000,000). Global Long is registered in Hong Kong and through its subsidiary in the Peoples Republic of China, is engaged in trading silver contracts as an electronic trading member of the 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 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 their first choice for Global Long’s customers who wish to trade in gold trading positions through the CGSE.
To date, eBullion has funded its operations from cash flows generated from operations. As of March 31, 2017 eBullion had cash totaling $1,061,609, total assets of $2,905,799, total liabilities of $582,097 and working capital of $1,067,964. Net cash generated from operations for the year ended March 31, 2017 was $49,590 as compared to net cash used by operations of $426,396 for the year ended March 31, 2016. The decrease in net cash used in operating activities for the year ended March 31, 2017 included a net loss before income taxes of $29,417, an increase in commissions receivable of $446,722, an increase in deposits and prepaid expenses of $59,703, an decrease in accounts payable and accrued expenses of $22,539, an increase in customer deposits of $26,285, offset by a increase in deferred income taxes of $25,688 and a decrease in prepaid income taxes of $147,472.
Net cash used in investing activities was $46,142 and $1,007,805 for the years ended March 31, 2017 and 2016, respectively. The decrease in net cash used in investing activities for the year ended March 31, 2017 was primarily due to the Man Loong’s loan of $773,530 to Global Long. The total amount of $46,142 for equipment was purchased during the year
Net cash used in financing activities was $30,627 for the years ended March 31, 2017 as compared to cash provided by financing activities was $30,634 for the years ended March 31, 2016. The decrease in net cash provided by financing activities resulted primarily from repayment of bank overdraft of $30,645.
As of March 31, 2017 Man Loong’s customer deposits increased from $187,037 at March 31, 2016 to $212,886, an increase of $25,849 or 14%. 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 intends to 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.
Man Loong’s commissions receivable increased from $100,493 at March 31, 2016 to $546,310 at March 31, 2017, an increase of $445,817 or 444%. Man Loong has been working with its agents to improve the payment times of commissions accrued but unpaid at the end of each month. 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 180 days of trade execution. We have not historically incurred credit losses on commission receivable. As of March 31, 2017 and 2016, we had no reserve for credit losses nor have we incurred any bad debts for the years then ended.
No dividends were declared or paid in the years ended March 31, 2017 and 2016 and none are expected to be paid for the foreseeable future.
Commitments
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 will replace its previous office facilities. The Company will occupy the space in December 2015. Under terms of the lease, the Company paid approximately $147,397 in lease deposits and is committed to lease and management fee payments of approximately $27,209 per month for 35 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. The fees paid to True Technology are approximately $12,894 per month for 12 months after which the fees were reduced to $3,866 per month for 24 months. In April 2017, the trading platform lease with True Technology was renewed for 2 years with monthly payment of approximately $3,866 until March 31, 2019.
Future annual minimum lease payments, including maintenance and management fees, for non-cancellable operating leases and trading platform fees, are as follows:
Years ending March 31,
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2018
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$
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500,328
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2019
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|
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292,278
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|
|
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$
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792,606
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
eBullion, Inc.
We have audited the accompanying consolidated balance sheets of eBullion, Inc. and its subsidiaries (“the Company”) as of March 31, 2017, and the related consolidated statements of operations and comprehensive loss, cash flows and changes in stockholders’ equity for the year ended March 31, 2017. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2017, and the results of its operations and cash flows for the year ended March 31, 2017 in conformity with accounting principles generally accepted in the United States of America.
/s/ HKCMCPA Company Limited
HKCMCPA Company Limited
Certified Public Accountants
July 5, 2017
Hong Kong, China
15th Floor, Aubin House, 171-172 Gloucester Road, Wan Chai, Hong Kong
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Tel: (852) 2573 2296
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Fax: (852) 3015 3860
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http://www.hkcmcpa.us
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of eBullion, Inc.:
We have audited the accompanying consolidated balance sheets of eBullion, Inc. (the “Company”) as of March 31, 2016, and the related consolidated statements of comprehensive loss, changes in shareholders’ equity and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at March 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the year ended March 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
/s/ Anton & Chia LLP
June 29, 2016
Newport Beach, California
eBullion, Inc.
Consolidated Balance Sheets
March
3
1
, 201
7
and 201
6
(Expressed in US dollars)
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2017
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|
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2016
|
|
ASSETS
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|
|
|
|
|
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Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
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1,061,609
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|
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$
|
1,109,465
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|
Commissions receivable
|
|
|
546,310
|
|
|
|
100,493
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|
Deposits and prepaid expenses
|
|
|
42,142
|
|
|
|
29,819
|
|
Prepaid income taxes
|
|
|
-
|
|
|
|
147,556
|
|
Total current assets
|
|
|
1,650,061
|
|
|
|
1,387,333
|
|
|
|
|
|
|
|
|
|
|
Noncurrent Assets
|
|
|
|
|
|
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|
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Deposits and prepaid expenses
|
|
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188,010
|
|
|
|
141,084
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|
Equipment, net
|
|
|
224,350
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|
|
|
253,807
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Loan receivable from Global Long
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|
|
772,157
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|
|
|
773,793
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Deferred tax assets
|
|
|
71,221
|
|
|
|
101,960
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|
Total noncurrent assets
|
|
|
1,255,738
|
|
|
|
1,270,644
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,905,799
|
|
|
$
|
2,657,977
|
|
|
|
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|
|
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LIABILITIES AND STAOCKHOLDERS’ EQUITY
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Current Liabilities
|
|
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|
|
|
|
|
|
Bank overdraft
|
|
$
|
-
|
|
|
|
30,645
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|
Accounts payable and accrued liabilities
|
|
|
56,161
|
|
|
|
33,684
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|
Customer deposits
|
|
|
212,886
|
|
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|
187,037
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Amounts due to directors
|
|
|
313,050
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|
|
|
-
|
|
Total current liabilities
|
|
|
582,097
|
|
|
|
251,366
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|
|
|
|
|
|
|
|
|
|
Noncurrent Liabilities
:
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
466
|
|
|
|
5,517
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|
Total noncurrent liabilities
|
|
|
466
|
|
|
|
5,517
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
582,563
|
|
|
|
256,883
|
|
|
|
|
|
|
|
|
|
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Commitments and Contingencies
|
|
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|
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Stockholders’ 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
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|
Retained earnings
|
|
|
818,849
|
|
|
|
873,954
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|
Accumulated other comprehensive loss
|
|
|
(24,277
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)
|
|
|
(1,524
|
)
|
Total stockholders’ equity
|
|
|
2,323,236
|
|
|
|
2,401,094
|
|
Total liabilities and stockholders’ equity
|
|
$
|
2,905,799
|
|
|
$
|
2,657,977
|
|
The accompanying notes are an integral part of these consolidated financial statements.
eBulllion, Inc.
Consolidated Statements of Comprehensive (Loss)
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US dollars)
|
|
2017
|
|
|
2016
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
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Commission revenue
|
|
$
|
1,952,966
|
|
|
$
|
1,809,331
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,261,357
|
|
|
|
1,584,544
|
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Employee compensation and benefits
|
|
|
694,806
|
|
|
|
669,230
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Loss on disposal of property and equipment
|
|
|
-
|
|
|
|
124,757
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|
Depreciation and amortization
|
|
|
75,599
|
|
|
|
80,976
|
|
Total expenses
|
|
|
2,031,762
|
|
|
|
2,459,507
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(78,796
|
)
|
|
|
(650,176
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
-
|
|
|
|
9,025
|
|
Interest income, net
|
|
|
49,379
|
|
|
|
44,598
|
|
Total other income
|
|
|
49,379
|
|
|
|
53,623
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(29,417
|
)
|
|
|
(596,553
|
)
|
|
|
|
|
|
|
|
|
|
INCOME TAX (EXPENSE) BENEFIT
|
|
|
(25,688
|
)
|
|
|
86,803
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(55,105
|
)
|
|
|
(509,750
|
)
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
(22,753
|
)
|
|
|
(304
|
)
|
COMPREHENSIVE LOSS
|
|
$
|
(77,858
|
)
|
|
$
|
(510,054
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
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
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
eBullion, Inc.
Consolidated Statements of Stockholders’ Equity
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Number of
|
|
|
|
|
|
Paid in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2015
|
|
|
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
|
|
|
512,600,000
|
|
|
$
|
51,260
|
|
|
$
|
1,477,404
|
|
|
$
|
873,954
|
|
|
$
|
(1,524
|
)
|
|
$
|
2,401,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(55,105
|
)
|
|
|
-
|
|
|
|
(55,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(22,753
|
)
|
|
|
(22,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2017
|
|
|
512,600,000
|
|
|
$
|
51,260
|
|
|
$
|
1,477,404
|
|
|
$
|
818,849
|
|
|
$
|
(24,277
|
)
|
|
$
|
2,323,236
|
|
The accompanying notes are an integral part of these consolidated financial statements.
eBullion, Inc.
Consolidated Statements of Cash Flows
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US dollars)
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(55,105
|
)
|
|
$
|
(509,750
|
)
|
Adjustments to reconcile net loss to net
|
|
|
|
|
|
|
|
|
cash generated from (used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
75,599
|
|
|
|
80,976
|
|
Loss on disposal of equipment
|
|
|
-
|
|
|
|
124,757
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Commissions receivable
|
|
|
(446,722
|
)
|
|
|
17,803
|
|
Deposits and prepaid expenses
|
|
|
(59,703
|
)
|
|
|
104,992
|
|
Accounts payable and accrued liabilities
|
|
|
22,539
|
|
|
|
(1,709
|
)
|
Customer deposits
|
|
|
26,285
|
|
|
|
94,389
|
|
Amounts due to directors
|
|
|
313,537
|
|
|
|
-
|
|
Prepaid income taxes
|
|
|
147,472
|
|
|
|
(106,123
|
)
|
Income taxes payable
|
|
|
-
|
|
|
|
(145,838
|
)
|
Deferred tax assets
|
|
|
30,739
|
|
|
|
(101,926
|
)
|
Deferred tax liabilities
|
|
|
(5,051
|
)
|
|
|
16,033
|
|
Net cash generated from (used in) operating activities
|
|
|
49,590
|
|
|
|
(426,396
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(46,142
|
)
|
|
|
(234,275
|
)
|
Loan receivable from Global Long
|
|
|
-
|
|
|
|
(773,530
|
)
|
Net cash used in investing activities
|
|
|
(46,142
|
)
|
|
|
(1,007,805
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Bank overdraft
|
|
|
(30,627
|
)
|
|
|
30,634
|
|
Net cash (used in) generated from financing activities
|
|
|
(30,627
|
)
|
|
|
30,634
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
|
(27,179
|
)
|
|
|
(1,403,567
|
)
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
|
|
(20,677
|
)
|
|
|
(391
|
)
|
Cash, beginning of year
|
|
|
1,109,465
|
|
|
|
2,513,423
|
|
Cash, end of year
|
|
$
|
1,061,609
|
|
|
$
|
1,109,465
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash (received from) paid for income taxes
|
|
$
|
(147,472
|
)
|
|
$
|
251,050
|
|
The accompanying notes are an integral part of these consolidated financial statements.
eBullion, Inc.
Notes to Consolidated Financial Statements
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US Dollars)
|
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. 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 supporting services to its existing and new customers who are citizens of the PRC to trade gold contracts through Shenzhen Qian Hai. The Shenzhen Qian Hai office is located in CGSE office center in Shenzhen, China. The CGSE office center in Shenzhen provides office space and accounting book keeping services to Shenzhen Qian Hai Man Loong Bullion Company Ltd. As of March 31, 2017, Shenzhen Qian Hai is still at development stage, its role is acting as a representative office of Man Loong to provide customer support services to customers within China.
Description of subsidiaries
Name
|
|
Place of incorporation
and kind of
legal entity
|
|
Principal activities
and place of operation
|
|
Particulars
paid-up
capital
|
|
Effective
interest
held
|
|
|
|
|
|
|
|
|
|
Man Loong Bullion Company Limited (“Man Loong”)
|
|
Hong Kong, a limited liability company
|
|
Provision of sub-agency service in London gold dealing
|
|
HK$10,152,000
|
|
100%
|
|
|
|
|
|
|
|
|
|
Shenzhen Qianhai Man Loong Bullion Company Limited
(“SQML”)
|
|
The PRC, a limited liability company
|
|
Provision of gold trading service in the PRC
|
|
RMB2,000,000
|
|
100%
|
eBullion and its subsidiaries are hereinafter referred to as (the “Company”).
2.
|
Summary of Significant Accounting Policies
|
Basis of Presentation
The Company’s consolidated financial statements are expressed in U.S. Dollars and are presented in accordance with U.S. GAAP and the rules and regulations of the Securities and Exchange Commission (“SEC”). The Company’s fiscal year end is March 31.
Principles of Consolidation
The consolidated financial statements as of March 31, 2017 and 2016, include the accounts of eBullion and its subsidiaries. All significant intercompany transactions have been eliminated.
eBullion, Inc.
Notes to Consolidated Financial Statements
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US Dollars)
|
2.
|
Summary of Significant Accounting Policies - continued
|
Use of Estimates
The preparation of these 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 consolidated financial statements and the reported amounts of revenue and expenses during the year. 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.
Reclassifications
Certain reclassifications have been made to amounts reported in the previous years to conform to the current presentation. Such reclassifications had no effect on net income (loss).
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 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.
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.
eBullion, Inc.
Notes to Consolidated Financial Statements
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US Dollars)
|
2.
|
Summary of Significant Accounting Policies - continued
|
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.
Cash and cash equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
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 180 days of trade execution. The Company has not historically incurred credit losses on these commissions receivable. As of March 31, 2017 and 2016, the Company had no reserve for credit losses nor had it incurred any bad debts for the years ended March 31, 2017 and 2016.
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. Deposit 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 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 consolidated statements of comprehensive income (loss).
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 years ended March 31, 2017 and 2016. The total amount charged to advertising expense was $53,266 and $29,381 for the years ended March 31, 2017 and 2016, respectively.
eBullion, Inc.
Notes to Consolidated Financial Statements
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US Dollars)
|
2.
|
Summary of Significant Accounting Policies – continued
|
Reporting Currency and Foreign Currency Translation
As of and for the years ended March 31, 2017 and 2016, 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, 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 used:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Year end USD/HKD exchange rate
|
|
|
7.7704
|
|
|
|
7.7540
|
|
Average USD/HKD exchange rate:
|
|
|
7.7584
|
|
|
|
7.7567
|
|
Year end RMB/HKD exchange rate
|
|
|
1.1275
|
|
|
|
1.2021
|
|
Average RMB/HKD exchange rate:
|
|
|
1.1533
|
|
|
|
1.2247
|
|
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 these long-lived assets 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 March 31, 2017 and 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.
Customer Deposits
Customer deposits at March 31, 2017 and 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 March 31, 2017 and 2016.
Accumulated Other Comprehensive Income (Loss)
The Company’s accumulated other comprehensive income (loss) at March 31, 2017 and 2016 consists of adjustments resulting from translating Man Loong’s functional currency, the HK dollar, to its reporting currency, the U.S. dollar.
eBullion, Inc.
Notes to Consolidated Financial Statements
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US Dollars)
|
2.
|
Summary of Significant Accounting Policies - continued
|
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. At March 31, 2017, Man Loong had no uncertain tax positions.
Historically, we have 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 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.
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.
Retirement plan costs
Contributions to retirement schemes (which are defined contribution plans) are charged to general and administrative expenses in the statements of operation and comprehensive loss as and when the related employee service is provided.
eBullion, Inc.
Notes to Consolidated Financial Statements
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US Dollars)
|
2.
|
Summary of Significant Accounting Policies - continued
|
Related parties
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
Segment reporting
ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. During the years ended March 31, 2017 and 2016, the Company operates in one reportable operating segment in Hong Kong.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses resulting from translating Man Loong’s functional currency, the HK dollar, to its reporting currency, the U.S. dollar.
Recent Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"). Under the amendments in ASU 2017-04, Step 2 of the goodwill impairment test is eliminated. An entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. Also eliminated is the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. This standard is effective for the Company for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The new guidance is required to be applied on a prospective basis. The Company is currently evaluating the impact of ASU 2017-04, but anticipates early adoption of the accounting standard for its next annual goodwill impairment test during fiscal 2018, and does not expect that it will have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, "Clarifying the Definition of a Business" ("ASU 2017-01"). This new guidance clarifies the definition of a business in order to assist with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted for transactions not reported in financial statements that have been issued or made available for issuance. The new guidance must be applied prospectively on or after the effective date, and no disclosures for a change in accounting principle are required at transition. The Company does not anticipate that this guidance will have a material impact on its consolidated financial statements.
eBullion, Inc.
Notes to Consolidated Financial Statements
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US Dollars)
|
2.
|
Summary of Significant Accounting Policies - continued
|
In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory" ("ASU 2016-16") which amends the accounting for income taxes. ASU 2016-16 requires the recognition of the income tax consequences of an intra-entity asset transfer, other than transfers of inventory, when the transaction occurs. For intra-entity transfers of inventory, the income tax effects will continue to be deferred until the inventory has been sold to a third party. The standard is effective in annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The new guidance is required to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company intends to adopt the guidance when it becomes effective in the first quarter of fiscal 2019 and does not anticipate that this guidance will have a material impact on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"). ASU 2016-15 clarifies and provides guidance on eight cash flow classification issues and is intended to reduce existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company early adopted ASU 2016-15 as of the beginning of its third quarter of fiscal 2017 and there was no impact of adopting this standard.
In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"). ASU 2016-09 simplifies several aspects of accounting for share-based payment award transactions, including income tax consequences, classification of awards as either liability or equity, and classification on the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted but requires all elements of the amendments to be adopted at once rather than individually. The Company is evaluating the effect that ASU No. 2016-09 will have on the Company’s consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). ASU 2016-02 requires lessees to record a right-of-use asset and lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The standard also requires certain quantitative and qualitative disclosures. While we are continuing to assess all potential aspects of ASU 2016-02, including taking an inventory of outstanding leases, the Company currently believes the most significant impact relates to our accounting for manufacturing, distribution, warehouse and office space operating leases. The Company expects this standard to have a material impact on its consolidated balance sheet, but does not believe that it will have a material impact on its consolidated statements of operations.
In September 2015, the FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments" ("ASU 2015-16"). ASU 2015-16 eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. This guidance was effective for the Company beginning April 1, 2016 and will be applied prospectively to adjustments arising after that date. There was no impact of adopting this standard at the date of adoption.
In July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory" ("ASU 2015-11"). ASU 2015-11 amends the guidelines for the measurement of inventory from lower of cost or market to the lower of cost and net realizable value ("NRV"). NRV is defined as the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. Under existing standards, inventory is measured at lower of cost or market, which requires the consideration of replacement cost, NRV and NRV less an amount that approximates a normal profit margin. This ASU eliminates the requirement to determine and consider replacement cost or NRV less a normal profit margin for inventory measurement. The new standard is effective prospectively for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company intends to adopt the guidance when it becomes effective in the first quarter of fiscal 2018 and does not anticipate that this guidance will have a material impact on its consolidated financial statements.
eBullion, Inc.
Notes to Consolidated Financial Statements
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US Dollars)
|
2.
|
Summary of Significant Accounting Policies - continued
|
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). ASU 2014-09 provides a single model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The new standard also requires expanded disclosures regarding the qualitative and quantitative information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted for fiscal years beginning after December 15, 2016. The standard permits the use of either a full retrospective or a modified retrospective approach.
The Company intends to adopt the new guidance on April 1, 2018, with a cumulative-effect adjustment, if any, to opening retained earnings under the modified retrospective approach. The Company’s implementation of this ASU includes the evaluation of its customer agreements to identify terms or conditions that could be considered a performance obligation such that, if material to the terms of the contract, consideration would be allocated to the performance obligation and could accelerate or defer the timing of recognizing revenue. The Company’s evaluation of the new guidance is not yet complete; however, based on the nature of the Company’s primary revenue sources and current policies, excluding McCall, the Company does not expect a significant change in the timing and presentation of recognizing its revenue, but does expect there to be a material impact on disclosures. The Company is currently evaluating the impact of adoption of ASU 2014-09 will have on its consolidated financial statements in respect to revenue related to its recent McCall acquisition.
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 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 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 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 consolidated financial statements.
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 consolidated financial statements.
eBullion, Inc.
Notes to Consolidated Financial Statements
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US Dollars)
|
3.
|
Deposits and Prepaid Expenses
|
Deposits and prepaid expenses consisted of the following as of March 31, 2017 and 2016
|
|
2017
|
|
|
2016
|
|
Current
|
|
|
|
|
|
|
Prepaid rent and occupancy expenses
|
|
$
|
42,142
|
|
|
$
|
29,819
|
|
|
|
|
|
|
|
|
|
|
Noncurrent
|
|
|
|
|
|
|
|
|
Rent and occupancy deposits
|
|
|
188,010
|
|
|
|
141,084
|
|
Total deposits and prepaid expenses
|
|
$
|
230,152
|
|
|
$
|
170,903
|
|
4.
|
Loan receivable from Global Long
|
On April 3, 2015, Man Loong loaned Global Long Inc. Limited (“Global Long”) $772,157 (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 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.
Equipment, including leasehold improvements, consisted of the following as of March 31, 2017and 2016
|
|
2017
|
|
|
2016
|
|
Office equipment
|
|
$
|
206,345
|
|
|
$
|
206,345
|
|
Computer equipment
|
|
|
59,919
|
|
|
|
59,919
|
|
Furniture and fixtures
|
|
|
111,916
|
|
|
|
65,774
|
|
|
|
|
378,180
|
|
|
|
332,038
|
|
Less: Accumulated depreciation
|
|
|
(153,830
|
)
|
|
|
(78,231
|
)
|
Equipment, net
|
|
$
|
224,350
|
|
|
$
|
253,807
|
|
Depreciation expense was $75,599 and $80,976 for the years ended March 31, 2017 and 2016, respectively, and was recorded as depreciation expense in the accompanying consolidated statements of comprehensive income (loss).
eBullion, Inc.
Notes to Consolidated Financial Statements
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US Dollars)
|
Customer deposits were $212,886 and $187,037 at March 31, 2017 and 2016, respectively, and were recorded as a current liability in the accompanying consolidated statements of financial condition.
7.
|
Amounts due to Directors
|
The balances represent the temporary advances by the directors of the Company, which are unsecured, interest-free and repayable on demand. Imputed interest is considered insignificant.
8.
|
General and Administrative Expenses
|
General and administrative expenses consist of the following for the years ended March 31, 2017 and 2016.
|
|
2017
|
|
|
2016
|
|
Marketing expenses
|
|
$
|
281,639
|
|
|
$
|
334,848
|
|
Trading platform rent
|
|
|
92,139
|
|
|
|
162,882
|
|
Transportation
|
|
|
5,095
|
|
|
|
25,243
|
|
Internet
|
|
|
22,226
|
|
|
|
20,457
|
|
Travel and entertainment
|
|
|
11,690
|
|
|
|
19,633
|
|
Computers and software
|
|
|
38,710
|
|
|
|
42,972
|
|
Legal and professional
|
|
|
169,843
|
|
|
|
214,780
|
|
Licenses
|
|
|
16,778
|
|
|
|
28,842
|
|
Occupancy
|
|
|
469,391
|
|
|
|
567,050
|
|
Advertising
|
|
|
53,266
|
|
|
|
29,381
|
|
Other
|
|
|
100,580
|
|
|
|
138,456
|
|
Total general and administrative expense
|
|
$
|
1,261,357
|
|
|
$
|
1,584,544
|
|
The Company is required to make contribution on behalf of its employees under a government-mandated defined contribution pension scheme for its eligible full-times employees in Hong Kong. The Company is required to contribute a specified percentage of the participants’ relevant income based on their ages and wages level. The total contributions made by the Company were $30,290 and $53,107 for the years ended March 31, 2017 and 2016, respectively.
eBullion, Inc.
Notes to Consolidated Financial Statements
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US Dollars)
|
Income (loss) before income taxes as shown in the accompanying consolidated statements of comprehensive income (loss) is summarized below for the years ended March 31, 2017 and 2016.
|
|
2017
|
|
|
2016
|
|
Tax jurisdictions from:
|
|
|
|
|
|
|
Local
|
|
$
|
(85,605
|
)
|
|
|
(75,251
|
)
|
Foreign, representing:
|
|
|
|
|
|
|
|
|
Hong Kong
|
|
|
147,073
|
|
|
|
(521,302
|
)
|
The People’s Republic of China
|
|
|
(90,885
|
)
|
|
|
-
|
|
Income (loss) before income taxes
|
|
$
|
(29,417
|
)
|
|
|
(596,553
|
)
|
The provision (benefit) for income taxes consists of the following for the years ended March 31, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
Local
|
|
$
|
-
|
|
|
$
|
-
|
|
Foreign, representing:
|
|
|
|
|
|
|
|
|
Hong Kong
|
|
|
-
|
|
|
|
(102,836
|
)
|
The People’s Republic of China
|
|
|
-
|
|
|
|
-
|
|
Total current tax
|
|
|
-
|
|
|
|
(102,836
|
)
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Local
|
|
|
-
|
|
|
|
-
|
|
Foreign, representing:
|
|
|
|
|
|
|
|
|
Hong Kong
|
|
|
25,688
|
|
|
|
16,033
|
|
The People’s Republic of China
|
|
|
-
|
|
|
|
-
|
|
Total deferred tax
|
|
|
25,688
|
|
|
|
16,033
|
|
|
|
|
|
|
|
|
|
|
Total income tax expenses (benefit)
|
|
$
|
25,688
|
|
|
$
|
(86,803
|
)
|
The reconciliation of the income tax expense to the amount computed by applying the U.S. statutory federal income tax rate to income (loss) before income taxes is as follows:
|
|
2017
|
|
|
2016
|
|
Income tax expense (benefit) at the U.S. statutory tax rate
|
|
$
|
(10,002
|
)
|
|
$
|
(202,829
|
)
|
Valuation allowance on U.S. and PRC net operating loss carryforwards
|
|
|
51,826
|
|
|
|
25,585
|
|
Impact of foreign operations
|
|
|
(17,558
|
)
|
|
|
91,228
|
|
Other
|
|
|
1,422
|
|
|
|
(787
|
)
|
Income tax expense (benefit)
|
|
$
|
25,688
|
|
|
$
|
(86,803
|
)
|
Man Loong is subject to Hong Kong Profits Tax, which is charged at the statutory income rate of 16.5% on its assessable income.
SQML is subject to the Corporate Income Tax Law of the People’s Republic of China at a unified income tax rate of 25%.
eBullion, Inc.
Notes to Consolidated Financial Statements
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US Dollars)
|
10.
|
Income Taxes, Continued
|
The following table sets forth the significant components of the aggregate deferred tax assets and liabilities of the Company as of March 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Net operating loss carryforwards:
|
|
|
|
|
|
|
|
-United States of America
|
|
|
$
|
156,503
|
|
|
$
|
127,398
|
|
-Hong Kong
|
|
|
|
71,221
|
|
|
|
101,960
|
|
-The People’s Republic of China
|
|
|
|
22,721
|
|
|
|
-
|
|
Total deferred tax assets
|
|
|
|
250,445
|
|
|
|
229,358
|
|
Less: valuation allowance
|
|
|
|
(179,224
|
)
|
|
|
(127,398
|
)
|
Deferred tax assets
|
|
|
$
|
71,221
|
|
|
$
|
101,960
|
|
|
|
2017
|
|
|
2016
|
|
Deferred tax liabilities, non-current
|
|
|
|
|
|
|
Property, plant and equipment
|
|
$
|
466
|
|
|
$
|
5,517
|
|
At March 31, 2017, the Company had U.S. net operating loss carryforwards of approximately $460,305 which expire in 2036. 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, the Company has recorded a valuation allowance of approximately $157,000 as of March 31 2017.
At March 31, 2017 and 2016, the Company’s and Man Loong’s differences between the book and tax basis of equipment gave rise to deferred income tax liability of $466 and $5,517, respectively which are recorded as noncurrent in the accompanying consolidated statements of financial condition. The Company had no other differences between the book and tax basis of liabilities as of March 31, 2017 and 2016.
eBullion, Inc.
Notes to Consolidated Financial Statements
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US Dollars)
|
11.
|
Earnings (Loss) Per Share
|
Earnings (loss) per share (“EPS”) information for the years ended March 31, 2017 and 2016 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 years ending March 31, 2017 and 2016, the Company did not have any securities that may potentially dilute the basic earnings (loss) per share. Therefore basic and diluted earnings (loss) per share for the respective years are the same.
|
|
2017
|
|
|
2016
|
|
Numerator
|
|
|
|
|
|
|
Net income (loss) attributable to common stakeholders
|
|
$
|
(55,105
|
)
|
|
$
|
(509,750
|
)
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock (basic and diluted)
|
|
|
512,600,000
|
|
|
|
512,600,000
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share *
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
*Less than $0.001
12.
|
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 $12,894 per month through April 2013 when the fee was reduced to $3,868 per month and is recorded as trading platform rent expense as a component of general and administrative expenses. Included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of comprehensive income (loss) for the years ended March 31, 2017 and 2016, are rental fees which were paid to True Technology of $46,401 and $46,412 respectively.
Included in employee compensation and benefits in the accompanying consolidated statements of comprehensive income (loss) for the years ending March 31, 2017 and 2016, are salaries and director compensation of $43,023 and $30,941 respectively, which were paid to two of the Company’s directors and shareholders.
eBullion, Inc.
Notes to Consolidated Financial Statements
For the
Years
Ended
March
3
1
, 201
7
and 201
6
(Expressed in US Dollars)
|
13.
|
Commitments and contingencies
|
(a)
Operating lease commitments
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 will replace its previous office facilities. The Company will occupy the space in December 2015. Under terms of the lease, the Company paid approximately $147,397 in lease deposits and is committed to lease and management fee payments of approximately $27,209 per month for 35 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. The fees paid to True Technology are approximately $12,894 per month for 12 months after which the fees were reduced to $3,866 per month for 24 months. In April 2017, the trading platform lease with True Technology was renewed for 2 years with monthly payment of approximately $3,866 until March 31, 2019.
Future annual minimum lease payments, including maintenance and management fees, for non-cancellable operating leases and trading platform fees, are as follows:
Years ending March 31,
|
|
2018
|
|
$
|
500,328
|
|
2019
|
|
|
292,278
|
|
|
|
$
|
792,606
|
|
(b)
Contingencies
As of March 31, 2017, there were no contingencies involved.
In accordance with ASC Topic 855, “
Subsequent Events
”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after March 31, 2017 up through the date was the Company issued the audited consolidated financial statements. During the period, the Company did not have any material subsequent events that would require disclosure or adjustment to the financial statements.
As of the end of the fiscal year ended March 31, 2017, we carried out an evaluation, under the supervision and with the participation of members of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act. Our Chief Executive Officer and our Chief Financial Officer have concluded, based on their evaluation, that as of March 31, 2017, our disclosure controls and procedures were not effective at the end of the fiscal year to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit with the SEC under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is a process, including policies and procedures, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Our management assessed our internal control over financial reporting based on the 2013 version of the
Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the results of this assessment, our management concluded that our internal control over financial reporting was not effective as of March 31, 2017 based on such criteria. Deficiencies existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses. The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (i) lack of a majority of independent members and a lack of a majority of outside directors on our Board, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; and (ii) inadequate segregation of duties consistent with control objectives. Management believes that the lack of a majority of outside directors on our Board results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met under all potential conditions, regardless of how remote, and may not prevent or detect all errors and all fraud. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report.
In connection with our continued monitoring and maintenance of our controls procedures as part of the implementation of Section 404 of the Sarbanes-Oxley Act, we continue to review, test, and improve the effectiveness of our internal controls. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter and since the year ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.