GLORYWIN ENTERTAINMENT GROUP, INC. - Quarter Report: 2015 December (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q

(Mark One)

 

For the quarterly period ended: December 31, 2015

 

 

For the transition period from ____________ to _____________

 

Commission File Number: 333-173680

(Exact Name of Registrant as Specified in Its Charter)

20/F, AIA Tower,Nos 251A-301, Avenida Commercial de Macau, Macau

(Address of principal executive offices, Zip Code)

 

+853 8294-2333

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ☒  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

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GLORYWIN ENTERTAINMENT GROUP INC.

Quarterly Report on Form 10-Q
Period Ended December 31, 2015

 

TABLE OF CONTENTS

 

PART I	3
FINANCIAL INFORMATION	3
ITEM 1.                          FINANCIAL STATEMENTS	3
ITEM 2.                          MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	14
ITEM 3.                          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	19
ITEM 4.                          CONTROLS AND PROCEDURES.	19
PART II	20
OTHER INFORMATION	20
ITEM 1.                          LEGAL PROCEEDINGS.	20
ITEM 1A.                     RISK FACTORS.	20
ITEM 2.                          DEFAULTS UPON SENIOR SECURITIES.	20
ITEM 3.                          MINE SAFETY DISCLOSURES.	20
ITEM 4.                          OTHER INFORMATION.	20
ITEM 5.                          EXHIBITS.	20

 

 

 

 

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PART I

ITEM 1.

FINANCIAL STATEMENTS.

 

 

 

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		Preferred Stock								Common Stock								Additional Paid-in				Accumulated Other
		Shares				Amount				Shares				Amount				Capital				Comprehensive Loss				Retained Earnings				Shareholders' Equity
Balance - March 31, 2014			-			$	-				9,805,044			$	9,805			$	91,850			$	-			$	(118,524	)			(16,869	)
Share issued for acquisition of Top Point			-				-				10,195,294				10,195				(10,195	)			-				-				-
Share based compensation - employees			-				-				100,000				100				199,900				-				-				200,000
Share issued to third parties for services provided			-				-				100,000				100				199,900				-				-				200,000
Share issued to related parties for services provided			-				-				600,000				600				1,199,400				-				-				1,200,000
Acquisition of Wonderful Gate			-				-				-				-				(7,692	)			-				-				(7,692	)
Debt forgiveness			-				-				-				-				16,869				-				-				16,869
Net income			-				-				-				-				-				-				1,067,232				1,067,232
Foreign currency translation adjustment			-				-				-				-				-				(3,756	)			-				(3,756	)
Ending Balance - March 31, 2015 (As Restated)			-				-				20,800,338				20,800				1,690,032				(3,756	)			948,708				2,655,784
Contributions from shareholder			-				-								-				9,000				-				-				9,000
Share based compensations - employees			-				-				100,000				100				224,900				-				-				225,000
Net income			-				-				-				-				-				-				3,393,616				3,393,616
Ending Balance - December 31, 2015 (Unaudited)			-			$	-				20,900,338			$	20,900			$	1,923,932			$	(3,756	)		$	4,342,324			$	6,283,400

 

 

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Glorywin Entertainment Group Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

 

Note 1 – Nature of Business

 

Glorywin Entertainment Group Inc. (“Glorywin”), formerly known as Zippy Bags, Inc., was incorporated in the state of Nevada on August 26, 2010 (“Inception”). It was initially formed to market a snowboard carrying bag locally, in the Salt Lake City, Utah area to snowboard shops and outdoor retailers.

On June 17, 2014, Janet Somsen, the original owner of Glorywin, entered into a security purchase agreement to sell 44.5% of Glorywin’s outstanding shares, or 4,365,000 shares, of common stock, to Taipan Pearl Sdn Bhd and Wenwei Wu in exchange for an aggregate purchase price of $189,004 in cash. At the closing of the transaction, Janet Somsen agreed that the previous officers would resign, and all the debts, consisting of $11,719 of taxes payable, $1,650 of accounts payable, and $3,500 of notes payable due to BK Consulting and Associates, P.C. (“BK Consulting”), would be repaid by Ms.Somsen. Glorywin is a shell company and has no operations.

On the same day, Glorywin entered into a share transfer agreement with Top Point Limited (“Top Point”), a company incorporated in Samoa on April 9, 2014. Pursuant to the agreement, Glorywin issued 10,195,294 shares of common stock to Wen Wei Wu, Taipan Pearl Sdn Bhd, Boon Siong Lee and Zhen Long Ho to acquire 1,000 common shares (100%) of Top Point. Top Point is a shell company and has no operations.

Simultaneously, Glorywin paid Macanese Pataca (“MOP”) 60,000 (approximately $7,692) to acquire Wonderful Gate Strategy Company Limited (“Wonderful Gate”), a company incorporated on March 11, 2009 in Macau, China, and had no operation prior to the acquisition from, Carmen Lum. Since then, Wonderful Gate has been engaged in service of introducing sub-junkets and information technology infrastructure to land-based casinos and receiving an agreed percentage of total bets as revenue. Wonderful Gate has introduced 25 sub-junkets to initially three land-based casinos in Cambodia and reduced to two land-based casinos to date.

After the above transactions, Taipan Pearl Sdn Bhd owns 56% interest of the Glorywin and its subsidiaries, (collectively, “the Company”, “us”), and became the biggest shareholder of the Company.

On October 30, 2014, the Company changed its name to Glorywin Entertainment Group, Inc.

 

On October 22, 2014, the Company orally entered into a conditional sale agreement ("Conditional Sale Agreement"), which was later put into a written form on January 19, 2015, with Taipan Pearl Sdn Bhd, shareholder of 56% of the Company's interest. Pursuant to the Conditional Sale Agreement, the Company agreed to pay a total price of $2,000,000 to acquire Gwin Company Limited ("Target Company", or "Gwin"), which is solely owned by Mr. Sing Hong Ting, the 100% beneficial owner of Taipan Pearl Sdn Bhd. Gwin obtained the formal approval of incorporation in March, 2015 and did not generate any revenues since its establishment. The sale would be completed under conditions that the Target Company becomes profitable within 12 months from the date of the Conditional Sale Agreement (“Profitability Condition”) and that the Target Company maintains all necessary licenses to be operational. If the two conditions were not satisfied, the amount paid would be fully refunded. On February 18, 2015, the Company signed a supplementary agreement to the Conditional Sale Agreement ("Supplementary Agreement") with Taipan Pearl Sdn Bhd, pursuant to which, another $2,000,000 would be paid by the Company for acquisition of the Target Company. The incremental $2,000,000 would be used in renovating and operating of the Target Company. The Company paid $3,180,425 as of March 31, 2015 and continued to pay until September 29, 2015, when the Company entered into a Closing Agreement ("Closing Agreement") with Mr. Sing Hong Ting to officially acquire the Target Company. On November 11, 2015, the Company entered into an Amended and Restated Agreement (“Restated Agreement”) with Mr. Sing Hong Ting. Pursuant to the Closing Agreement and Restated Agreement, the Company: (1) purchased 100% of Gwin’s equity interest, and all the advanced payment to the Target Company, totalling $5,876,392, shall be regarded as the final consideration of the sale, and therefore shall not be refundable; (2) waived the Profitability Condition of the Conditional Sale Agreement, which was not met as of September 29, 2015; and (3) agreed with the other signing party to correct the seller of Gwin from Taipan Pearl Sdn Bhd to Mr. Sing Hong Ting. On January 9, 2015, Gwin entered into a lease agreement to lease a casino hotel building with equipment in it located in Kingdom of Cambodia. Gwin is currently refurbishing the building and expects to finish the refurbishment and start its operation in gaming and hospitality industry in February, 2016.

Since the Company and Gwin are under common control by Mr. Sing Hong Ting, the acquisition of Gwin was recorded as a transaction between entities under common control. The Company has accounted for Gwin’s operations on a retrospective basis in the Company’s consolidated financial statements since Gwin incurred start-up expenses from November 2014 which was before obtaining the formal approval for incorporation. Accordingly, the consolidated balance sheet as of March 31, 2015, the consolidated statement of operations and comprehensive income for the three and nine months ended December 31, 2014, the consolidated statement of changes in shareholders’ equity for the year ended March 31, 2015, and the consolidated statement of cash flows for the nine months ended December 31, 2014 have been retrospectively restated in this report to reflect Gwin’s accounts at their historical amounts as of those dates.

Note 2 – Significant Accounting Policies

 

The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany balances and transactions have been eliminated in the consolidation. Certain information and footnote disclosures normally included in financial statements prepared in conjunction with U.S. generally accepted accounting principles ("U.S. GAAP") have been condensed or omitted as permitted by the rules and regulations of the United States Securities and Exchange Commission ("SEC"), although the Company believes that the disclosures contained in this report are adequate to make the information presented not misleading.

 

The accompanying unaudited interim consolidated financial statements reflect all adjustments of a normal and recurring nature which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole.

We have defined various periods that are covered in this report as follows:

 

- "fiscal year 2014"— April 1, 2014 through March 31, 2015

- "fiscal year 2015"— April 1, 2015 through March 31, 2016

The preparation of consolidated financial statements that conform with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company continually evaluates its estimates, including those related to bad debts, income taxes, and the valuation of equity transactions. The Company bases its estimates on historical experience and on various other assumptions that it believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

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The Company's financial instruments consist principally of cash and cash equivalents, accounts receivable, accrued liability and other payables. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term nature.     

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of other payables to related parties due to their related party nature.

Direct costs that are related to the construction of property and equipment incurred in connection with bringing the assets to their intended use are capitalized as construction in progress. Construction in progress is transferred to specific property and equipment and the depreciation of these assets commences when the assets are ready for their intended use. As of December 31, 2015 and March 31, 2015, the balance of construction in progress was $5,560,492 and $2,445,424, respectively, which was primarily related to the refurbishment of a leased casino hotel building.

 

The accompanying consolidated financial statements are presented in United States dollars ("USD"). The functional currency of Wonderful Gate located in Macau is Hong Kong Dollars ("HKD"), and the functional currency of Glorywin, Top Point and Gwin is the USD. The financial statements are translated into US dollars from HK$ at period-end exchange rates for assets and liabilities, and weighted average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

The Hong Kong Monetary Authority ("HKMA"), Hong Kong's central bank, maintains a Linked Exchange Rate System since 1983. The HKMA operates Convertibility Undertakings on both the strong side and the weak side of the Linked Rate of US$1: HK$7.8. Thus, the consistent exchange rate used has been 7.80 HKD per each USD.

Foreign currency transactions are those that required settlement in a currency other than HKD. Gain or loss from foreign currency transactions, or exchange loss, are recognized in income in the period they occur.

A related party is generally defined as (i) any person that holds 10% or more of the Company's securities including such person's immediate families, (ii) the Company's management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

 

The Company accounts for stock based compensation issued to employees in accordance with ASC 718 "Stock Compensation". ASC 718 requires companies to recognize an expense in the statement of income at the grant date of stock options and other equity based compensation issued to employees. The Company accounts for non-employee share-based awards in accordance with ASC 505-50 "Equity-based payments to nonemployees".

Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases are charged to the consolidated statements of operations on a straight-line basis over the lease period.

In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”. The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

 

Note 3 – Accounts Receivable

Accounts receivable consists of the following:

 

As of December 31, 2015 and March 31, 2015, there was no allowance for doubtful accounts provided.

Note 4 – Income Taxes

Wonderful Gate, the operating entity of the Company, is located in Macau, China. Income received in Macau is taxable under Macau's Complementary Tax provisions, irrespective of the beneficiary being an individual or a corporation, its particular line of business, its nationality or domiciliation, without prejudice to the particular deductions and allowances each taxpayer enjoys. Companies are required to declare their annual profit and such profit is subject to Complementary Tax. If dividend is declared, taxable profit is based on taxable profit (after dividends have been paid). Law No.15/2015 (the 2016 Budget Law) remains the exempted portion of income to MOP600, 000 and determines that the excess of taxable income be taxed at the relevant brackets (0% from MOP0 to MOP600, 000 and 12% on the excess). These rates apply to the declared taxable profit (gross income less allowable deductions) from all income generating sources, except professional tax and property income, taxed separately under different regulations. The provision for income taxes for the nine months ended December 31, 2015 and 2014 was $602,954 and $258,347, respectively.

 

The Company's subsidiary, Top Point, is incorporated in Samoa, and is subject to company tax at a tax rate of 27%. No provision for income taxes in Samoa has been made as the Company had no Samoa taxable income as of December 31, 2015.

Glorywin is incorporated in the State of Nevada and is subject to the United States federal income tax at an effective tax rate of 34%.

Gwin is incorporated in the Kingdom of Cambodia and is subject to company tax at a rate ranging from 0% to 20% based on annual taxable profit. No provision for income taxes in Kingdom of Cambodia has been made as Gwin had no taxable income as of December 31, 2015.

Income taxes are calculated on a separate entity basis. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The provisions for income taxes for the nine months ended December 31, 2015 and 2014 are summarized as follows:

 

The table below summarizes the difference between the U.S. statutory federal tax rate and the Company's effective tax rate for the nine months ended December 31, 2015 and 2014:

 

		Nine Months Ended December 31,
		2015				2014
U.S. federal income tax rate			34	%			34	%
Foreign income note recognized in the U.S.			(34	%)			(34	%)
Macau Complementary tax			12	%			-
Kingdom of Cambodia company tax			0	%			-
Effect of income tax difference under different tax jurisdictions			3	%			-
Total effective income tax rate			15	%			-

 

Note 5 – Stockholders' Equity

 

On June 17, 2014, the Company issued 10,195,294 restricted shares to Taipan Pearl Sdn Bhd, Wenwei Wu, Boom Siong Lee and Zhen Long Ho as consideration for 1,000 shares of Top Point. The shares were booked at par value issuance cost with a decrease to additional paid-in capital of $10,195 due to treatment requirements for stock granted for an acquisition of an entity under common control. The transaction was accounted for as an acquisition of entity under common control which requires booking the transaction at historical cost.

On November 18, 2014, the Company issued 600,000 restricted shares to Taipan Pearl Sdn Bhd, its major shareholder, 100,000 shares to Eng Wah Kung, its Chief Executive Officer at the time, and 100,000 shares to its public relationship company as consideration for their services provided. The total fair value of the common stock was $1,600,000 based on the closing price of the Company's common stock on the date of grant and the expense was included in general and administrative expenses for the year ended March 31, 2015. The restriction period is one year from the grant date.

On July 1, 2015, the Company issued 100,000 restricted shares of the Company's common stock valued at $2.25 per share to Mr. Muhammad Shahrezza Chong as compensation for his service to the Company as Director of Public Relationships. The total fair value of the common stock was $225,000 based on the closing price of the Company's common stock on the date of grant and the expense was included in general and administrative expenses for the nine months ended December 31, 2015. The restriction period is one year from the grant date.

On June 17, 2014, Janet Somsen paid and released the Company of $16,869 of outstanding liabilities. As Ms. Somsen was a shareholder of the Company, the transaction was accounted for as contributed capital.

Note 6 – Related Party Transactions

The Company's officers, directors and other related parties, from time to time, provided advances to the Company for working capital purpose. These advances are short-term in nature, unsecured and payable on demand. The due to related parties amounts on December 31, 2015 and March 31, 2015 were as follows:

The balance of $304,240 on December 31, 2015 included $7,692 that was paid by Wenwei Wu for acquisition of Wonderful Gate.

On June 17, 2014, Janet Somsen, the Glorywin's original owner, sold 4,365,000 shares to Taipan Pearl Sdn Bhd and Wenwei Wu. As part of the security purchase agreement, all the debts of the Glorywin as of the transaction date, including $11,719 of taxes payable, $1,650 of accounts payable, and $3,500 of notes payable due to BK Consulting, would be repaid by Ms. Somsen. On the same day, Glorywin issued 10,195,294 restricted shares to Wenwei Wu, Taipan Pearl Sdn Bhd, Boom Siong Lee and Zhen Long Ho for their interest in the 1,000 shares of Top Point. Simultaneously, Glorywin paid MOP60,000 (approximately $7,692) to acquire Wonderful Gate from Carmen Lum. Also see Note 1.

On November 18, 2014, the Company issued 600,000 restricted shares of common stock to Taipan Pearl Sdn Bhd and 100,000 restricted shares of common stock to Eng Wah Kung, the Company's Chief Executive Officer at the time, as consideration for their services provided. The total fair value of the common stock was $1,400,000 based on the closing price of the Company's common stock on the date of grant.

On October 22, 2014 and February 18, 2015, the Company entered into a Conditional Sale Agreement and a Supplementary Agreement, respectively, with Taipan Pearl Sdn Bhd to acquire Gwin. A total of $4,000,000 was to be paid by the Company for acquisition of Gwin. On September 29, 2015, a Closing Agreement was entered into by the Company and Ting Sing Hong, followed by an Amended and Restated Agreement signed on November 11, 2015 by the Company and Ting Sing Hong. Pursuant to the Closing Agreement and Restated Agreement, the Company purchased 100% of Gwin's equity interest and all the advances paid to Gwin, totalling $5,876,392, were regarded as the final consideration of the sale, and therefore were no longer refundable. In addition, the Profitability Condition of the Conditional Sale Agreement was waived. Also see Note 1.

During the nine months ended December 31, 2015, Ting Sing Hong paid $9,000 house rent on behalf of Gwin and waived repayment from the Company. This transaction was recorded as an adjustment to the shareholders' equity (additional paid-in capital).

Note 7 – Commitments and Contingencies

On May 19, 2014, the Company entered into an agreement for the lease of an office in Macau for monthly rental of MOP10,000 (approximately $1,290). The original lease term began on May 19, 2014 and expired on April 18, 2015. On April 19, 2015, the Company renewed the agreement for another six months expired on November 18, 2015. The monthly rental for the renewed lease is MOP11,000, or $1,410. The Company did not renew the lease upon expiry.

On January 9, 2015, Gwin entered into an agreement for leasing a casino hotel building in Kingdom of Cambodia for monthly rental of $45,000. The lease starts on January 9, 2015 and expires on January 8, 2020.

On June 8, 2015, Gwin entered into an agreement for leasing of a piece of land with staff building on it in Kingdom of Cambodia for monthly rental of $30,000, with a 90% discount for the first 12 months. The original lease began on June 8, 2015 and will expire on June 8, 2020. On June 26, 2015, the Company renewed the agreement for another 10 years expiring on June 8, 2030. The monthly rental for the renewed lease is $33,000.

On November 19, 2015, the Company entered into an agreement for the lease of a virtual office in Macau for monthly rental of MOP1,620 (approximately $200). The lease began on November 19, 2015 and will expire on November 18, 2016.

For the nine months ended December 31, 2015 and 2014, rent expenses were $626,905 and $18,576, respectively.

 

 

Results of Operations

Sales revenue. Our sales revenue is primarily generated from introducing players to casinos throughout the Asian region. Sales revenue increased by $587,908, or 43%, to $1,948,295 for the three months ended December 31, 2015, from $1,360,387 for the same period in 2014. The increase was because the sub-junkets have been continuously marketing for new players and clients to play at our platforms. Furthermore, on August 1, 2015, the Company launched a mobile app for Android's phone users. Users can now choose to bet via computers or Android phones. The flexibility of mobile app has increased the total bets and led to revenue increase in the three months ended December 31, 2015.

Cost of sales. We have no cost of sales in view of the nature of our business as earning commission from land based casinos. Hence our cost of sales is Nil for both three months ended December 31, 2015 and 2014.

Gross profit. Our gross profit is equal to the difference between our sales revenue and our cost of sales. Due to the nature of our business merely earning commission from land based casinos, we have no cost of sales and gross profit remained 100% of sales. Gross profit increased by $587,908, or 43%, to $1,948,295 for the three months ended December 31, 2015, from $1,360,387 for the same period in 2014. The increase in our gross profit margin was mainly attributable to increase in sales revenue.

Selling, General and Administrative expenses. Our administrative expenses consist of the costs associated with staff and support personnel who manage our business activities. Our administrative expenses decreased by $897,514, or 69%, to $407,093 for the three months ended December 31, 2015, from $1,304,607 for the same period in 2014. As a percentage of sales revenue, administrative expenses decreased to 21% for the three months ended December 31, 2015, as compared to 96% for the same period in 2014. High administrative expenses in for the same period in 2014 was primarily because there were shares issued for services valued at fair market value in addition to salaries and rental expenses. There were no shares issued for the same period in 2015 which led to decrease in administrative expenses.

Income before income taxes. Income before income taxes increased by $1,709,259, or 753%, to $1,482,348 for the three months ended December 31, 2015, from losses of $226,911 for the same period in 2014. Such increase was mainly attributable to the decrease of our administrative expenses and increase of our gross profit. Without the decrease in administrative expenses in 2015, the income before taxes is increased for the three months ended December 31, 2015.

Income taxes. Our income taxes increased to $207,758 for the three months ended December 31, 2015, from $146,620 for the same period in 2014, as a result of the increased taxable income.

Net income. As a result of the cumulative effect of the foregoing factors, our net income increased by $1,648,121, or 441%, to $1,274,590 for the three months ended December 31, 2015, from losses of $373,531 for the same period in 2014. As a percentage of sales revenue, our net income was 65% and (-27)% for the three months ended December 31, 2015 and 2014, respectively.

Sales revenue. Sales revenue increased by $2,934,219, or 116%, to $5,464,068 for the nine months ended December 31, 2015, from $2,529,849 for the same period in 2014. The increase was because our business was only commenced since June 2014, hence only 6 months revenue was reported as at December 31, 2014 compared to full nine months revenue as of December 31, 2015. Besides, the sub-junkets have been continuously marketing for new players and clients to play at our platforms. Furthermore, on August 1, 2015, the Company has launched a mobile app for Android's phone users. Users can now choose to bet via computers or Android phones. The flexibility of mobile app has increased the total bets and led to revenue increase in the nine months ended December 31, 2015.

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Cost of sales. We have no cost of sales in view of the nature of our business as earning commission from land based casinos. Hence our cost of sales is Nil for both nine months ended December 31, 2015 and 2014.

Gross profit. Our gross profit is equal to our sales revenue. It increased by $2,934,219, or 116%, to $5,464,068 for the nine months ended December 31, 2015, from $2,529,849 for the same period in 2014. The increase in our gross profit was mainly attributable to increase in sales revenue. The gross profit margin for the nine months ended December 31, 2015 remained 100% which is the same for the same period in 2014.

 

Selling, General and Administrative expenses. Our administrative expenses decreased by $178,511, or 12%, to $1,315,330 for the nine months ended December 31, 2015, from $1,493,841 for the same period in 2014. As a percentage of sales revenue, administrative expenses decreased to 24% for the nine months ended December 31, 2015, as compared to 59% for the same period in 2014. High administrative expenses in 2014 were primarily because there were shares issued for services valued at fair market value in addition to salaries and rental expenses. There  were no such shares issued in 2015, which led to decrease in administrative expenses.

Income before income taxes. Income before income taxes increased by $3,292,422, or 468%, to $3,996,570 for the nine months ended December 31, 2015, from $704,148 for the same period in 2014. Such increase was mainly attributable to the increase in sales revenue whilst decrease in administrative expenses.

Income taxes. Our income taxes increased to $602,954 for the nine months ended December 31, 2015, from $258,347 for the same period in 2014, as a result of the increased taxable income.

Net income. As a result of the cumulative effect of the foregoing factors, our net income increased by $2,947,815, or 661%, to $3,393,616 for the nine months ended December 31, 2015, from $445,801 for the same period in 2014. As a percentage of sales revenue, our net income was 62% and 18% for the nine months ended December 31, 2015 and 2014, respectively.

Liquidity and Capital Resources

As of December 31, 2015, we had cash and cash equivalents of $13,015, primarily consisting of cash on hand and demand deposits. We believe that our existing sources of liquidity will be sufficient to fund our operations, anticipated capital expenditures, working capital and other financing requirements for at least the next twelve months.

Operating Activities

Net cash provided by operating activities was $3,037,418 for the nine months ended December 31, 2015, compared with $875,188 for the same period in 2014. The increase in net cash provided by operating activities was mainly because net income has increased.

Investing Activities

Net cash used in investing activities was $3,147,218 for the nine months ended December 31, 2015, compared with $903,479 in the same period in 2014. The net cash used in investing activities during the nine months ended December 31, 2015 was primarily used for refurbish cost for the casino building leased under Gwin.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. Among other things, the amendments in ASU 2016-01 require equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables), and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4.

CONTROLS AND PROCEDURES.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission (“SEC”) rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosure.

Limitations on the Effectiveness of Disclosure Controls

In designing and evaluating the Company's disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, Company management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Evaluation of Disclosure Controls and Procedures

Our CEO and CFO have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on the evaluation, they concluded that our disclosure controls and procedures are not effective in timely alerting them to material information relating to us that is required to be included in our periodic SEC filings and ensuring that information required to be disclosed by us in the reports we file or submit under the Act is accumulated and communicated to our management, including our chief financial officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure, for the following reasons:

  

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We plan to rectify these weaknesses by implementing an independent board of directors.

Changes in Internal Control over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

There were no changes in our internal controls over financial reporting during the third quarter of 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1.

LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, cash flows, financial condition or operating results.

ITEM 1A.

RISK FACTORS.

Not applicable.

ITEM 2.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 3.

MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 4.

OTHER INFORMATION.

We have no information to disclose that was required to be in a report on Form 8-K during the third quarter of 2015, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 5.

EXHIBITS.

The list of exhibits in the Exhibit Index to this report is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

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EXHIBIT INDEX